Hold Bharat Forge; target of Rs 504: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bharat Forge

BHFC's Q3FY19 revenues grew 22% YoY to Rs16.9bn (below PLe estimate of Rs17.1bn), Operating margins however came in at 31.1%, ahead of our expectations of 26.1%, on account of better realisations (up 18% YoY / 5% QoQ on the back of an improved product mix). Despite the management expecting the North America Class 8 trucks current order book to sustain current levels of revenue for FY19/FY20, we don't expect the market to sustain further and expect a sharp decline in order to build from H2FY20 only relief being that the domestic CV industry could see some pre buying related to BS VI norms before Marchl 2020. Company has also increased its capex guidance for the next 2 years to Rs7.5bn (wherein Rs4bn is for Baramati capacity expansion, Rs2bn in new capacity at Nelor and Rs1.5bn in other capacities).

Outlook

Given that we are already at the down cycle for the class 8 truck market and not much clarity on revenues from other business we downgrade the stock to "Hold" from "Accumulate" with a target price of Rs504, based on 22x Sep'20E Standalone EPS.

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Read More First Published on Feb 18, 2019 02:10 pm