Stock Market Result Update on Bharat Forge for 1QFY2012

Stock Market Result Update on Bharat Forge for 1QFY2012 with an Accumulate recommendation and a Target Price of `325 (12 months).

Strong standalone performance: Bharat Forge (BFL) registered strong 36.1% yoy (4.4% qoq) growth in its standalone revenue to `858cr, primarily aided by a 67.1% (6.4% qoq) and 17.4% (2.2% qoq) yoy jump in exports and domestic revenue, respectively. EBITDA margin remained stable on a yoy as well as qoq basis at 24.3%, despite a surge in commodity prices. As a result, BFL posted a 63.9% yoy (down 3% qoq) jump in its net profit to `97cr, beating our estimates, owing to better performance at the operating level and higher other income.

Consolidated performance, better than our expectations: BFL reported better-than-expected 37% yoy (1.5% qoq) growth in its top line to `1,568cr, largely aided by continued improvement in operations at its US and European subsidiaries. EBITDA margin came in marginally below our estimate at 15.8%, down by 23bp yoy and 56bp qoq. However, PBT came in above our expectation, up 60.4% yoy (2.3% qoq), to `153cr, largely aided by improved operating performance.

Outlook and valuation: We have revised our revenue and earnings estimates downwards to factor in the likely slowdown in the US and the European markets. Nonetheless, on account of the recent correction in the stock price, we maintain our Accumulate view on the stock. At `285, the stock is trading at 13.2x FY2013E EPS and 6.8x EV/EBITDA on a consolidated basis. Our revised target price works out to `325 (`351), at which levels the stock would trade at 15x P/E and 7.7x EV/EBITDA on FY2013E basis.