Hold Bharat Forge; target of Rs 430: ICICI Direct

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ICICI Direct's research report on Bharat Forge

Bharat Forge reported weak numbers in Q1FY20. Standalone revenues came in at Rs 1,347 crore, down 8.6% YoY (domestic revenues down 7.4% YoY and export revenues down 10.8% YoY), tracking 8.9% drop in total shipment tonnage to 60,874 MT. Standalone EBITDA stood at Rs 350 crore, down 17.2% YoY, with attendant EBITDA margins at 26.0% (down sharply by 504 bps QoQ). Margins were hurt by rise in employee costs and other expenses as a percentage of sales. Consequently, reported standalone PAT came in at Rs 174 crore, down 23.7% YoY.

Outlook

However, we continue to derive comfort from the company’s healthy return ratio profile (RoCE 17.0%), ~7% FCF yield (FY20-21E) and limited leverage on balance sheet. Valuing the stock at 20x FY21E EPS of Rs 21.5, we arrive at a target price of Rs 430 and downgrade the stock to HOLD.

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