BHFC’s Q2FY20 revenues declined 25% YoY (-6.5% QoQ) to Rs12.6bn (in- line), wherein shipment tonnage declined ~23% YoY (lower 12% QoQ), while net realizations declined 2.4% YoY (+6.3% QoQ) on account of a weak product mix. Operating performance were in-line with EBITDA at Rs3.2bn (PLe: Rs3.34bn). While the management plans to neutralize the impact of current OEM production decline by way of higher content per vehicle and increasing market share, it seems like a long drawn strategy and we expect domestic auto segment revenues to continue remain weak even in 2HFY20. The commissioning of its Baramati, Nelor and other capacity, ramping up of which will have an impact on margins over FY20/21E. We cut FY20/21 EPS estimates by 4.9%/1% and maintain Hold with a target price of Rs453 (earlier Rs430, based on 18x Sepr’21E Consolidated EPS.
customer addition in passenger car and ramp-up of new businesses would dilute the impact of weak CV segment. BHFC continues to focus on technology and intends to transform itself as component supplier to a solution provider. We believe ramp up in non-auto exports and increase in share of passenger car segment should partially negate impact of CV business slowdown. We maintain Hold with a target price of Rs430, based on 18x Mar-21E consolidated EPS.
However BFL’s strategy to shift into new technological products owing to change in regulation and ramp-up in electric vehicle globally will bring value migration per vehicle in the long run. We lower our Revenue and PAT estimate for FY20 by 11% & 28% to factor in sharp contraction in earnings. We value BFL at 18x (1yr fwd basis)FY21E EPS and downgrade our rating from Buy to reduce with a revised target of Rs376.
Retain BUY: At CMP of Rs460, BFL stock is quoting at PER of 17.5xFY21E earnings. We retain our BUY rating on the stock with a revised price target of Rs580 (PE of 22xFY20E – 25% discount to its 5 years 12M forward PE).
We expect the earning to grow by 19% for FY20E on the back of current order back log. After a strong growth in US truck sales for two consecutive years we are witnessing a 50% decline in average volume per month from Jan 2019 due to slowdown in global growth, affecting overseas subsidiaries margin. However BFL’s strategy to shift into new technological products owing to change in regulation and ramp up in electric vehicle globally will bring value migration per vehicle in the long run. We believe most of negatives have been factored in the price & current valuation look reasonable to its historical levels . We value BFL at 18x FY21E EPS and upgrade our rating to buy with a target price of Rs518.
For BFL, we factor in sales, EBITDA, PAT to grow at 3.1%, 4.4%, 7.2% CAGR, respectively, in FY19P-21E. We believe the company’s diversified productbase and strategy of improving wallet share will support growth prospects during expected CV down-cycle. We also derive comfort from BFL’s healthyreturn ratios and ~8% CFO yield. Valuing the stock at 21x FY21E EPS of Rs 25.5, we arrive at a target price of | 535 and retain our BUY rating.
WehaveloweredourFY20/21consol.EPSby~10%/2%to factor in headwinds in key businesses. BHFC has delivered strong operating performance over the last two years, led by strong recovery in all its key segments (CVs in the US and India, and Oil & Gas) and ramp-up in nascent businesses like PVs, aerospace, defense, etc. However, all three key businesses are staring at weakness in FY21, though BHFC would continue to outperform due to new products/customers. Also, noise surrounding the US-China trade war has resulted in the stock correcting over 30% from the recent highs (despite PAT growth of ~35% in FY19). Post correction, valuations are attractive at 19.8x/18x FY20/21 consol. EPS. Maintain Buy with TP of ~INR595 (~22x Mar-21 consol EPS).
The company has also increased its capex spend over FY19 & FY20 to Rs8.5bn for its Baramati, Nelor and other capacity expansions, ramping up of which will have an impact on margins over FY20/21E. Given that we are already at the down cycle for the class 8 truck market and revenues from other businesses are not sizeable enough still to compensate for the same, we maintain Hold with a target price of Rs513, based on 21x Mar’21E Standalone EPS.