bharat forge ru2 qfy2011-221010

Please refer to important disclosures at the end of this report 1

Consolidated Y/E March (` cr) 2QFY11 2QFY10 % chg (yoy) Angel est. % diff.

Net sales 1,111.2 710.7 56.4 1,052.9 5.5

EBITDA 194.2 94.6 105.2 185.9 4.5

EBITDA margin (%) 17.5 13.3 416bp 17.7 (18bp)

Reported PAT 60.6 (40.7) - 62.0 (2.2)

Source: Company, Angel Research

Consolidated performance above expectations: For 2QFY2011, Bharat Forge (BFL) reported top-line growth of 56% yoy to `1,111cr, above our expectation of `1,053cr. Growth was largely aided by the substantial jump in domestic operations. EBITDA margin grew by 416bp yoy to 17.5%, 18bp below our estimate, on improved operating leverage in domestic and overseas operations. Net profit stood at `60.6cr (net loss of `40.7cr in 2QFY2010), as against our estimate of `62cr, largely aided by improved operating performance.

Standalone Y/E March (` cr) 2QFY11 2QFY10 % chg (yoy) Angel est. % diff.

Net sales 718.7 427.6 68.1 643.9 11.6

EBITDA 174.1 102.4 70.0 160.8 8.3

EBITDA margin (%) 24.2 24.0 27bp 25.0 (75)bp

Reported PAT 68.1 26.8 154.0 62.3 9.4


Standalone performance: BFL posted 68% yoy jump in standalone revenue at `719cr, mainly aided by ~60% jump in domestic revenue and ~84% jump in exports. EBITDA margin expanded by 27bp yoy to 24.2%, down 96bp qoq, reflecting surge in steel prices. Net profit posted 154% yoy growth to `68cr, beating our estimate of `62cr, owing to higher-than-expected other income.

Outlook and valuation: On the valuation front, at `379, the stock is trading at a P/E of 18.8x FY2012E EPS and EV/EBITDA of 10.9x on a consolidated basis. We remain positive on BFL and recommend an Accumulate rating to the stock to play the turnaround of developed markets (US and Europe). At our Target Price of `404, the stock would trade at 20x P/E and 11.6x EV/EBITDA on FY2012E basis.

Key Financials (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E

Net sales 4,711 3,286 4,373 5,287

% chg 2.5 (30.3) 33.1 20.9 Net profit 58.7 (63.3) 285.6 470.2 % chg (80.5) - - 64.6 EBITDA (%) 7.6 6.2 15.1 16.3 EPS (`) 2.6 (2.8) 12.3 20.2 P/E (x) 143.9 - 30.9 18.8 P/BV (x) 5.1 5.8 4.5 3.7

RoE (%) 3.6 (4.1) 16.6 21.7 RoCE (%) 2.8 (1.0) 10.5 17.1 EV/Sales (x) 2.2 3.0 2.2 1.7 EV/EBITDA (x) 29.3 50.0 14.9 10.9


ACCUMULATE CMP `379 Target Price `404

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code BHFC@IN

Shareholding Pattern (%)

Promoters 42.1

MF / Banks / Indian Fls 28.3

FII / NRIs / OCBs 15.0

Indian Public / Others 14.6

Abs. (%) 3m 1yr 3yr

Sensex 11.3 20.1 14.5

Bharat Forge 13.6 36.9 32.5

2

20,166

6,066

BFRG.BO

8,834

1.2

390/232

129,896

Auto Ancillary

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Vaishali Jajoo 022-4040 3800 Ext: 344

[email protected]

Yaresh Kothari 022-4040 3800 Ext: 313 [email protected]

