RESULTS REVIEW 3QFY16

10 FEB 2016

Bharat Forge
BUY
INDUSTRY

AUTOS

CMP (as on 09 Feb 2016)

Rs 780

Target Price

Rs 982

Nifty

7,298

Sensex

24,021

KEY STOCK DATA

Bloomberg/Reuters

BHFC IN

No. of Shares (mn)

233

MCap (Rs bn) / ($ mn)

182/2,664

6m avg traded value (Rs mn)

909

STOCK PERFORMANCE (%)

52 Week high / low

Rs 1,363/741
3M

6M

12M

Absolute (%)

(11.7) (36.4)

(27.6)

Relative (%)

(3.6) (21.4)

(12.7)

SHAREHOLDING PATTERN (%)

Promoters

46.75

FIs & Local MFs

15.41

FIIs

16.74

Public & Others

21.10

Source : BSE

Navin Matta
navin.matta@hdfcsec.com
+91-22-6171-7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171-7336

Greatness vs. adversity

Bharat Forges (BFL) 3QFY16 APAT at Rs 1.79bn (-10%
YoY, -3% QoQ) was slightly below street
expectations. Net sales missed estimates sharply
with 12% YoY decline. However, strong EBITDA
margins at 31.4% (+80/30bps YoY/QoQ) partially
offset the impact at the operating level. During the
quarter, volumes declined 5% YoY because of broadbased weakness in the industrial segment demand
and weak export sales in the automotive segment.
BFLs ability to maintain strong margins despite a
weaker segment mix (lower industrial sales) and
declining sales is commendable.
For the next leg of growth, BFL is hopeful of bagging
new orders from railways, aerospace and defence
sectors. We have cut our earnings for FY16-18E by 612% as we factor in slower growth in exports
automotive/industrial segments. We retain faith in
BFLs long-term growth prospects considering it is
already gaining traction in large addressable
segments. Maintain BUY with a revised TP of Rs 982
based on 22x Dec-17E.

Highlights of the quarter

Challenging demand environment: Demand in the

automotive segment across the US/Europe
markets is likely to remain tepid given the muted
CV sales expectations. However, this should be
partially offset by market share gains. BFL is swiftly
ramping up its PV revenues, which has already
reached 9% of the companys total sales.
Scaling up revenues in new industrial segments:
BFL has made headway with customers in the
aerospace, defence and rail businesses. It is
currently supplying samples and hopes to win
orders and ramp up revenues from these
segments over the next 2-3 years.
Near-term outlook: Domestic CV growth is likely
to remain strong in the fourth quarter. We expect
auto exports growth to remain tepid on weak
demand and continued de-stocking. Weak macro
growth and soft commodity prices are likely to
keep industrial demand under pressure.

Financial Summary
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

3QFY16
10,520
3,301
1,793
7.7

3QFY15
11,978
3,669
1,995
8.6

YoY (%)
(12.2)
(10.0)
(10.2)
(10.2)

2QFY16 QoQ (%)

11,168
(5.8)
3,363
(1.8)
1,853
(3.2)
8.0
(3.2)

FY15
76,247
14,408
7,238
31.1
25.1
13.6
24.9

FY16E
69,628
14,734
7,620
32.7
23.8
13.1
19.5

FY17E
77,020
16,461
9,013
38.7
20.1
11.2
21.1

FY18E
87,339
18,997
10,851
46.6
16.7
9.3
21.7

Source: Company, HDFC sec Inst Research, Note: Table contains quarterly financials on standalone basis and full year consol financials

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

BHARAT FORGE : RESULTS REVIEW 3QFY16

BFL topline came in 5%

below estimates on the back
of weak sales across both
domestic and export markets
Tonnage sales declined 5%
YoY, while net ASP fell
sharply by 8% YoY on
account of a weaker product
mix and pass through of
lower commodity prices
The industrial business
dropped 40% YoY. It
accounts for 33% of BFLs
standalone topline

