Emkay Global Financial has given Buy recommendation for Bharat Forge with a target price of Rs. 810 in its research report issued on May 16, 2022
Emkay Global Financial’s report on Bharat Forge
BHFC’s Q4 EBITDA grew 29% yoy to Rs4.3bn and came in 15% above our estimate, driven by better scale. Revenue grew by 28% yoy to Rs16.7bn, 12% above estimates on higher sales in the domestic industrials and overseas auto segments. We reduce our FY23E/24E EPS by 4%/3% to Rs25.6/Rs31.9, factoring in input cost pressures. Following the revision, we build in robust FY22-24E revenue/earnings CAGRs of 15%/21%, led by the cyclical recovery in the underlying auto and industrial segments in both domestic and overseas markets. Margins are likely to improve to 28.1% in FY24E from 26.9% in FY22. Our positive view on BHFC is underpinned by its leadership position in automotive forgings, focus on diversification, and the continuation of cyclical upturn in the core segments. Medium-term performance should be supported by new segments such as Defense, Railways, aerospace, E-mobility, and Light-weighting solutions.
Retain Buy with a TP of Rs810 (Rs840 earlier), based on 24x P/E for the standalone business on Jun’24E EPS (25x Mar’24E earlier). Our target P/E multiple has reduced due to an increase in the cost of equity and a reduction in margin assumptions over the medium term in our DCF model.