Bharat Forge Performance Highlights

2QFY2011 Result Update| Auto Ancillary

October 22, 2010

Bharat Forge | 2QFY2011 Result Update

October 22, 2010 2

Exhibit 1: Quarterly performance – Standalone

Y/E March (` cr) 2QFY11 2QFY10 % chg 1HFY11 1HFY10 % chg

Net sales 718.7 427.6 68.1 1,348.8 786.2 71.6

Consumption of RM 330.7 188.5 75.4 611.3 351.2 74.1

(% of sales) 46.0 44.1 192.6 45.3 44.7

Staff costs 48.9 35.7 37.1 94.6 71.6 32.1

(% of sales) 6.8 8.3 (153.5) 7.0 9.1

Manufacturing exp. 117.7 67.3 74.8 222.4 122.6 81.4

(% of sales) 16.4 15.7

16.5 15.6

Other expenses 47.3 33.6 40.6 87.6 63.6 37.9

(% of sales) 6.6 7.9 (128.8) 6.5 8.1

Total expenditure 544.6 325.2 67.5 1,015.9 608.9 66.8

EBITDA 174.1 102.4 70.0 332.8 177.3 87.7

EBITDA margin (%) 24.2 24.0 27.1 24.7 22.6

Interest 32.0 24.6 30.2 61.9 49.9 24.0

Depreciation 49.0 40.8 20.0 95.8 79.3 20.9

Other income 8.6 6.0 43.7 18.7 11.2 67.9

PBT (excl. extr. items) 101.7 43.0 136.6 193.8 59.3 226.8

Extr. income/(expense) - 3.0 - 4.2 17.8 -

PBT (incl. extr. items) 101.7 40.0 154.1 189.6 41.5 357.1

(% of sales) 14.2 9.4

14.1 5.3

Provision for taxation 33.6 13.2 154.5 62.0 13.7 353.2

(% of PBT) 33.0 33.0

32.7 33.0

Reported PAT 68.1 26.8 154.0 127.6 27.8 359.1

PATM (%) 9.5 6.3

9.5 3.5

Equity capital (cr) 46.6 44.5

46.6 44.5

EPS (`) 2.9 1.2 142.9 5.5 1.2 339.0


Exhibit 2: Segmental performance – Standalone

Y/E March (` cr) 2QFY11 2QFY10 % chg 1HFY11 1HFY10 % chg

Segment revenue Steel forging 716.1 426.6 67.8 1344.1 784.3 71.4

Gen. engg., trading etc. 4.4 2.3 89.3 8.2 4.7 74.9

Total segment revenue 720.5 429.0 68.0 1352.2 789.0 71.4

PBIT from each segment

Steel forging 163.3 88.0 85.6 307.0 147.6 107.9

Gen. engg., trading etc. 1.2 1.0 16.8 1.8 1.5 23.6

Total 164.4 89.0 84.8 308.8 149.1 107.1

PBIT (%)

Steel forging 22.8 20.6

22.8 18.8

Gen. engg., trading etc. 26.6 43.2

22.4 31.7



October 22, 2010 3

Top line above expectations, exceeds estimates by 11.6%: BFL recorded substantial 68.1% yoy growth in net sales (standalone) during 2QFY2011, largely on the back of the 59.5% yoy growth in domestic revenue and 84.2% yoy increase in exports. Domestic market growth was aided by substantial growth in overall auto volumes, especially in the CV segment. On the exports front, as per management, volumes (particularly in the US) recorded an improvement in 4QFY2010, which continued in 1HFY2011. At present, BFL is operating at optimum utilisation levels, which is expected to improve going forward. Production volumes, in tonnage terms, have improved from 30,296 tonnes in 2QFY2010 to 46,140 tonnes in 2QFY2011.

Exhibit 3: Domestic revenue up 59.5%


Exhibit 4: Reviving exports growth, up 84.2%


Exhibit 5: Volumes and utilisation levels continue to rise


Exhibit 6: Geographical break-up of revenue


Higher raw-material costs restrict margin expansion: BFL’s operating margins increased marginally by 27bp yoy to 24.2% during 2QFY2011. Raw-material costs increased by 193bp yoy and accounted for 46% (44.1%) of net sales, largely because of surge in steel prices. The company achieved significant operating leverage, following the reduction in staff costs and other expenditure to the extent of 153bp and 129bp, respectively. Thus, overall, the company recorded a 70% yoy jump in operating profit to `174cr on a standalone basis.