Adjusted for fx loss (Rs

129mn), BFLs EBITDA was
modestly below
expectations. EBITDA margin
improved 30bps QoQ to
31.4%. This was largely
driven by gross margin
expansion

Net debt currently stands at

Rs 7.8bn with net
debt/equity of 0.21x

Quarterly Financials Snapshot (Standalone)

(Rs mn)
Tonnage (MT)
Net ASP (Rs/MT)
Net sales (incl OOI)
Material Expenses
Employee Expenses
Manufacturing Expenses
Other Operating Expenses
EBITDA
Depreciation
EBIT
Other Income
Interest Cost
PBT
Tax
RPAT
Minority Interest
APAT after MI
EO Items (Adj For Tax)
RPAT
Adj EPS

3QFY16
50,741
207,328
10,520
3,601
947
1,803
867
3,301
674
2,628
231
226
2,632
840
1,793
1,793
(131)
1,661
7.7

3QFY15
53,306
224,695
11,978
4,465
828
2,079
938
3,669
687
2,982
191
264
2,909
913
1,995
1,995
(32)
1,963
8.6

YoY (%)
(4.8)
(7.7)
(12.2)
(19.3)
14.4
(13.3)
(7.5)
(10.0)
(2.0)
(11.9)
20.9
(14.3)
(9.5)
(8.1)
(10.2)
(10.2)
(15.4)
(10.2)

2QFY16
54,559
204,699
11,168
4,074
921
1,821
991
3,363
653
2,710
255
222
2,742
889
1,853
1,853
(102)
1,751
8.0

QoQ (%)
(7.0)
1.3
(5.8)
(11.6)
2.9
(1.0)
(12.5)
(1.8)
3.1
(3.0)
(9.2)
1.8
(4.0)
(5.5)
(3.2)
(3.2)
(5.1)
(3.2)

3QFY16
34.2
9.0
17.1
8.2
31.4
31.9
15.8

3QFY15
37.3
6.9
17.4
7.8
30.6
31.4
16.4

YoY (bps)
(305)
209
(22)
42
75
50
(60)

2QFY16
36.5
8.2
16.3
8.9
30.1
32.4
15.7

QoQ (bps)
(224)
76
84
(63)
127
(52)
12

Source: Company, HDFC sec Inst Research

Margin Analysis
Material Expenses % Net Sales
Employee Expenses % Net Sales
Manufacturing Expenses % Net Sales
Other Operating Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)
Source: Company, HDFC sec Inst Research

Page | 2

BHARAT FORGE : RESULTS REVIEW 3QFY16

Sales growth across regions

witnessed decline. Weak
industrial sales, moderation in
exports in the automotive
segment and pass through of
lower commodity prices have
dented overall performance

Quarterly Region-wise Revenue Split (Standalone)

Rs in mn
India
Americas
Europe
Asia Pac

3QFY16
4,231
4,026
1,997
267

3QFY15
4,643
4,928
2,122
285

YoY (%)
(8.9)
(18.3)
(5.9)
(6.3)

2QFY16
4,789
4,171
1,916
292

QoQ (%)
(11.7)
(3.5)
4.2
(8.6)

3QFY15
5,826
343
5.9
53

YoY (%)
(2.4)
(29.2)
(27.4)
-

2QFY16
5,488
358
6.5
(30)

QoQ (%)
3.6
(32.1)
(34.5)
-

Source: Company, HDFC sec Inst Research

Quarterly: WOS Financials

3QFY16
5,684
243
4.3
(105)

