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Page 1: Bharat Forge

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

Y/E March (Rs cr) 1QFY11 1QFY10 % chg (yoy) Angel Est % Diff

Net Sales 630 359 75.7 579 8.8

Operating Profit 159 75 112 141 12.3

OPM (%) 25.2 20.9 431bp 24.4 78bp

Reported PAT 59 1 6,091 54 10.8

Source: Company, Angel Research

Bharat Forge (BFL) reported strong 1QFY2011 performance. Top-line beat expectations on higher volumes in the domestic and export markets, while margins increased on higher utilisation levels. Thus, the resulting higher bottom-line growth exceeded our expectation by 10.8%. We recommend an Accumulate on the stock.

Top-line marginally above expectations; Net profit beats estimates on better operating leverage: BFL recorded a substantial 75.7% yoy growth in net sales (standalone) for 1QFY2011, largely on the back of the 84% yoy growth in domestic revenues and 63.2% yoy increase in exports. The domestic market growth was aided by the substantial growth in overall auto volumes especially in commercial vehicles (CV) segment during the quarter. BFL’s operating margins improved by 430bp yoy to 25.2% during 1QFY2011. Raw material costs fell by 81bp yoy and accounted for 44.5% (45.3%) of net sales, largely owing to reduced inventory levels. The company recorded net profit of Rs59.4cr (Rs1cr) 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.

Outlook and Valuation: On account of the better-than-expected 1QFY2011 performance, we have revised upwards our estimates. On the valuation front, at Rs326, the stock is trading at a P/E of 17x FY2012E EPS and EV/EBITDA of 9.9x on a consolidated basis. We recommend an Accumulate rating on the stock, with a Target Price of Rs351, at which level the stock would trade at 18.3x P/E and 10.5x EV/EBITDA on FY2012E basis.

Key Financials (Consolidated) Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E

Net Sales 4,711 3,286 4,292 5,112

% chg 2.5 (30.3) 30.6 19.1

Net Profit 59 (63) 294 445

% chg (80.5) - - 51.5

EBITDA (%) 7.6 6.2 15.3 16.1

EPS (Rs) 2.6 (2.8) 12.6 19.1

P/E (x) 124 - 26 17

P/BV (x) 4.4 5.0 3.8 3.2

RoE (%) 3.6 (4.1) 17.1 20.6

RoCE (%) 2.8 (1.0) 10.5 15.6

EV/Sales (x) 1.9 2.6 1.9 1.5

EV/EBITDA (x) 24.9 43.6 13.0 9.9

Source: Company, Angel Research

ACCUMULATE CMP Rs326 Target Price Rs351

Investment Period 12 Months Stock Info

Sector

Bloomberg Code BHFC@IN

Shareholding Pattern (%)

Promoters 42.1

MF / Banks / Indian Fls 27.7

FII / NRIs / OCBs 14.4

Indian Public / Others 15.8

Abs. (%) 3m 1yr 3yr

Sensex 2.2 17.6 18.7

Bharat Forge 18.5 76.0 16.8

Face Value (Rs)

BSE Sensex

Nifty

Reuters Code

Auto Ancillary

Avg. Daily Volume

Market Cap (Rs cr)

Beta

52 Week High / Low

2

18,078

5,431

BFRG.BO

7,588

1.5

341/174

206,764

Vaishali Jajoo 022-4040 3800 Ext: 344

[email protected]

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

Bharat Forge Performance Highlights

1QFY2011 Result Update| Auto Ancillary

July 27 2010

Page 2: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 2

Exhibit 1: Quarterly performance – Standalone Y/E March (Rs cr) 1QFY11 1QFY10 % chg FY10 FY09 % chg

Net Sales 630.1 358.6 75.7 1,814 1,995 (9.1)

Consumption of RM 280.6 162.6 72.5 822.4 980.5 (16.1)

