Hold The Stock Of Bharat Forge, Set To Give 75% Dividend, Q2 Revenue Up 16% YoY

Top brokerage firm Emkay Global has given a hold rating to the stock of Bharat Forge. The Board of Directors of the company on November 14, 2022 considered, and approved an interim dividend of Rs. 1.50 per equity share of the face value of Rs. 2 each of the company, at the rate of 75%. The interim dividend is set to be paid on or before December 13, and November 25 has been fixed as the Record Date.

Stock To Hold: Target Price

The Current Market Price (CMP) of Bharat Forge is around Rs. 835.50. Emkay Global has estimated a Target Price for the stock at Rs. 820. This large-cap auto and auto-ancillary stock has a market capitalization of Rs. 38,955 crore. The 52-week high price of the stock is Rs. 896.70, while the 52-week low price of the stock is Rs. 595.

Quarterly earnings

Bharat Forge's Q2FY23 revenue grew by 16% YoY (3-yr CAGR at 14%) to Rs. 18.6bn, owing to inventory build-up with CV customers, execution of new orders in global PVs, and higher defense revenue. EBITDA declined by 1% (3-yr CAGR at 15%) to Rs. 4.5bn, led by higher revenue. Going forward, a muted outlook is expected by Paccar (OEM), Volvo (OEM), and Americas Commercial Transportation for North America Class 8 trucks for CY23/CY24 and Europe heavy trucks for CY23. Other income grew by 48% to Rs. 477mn. Accordingly, adjusted PAT declined by 5% to Rs. 2.68bn, above estimates due to higher operating profit and other income.

Stock Valuation

The brokerage firm said, "Considering subdued global CV outlook and limited upside potential, we retain hold with a Dec-23 target price of Rs. 820, based on 24x P/E for standalone and 13x P/E for subsidiaries. The increase in target price is due to rollover to Dec-23 valuation (Sep-23 earlier) and higher profitability for subsidiaries because of the recent order-win relating to artillery guns. Key upside risks are higher-than-expected growth in major segments, new order-wins, and favourable commodity/currency rates."

Key Upside

North America Class 8 outlook: Management expects steady production to continue at current levels (close to 28,000-29,000 production) in the subsequent months. Europe HCV outlook: Demand is flat currently and could be flat or negative in CY23. Domestic revenue is expected to be lower sequentially in Q3FY23; however, growth is expected to continue. 4) Defense: For export artillery guns order, the company would invest Rs. 300-400mn for the assembly facility. Forging-related revenue would be accounted in standalone.

Subsidiaries' performances

Overseas subsidiaries are expecting margin improvement from Q1FY24. Expect JS Autocast (subsidiary) revenue to grow by 10-15% in FY23, and the uptrend is expected to persist with a 20% CAGR over the next few years. Management expects double-digit margins in the next 2-3 years. Sanghvi Forgings' (subsidiary) annualized revenue rate has almost doubled to Rs. 1bn post the acquisition. Management is expecting a margin of ~20% going ahead.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.