Source: Company, HDFC sec Inst Research

30,000

60%

25,000

40%

20,000

20%

15,000

0%

10,000

10,000
5,000

Source: Bloomberg, HDFC sec Inst Research

Dec-15

Jun-15

May-14

Nov-13

Apr-13

Oct-12

-20%

5,000

-40%

Sep-11

15,000

Dec-15

80%

Jun-15

25,000

May-14

35,000

Nov-13

100%

Apr-13

30,000

20,000

% YoY (RHS)
150%
130%
110%
90%
70%
50%
30%
10%
-10%
-30%
-50%

Oct-12

120%

Apr-12

According to BFL, Europe HD

truck sales should be flat this
year

EU HCV
40,000

35,000

Sep-11

The management expects US

Class truck volumes to decline
16% to 270k units in CY16.
This quantum will not
significantly impact the
company as it hopes to
improve market share

% YoY (RHS)

Apr-12

US Class 8 sales

EU HD Truck Growth Moderating

Nov-14

US Class 8 Trucks Witnessing Downturn

Nov-14

The company mentioned that

a one-time refurbishment
expense drove down WOS
margins. Adjusted for one-off
expenses, EBITDA margins
would be similar to 2QFY16

Rs in mn
Net Sales
EBITDA
EBITDA margin %
PBT

Source: Bloomberg, HDFC sec Inst Research

Page | 3

BHARAT FORGE : RESULTS REVIEW 3QFY16

We have cut our FY16-18E

estimates by 6-12% largely
on the back of lower growth
assumptions for the
industrial segment and
decline in net ASP

Change In Estimates (Consolidated)

Rs mn
Net Sales
EBITDA
Adj PAT
Adj EPS (in Rs)

FY16E
69,628
14,734
7,620
32.7

New
FY17E
77,020
16,461
9,013
38.7

FY18E
87,339
18,997
10,851
46.6

FY16E
74,810
15,458
8,106
34.8

Old
FY17E
85,146
17,998
9,981
42.9

FY18E
96,886
21,205
12,362
53.1

FY16E
(6.9)
(4.7)
(6.0)
(6.0)

% chg
FY17E
(9.5)
(8.5)
(9.7)
(9.7)

FY18E
(9.9)
(10.4)
(12.2)
(12.2)

Source: HDFC sec Inst Research

Assumptions: BFLs Revenue Split (Consolidated)

Expect domestic CV growth
to remain healthy on the
back of cyclical upturn. On a
low base, we expect new
segment revenues to aid
industrial segment growth

Rs bn
Domestic CV
% YoY
Exports CV
% YoY
Domestic PV
% YoY
Exports PV
% YoY
Domestic Industrial
% YoY
Exports Industrial
% YoY
Subsidiaries/JVs
% YoY

FY15
6.3
25%
12.9
19%
2.1
5%
1.0
161%
6.2
11%
13.2
83%
30.8
-7%

FY16E
6.8
8%
14.7
13%
2.2
2%
1.7
60%
6.3
1%
9.1
-31%
25.9
-16%

FY17E
7.7
12%
14.4
-2%
2.4
10%
3.1
87%
7.2
15%
10.0
10%
28.9
12%

FY18E
8.6
12%
15.2
6%
2.6
10%
5.4
72%
8.4
16%
11.4
14%
32.2
11%

Source: HDFC sec Inst Research

Page | 4

BHARAT FORGE : RESULTS REVIEW 3QFY16

190

180

(5)

170

(10)
3QFY14

Source: Company, HDFC sec Inst Research

All Key Regions Witnessed Decline

Industrial Sales Mix Came Off to 33%

19

19

20

18

18

16

17

19

31

33

38

41

40

39

37

38

40
20

60
40

43

45

44

39

39

40

41

43

40

Source: Company, HDFC sec Inst Research

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

36

38

29

21

19

33

35

36

41

13

13

16

15

15

31

31

13

17

15

23

29

29

26

26

29

25

27

25

3QFY16

2QFY16

1QFY16

Exports Indl

4QFY15

26

Dom Auto (incl misc) Dom Indl Exports Auto

%
100
16
20
29
24
27
30
30
80

3QFY15

60

25

Asia Pac

2QFY15

80

Europe

1QFY15

100

Americas

4QFY14

India

3QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

200

Source: Company, HDFC sec Inst Research

3QFY14

Domestic sales dropped on

the back of a sudden decline
in the industrial segments
sales. Exports for industrial
and auto sales were weak for
the quarter