(% of Sales) 44.5 45.3 (81.3) 45.3 49.1

Staff Costs 45.7 35.9 27.1 143.6 139.2 3.2

(% of Sales) 7.2 10.0

7.9 7.0

Manufacturing Exp. 104.8 55.3 89.6 316.1 337.7 (6.4)

(% of Sales) 16.6 15.4

17.4 16.9

Other Expenses 40.4 29.9 34.8 137.4 155.2 (11.5)

(% of Sales) 6.4 8.3

7.6 7.8

Total Expenditure 471.4 283.8 66.1 1,419 1,612 (12.0)

Operating Profit 158.7 74.9 111.9 394.6 382.7 3.1

OPM (%) 25.2 20.9

21.8 19.2

Interest 29.9 25.4 18.1 102.8 100.4 2.4

Depreciation 46.8 38.4 21.9 164.4 149.4 10.0

Other Income 10.1 5.2 95.8 74.7 111.1 (32.7)

PBT (excl. Extr. Items) 92.1 16.3 464.7 202.1 244.0 (17.1)

Extr. Income/(Expense) 4.2 14.9 - 21.4 86.3 -

PBT (incl. Extr. Items) 87.9 1.4 5,961 180.7 157.7 14.6

(% of Sales) 13.9 0.4

10.0 7.9

Provision for Taxation 28.5 0.5 5,706.1 53.7 54.4 (1.3)

(% of PBT) 32.4 33.8

29.7 34.5

Reported PAT 59.4 1.0 6,091 127.0 103.3 23.0

PATM (%) 9.4 0.3

7.0 5.2

Equity capital (cr) 46.5 44.5

44.5 44.5

EPS (Rs) 2.6 0.0 - 5.7 4.6 23.0

Source: Company, Angel Research

Exhibit 2: Segmental Performance - Standalone Y/E March (Rs cr) 1QFY11 1QFY10 %chg FY10 FY09 %chg

Segment Revenue

Steel Forging 628.0 357.7 75.6 1,851 2,051 (9.8)

Gen. Engg., Trading etc. 3.7 2.3 60.5 11.5 11.7 (1.7)

Total Segment Revenue 631.7 360.0 75.5 1,862 2,063 (9.7)

PBIT from each segment

Steel Forging 143.7 59.7 140.9 374.3 392.6 (4.7)

Gen. Engg., Trading etc. 0.7 0.5 38.3 2.6 2.5 3.5

Total 144.3 60.1 140.1 377.0 395.2 (4.6)

PBIT (%)

Steel Forging 22.9 16.7

20.2 19.1

Gen. Engg., Trading etc. 17.4 20.2

22.9 21.7

Source: Company, Angel Research

Page 3: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 3

Top-line marginally above expectations; exceeds estimates by 8.8%: BFL recorded a substantial 75.7% yoy growth in net sales (standalone) during 1QFY2011, largely on the back of the 84% yoy growth in domestic revenues and 63.2% yoy increase in exports. The domestic market growth was aided by the substantial growth in overall auto volumes especially in the CV segment during the quarter. On the exports front, as per management, volumes particularly in the US, recorded an improvement in 4QFY2010, which continued in 1QFY2011. At present, the company is operating at optimum utilization levels, which is expected to improve going forward. Production volumes, in tonnage terms, have steadily improved from a low of 22,837 tonnes in 1QFY2010 to 42,643 tonnes in 1QFY2011.

Exhibit 3: Domestic revenues up 84%

Source: Company, Angel Research

Exhibit 4: Reviving exports growth, up 63% yoy

Source: Company, Angel Research

Exhibit 5: Increasing volumes and utilisation levels

Source: Company, Angel Research

Exhibit 6: Geographical break up of revenue

Source: Company, Angel Research

Lower raw material costs, higher operating leverage helps improve margins: BFL’s operating margins improved by 430bp yoy to 25.2% during 1QFY2011. Raw material costs fell by 81bp yoy and accounted for 44.5% (45.3%) of net sales, largely owing to reduced inventory levels. The company achieved significant operating leverage following the reduction in staff costs and other expenditure to the extent of 277bp and 194bp, respectively. Thus, overall the company recorded 112% yoy jump in operating profit to Rs159cr on a standalone basis.

