bharat forge ltd detailed reportbreport.myiris.com/firstcall/bhaforge_20120229.pdfcompany profile...

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1 SYNOPSIS Bharat Forge Ltd., the flagship company of the US $ 2.5 billion Kalyani Group, is a leading global ‘Full Service Supplier’ of forged and machined - engine & chassis components. During the quarter, the operating profit margin increased 151 bps to 16.91% from 15.39% for the same period last year. During the quarter, exports grew by 29.3% on YoY basis to Rs. 464.4 crores. Export markets continue to perform well on back of strong demand, new client additions and increasing penetration with global customers. Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 57% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E FY 11 29473.50 7623.10 3105.70 13.34 23.11 FY 12E 36829.41 9428.00 4199.16 18.03 17.09 FY 13E 42722.12 10809.93 4944.86 21.24 14.52 Stock Data: Sector: Auto Components Face Value Rs. 2.00 52 wk. High/Low (Rs.) 370.50/231.00 Volume (2 wk. Avg.) 77608 BSE Code 500493 Market Cap (Rs.In mn) 71776.01 Share Holding Pattern 1 Year Comparative Graph Bharat Forge BSE SENSEX C.M.P: Rs. 308.25 Target Price: Rs. 351.00 Date: Feb 29 th , 2012 BUY Bharat Forge Ltd Result Update: Q3 FY 12

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Page 1: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

1

SYNOPSIS

Bharat Forge Ltd., the flagship

company of the US $ 2.5 billion

Kalyani Group, is a leading global

‘Full Service Supplier’ of forged and

machined - engine & chassis

components.

During the quarter, the operating

profit margin increased 151 bps to

16.91% from 15.39% for the same

period last year.

During the quarter, exports grew by

29.3% on YoY basis to Rs. 464.4

crores.

Export markets continue to perform

well on back of strong demand, new

client additions and increasing

penetration with global customers.

Net Sales and PAT of the company

are expected to grow at a CAGR of

32% and 57% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 29473.50 7623.10 3105.70 13.34 23.11

FY 12E 36829.41 9428.00 4199.16 18.03 17.09

FY 13E 42722.12 10809.93 4944.86 21.24 14.52

Stock Data:

Sector: Auto Components

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 370.50/231.00

Volume (2 wk. Avg.) 77608

BSE Code 500493

Market Cap (Rs.In mn) 71776.01

Share Holding Pattern

1 Year Comparative Graph

Bharat Forge BSE SENSEX

C.M.P: Rs. 308.25 Target Price: Rs. 351.00 Date: Feb 29th, 2012 BUY

Bharat Forge Ltd Result Update: Q3 FY 12

Page 2: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Bharat Forge 308.25 71776.01 17.50 17.61 3.60 175.00

Kalyani Forge 190.00 685.00 35.62 5.33 0.88 20.00

Bosch 7645.00 240168.60 335.03 22.82 10.00 400.00

Wheels India 370.00 3652.20 35.29 10.48 1.67 65.00

Investment Highlights

� Q3 FY12 Results Update

Bharat Forge has posted a net profit of Rs.1,031.30 million for the quarter ended

December 31, 2011 as compared to Rs.826.10 million for the quarter ended

December 31, 2010, representing an increase of 24.84%. Net sales for the quarter

surged by 21.13% to Rs.9411.70 million for the quarter ended Dec 2011. Total

Income has increased from Rs.7895.20 million for the quarter ended December 31,

2010 to Rs.9444.90 million for the quarter ended December 31, 2011, representing

an increase of 19.63%. The EPS of the company is stood at Rs.4.43 per share for

the quarter ended Dec 2011.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 9411.70 7769.60 21.13

PAT 1031.30 826.10 24.84

Basic EPS 4.43 3.55 24.84

Page 3: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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� Break up of Expenditure

� Segment wise Revenue

Particulars Q3FY12 Q3 FY11

Steel Forging 9370.6 7741.2

Gen.Engg. Trading etc 62.7 46.5

Total 9433.3 7787.7

Page 4: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Company Profile

Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

over $ US 2.5 billion Kalyani Group is a global forging conglomerate. It is the largest

exporter of auto components from India and leading chassis component manufacturer

in the world.

A technology driven global leader, end-to-end capability and manufacturing footprint

across India, Germany, Sweden, US & China, the company manufactures a wide range

of highly engineered critical & safety components for several sectors including

Automobile, Oil & Gas, Rail & Marine, Energy (across renewable & non renewable

sources), Construction & Mining and general engineering.

A customer base includes virtually every global automotive OEM and Tier I supplier to

the few global auto component manufacturers. BFL completed capacity expansion to

set up dedicated state of the art facility for manufacture of critical & value added

components for non automotive applications including rail & marine, Oil & Gas, power

& construction and mining.