(38.4) (17.6)

48.2

99.2 82.9

59.5

(60)

(40)

(20)

0

20

40

60

80

100

120

0

50

100

150

200

250

300

350

400

450

500

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

(%)(` cr) Domestic revenue yoy change (RHS)

(52.0)

(56.3)

(18.2)

84.2 63.3

84.2

(80)

(60)

(40)

(20)

0

20

40

60

80

100

0

50

100

150

200

250

300


(%)(`cr) Export revenue yoy change (RHS)

26

36

42 46

51 55

0

10

20

30

40

50

60

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000


(%)(MT) Volume (tonnage) Capacity Utilisation

60 66

61 61 63 62

17 20

26 22

19 19 22

13 12 15 16 16

1 1 1 1 3 3

0

10

20

30

40

50

60

70


(%) India US Europe Others


October 22, 2010 4

Exhibit 7: EBITDA margins up 430bp


Exhibit 8: Net profit beats estimates


Net profit at `68.1cr, beats estimates: BFL recorded net profit of `68.1cr (`26.8cr) during the quarter due to overall improvement in volumes and operating leverage. Higher other income also aided the better growth in net profit, to a certain extent, during the quarter. However, interest cost and depreciation cost increased by 30% yoy and 20% yoy respectively, for the quarter.

Consolidated performance exceeds expectation: Consolidated performance was marginally above our expectations with top-line growth of 56.4% yoy to `1,111cr (`711cr). Bottom line stood at `61cr (net loss of `41cr in 2QFY2010), largely on account of the turnaround in overseas operations. In 2QFY2011, BFL’s OPM, on a consolidated basis, improved by almost 416bp yoy to 17.5% (13.3%). Overall, turnaround of the overseas subsidiaries supported the recovery at consolidated levels. Management expects turnaround of overseas subsidiaries in the next few quarters.

Exhibit 9: Quarterly performance – Consolidated Y/E March (` cr) 2QFY11 2QFY10 1QFY11 % yoy chg % qoq chg

Revenue 1,111.2 710.7 1,012.6 56.4 9.7

EBITDA 194.2 94.6 184.7 105.2 5.2

PBT & EOI 94.5 9.0 90.6 950.6 4.3

PAT after EOI 60.6 (40.7) 62.1 - (2.4)

EPS (`) 2.7 (1.8) 2.8 - (2.4)


20.9 24.0 23.4 25.0 25.2 24.2

46.3 44.9 45.4 45.0 46.1 47.2

0

5

10

15

20

25

30

35

40

45

50


(%) EBITDA margin RM cost/net sales (excl. other opr. Inc.)

0.3

6.4

7.7

11.2

9.8 9.7

0

2

4

6

8

10

12

0

10

20

30

40

50

60

70

80


(%)(` cr) Net profit (LHS) Net profit margin (RHS)


October 22, 2010 5

Exhibit 10: Top-line growth at 56.4%


Exhibit 11: Improving EBITDA margins, profitability


Conference call – Key highlights

International operations: BFL’s international operations contributed ~38% to

total revenue during 2QFY2011 and continued to grow driven by recovery in

offtake from both US and European markets. US and Europe contributed

~19% and ~17% to total revenue, respectively, during 2QFY2011. Exports to

the US grew 57.1% yoy, driven by offtake from CV and engine manufacturers.

Utilisation levels on the international front remained in the range of 40–45%,

which the management is targeting to raise to 50–55%. The company is

witnessing an uptick in volume offtake in the US M&HCV segment after three

continuous years of significant volume reduction. However, Europe’s scenario

remains bleak and is expected to show signs of a revival in the second half of

FY2011E. Going ahead, on the back of an improvement in operating

leverage, management expects expansion in margins.

China JV: BFL’s China JV has turned profitable since the commencement of

operations in April 2006. Management expects ~25% top-line growth from

the venture.

Non-auto business: BFL’s non-auto business revenue during 2QFY2011 stood

at ~`275cr, up ~32% qoq. Revenue contribution from the new facility at

Baramati and Mundhwa stood at ~`100cr during the quarter. Utilisation level

improved to ~39% in 2QFY2011 from ~30% in 1QFY2011. Management

intends to ramp it up further to 50% by the end of FY2011. BFL is targeting

~40% of its total revenue from non-auto business by FY2012 and is currently

closer to 30%. Management remains optimistic on the power side of the

business and its JV with Alstom; revenue contribution is expected to begin from

FY2012. Further, work on the EPC contract bagged during 1QFY2011 is

expected to commence from 3QFY2011.