(36.5)(16.9)

47.6

98.9

84.0

(50)

0

50

100

150

0

125

250

375

500

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)(Rs cr)

Domestic Revenue yoy change (RHS)

(52.0)(56.3)

(18.2)

82.8 63.2

(100)

(50)

0

50

100

0

75

150

225

300

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)(Rs cr)

Exports Revenue yoy change (RHS)

26

3642

4651

0

15

30

45

60

0

10,000

20,000

30,000

40,000

50,000

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)

Volume (tonnage) Capacity Utilisation (RHS)

60 65

61 61 63

17 20 26

22 19

22

13 12 15 16

0

25

50

75

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)

India US Europe Others

Page 4: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 4

Exhibit 7: EBITDA margins up 430bp

Source: Company, Angel Research

Exhibit 8: Net profit beats estimates

Source: Company, Angel Research

Net profit at Rs59.4cr, beats estimates: The company recorded net profit of Rs59.4cr (Rs1cr) 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 costs increased by 18% yoy and 22% yoy respectively, for the quarter.

Consolidated performance exceeds expectation: Consolidated performance was marginally above our expectations with top-line growth of 66% yoy to Rs1,013cr (Rs609cr). Bottom-line stood at Rs62cr (net loss of Rs46cr in 1QFY2010), largely on account of the sharp turnaround in the overseas operations. In 1QFY2011, BFL’s OPM, on a consolidated basis, improved by almost 860bp yoy to 18.2% (9.6%). Overall, turnaround of the overseas subsidiaries supported the strong recovery at consolidated levels. Exhibit 9: Quarterly performance - Consolidated Y/E Mar (Rs cr) 1QFY11 1QFY10 4QFY10 % yoy chg % qoq chg

Revenue 1,012.6 609.0 924.0 66.3 9.6

Operating Profit 184.7 58.7 161.5 214.5 14.4

PBT & EOI 90.6 (20.3) 73.2 - 23.7

PAT after EOI 62.1 (46.1) 56.0 - 10.8

EPS (Rs) 2.8 (2.1) 2.5 - 11.5

Source: Company, Angel Research

20.9 24.0 23.4 25.0 25.2

46.3 44.9 45.4 45.0 46.1

0

15

30

45

60

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)

EBITDA Margin RM Cost/Net sales (excl. other opr. Inc.)

0.3

6.2 7.3

10.7

9.3

0

5

10

15

0

20

40

60

80

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)(Rs cr)

Net Profit (LHS) Net Profit Margin (RHS)

Page 5: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 5

Exhibit 10: Top-line growth at 66%

Source: Company, Angel Research

Exhibit 11: Improving EBITDA margins, profitability

Source: Company, Angel Research

Conference Call - Key Highlights

International operations: The company’s international operations, which

contributed ~37% of total revenues during 1QFY2011 continues to show

improvement in performance and management remains quite optimistic of the

turnaround and profitability. The US and Europe contributed 19% and 16% to

total revenues respectively, during 1QFY2011. The restructuring exercise that

the company carried out in CY2009 at a cost of Rs85cr to lower the breakeven

levels has started to positively impact its financial performance. The utilisation

levels on the international front are currently ~40-45%, which management is

targeting to raise to ~50-55%. The company is seeing uptick in volume off-

take in the US M&HCV segment after three continuous years of significant

volume reduction. However, the Europe scenario remains bleak and it is

expected to show signs of revival in the second half of FY2011E. On the back

of improvement in operating leverage, the company expects expansion in

margins going ahead.

China JV: BFL’s JV in China has turned profitable for the first time since the

commencement of operations in April 2006. As per management, the first

quarter performance of the current fiscal has surpassed the performance of

last fiscal. Utilisation levels are currently at 50% and management is targeting

a marginal increase in the same to 55-60%.