4QFY14

3QFY14

40.0

10

1QFY16

45.0

210

4QFY15

50.0

15

3QFY14

Net ASP decline is led by a

weaker mix and Rs 2,0003,000/MT on account of
commodity price deflation

220

3QFY15

55.0

20

2QFY15

35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0

% YoY - RHS

230

1QFY15

60.0

3QFY16

The company is operating at

70% in its Pune facility

Net ASP (Rs '000)

% YoY - RHS

4QFY14

Tonnage sales ('000 MT)

Net ASP Declining On Commodity Cost Pass Through

2QFY16

Weak Industrial Sales Hurt Overall Volumes

20

20
-

Source: Company, HDFC sec Inst Research

Page | 5

BHARAT FORGE : RESULTS REVIEW 3QFY16

BFL: One-year Forward P/E Chart

P/E

Avg P/E

BFL: One-year Forward EV/EBITDA Chart

+1 SD

-1 SD

40.0

Ev/Ebitda

Avg EV/EBITDA

+1 SD

-1 SD

25.0

35.0
30.0

20.0

25.0

15.0

20.0
15.0

10.0

10.0

5.0

5.0

Feb-16

Oct-15

Jun-15

Feb-15

Oct-14

Jun-14

Feb-14

Oct-13

Jun-13

Feb-13

Oct-12

Feb-12

Feb-16

Oct-15

Jun-15

Feb-15

Oct-14

Jun-14

Feb-14

Oct-13

Jun-13

Feb-13

Oct-12

Jun-12

Feb-12

Source: Bloomberg, Company HDFC sec Inst Research

Jun-12

Source: Bloomberg, Company HDFC sec Inst Research

Peer Valuations

Balkrishna Industries
Bharat Forge
Exide Industries
Jamna Auto
Ramkrishna Forgings
Suprajit Engineering

MCap
(Rs bn)
58
182
109
11
11
17

CMP
(Rs/sh)
600
780
129
139
401
139

Rating

TP

BUY
BUY
NEU
BUY
BUY
BUY

766
982
131
185
684
162

Adj EPS (Rs/sh)

P/E (x)
FY16E FY17E FY18E FY16E FY17E
57.2
52.1
69.6
10.5
11.5
32.7
38.7
46.6
23.8
20.1
7.0
7.7
8.7
18.5
16.7
8.1
10.2
12.3
17.1
13.6
25.3
36.0
52.2
15.8
11.1
5.3
6.4
8.0
26.2
21.8

EV/EBITDA (x)
FY18E FY16E FY17E FY18E
8.6
6.4
5.9
4.2
16.7
13.1
11.2
9.3
14.9
10.5
9.5
8.3
11.2
8.1
6.6
5.5
7.7
9.6
7.2
5.4
17.5
17.4
14.2
11.7

FY16E
21.7
19.5
14.0
29.6
16.4
24.2

RoE (%)
FY17E FY18E
16.5
18.7
21.1
21.7
14.2
14.7
30.7
30.5
19.8
24.0
24.3
25.2

Source: Company, HDFC sec Inst Research

Page | 6

BHARAT FORGE : RESULTS REVIEW 3QFY16

Income Statement (Consolidated)

(Rs mn)
FY14
Net Revenues
67,158
Growth (%)
30.0
Material Expenses
32,238
Employee Expenses
7,888
Manufacturing Expenses
11,183
Other Operating Expenses
5,548
EBITDA
10,302
EBITDA Margin (%)
15.3
EBITDA Growth (%)
30.1
Depreciation
3,571
EBIT
6,730
Other Income (Including EO
1,247
Items)
Interest
1,692
PBT
6,285
Tax (Incl Deferred)
2,100
Minority Interest
(29)
APAT
4,214
EO (Loss) / Profit (Net Of Tax)
772
RPAT
4,985
APAT Growth (%)
57.2
Adjusted EPS (Rs)
18.10
EPS Growth (%)
57.2
Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated)

