Bharat Forge Limited (BFL) is an Indian multinational which is technology driven and a global leader in metal forming having a transcontinental presence across nine manufacturing locations, serving several sectors, including automotive, power, oil and gas, construction and mining, rail, marine and aerospace. It is part of the Pune-based Kalyani Group—a $2.5 billion conglomerate with a 10,000 global workforce. BFL today has the largest repository of metallurgical knowledge in the region and offers full service supply capability to its geographically dispersed marquee customers from concept to product design, engineering, manufacturing, testing and validation. It is also the world’s largest forging company with manufacturing facilities spread across India, Germany, Sweden and France, manufacturing a wide range of high performance, critical components for the automotive and non-automotive sector. The company has declared excellent results for the quarter ending 31 Dec 2017 on a year-on-year basis. It reported healthy earnings growth driven by strong commercial vehicles business and continued momentum in exports. Total revenue grew by a whopping 47% to Rs 1,390 crore, whereas net profit ballooned 78% to Rs 228 crore. While the domestic business grew by 33%, the export revenue almost doubled at 61% in the same period. During the period November 2017 to January 2018, the company bagged orders worth $60 million (about Rs 3,860 crore), while for FY18 year to date, the order book stood at $100 million (about Rs 6,400 crore). This stands way above the last year revenues of Rs 4,066 crore. The bulk of the wins have been garnered from passenger vehicles and the industrial sector (aerospace and oil and gas). Despite the sharp increase in commodity prices, manufacturing costs and appreciation of the rupee, EBITDA margins at 29.6% expanded by 80 bps compared to the same quarter of the previous year driven by better product mix, and enhanced productivity expansion. Looking ahead to Q4 FY18, the company expects to see continuation of strong underlying macros supporting demand improvement across geographies and businesses. Demand in Q4 is expected to be stronger compared to Q3 driven by continued growth in domestic commercial vehicle cycle. Bharat Forge has recently announced a strategic investment of up to Rs 30 crore for an eventual 45% stake in an EV (electric vehicle) startup by the name of Tork Motorcycles. Tork’s strength lies in its in-house team that has designed, developed and built the complete electric motorcycle. Bharat Forge is well prepared for the increased penetration of electric vehicles globally by offering complete solutions.
Most foreign and domestic portfolio managers are bullish on the Bharat Forge scrip and have maintained a Buy or a upgrade rating recommendation. BFL, currently quoting at Rs 745 on the bourses, can appreciate to Rs 950 per share in nine months time frame. The financial results of the company have also strengthened the conviction of investors that revenue/EPS should grow at a CAGR of 14/28% respectively over the next few years and hence it can be added on to the investment portfolio for future gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.