Non-auto business: The company’s non-auto business revenues during

1QFY2011 stood at around ~Rs200cr, up from Rs140cr during 4QFY2010.

The non-auto business exports during the quarter stood at ~Rs80cr.

Profitability of this segment remains higher than the auto segment. Utilisation

levels, however remains weak at ~30%. Management intends to ramp it up to

50% levels by the end of FY2011. Management has indicated that the

company has won its maiden EPC contract and is also technically qualified to

bid for NTPC’s bulk tender. The company remains optimistic on the power

side of the business and its joint venture (JV) with Alstom is expected to start

operations during 2QFY2011E.

(54.0)

(63.2)

(15.4)

47.3 66.3

(100)

(50)

0

50

100

0

300

600

900

1,200

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)(Rs cr)

Total Revenue yoy change (LHS)

9.6 12.1

15.5 17.5 18.2

0

5

10

15

20

25

(100)

(25)

50

125

200

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

(%)(Rs cr)

EBITDA PAT EBITDA Margin (LHS)

Page 6: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 6

The company intends to incur capital expenditure of Rs100cr during FY2011E

for its Indian operations and has no plans to incur any capital expenditure

overseas. As of June 2011, the company had net debt of ~Rs1,000cr.

During 1QFY2011, the company incurred higher labour costs on account of

restoration of salary cuts taken during FY2010 and due to the higher outgo on

account of the annual incentives to employees.

Investment Arguments

Strong rebound in domestic operations continue on healthy growth in CV

demand: BFL, being a market leader in the CV space for products like

crankshaft, axle beams, connecting rods, etc. with almost 90% market share,

has been able to clock robust growth sequentially. Over the last few quarters,

following the overall recovery in the economic and industrial activity, CV

volumes have also been showing good recovery. We estimate the domestic

heavy CV segment to record CAGR of around 13% over FY2010-12E. Thus,

BFL is expected to be one of the biggest beneficiaries on anticipated higher

off-take by the CV segment over the next couple of years.

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

company experienced tough times in the overseas market, especially in USA

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

counter the effects of the downturn, such as rightsizing its operations globally

to adjust to the lower demand levels. Other actions taken included reduction

of manpower, rationalisation of production, salary cuts and reducing

administrative overheads, increased focus on working capital reduction and

conservation of cash and capex holiday in FY2010. The company was

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

energy cost and outsourcing reduction.

All these measures have helped the company in bringing down its breakeven

levels to almost 50% utilisation (60-65% earlier). We believe that 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: The company 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 revenues come from exports, while the balance comes

from the domestic market. The company expects to generate around 40% of

its revenue from its this segment in FY2011E on total incurred capex of around

Rs500cr. BFL 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.

Page 7: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 7

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. 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 Rs1,500cr from both the

partners. BFL is expected to invest around Rs300-350cr 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 Rs50cr over the next two years.

The company has also bagged its maiden order worth Rs2,000cr in the capital

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

performance at consolidated levels.

Outlook and Valuation

A substantial portion of BFL’s revenues come from the CV segment, where full recovery has been recorded in the last few quarters. Moreover, a major portion of the company’s consolidated revenues come 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 1QFY2011 performance, we have revised estimates upwards.

Exhibit 12 : Change in estimates Y/E March (Rs cr) Earlier Estimates Revised Estimates % chg

FY11E FY12E FY11E FY12E FY11E FY12E

Net Sales 4,227 5,017 4,292 5,112 1.5 1.9

OPM (%) 14.1 15.0 15.3 16.1 120bp 105bp

EPS (Rs) 12.0 17.2 12.6 19.1 5.1 11.2

Source: Company, Angel Research

On the valuation front, at Rs326 the stock is trading at a P/E of 17x FY2012E EPS and EV/EBITDA of 9.9x on a consolidated basis. We recommend an Accumulate rating on the stock, with a Target Price of Rs351, at which level the stock would trade at 18.3x P/E and 10.5x EV/EBITDA on FY2012E basis.