FY15
76,247
13.5
33,811
9,051
12,706
6,271
14,408
18.9
23.2
3,624
10,784

FY16E
69,628
(8.7)
29,334
8,256
11,423
5,881
14,734
21.2
12.0
3,941
10,794

FY17E
77,020
10.6
32,396
9,033
12,729
6,400
16,461
21.4
1.0
4,051
12,410

FY18E
87,339
13.4
36,849
9,999
14,334
7,159
18,997
21.8
1.8
4,296
14,701

1,368

1,499

1,752

1,966

1,356
10,795
3,587
(29)
7,238
387
7,625
71.8
31.09
71.8

1,212
11,081
3,490
(29)
7,620
(400)
7,220
5.3
32.72
5.3

1,037
13,124
4,140
(29)
9,013
9,013
24.8
38.71
18.3

856
15,811
4,989
(29)
10,851
10,851
20.4
46.60
20.4

(Rs mn)
FY14
Share Capital - Equity
466
Reserves
26,367
Total Shareholders Funds
26,832
Minority Interest
170
Long-term Debt
25,613
Short-term Debt
Total Debt
25,613
Net Deferred Taxes
1,645
Long-term Provisions & Others
2,886
TOTAL SOURCES OF FUNDS
57,146
APPLICATION OF FUNDS
Net Block
25,283
CWIP
5,827
Goodwill
57
Investments
291
LT Loans & Advances
7,759
Total Non-current Assets
39,216
Inventories
10,386
Debtors
8,660
Other Current Assets
5,134
Cash & Equivalents
11,949
Total Current Assets
36,129
Creditors & Other Current
18,199
liabilities
Total Current Liabilities
18,199
Net Current Assets
17,930
TOTAL APPLICATION OF
57,146
FUNDS
Source: Company, HDFC sec Inst Research

FY15
466
33,976
34,442
(20)
25,464
25,464
1,638
2,987
64,510

FY16E
466
38,960
39,426
(50)
22,439
22,439
2,358
3,037
67,209

FY17E
466
45,459
45,925
(79)
18,679
18,679
3,195
3,087
70,805

FY18E
466
53,516
53,982
(109)
15,509
15,509
4,199
3,137
76,718

25,750
8,586
537
389
8,015
43,276
10,339
8,535
8,803
11,386
39,063

24,109
8,816
537
489
8,165
42,116
11,446
8,966
9,203
11,271
40,885

23,358
8,009
537
589
8,315
40,808
12,661
9,918
9,603
15,237
47,418

23,062
8,009
537
689
8,465
40,762
14,357
11,246
10,003
20,010
55,616

17,829

15,791

17,421

19,660

17,829
21,233

15,791
25,093

17,421
29,997

19,660
35,956

64,510

67,209

70,805

76,718

Page | 7

BHARAT FORGE : RESULTS REVIEW 3QFY16

Cash Flow (Consolidated)

(Rs mn)
FY14
Reported PBT
6,285
Non-operating & EO items
34
Interest expenses
1,692
Depreciation
3,571
Working Capital Change
(2,593)
Tax Paid
(2,100)
OPERATING CASH FLOW ( a )
6,889
Capex
684
Free cash flow (FCF)
7,573
Investments
(5)
Non-operating Income
509
INVESTING CASH FLOW ( b )
1,188
Debt Issuance/(Repaid)
(2,232)
Interest Expenses
(1,692)
FCFE
3,650
Share Capital Issuance
Dividend
(1,226)
FINANCING CASH FLOW ( c )
(5,149)
NET CASH FLOW (a+b+c)
2,928
EO Items, Others
(34)
Closing Cash & Equivalents
11,949
Source: Company, HDFC sec Inst Research

