29th May, 2018

Healthy demand for export and domestic CV Q4FY18 revenue grew by robust 31%YoY, largely due to better traction from the US class 8 heavy truck segments and non-auto export business (Oil & gas).Export revenue grew by 36.5%YoY and domestic sales grew by 23%YoY. The overall volume rose by 24%YoY to 68,701 tonnes during the quarter. BFL’s average realisation per tonne rose by 8%YoY, due to superior product mix and geographical mix. Reported PAT came in at 100 cr vs. our expectation of Rs232cr. However, post adjustment of one-time loss of 133cr, adjusted PAT was at Rs.234cr. Favourable product mix to continue We expect the meaning full recovery in the energy sector and traction from the US HCV sales to continue. We believe domestic CV business to remain robust on the back of higher road infrastructure spending and stricter implementation of overloading. Long term growth outlook remains robust on the backdrop of

improved revenue visibility from the Indian defence space. Managements expects the incremental revenue from new business/products to grow from current 5% of sales to 15% in next 2-3 years.We expect 16% revenue CAGR over FY18-20E.

Green Field Expansion – Preparing for future BFL is setting up Centre for light weighting technology (LWT), a fully automated manufacturing facility in Andra Pradesh focussed on Aluminium and Magnesium and components products. The facility will design and manufacture for Automotive and industrial application and commence commercial production by end of FY 2019. The facility will enable BFL to address the need for light weighting solutions driven by the shift from BS-IV to BSVI in India and also the evolving Electric Vehicle segment. BFL is the global leader in the Aluminium forging will be the preferred choice of OEM for any technological change.

Valuations We marginally upgrade our revenue estimate for FY19 & FY20 by 7% to factor in 16% volume growth and 4% increase in raw materil price. We expect the earning to grow by 34% CAGR over FY18-20E. We remain upbeat on the stock considering strong traction in all the segments. At CMP we value BFL at 26x on FY20E EPS with a revised target price of Rs.753 and upgrade our rating from Hold to Buy rating.

RETAIL EQUITY RESEARCH

Bharat Forge Ltd Rating as per Large cap 12months investment period Automobile – Auto Ancillaries

BSE CODE:500493 NSE CODE: BHARATFORG CMP Rs.662 TARGETRs. 753 RETURN 14%

Bloomberg CODE: BHFC:IN SENSEX: 35,165

Company Data

Market Cap (cr) Rs. 30,829

Enterprise Value (cr) Rs. 33,077

Outstanding Shares (cr) 46.6

Free Float 54%

Dividend Yield 0.7%

52 week high Rs. 800

52 week low Rs. 526

6m average volume (cr) 0.1

Beta 0.89

Face value Rs2

Shareholding % Q1FY18 Q2FY18 Q4FY18

Promoters 45.8 45.8 45.8

FII’s 20.6 20.8 21.4

MFs/Insti 12.5 13.3 12.7

Public 21.1 20.1 20.1

Total 100.0 100.0 100.0

Price Performance 3mth 6mth 1 Year

Absolute Return -14.3% -8.1% 18.5%

Absolute Sensex 0.6% 2.8% 12.7%

Relative Return -15.0% -10.9% 5.8%

*over or under performance to benchmark index

Consolidated (Rs.cr) FY18A FY19E FY20E

Sales 8,358 9,831 11,084

Growth (%) 30.7 17.6 12.7

EBITDA 1,723 2,133 2,439

Margin (%) 20.6 21.7 22.0

PAT Adj 754 1,127 1,348

Growth (%) 32.5 49.5 19.6

Adj.EPS 16.2 24.2 29.0

Growth (%) 32.5 49.5 19.6

P/E 40.9 27.4 22.9

P/B 6.4 5.3 4.3

EV/EBITDA 19.2 15.4 13.4

ROE (%) 16.5 21.0 20.8

D/E 0.5 0.3 0.2

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BFL Sensex Rebased

COMPANY UPDATE

Better revenue visibility for long term Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The company is serving several sectors including automobile, power, oil and gas, rail & marine, aerospace, construction, mining etc.

Q4FY18 standalone revenue grew by 30.3%YoY due to 24%YoY growth in the tonnage volume.