Page 8: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 8

Exhibit 13: Key Assumptions Y/E March FY07 FY08 FY09 FY10 FY11E FY12E

Sales Volume

Steel Forgings (MT) 95,575 117,100 80,052 81,366 100,000 130,000

Crank Shafts-Finished Machine (No) 347,951 385,431 327,660 316,663 362,670 388,575

Front Axle Assembly & Comp. (No.) 423,454 389,403 222,057 174,302 266,800 293,480

Utilization (%)

Steel Forgings (MT) 68.9 79.9 56.0 42.8 45.0 50.0

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 50.0 55.0

Source: Company, Angel Research

Exhibit 14: Angel v/s consensus forecast

Angel estimates Consensus Variation (%)

FY11E FY12E FY11E FY12E FY11E FY12E

Top Line (Rs cr) 4,292 5,112 4,425 5,299 (3.0) (3.5)

EPS (Rs) 12.6 19.1 10.6 16.4 18.6 16.4

Source: Angel Research, Bloomberg

Exhibit 15: One-year forward EV/EBITDA band

Source: Company, Angel Research, Bloomberg

Exhibit 16: One-year forward EV/EBITDA chart

Source: Company, Angel Research, Bloomberg

Exhibit 17: Auto Ancillary - Recommendation summary

Company Reco. CMP (Rs)

Tgt Price (Rs)

Upside (%)

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

FY11E FY12E FY11E FY12E FY11E FY12E CAGR (%)

Automotive Axle^ Buy 484 578 19.3 14.8 12.6 7.3 6.1 25.9 25.9 145.5

Bharat Forge*& Accumulate 326 351 7.7 25.8 17.0 13.0 9.9 17.1 20.6 -

Bosch India# Neutral 5,625 - - 23.6 20.9 20.0 16.7 20.8 20.1 26.7

Exide Industries Accumulate 137 153 12.0 16.0 13.6 9.4 8.2 28.7 26.5 25.8

FAG Bearings# Buy 784 931 18.8 11.1 10.1 5.6 4.8 22.9 20.6 40.3

Motherson Sumi* Neutral 167 - - 18.5 15.0 6.9 6.0 27.7 29.7 33.4

Subros Buy 49 60 22.6 9.3 8.1 4.4 3.3 14.7 15.2 14.1

Source: Company, Angel Research; Note: * Consolidated Results; # December Year end; ^ September Year end; & FY11E and FY12E EPS adjusted for

FCCB interest after tax

0

4,000

8,000

12,000

16,000

Apr

-04

Sep-

04

Feb

-05

Jul-0

5

Dec

-05

May

-06

Oct

-06

Mar

-07

Aug-

07

Jan-

08

Jun-

08

Nov

-08

Apr

-09

Sep-

09

Feb

-10

Jul-1

0

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

0

10

20

30

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

One-yr forward EV/EBITDA Five-yr average EV/EBITDA

Page 9: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 9

Profit and Loss Statement (Consolidated) Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E