BFL intends to incur a capital expenditure of `100cr during FY2011E for

Indian operations and has no plans to incur any capital expenditure overseas.

As of September 2011, the company reported net debt of ~`1,450cr and

cash balance of ~`400cr.

(54.0)(63.2)

(15.4)

47.3

66.3

56.4

(80)

(60)

(40)

(20)

0

20

40

60

80

0

200

400

600

800

1,000

1,200


(%)(` cr) Total revenue yoy growth (RHS)

9.6

13.3

15.5 17.5 18.2 17.5

0

2

4

6

8

10

12

14

16

18

20

(100)

(50)

0

50

100

150

200

250


(%)(` cr) EBITDA Net profit EBITDA margin (RHS)


October 22, 2010 6

Investment arguments

Strong rebound in domestic operations continue on healthy CV demand: BFL,

being a market leader in the CV space for products such as crankshaft, axle

beams and connecting rods, with almost 90% market share, has been able to

register robust growth sequentially. Over the last few quarters, following the

overall recovery in economic and industrial activity, CV volumes have also

been showing good recovery. We estimate the domestic heavy CV segment to

record a 13% CAGR over FY2010–12E. Thus, BFL is expected to be one of the

biggest beneficiaries on anticipated higher offtake by the CV segment over the

next couple of years.

Rebound in global economy to help in turnaround of overseas operations: BFL

experienced tough times in the overseas market, especially in the US and

Europe in the last two years. Management had adopted various measures to

counter the effects of the downturn, such as rightsizing the company’s

operations globally to adjust to the lower demand levels. Other actions taken

included reduction of manpower, rationalisation of production, salary cuts,

reduction in administrative overheads, increased focus on working capital

reduction, conservation of cash and capex holiday in FY2010. The company

focused on improving its operational efficiencies like yield, scrap reduction,

energy cost and outsourcing reduction.

All these measures have helped BFL in bringing down its breakeven levels to

almost 50% utilisation (60–65% earlier). We believe most of these markets are

now showing signs of recovery, which would help the company to improve its

consolidated performance over FY2010–12E.

Non-auto diversification: BFL has been diversifying its product portfolio in the

non-auto segment. Though the company has order traction in this segment (oil

and gas, power-thermal and nuclear, and rail), lower level of business of its

clients in various industries has affected potential ramp-up of utilisation levels

of new capacities created especially for the segment. Around 60% of the

segment’s revenue comes from exports, while the balance comes from the

domestic market. The company expects to generate ~40% of its revenue from

this segment in FY2011E on total incurred capex of around `500cr.

Management is confident of growing its non-auto business faster, which would

act as a buffer to the prevailing difficult macro environment for its auto

business.

Further, BFL has entered into a JV with Alstom and NTPC to manufacture

state-of-the-art supercritical power plant equipment in India. The JV will

design, engineer, manufacture and deliver turbine generator islands of

600–800MW supercritical range, with total installed capacity of 5,000MW per

annum. Alstom and BFL have agreed to explore the manufacture of turbines

and generators in the subcritical range, as well as for gas and nuclear

applications.


October 22, 2010 7

The manufacturing infrastructure will include plants for manufacturing

turbines, generators and all the auxiliaries that go into turbine generator

islands. The JV entails an investment of `1,500cr from both the partners. BFL

is expected to invest around `300cr–350cr in the Alstom JV over the next three

years. The capacity is set to be commissioned in 2012. BFL’s equity

contribution in the NTPC JV would be `50cr over the next two years. The

company has also bagged its maiden order worth `2,000cr in the capital

goods space for an EPC contract. This JV will help the company show healthy

performance at consolidated levels.