Export revenue grew by 36.5%YoY and domestic business grew by 22.8%YoY due to both US truck & strong domestic auto sales.

EBITDA margin improved by 10bpsYoY on the back of improved product mix but lower than our expectation. Adj. PAT grew by 38%YoY.

We expect BFL to register 15% revenue CAGR over FY18-20E on account healthy demand from US-CV & domestic auto sales, Expansion of capacities and 15% from new product development.

We remain upbeat on the stock considering strong traction in all the segments. At CMP we value BFL at 26x on FY20E EPS with a revised target price of Rs.753 and upgrade our rating from Hold to Buy rating.

Buy

Saji john

Analyst

Anal

COMPANY UPDATE

Quarterly Financials Profit & Loss Account

(Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth %

Sales 1,467 1,126 30.3 1,391 5.5

EBITDA 418 320 30.6 416 0.3

EBITDA margins 28.5 28.4 10bps 29.9 -140bps

Depreciation 71 74 -4.0 81 -12.3

EBIT 347 246 41.0 336 3.3

Interest 30 19 57.8 14 114.2

Other Income 34 22 54.5 22 54.5

Exceptional Items 0 0 - 0 -

PBT 218 287 -24.0 343 -36.4

Tax 118 79 49.3 150 -21.3

Share of profit from Associate 0 0 - 0 -

Reported PAT 100 208 -51.6 228 -56.0

Adjustments -133 0 - 0 -

Adj PAT 234 169 38.0 228 2.6

No. of shares (cr) 46.6 46.6 - 46.6 - EPS (Rs) 5.02 3.64 38.0 4.9 2.6

Change in estimates

Old estimates New estimates Change %

Year / Rscr FY19E FY20E FY19E FY20E FY19E FY20E

Revenue 9,160 10,320 9,831 11,084 7.3 7.4

EBITDA 2,052 2,374 2,133 2,439 3.7 2.7

Margins (%) 22.4 23.0 21.7 22.0 -70bps +100bps

PAT 1,126 1,362 1.127 1,348 - 1.0

EPS 24.2 29.2 24.2 29.0 - 1.0

Standalone Segment Revenue

(Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth %

Segments

Domestic 619 504 22.8 577 7.27 Export 815 597 36.5 781 4.4

Total Segmental Revenue (Gross) 1,434 1,101 30.2 838 71.1

Consolidated Financials Profit & Loss Account

Y.E March (Rs.cr) FY16A FY17A FY18A FY19E FY20E

Sales 6,809 6,396 8,358 9,831 11,084

% change -10.7 -6.1 30.7 17.6 12.7 EBITDA 1,408 1,251 1,723 2,133 2,439

% change -2.3 -11.2 37.7 23.8 14.3 Depreciation 453 452 467 496 521

EBIT 955 799 1,256 1,638 1,918

Interest 140 100 107 97 85 Other Income 78 119 142 167 211 PBT 887 947 1,196 1,707 2,043

% change -20.9 6.7 26.3 42.7 19.6

Tax 424 249 442 581 695

Tax Rate (%) 5 3 4 3 3 Reported PAT 467 698 754 1,127 1,348

Adj* -5 128 0 0 0 Adj PAT 472 569 754 1,127 1,348

% change -34.8 20.6 32.5 49.5 19.6

No. of shares (mn) 23.3 46.6 46.6 46.6 46.6 Adj EPS (Rs) 20.3 12.2 16.2 24.2 29.0

% change -34.8 -39.7 32.5 49.5 19.6 DPS (Rs) 6.9 4.0 4.6 2.3 2.3

Cash flow

Y.E March (Rs.cr) FY16A FY17A FY18E FY19E FY20E

Net inc. + Depn. 1,340 1,399 1,663 2,229 2,577 Non-cash adj. -296 -128 -345 -509 -614 Changes in W.C 2 40 -461 -303 -281 C.F.O 1,046 1,311 857 1,417 1,683 Capital exp. -1372 -355 -398 -406 -401 Change in inv. 538 -154 -550 -63 -236 Other invest.CF 0 0 0 0 0 C.F - investing -833 -509 -948 -468 -637 Issue of equity - - - - - Issue/repay debt 185 -110 -160 -260 -260 Dividends paid -160 -185 -213 -107 -107 Other finance.CF -272 -100 -107 -97 -85 C.F - Financing -248 -349 -480 -464 -452 Chg. in cash -35 454 -572 484 593 Closing cash 647 1,101 529 1,014 1,607