Gross sales 4,305 4,770 4,831 3,373 4,425 5,270

Less: Excise duty 155.8 172.5 120.2 87.2 132.8 158.1

Net Sales 4,149 4,598 4,711 3,286 4,292 5,112

Total operating income 4,149 4,598 4,711 3,286 4,292 5,112

% chg 39.6 10.8 2.5 (30.3) 30.6 19.1

Total Expenditure 3,545 3,948 4,351 3,081 3,636 4,292

Net Raw Materials 1,956 2,129 2,307 1,578 2,060 2,454

Other Mfg costs 717.0 849.4 872.2 644.9 768.3 904.9

Personnel 616.4 678.0 709.2 523.9 558.0 639.0

Other 255.1 291.9 463.1 334.5 249.0 294.0

EBITDA 604.1 649.5 359.6 204.4 656.7 820.5

% chg 27.1 7.5 (44.6) (43.2) 221.3 24.9

(% of Net Sales) 14.6 14.1 7.6 6.2 15.3 16.1

Depreciation & Amortisation 188.1 227.1 251.7 245.1 262.8 269.1

EBIT 416.0 422.5 107.9 (40.7) 393.9 551.4

% chg 19.9 1.6 (74.5) - - 40.0

(% of Net Sales) 10.0 9.2 2.3 (1.2) 9.2 10.8

Interest & other Charges 106.7 126.9 129.1 130.3 80.8 40.8

Other Income 126.5 154.2 131.7 106.3 112.7 119.4

(% of PBT) 28.5 34.2 111.5 (222.6) 26.5 19.0

Recurring PBT 435.8 449.7 110.5 (64.8) 425.8 630.1

% chg 11.2 3.2 (75.4) - - 48.0

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

PBT 444.6 450.5 118.2 (47.7) 425.8 630.1

Tax 152.4 158.7 69.4 11.7 127.7 189.0

(% of PBT) 34.3 35.2 58.7 (24.5) 30.0 30.0

PAT 292.3 291.8 48.8 (59.4) 298.1 441.0

Less: Minority interest (MI) (7.1) (10.7) (17.6) (13.2) (11.9) (19.8)

PAT after MI (reported) 299.4 302.5 66.4 (46.2) 293.7 445.1

Adj. PAT 290.6 301.6 58.7 (63.3) 293.7 445.1

% chg 16.0 3.8 (80.5) - - 51.5

(% of Net Sales) 7.0 6.6 1.2 (1.9) 6.8 8.7

Basic EPS (Rs) 13.0 13.5 2.6 (2.8) 13.2 20.0

Fully Diluted EPS (Rs) 13.0 13.5 2.6 (2.8) 12.6 19.1

% chg 41.8 3.8 (80.5) - - 51.5

Page 10: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 10

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

SOURCES OF FUNDS

Equity Share Capital 54.5 44.5 44.5 44.5 46.6 46.6

Preference Capital - - - - - -

Reserves & Surplus 1,435 1,610 1,599 1,420 1,929 2,298

Shareholders’ Funds 1,490 1,654 1,643 1,464 1,975 2,344

Minority Interest 31.5 70.2 95.4 78.3 66.3 46.5

Total Loans 1,790 1,654 2,191 2,253 1,478 978

Deferred Tax Liability 110.7 136.9 184.3 95.9 95.9 95.9

Total Liabilities 3,422 3,516 4,114 3,891 3,615 3,465

APPLICATION OF FUNDS

Gross Block 2,672 3,100 4,028 4,135 4,380 4,484

Less: Acc. Depreciation 1,081 1,323 1,560 1,727 1,990 2,259

Net Block 1,591 1,777 2,468 2,408 2,390 2,226

Capital Work-in-Progress 353.7 584.2 321.9 198.7 87.6 89.7

Goodwill - - - - - -

Investments 207.3 298.8 0.2 273.7 289.2 277.2

Current Assets 2,769 2,478 2,532 2,417 2,149 2,476

Cash 938.9 318.4 488.3 597.7 168.2 142.9

Loans & Advances 558.7 760.9 720.4 657.6 756.1 874.4

Other 1,271 1,399 1,323 1,162 1,225 1,459

Current liabilities 1,499 1,623 1,208 1,406 1,301 1,604

Net Current Assets 1,269 856 1,324 1,011 848 872

Mis. Exp. not written off 0.2 (0.0) - - - -

Total Assets 3,422 3,516 4,114 3,891 3,615 3,465

Page 11: Bharat Forge

Bharat Forge | 1QFY2011 Result Update

July 27 2010 11

Cash Flow Statement (Consolidated) Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E

