Buy Midcap Auto Sector Stock, Defence, Aerospace, & e-Mobility To Drive Growth, Sees Robust 23% Returns

ICICI Direct maintains a "Buy" call on Bharat Forge Limited (BFL) with a target price of Rs 1,050 apiece. According to the brokerage's given target price, investors buying the stock of the company at the current market price would likely get decent returns up to 23% on investments in 12 months.

BFL is India's leading auto component exporter with strong engineering, technological competencies in forging, metallurgy. With global forging capacity of 7 lakh tonne per annum, its products find application in domestic, exports markets across PV, CV, oil & gas, construction & mining, power, defence, etc. FY22 standalone segment mix - ~42% CV, ~44% Industrial, ~14% PV. FY22 standalone export mix - ~68% America, ~29% Europe, ~3% other.

Stock Outlook, Returns, and Market Capitalisation

The current market price of BFL's stock on NSE is Rs 857.40 per share. The stock recorded its 52-week high level at Rs 896.70 on 11 November 2022, whereas its 52-week low level was recorded at Rs 595 recorded on 8 March 2022, respectively. BFL is a midcap stock with a market valuation of Rs 39,919.57 Crore.
The stock in 1 month has fallen 2.46%, whereas, in 3 months it gained 8.86%. In a year, the stock has given 18.29% positive returns. In 3 years, it has given 92.59% positive returns. In 5 years, it has given 21.29% positive returns on investments.

Key Highlights of Analyst Meet

According to the brokerage:

• We attended BFL's analyst meet at Pune, last Friday and came away impressed by the capabilities that BFL has developed over the past decade especially in the defence, aerospace and e-mobility domains among others.
• It largely builds upon its key strength in the metallurgy and material science domain wherein the company has successfully traversed the path from being a critical component manufacturer to a sub-assembly and eventually becoming a total assembly manufacturer providing critical solutions.
• In terms of financial/growth ambitions of Vision 2030, key targets by FY30 include: (i) 12-15% revenue CAGR, (ii) EBITDA margin >20% at consolidated level, (iii) RoCE at 25% at consolidated level, up 500 bps from FY22 levels, (iv) capital allocation for organic/inorganic growth, dividend payout at 30%+.
• BFL's capabilities in defence space need special mention wherein it has indigenously developed armoured vehicles, ATAG guns (successfully tested, ready for induction in Indian Army, order anticipated anytime soon), bullet shell casing, etc, with IP rights staying with BFL and opportunity size in this space pegged at thousands of crores in the next decade.

 

ICICI Direct recommends buy For Rs 1,050 target price

BFL's share price has grown at~4% CAGR in the past five years (~Rs 696 in December 2017), outperforming Nifty Auto index in that time. "We retain BUY amid BFL's capabilities in auto, non-auto space with growth opportunities that lies ahead in defence, aerospace & e-mobility domains. Incorporating FY25E and rolling over our valuations, we now value BFL at Rs 1,050 i.e. 33x P/E on FY24-25E average EPS of Rs 31.7/share," the brokerage has said.

Key triggers for future price performance

With capacities & capabilities in place, sales, PAT are seen growing at CAGR of 15% over FY22-25E with EBITDA margins improving to 19.4% by FY25E.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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 check with certified experts before making any investment decision.