Over the years, Bharat Forge has been investing in creating State-of-the-art facilities,

world-class capacities and capabilities. Provide facilities include, fully automated

forging and machining lines, the largest of its kind and comparable to the best in the

industry. Bharat Forge has built up a strong capability in design and engineering,

including a full fledged product testing and validation facility, which gives Bharat

Forge a Full Service Supply Capability - from product conceptualization to designing

to manufacturing and product testing & validation.

Kalyani Group companies

� Automotive Axles

� Kalyani Steel

� Kenersys

� BF Utlities

� Kalyani Carpenter special steel

Page 5: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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� Kalyani Lemmerz

� Kalyani Thermal systems

� Kalyani Global

� Hikal Ltd

� EPI center Technologies

� Synise Technologies

� BF Investment Ltd

Business Areas

Customers

Domestic Customers

Business Area

Automotive

Non Automotive

Capital Goods

Page 6: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Global Customers

Page 7: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 18564.00 29473.50 36829.41 42722.12

Other Income 323.40 462.00 424.48 471.18

Total Income 18887.40 29935.50 37253.89 43193.29

Expenditure -14408.20 -22312.40 -27825.89 -32383.36

Operating Profit 4479.20 7623.10 9428.00 10809.93

Interest -1027.70 -1214.40 -1266.27 -1329.59

Gross profit 3451.50 6408.70 8161.73 9480.34

Depreciation -1644.40 -1932.60 -2194.94 -2436.38

Profit Before Tax 1807.10 4476.10 5966.79 7043.96

Tax -536.70 -1370.40 -1767.64 -2099.10

Profit After Tax 1270.40 3105.70 4199.16 4944.86

Equity capital 445.40 465.70 465.70 465.70

Reserves 14826.70 19488.10 23687.26 28632.12

Face value 2.00 2.00 2.00 2.00

EPS 5.70 13.34 18.03 21.24

Page 8: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 8576.70 9099.90 9411.70 9741.11

Other income 147.20 206.90 33.20 37.18

Total Income 8723.90 9306.80 9444.90 9778.29

Expenditure -6492.50 -6946.10 -7091.20 -7296.09

Operating profit 2231.40 2360.70 2353.70 2482.20

Interest -300.20 -309.60 -321.80 -334.67

Gross profit 1931.20 2051.10 2031.90 2147.53

Depreciation -516.90 -538.90 -558.40 -580.74

Profit Before Tax 1414.30 1512.20 1473.50 1566.79

Tax -440.10 -448.20 -442.20 -437.14

Profit After Tax 974.20 1064.00 1031.30 1129.66

Equity capital 465.70 465.70 465.70 465.70

Face value 2.00 2.00 2.00 2.00

EPS 4.18 4.57 4.43 4.85

Page 9: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(In Million) 222.70 232.85 232.85 232.85

EBITDA Margin (%) 24.13% 25.86% 25.60% 25.30%

PBT Margin (%) 9.73% 15.19% 16.20% 16.49%

PAT Margin (%) 6.84% 10.54% 11.40% 11.57%

P/E Ratio (x) 54.04 23.11 17.09 14.52

ROE (%) 8.32% 15.56% 17.39% 16.99%

ROCE (%) 18.12% 27.55% 29.33% 29.21%

EV/EBITDA (x) 15.33 9.42 7.61 6.63

Debt equity ratio 1.21 0.738 0.641 0.5583

Book Value (Rs.) 68.58 85.69 103.73 124.96

P/BV 4.49 3.60 2.97 2.47

Page 10: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Charts:

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Page 12: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Outlook and Conclusion

At the current market price of Rs.308.25, the stock is trading at 17.09 x FY12E

and 14.52 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.18.03 and Rs.21.24 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 32% and

57% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 7.61 x for FY12E and 6.64 x for

FY13E.

Price to Book Value of the stock is expected to be at 2.97 x and 2.47 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.351.00 for Medium to Long term investment.

Industry Overview

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Introduction

Indian auto component industry is robustly driven by the growth in demand for

automobiles. The sector has become a lucrative business proposition for global

players, majorly owing to two factors. First, needless to say, the demand for

automobiles is increasing day by day in the country. India, a market with high

potential for the automobiles sector, is expected to witness a three-fold increase in

demand for automobiles by 2020. Secondly, all major global auto-makers are

establishing their bases here due to highly positive business environment, favourable

policies and government support.

According to a study by UK-based global financial advisory firm-Rothschild, India

would become the third largest auto industry by volumes after China and the US by

2015. This would give immense support to the growth of ancillary sector as well.

Major developments, investments and Government initiatives relating to the sector are

discussed hereafter.

Indian Auto Components Industry Profile

According to a recent study by the Automotive Component Manufacturers' Association

of India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of

the auto components consumed in the Indian aftermarket.

