Stock To Buy: Emkay Global Suggest This Auto Ancillaries Stock For 15% Upside In 12 Months

Emkay Global Research has recommended investors buy Bharat Forge Ltd stocks for a target price of Rs 775 per share. The demand outlook for CY22 provided by 24 global entities, including CV/PV OEMs, non-auto companies and industry associations, offers a positive read-through for forging companies. India's MHCV segment is expected to witness a strong 28% volume growth in CY22.

Stock Outlook - CMP, 52 Week Low & High, Target Price, Returns

This Bharat Forge's current market price (CMP) is Rs 679.20 per share. From the previous close of Rs 663.85 per share. The stock's 52-week low is Rs 595 per share. While the 52 week high is 847.95 per share. Taking into account the brokerage's anticipated Target Price of Rs 775 as well as the CMP, the stock could witness a 15% upside in 12 months.

Bharat Forge Ltd has delivered positive returns over the last 3 months. In the last 1 year, it has given negative returns of -10.19%. In 3 years and 5 years, it has given positive returns of 48.49% and 15.58%, respectively. The stock has delivered good returns over the years.

HCV volume growth outlook intact in CY22; moderation in expectations for CY23

With an order book of ~10 months, Volvo, Daimler, Paccar and ACT expect the HCV segment to grow strongly by up to 12% in North America and 8% in Europe in CY22. In May'22, US freight volumes declined by 18% YoY, while freight rates fell 11% (excluding fuel surcharge). However, freight volumes are still higher by 88% over the five-year average and rates are up almost 2x over the last two years. The outlook remains intact, and OEMs indicate that there is no increase in cancellations. The average age of the fleet for operators has increased by 10-15%, which should boost replacement demand and support volumes. However, the volume outlook for CY23 has been moderated to 9% (vs. 22% earlier) due to macro uncertainties. In comparison, India's MHCV segment is likely to grow strongly by 28% in CY22.

CY22 PV demand outlook positive, but supply issues persist

Volkswagen and Mercedes expect up to 10% growth in CY22 in their global businesses, led by pending order books and low channel inventories. The order book remains healthy, but the Russia-Ukraine conflict and China's Covid lockdowns have created temporary supply issues, resulting in some reduction in the Europe production outlook by IHS Markit to 5% from 7% earlier.

Volvo and John Deere expect the construction equipment (CE) and tractor segments to grow by 5-20% in the North America and Europe regions in CY22, driven by higher commodity prices and infra spends. ICEMA, ACE and Escorts expect positive growth for the CE and tractor segments in India in FY23. The North American oil & gas segment is expected to see a multi-year upcycle, with up to 45% growth in CY22, as per Halliburton and Schlumberger.

Brokerage's comments & Views, Target Price, and Key Risks

The brokerage said, "Following the EPS revision, we expect a revenue CAGR of 14% over FY22-24E, aided by growth in auto/industrial segments in both domestic and overseas markets. Moreover, nascent segments, such as Defense, Renewables, Aerospace, Railways, E-mobility and Light-weighting solutions, should provide support to overall revenues. Our revised Target Price of Rs 775 (Rs 810 earlier) is based on 24x Jun'24E EPS for standalone operations. Retain Buy."

The brokerage has also mentioned 3 key risk which are as follows: 1) lower-than-expected growth in key segments and geographies; 2) supply constraints; and 3) adverse commodity and currency rates.

About- Bharat Forge Ltd

Bharat Forge Ltd, headquartered in Pune, is a global industrial conglomerate, a part of Kalyani Group, a US 3 billion conglomerate with a 10,000 global workforce. The company is engaged in the manufacturing and selling of forged and machined components for the auto and auto Ancillaries sector. The company's interests include forging, automotive, energy, construction and mining, railways, marine, aerospace, and defence.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global Research. 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 taking any investment decision.