Brokerage Assigns Buy On This Midcap Stock, Gave 8.55% In 1 Week, Sees High Returns

Prabhudas Lilladher assigns a "Buy" rating to Bharat Forge given a buy with a target price of Rs 1,005/share. According to the target price given by the brokerage, the stock is likely to surge, giving positive returns on investments of up to 11%. It is a midcap Auto & Auto Ancillaries sector company having a market cap of Rs 42,305.71 crore.

Stock Outlook & Returns

The current market price of Bharat Forge's stock on NSE is Rs 908.65/share, 2.16% up from its previous close. The stock touched its fresh 52 week high today, 14 December 2022 at Rs 911, whereas its 52 wee low was recorded on 8 March 2022 at Rs 595.
The stock surged 8.55% in 1 week, whereas in 1 month it surged 5.75%. In 3 months, it surged 16.73%. Over a year, it has given 23.47% positive return. It has given 95.62% positive returns in the past 3 years and in 5 years it has given 31.91% positive returns. 

Defence - Time has come

Over the last decade, Bharat Forge has created an extensive defense product line and transformed itself from a component supplier to system supplier. It has already bagged export orders for artillery systems and remains poised to win huge orders from Indian army for ATAGs. Bharat Forge is already suppling KM4 vehicles to the Indian army. This vehicle is completely developed in-house by Bharat Forge. Defense revenue is expected to touch Rs 10bn over next few years, from Rs 3-5bn currently.

Light-weighting - Extensive growth opportunity

Bharat Forge's early entry into this segment has led to an impressive product portfolio. Currently, aluminum component business is ~15% of total turnover of overseas subsidiaries and management expects this to touch 40-45% by 2024. However, this industry is currently affected globally due to war situations and Europe's energy crisis. Bharat Forge has a strategical global footprint with plants in US, Europe and India. Management expects aluminum business to become a key growth vertical with multiple growth levers like expansion of customer, product and geographical base.

Aerospace

Bharat Forge caters to the component market of aerospace industry, especially exports and does component manufacturing for the commercial as well as defence aviation. Its key clientele includes, Boeing, Rolce Royce and Honeywell. The company plans to move up the value chain and make its way into sub-assemblies and integrated systems. It is trying to produce products like under carriage, transmission system and LRUs for Engines, Rotary wings etc.

E-mobility segment

Since 2017, Bharat Forge has entered into multiple strategic partnerships with Tevva, Tork Motors, REFU Drive, and ElectroForge. Tork (Bharat Forge has ~61% stake) is now scaling up production post receiving FAME-II certification in Oct-22. It has also entered into CV repowering (converting ICE to electric) which is first of its kind. This facility is expected to be ready by 1Q-2023 and has a capacity of 1000 CV conversions per annum. ElectroForge will manufacture electric powertrains for mediumduty CVs.

Components business

Bharat Forge is the largest exporter in this field (forging components) globally with 60+ global customers and ~68% of revenue coming from overseas. Over last few years, the company increased its focus in the PV business and is working with multiple international OEMs for EV components. Export visibility is healthy for next 1-2 years, as CV OEMs have healthy order book.

Casting (JS Autocast)

It is a leading manufacturer of high-grade machined ductile iron castings, used in wind energy, hydraulics, automotive and power generation sectors. The company has recorded 37% revenue CAGR since inception and 23% in the past decade. Going ahead, growth will be driven from key existing customers, new customers and segments like hydraulics, earthmoving & off-highway.

Capitalizing on industry tailwinds, buy for Rs 1,005 target price

The brokerage said, "We attended Bharat Forge's analyst meet, hosted at their Kalyani Centre for Technology & Innovation (KCTI) Pune. Management sited healthy growth outlook across segments by leveraging its investments in diversified businesses. Over the past few years, the company has redirected its focus from its traditional core business (forging components) to multiple opportunities present in segments like defense, aerospace, e-mobility, casting, light-weighting and industrial. Over 2020-2030, Bharat Forge aspires to be a key player in core components space along with expansion in industrial, electric and aerospace segments. Accordingly, a target of 12-15% revenue CAGR and 20%+ consol EBITDAM (19.3% in FY22) has been set for FY2030."

It added, "We remain positive on Bharat Forge led by (1) multiple growth levers in domestic & export automotive segment with cyclical turnaround in CV industry and easing of chip shortage going ahead, (2) strong double-digit growth in high margin non-auto business (3) rising traction in E-mobility segment and (4) potential revenue contribution from defense & renewable segment. Maintain ‘BUY' with a target price of Rs 1,005 at 28x standalone EPS (Rs 950 earlier) as we roll forward to Dec-24E."

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.