Outlook and valuation

A substantial portion of BFL’s revenue comes from the CV segment, where full recovery has been recorded in the last few quarters. Moreover, a major portion of the company’s consolidated revenue comes from the US, which was in recessionary mode and is expected to come out of it in 2010. BFL’s non-auto business is also expected to start contributing more from FY2011E and mitigate the effects of the slowdown in the auto segment. On account of the better-than-expected 2QFY2011 performance, we have marginally revised estimates upwards. Exhibit 12 : Change in estimates

Y/E March (` cr) Earlier estimates Revised estimates % chg

FY11E FY12E FY11E FY12E FY11E FY12E

Net sales 4,292 5,112 4,373 5,287 1.9 3.4

EBITDA margin (%) 15.0 15.8 15.1 16.3 1bp 50bp

EPS (`) 12.2 18.6 12.3 20.2 0.6 8.8

Source: Company, Angel Research On the valuation front, at `379, the stock is trading at a P/E of 18.8x FY2012E EPS and EV/EBITDA of 10.9x on a consolidated basis. We remain positive on BFL and recommend an Accumulate rating to the stock to play the turnaround of developed markets (US and Europe). At our Target Price of `404, the stock would trade at 20x P/E and 11.6x EV/EBITDA on FY2012E basis.


October 22, 2010 8

Exhibit 13: Key assumptions

Y/E March FY07 FY08 FY09 FY10 FY11E FY12E

Sales volume

Steel Forgings (MT), (incl. Baramati) 164,630 194,454 134,650 136,762 175,234 193,676

Crank shafts-finished machine (No.) 347,951 385,431 327,660 316,663 362,670 388,575

Front axle assembly & comp. (No.) 423,454 389,403 222,057 174,302 282,808 293,480

Utilisation (%)

Steel Forgings (MT) 68.7 79.7 53.0 33.8 45.9 52.0

Crank shafts-finished machine (No.) 85.1 80.9 63.0 61.3 70.0 75.0

Front axle assembly & comp. (No.) 79.4 73.0 41.8 32.9 53.0 55.0


Exhibit 14: Angel v/s consensus forecast

Angel estimates Consensus Variation (%)

FY11E FY12E FY11E FY12E FY11E FY12E

Top line (` cr) 4,373 5,287 4,378 5,316 (0.1) (0.5)

EPS (`) 12.3 20.2 11.5 18.0 7.0 12.4

Source: Bloomberg , Angel Research

Exhibit 15: One-year forward EV/EBITDA band

Source: Company, Bloomberg , Angel Research

Exhibit 16: One-year forward EV/EBITDA chart

Source: Company, Bloomberg , Angel Research

Exhibit 17: Auto Ancillary - Recommendation summary

Company Reco. CMP (`)

Tgt. price (`)

Upside (%)

P/E (x) EV/EBITDA (x) RoE (%) FY10–12E EPS

FY11E FY12E FY11E FY12E FY11E FY12E CAGR (%)

Amara Raja Buy 210 261 24.5 11.7 9.1 6.7 5.5 24.8 25.5 8.6

Automotive Axle^ Buy 502 578 15.2 15.1 13.0 7.5 6.3 26.2 25.8 145.5

Bharat Forge*& Accumulate 379 404 6.5 30.9 18.8 14.9 10.9 16.6 21.7 -

Bosch India# Accumulate 6,087 6,766 11.2 23.6 19.3 14.2 11.5 22.5 23.0 37.2

Exide Industries Accumulate 157 174 11.1 19.6 17.3 11.3 9.3 25.4 25.0 19.7

FAG Bearings# Buy 876 1,035 18.2 12.4 11.4 6.4 5.5 22.9 20.4 39.5

Motherson Sumi* Neutral 192 - - 22.9 17.0 9.6 7.9 26.3 31.6 34.4

Subros Buy 50 60 20.1 10.0 8.3 4.4 3.8 13.7 14.8 14.2

Source: Company, Angel Research; Note: * Consolidated results; # December year end; ^ September year end; & FY2011E and FY2012E EPS adjusted for

FCCB interest after tax

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Apr

-04

Oct

-04

Apr

-05

Oct

-05

Apr

-06

Oct

-06

Apr

-07

Oct

-07

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

(`cr) EV (`cr) 5x 10x 15x 20x

0

5

10

15

20

25

30

35

Jul-0

5

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Feb-

10

Jun-

10

Oct

-10

(x) One-yr forward EV/EBITDA Five-yr average EV/EBITDA


October 22, 2010 9

Profit & Loss Statement (Consolidated)