The study estimated current size of Indian components business at Rs 24,800 crore

(US$ 4.87 billion), 49.7 per cent of which is formed by two-wheeler segment.

Passenger vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent,

23.1 per cent and 2.5 per cent of the share respectively.

According to Arvind Kapur, President, ACMA, a large market in Indian spares business

is dominated by organised, semi-organised and a number of small, unorganised

players. He thus acknowledged the need for a process of accreditation to ensure better

customer service.

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The study further projected that OEM-authorised network of service stations would

account for 20-30 per cent of the Indian auto components market by 2017 while that

of multi-brand organised service chains would grow to 5-10 per cent from 1-2 per

cent. Similarly semi-organised service centres’ and unorganised garages’ market share

would be 20-30 per cent and 45-55 per cent, respectively, in 2017.

India – The Global Auto Hub

Canada is looking for substantial investment opportunities in Indian auto components

market through the comprehensive economic partnership agreement (CEPA) which is

being discussed and negotiated by the two Governments. The agreement is likely to get

finalised by 2013. If fructified, the agreement would facilitate an annual increase of

economic output in two countries by almost US$ 6 billion and boost the two-way trade

by 50 per cent.

UK sees immense potential in the Indian auto ancillary sector, especially in the city of

Rajkot as it is known for auto components manufacturing. Peter Beckingham, British

Deputy High Commissioner for Western India, also indicated possible ventures

between UK and Rajkot companies in near future.

According to industry sources, Rajkot's auto component industry, with over 500

manufacturers aggregating a net turnover of around Rs 1,500 crore (US$ 294.5

million), grows at an annual rate of 15-20 per cent.

Furthermore, 60 French automobile component suppliers are contemplating on

business opportunities to set up a vendor park near Sanand in Ahmedabad district.

The proposed vendor park would accommodate tier-1 and tier-2 auto-component

suppliers who would supply spares to the recent auto entrants in the State and even

to others.

Sanand is already home to a number of global auto-makers, like Ford and Peugeot.

Page 15: Bharat Forge Ltd Detailed Reportbreport.myiris.com/firstcall/BHAFORGE_20120229.pdfCompany Profile Bharat Forge Ltd., the Pune based Indian multinational & the flagship company of the

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Indian Auto Components Industry: Key Developments and Investments

Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian

auto component manufacturer Endurance Technologies for about US$ 71 million.

Endurance Technologies is a part of the automotive component major Endurance

Group and caters to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and

Scooters and Royal Enfield. Global car makers such as Daimler, Audi, Fiat and

Porsche are the company's customers in passenger car segment.

German auto component maker Schaeffler Group is on an expansion spree in India.

The company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in

the country to set up a manufacturing facility and to expand its existing plants. To

support its growth, the company would also double the number of its engineers and

recruit 1, 200 employees in the country.

Federal-Mogul's new facility in Chennai will commence its operations by March 2012.

The plant, being set up for producing braking and friction materials, will initially focus

on after market products like linings and brake pads. Federal Mogul is a global

automotive components manufacturer.

Government Initiatives

The Government of India is in the process of forming a National Automotive Board

(NAB) which would become a formal set-up to look into the issue of recall of vehicles

and hence improve manufacturing standards. The prospective body, to oversee

technical and safety aspects of vehicles, will have representatives from all the nodal

ministries and automotive bodies such as the Automotive Research Association of

India (ARAI).

The Government of Gujarat has always been on a high to promote its industrial space

especially it's the automobile sector. In order to boost the State Government's efforts

in this regard, Gujarat Government's Industrial Extension Bureau, along with

Automotive Components Manufacturers Association, French Vehicles Equipment

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Industries (FIEV) and French auto-major Peugeot, organised a seminar and business

meeting on January 9, 2011 wherein 60 French automobile component makers were

briefed on opportunities to set up vendor park near Sanand (Gujarat's auto hub) in

Ahmedabad district.

Similarly, the Government of Gujarat has also announced its plan to disburse 240

acres of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to

set up a plastic park that could attract an investment of about Rs 5000 crore (US$

981.65 million). The Government's move marks its eye for detail as the measure has

come in the light of the fact that a finished car would require about 150 kgs of plastic.

Road Ahead

Ratings agency Fitch has maintained a stable outlook towards the Indian auto

components industry for the year 2012. The industry is expected to perform well owing

to OEM’s robust demand for localised spares.

According to a report by ACMA, the Indian auto component industry would garner

US$ 113 billion of turnover by 2020-21, growing at a compounded annual growth rate

(CAGR) of 11 per cent through 2011-21. Not only domestic demand, India is poised to

scale new heights in terms of exports as well as the report estimates exports to be

worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through the

forecast period.

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – [email protected]

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

Ashish.Kushwaha Diversified

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