Key Ratios (Consolidated)

FY15
10,795
(40)
1,356
3,624
(4,021)
(3,594)
8,120
(7,330)
790
(98)
2,083
(5,345)
(149)
(1,356)
(715)
(2,099)
(3,604)
(829)
40
11,386

FY16E
11,081
(400)
1,212
3,941
(4,076)
(2,770)
8,988
(2,530)
6,457
(100)
(2,630)
(3,025)
(1,212)
2,220
(2,235)
(6,473)
(116)
400
11,271

FY17E
13,124
1,037
4,051
(1,037)
(3,303)
13,872
(2,493)
11,379
(100)
(2,593)
(3,760)
(1,037)
6,581
(2,515)
(7,312)
3,967
15,237

FY18E
15,811
856
4,296
(1,286)
(3,985)
15,692
(4,000)
11,692
(100)
(4,100)
(3,169)
(856)
7,667
(2,794)
(6,819)
4,773
20,010

FY14
PROFITABILITY (%)
GPM
52.0
EBITDA Margin
15.3
APAT Margin
7.4
RoE
20.2
RoIC (or Core RoCE)
7.6
RoCE
11.5
EFFICIENCY
Tax Rate (%)
33.4
Fixed Asset Turnover (x)
1.2
Inventory (days)
56.4
Debtors (days)
47.1
Other Current Assets (days)
27.9
Payables & Other Current
98.9
Liabilities (days)
Cash Conversion Cycle (days)
32.5
Debt/EBITDA (x)
2.5
Net D/E (x)
0.5
Interest Coverage (x)
4.0
PER SHARE DATA (Rs)
EPS
18.1
CEPS
36.7
Dividend
4.5
Book Value
115.2
VALUATION
P/E (x)
43.1
P/BV (x)
6.8
EV/EBITDA (x)
19.0
EV/Revenues (x)
2.9
OCF/EV (%)
3.5
FCF/EV (%)
3.9
FCFE/Mkt Cap (%)
2.0
Dividend Yield (%)
0.6
Source: Company, HDFC sec Inst Research

FY15

FY16E

FY17E

FY18E

55.7
18.9
10.0
24.9
12.1
14.8

57.9
21.2
10.4
19.5
11.3
12.8

57.9
21.4
11.7
21.1
12.5
14.7

57.8
21.8
12.4
21.7
14.6
16.2

33.2
1.4
49.5
40.9
42.1

31.5
1.2
60.0
47.0
48.2

31.5
1.2
60.0
47.0
45.5

31.6
1.3
60.0
47.0
41.8

85.3

82.8

82.6

82.2

47.1
1.8
0.4
8.0

72.5
1.5
0.3
8.9

69.9
1.1
0.1
12.0

66.6
0.8
(0.1)
17.2

31.1
48.3
7.5
147.9

32.7
47.9
8.0
169.3

38.7
56.1
9.0
197.2

46.6
65.1
10.0
231.8

25.1
5.3
13.6
2.6
4.1
0.4
(0.4)
1.0

23.8
4.6
13.1
2.8
4.7
3.3
1.2
1.0

20.1
4.0
11.2
2.4
7.5
6.1
3.6
1.2

16.7
3.4
9.3
2.0
8.9
6.6
4.2
1.3

Page | 8

BHARAT FORGE : RESULTS REVIEW 3QFY16

RECOMMENDATION HISTORY
Bharat Forge

Date
21-Jul-15
3-Aug-15
9-Oct-15
29-Oct-15
9-Dec-15
10-Feb-16

TP

1,500
1,400
1,300
1,200
1,100
1,000

CMP
1,112
1,165
931
814
828
780

Reco
BUY
BUY
BUY
BUY
BUY
BUY

Target
1,306
1,310
1,153
1,056
1,056
982

900
800

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

700

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9

BHARAT FORGE : RESULTS REVIEW 3QFY16

Disclosure:
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this report.
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Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Page | 10