Y/E March (` cr) FY07 FY08 FY09 FY10 FY11E FY12E

Gross sales 4,305 4,770 4,831 3,373 4,489 5,436

Less: Excise duty 156 173 120 87 117 150

Net Sales 4,149 4,598 4,711 3,286 4,373 5,287

Total operating income 4,149 4,598 4,711 3,286 4,373 5,287

% chg 39.6 10.8 2.5 (30.3) 33.1 20.9

Total Expenditure 3,545 3,948 4,351 3,081 3,713 4,426

Net Raw Materials 1,956 2,129 2,307 1,578 2,116 2,541

Other Mfg costs 717 849 872 645 783 925

Personnel 616 678 709 524 565 669

Other 255 292 463 334 249 291

EBITDA 604 650 360 204 660 861

% chg 27.1 7.5 (44.6) (43.2) 222.8 30.5

(% of Net Sales) 14.6 14.1 7.6 6.2 15.1 16.3

Depreciation & Amortisation 188 227 252 245 267 258

EBIT 416 422 108 (41) 393 603

% chg 19.9 1.6 (74.5) - - 53.6

(% of Net Sales) 10.0 9.2 2.3 (1.2) 9.0 11.4

Interest & other Charges 107 127 129 130 81 37

Other Income 127 154 132 106 113 121

(% of PBT) 28.5 34.2 111.5 - 26.5 17.5

Recurring PBT 436 450 110 (65) 425 687

% chg 11.2 3.2 (75.4) - - 61.8

Extraordinary Items (8.8) (0.8) (7.7) (17.0) - -

PBT 445 451 118 (48) 425 687

Tax 152 159 69 12 132 213

(% of PBT) 34.3 35.2 58.7 - 31.0 31.0

PAT 292 292 49 (59) 293 474

Less: Minority interest (MI) (7.1) (10.7) (17.6) (13.2) (8.8) (11.9)

PAT after MI (reported) 299 302 66 (46) 286 470

ADJ. PAT 291 302 59 (63) 286 470

% chg 16.0 3.8 (80.5) - - 64.6

(% of Net Sales) 7.0 6.6 1.2 - 6.5 8.9

Basic EPS (Rs) 13.0 13.5 2.6 (2.8) 12.8 21.1

Fully Diluted EPS (Rs) 13.0 13.5 2.6 (2.8) 12.3 20.2

% chg 41.8 3.8 (80.5) - - 64.6


October 22, 2010 10

Balance Sheet (Consolidated) Y/E March (` cr) FY07 FY08 FY09 FY10 FY11E FY12E

SOURCES OF FUNDS

Equity Share Capital 55 45 45 45 47 47

Preference Capital - - - - - -

Reserves & Surplus 1,435 1,610 1,599 1,420 1,921 2,312

Shareholders’ Funds 1,490 1,654 1,643 1,464 1,968 2,359

Minority Interest 32 70 95 78 69 58

Total Loans 1,790 1,654 2,191 2,253 1,478 928

Deferred Tax Liability 111 137 184 96 96 96

Total Liabilities 3,422 3,516 4,114 3,891 3,611 3,440

APPLICATION OF FUNDS

Gross Block 2,672 3,100 4,028 4,135 4,373 4,480

Less: Acc. Depreciation 1,081 1,323 1,560 1,727 1,994 2,251

Net Block 1,591 1,777 2,468 2,408 2,379 2,229

Capital Work-in-Progress 354 584 322 199 87 90

Goodwill - - - - - -

Investments 207 299 - 274 325 344

Current Assets 2,769 2,478 2,532 2,417 2,147 2,461

Cash 939 318 488 598 134 30

Loans & Advances 559 761 720 658 764 922

Other 1,271 1,399 1,323 1,162 1,249 1,509

Current liabilities 1,499 1,623 1,208 1,406 1,327 1,684

Net Current Assets 1,269 856 1,324 1,011 820 777

Mis. Exp. not written off - - - - - -

Total Assets 3,422 3,516 4,114 3,891 3,611 3,440


October 22, 2010 11

Cash Flow Statement (Consolidated)

Y/E March (` cr) FY07 FY08 FY09 FY10 FY11E FY12E

Profit before tax 445 451 118 (48) 425 687

Depreciation 188 227 252 245 267 258

Change in Working Capital (7) (9) 178 (282) 207 (80)