Balance Sheet

Y.E March (Rs.cr) FY16A FY17A FY18E FY19E FY20E

Cash 647 1,101 529 1,014 1,607

Accounts Receivable 1,402 1,341 1717 2,043 2,318

Inventories 997 1,075 1,348 1,573 1,785 Other Cur. Assets 472 841 1,145 1,307 1,484 Investments 289 972 1,115 1,325 1,554

Gross Fixed Assets 6,919 7,269 7,669 8,069 8,469

Net Fixed Assets 3,468 3,366 3,299 3,203 3,083

CWIP 566 40 460 323 339 Intangible Assets 29 34 32 37 39 Def. Tax (Net) -52 -73 -63 -46 -46

Other Assets 0 0 0 0 0 Total Assets 7,818 8,697 9,583 10,780 12,162

Current Liabilities 1,388 1,797 2,247 2,621 2,975 Provisions 166 185 240 286 325

Debt Funds 25,18 2,408 2,248 1,988 1,728

Other Liabilities -4 -4 -4 -4 -4

Equity Capital 47 93 93 93 93 Reserves & Surplus 3,704 4,217 4,757 5,795 7,045 Shareholder’s Fund 3.751 4,310 4,851 5,888 7,138 Total Liabilities 7,818 8,697 9,583 10,780 12,162

BVPS (Rs) 160 92 103 126 152

Ratios

Y.E March FY16A FY17A FY18E FY19E FY20E

Profitab. & Return

EBITDA margin (%) 20.7 19.6 20.6 21.7 22.0 EBIT margin (%) 14.0 12.5 15.0 16.7 17.4 Net profit mgn.(%) 6.9 8.9 9.0 11.5 12.0 ROE (%) 13.1 14.1 16.5 21.3 20.8 ROCE (%) 5.9 6.5 7.5 11.1 11.5 W.C & Liquidity Receivables (days) 60.4 78.3 66.8 69.0 70.5 Inventory (days) 54.4 59.1 52.9 53.6 54.3 Payables (days) 88.4 90.9 88.3 89.4 90.5 Current ratio (x) 2.3 2.2 1.9 2.1 2.2 Quick ratio (x) 1.5 1.4 1.0 1.2 0.8 Turnover &Levg. Gross asset T.O (x) 1.1 0.9 1.1 1.3 1.4 Total asset T.O (x) 0.9 0.8 0.9 1.0 1.0 Int. covge. ratio (x) 6.8 8.0 11.8 17.1 22.9 Adj. debt/equity (x) 0.9 0.8 0.5 0.3 0.2 Valuation ratios EV/Sales (x) 2.6 5.2 4.0 3.3 2.9 EV/EBITDA (x) 12.7 26.6 19.2 15.2 13.1 P/E (x) 32.7 54.2 40.9 27.0 22.7 P/BV (x) 4.1 7.2 6.4 5.2 4.3

Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%.

Neutral - Not Applicable

Buy - Upside is above 15% Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.NEUTRAL-The analyst has no investment opinion on the stock, under review

General Disclosures and Disclaimers

CERTIFICATION

I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

COMPANY OVERVIEW

Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time.

DISTRIBUTION OF REPORTS

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report.

GENERAL REPRESENTATION

The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor 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.

RISK DISCLOSURE

Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

FUNDAMENTAL DISCLAIMER

We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks

Recommendation Summary (last 3 years) Dates Rating Target

6-Apr -15 Accumulate 740

22-Jan-16 Buy 487

26-May-16 Accumulate 415

9-August-16 Buy 480

11 November 16 Hold 468

9th February 17 Hold 540

29thMay17 Buy 626

9th November 17 Buy 792

26th December 17 Buy 810

13th March 18 Hold 789

29th May 18 Buy 653

Source: Bloomberg, Geojit Research

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always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or anyof its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report. The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.

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In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision:

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Geojit confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. (ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein.

Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the

subject company. (ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered

2. Disclosures regarding Compensation:

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(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report.

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