Profit before tax 444.6 450.5 118.2 (47.7) 425.8 630.1

Depreciation 188.1 227.1 251.7 245.1 262.8 269.1

Change in Working Capital (7.2) (8.9) 178.3 (282.0) 215.8 (78.0)

Less: Other income 121.9 204.3 186.9 (647.9) 408.1 6.3

Direct taxes paid 152.4 158.7 69.4 11.7 127.7 189.0

Cash Flow from Operations 351.3 305.7 292.0 551.6 368.6 625.8

(Inc.)/Dec. in Fixed Assets (685.1) (658.2) (665.9) 16.5 (134.2) (106.5)

(Inc.)/Dec. in Investments 46.2 (91.5) 298.6 (273.5) (15.5) 12.1

(Inc.)/Dec. in loans and adv. 25.8 (44.5) (30.8) (9.4) (40.4) 25.0

Other income 126.5 154.2 131.7 106.3 112.7 119.4

Cash Flow from Investing (486.5) (640.0) (266.4) (160.1) (77.5) 50.0

Issue of Equity (9.7) 10.0 2.3 100.3 (274.7) -

Inc./(Dec.) in loans 630.3 (135.2) 536.5 61.8 (774.7) (500.0)

Dividend Paid (Incl. Tax) 76.3 91.3 91.3 26.1 27.2 40.9

Others (216.0) (252.3) (485.7) (470.3) 301.7 (241.9)

Cash Flow from Financing 481.0 (286.2) 144.4 (282.1) (720.6) (701.1)

Inc./(Dec.) in Cash 345.7 (620.6) 170.0 109.3 (429.5) (25.3)

Opening Cash balances 593.2 938.9 318.4 488.3 597.7 168.2

Closing Cash balances 938.9 318.4 488.3 597.7 168.2 142.9

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July 27 2010 12

Key Ratios Y/E March FY07 FY08 FY09 FY10 FY11E FY12E

Valuation Ratio (x)

P/E (on FDEPS) 29.7 24.0 123.6 - 25.8 17.0

P/CEPS 18.9 13.7 22.9 36.5 13.6 10.6

P/BV 6.0 4.4 4.4 5.0 3.8 3.2

Dividend yield (%) 1.1 1.3 0.4 0.4 0.6 0.7

EV/Sales 1.9 1.8 1.9 2.6 1.9 1.5

EV/EBITDA 13.4 13.2 24.9 43.6 13.0 9.9

EV / Total Assets 2.4 2.4 2.2 2.3 2.4 2.3

Per Share Data (Rs)

EPS (Basic) 11.0 13.6 2.6 (2.8) 12.6 19.1

EPS (fully diluted) 13.0 13.5 2.6 (2.8) 12.6 19.1

Cash EPS 17.3 23.8 14.3 8.9 23.9 30.7

DPS 2.9 3.5 1.0 1.0 1.5 2.0

Book Value 54.6 74.3 73.8 65.7 84.8 100.7

Dupont Analysis

EBIT margin 10.0 9.2 2.3 (1.2) 9.2 10.8

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) 8.2 11.4

Cost of Debt (Post Tax) 4.8 4.8 2.8 7.3 3.0 2.3

Leverage (x) 0.3 0.5 0.8 1.0 0.7 0.4

Operating RoE 15.1 12.2 0.1 (10.2) 11.8 14.7

Returns (%)

RoCE (Pre-tax) 14.0 12.2 2.8 (1.0) 10.5 15.6

Angel RoIC (Pre-tax) 16.8 13.2 3.0 (1.2) 11.4 16.6

RoE 21.1 19.2 3.6 (4.1) 17.1 20.6

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 77 76

WC cycle (ex-cash) (days) 23 34 53 69 46 50

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 1.6 0.7

Interest Coverage (EBIT/Interest) 3.9 3.3 0.8 (0.3) 4.9 13.5

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Disclosure of Interest Statement Bharat Forge 1. Analyst ownership of the stock Yes 2. Angel and its Group companies ownership of the stock Yes 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 Rs 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.


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