Less: Other income 122 204 187 (648) 404 24

Direct taxes paid 152 159 69 12 132 213

Cash Flow from Operations 351 306 292 552 363 628

(Inc.)/Dec. in Fixed Assets (685) (658) (666) 16 (127) (110)

(Inc.)/Dec. in Investments 46 (92) 299 (273) (51) (19)

(Inc.)/Dec. in loans and advances 26 (44) (31) (9) (40) 25

Other income 127 154 132 106 113 121

Cash Flow from Investing (487) (640) (266) (160) (106) 16

Issue of Equity (10) 10 2 100 (275) -

Inc./(Dec.) in loans 630 (135) 536 62 (775) (550)

Dividend Paid (Incl. Tax) 76 91 91 26 27 41

Others (216) (252) (486) (470) 302 (239)

Cash Flow from Financing 481 (286) 144 (282) (721) (748)

Inc./(Dec.) in Cash 346 (621) 170 109 (463) (104)

Opening Cash balances 593 939 318 488 598 134

Closing Cash balances 939 318 488 598 134 30


October 22, 2010 12

Key Ratios

Y/E March FY07 FY08 FY09 FY10 FY11E FY12E

Valuation Ratio (x)

P/E (on FDEPS) 34.6 27.9 143.9 - 30.9 18.8

P/CEPS 21.9 16.0 26.6 42.5 16.0 12.1

P/BV 6.9 5.1 5.1 5.8 4.5 3.7

Dividend yield (%) 1.1 1.3 0.4 0.4 0.6 0.7

EV/Sales 2.2 2.1 2.2 3.0 2.2 1.7

EV/EBITDA 15.7 15.2 29.3 50.0 14.9 10.9

EV / Total Assets 2.8 2.8 2.6 2.6 2.7 2.7

Per Share Data (`)

EPS (Basic) 11.0 13.6 2.6 (2.8) 12.3 20.2

EPS (fully diluted) 13.0 13.5 2.6 (2.8) 12.3 20.2

Cash EPS 17.3 23.8 14.3 8.9 23.7 31.3

DPS 2.9 3.5 1.0 1.0 1.5 2.0

Book Value 54.6 74.3 73.8 65.7 84.5 101.3

DuPont Analysis

EBIT margin 10.0 9.2 2.3 (1.2) 9.0 11.4

Tax retention ratio 0.7 0.6 0.4 1.2 0.7 0.7

Asset turnover (x) 1.9 1.6 1.4 0.9 1.3 1.5

ROIC (Post-tax) 12.4 9.6 1.3 (1.5) 8.0 12.1

Cost of Debt (Post Tax) 4.8 4.8 2.8 7.3 3.0 2.1

Leverage (x) 0.3 0.5 0.8 1.0 0.7 0.4

Operating ROE 15.1 12.2 0.1 (10.2) 11.5 15.7

Returns (%)

ROCE (Pre-tax) 14.0 12.2 2.8 (1.0) 10.5 17.1

Angel ROIC (Pre-tax) 16.8 13.2 3.0 (1.2) 11.3 17.7

ROE 21.1 19.2 3.6 (4.1) 16.6 21.7

Turnover ratios (x)

Asset Turnover (Gross Block) 1.8 1.6 1.3 0.8 1.0 1.2

Inventory / Sales (days) 48 53 59 80 57 54

Receivables (days) 47 53 47 58 46 46

Payables (days) 99 90 66 124 78 76

WC cycle (ex-cash) (days) 23 34 53 69 46 49

Solvency ratios (x)

Net debt to equity 0.4 0.6 1.0 0.9 0.5 0.2

Net debt to EBITDA 1.1 1.6 4.7 6.8 1.5 0.6

Interest Coverage (EBIT / Interest) 3.9 3.3 0.8 (0.3) 4.9 16.4


October 22, 2010 13

Disclosure of Interest Statement Bharat Forge 1. Analyst ownership of the stock Yes 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)

Research Team Tel: 022 - 4040 3800 E-mail: [email protected] Website: www.angeltrade.com DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies 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. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

bharat forge ru2 qfy2011-221010

Economy & Finance