Bharat Forge: Earnings growth to accelerate with ~27% CAGR (FY14-17E)

Initiating Coverage | Sector: Automotive

Bharat Forge

BSE Sensex

25,190

S&P CNX

7,534

CMP: INR 579

TP: INR 710

Buy

Primed for recovery

Stock info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Earnings growth to accelerate with ~27% CAGR (FY14-17E)

BHFC IN

232.8

586/186

22/65/127

129.7

2.2



Financial Snapshot (INR b)

Y/E March

2015E 2016E 2017E

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Sales (x)

RoE (%)

RoCE (%)

71.9

12.0

5.2

22.5

19.4

25.7

4.4

12.8

2.1

18.2

18.5

85.7

15.3

7.5

32.3

43.7

17.9

3.7

9.8

1.7

22.4

23.1

99.3

18.0

9.1

38.9

20.4

14.9

3.1

8.0

1.5

22.6

25.5



131.9 157.2 187.9

Bharat Forge (BHFC) has emerged stronger, leaner and healthier from the

downcycle, driven by its proactive strategic shift towards a stable, broad-based

and greater value-adding business model. It is now one of India’s largest

engineering exporters.

It is primed for recovery in the global investment cycle. This, coupled with an

expanded product/market mix, would drive strong revenue CAGR of 16% CAGR

over FY14-17. EPS would grow at a CAGR of ~27%, aided by robust margin

expansion.

While the stock has outperformed over the last six months, there are several

triggers for continued outperformance. These include: (a) volume recovery led

benefit of operating leverage, (b) improving segment mix, (c) balance sheet

deleveraging, and (d) improvement in capital efficiencies.

Valuations at ~17.9x/14.9x FY16/FY17E consolidated EPS of INR32/INR39 are

attractive for a global leader in forgings and at a discount to the 5/10 year

average of 22x/26x. We initiate coverage with a Buy rating. Our target price of

~INR710 (~22x FY16E EPS) suggests an upside of ~23%.

Stronger, leaner and healthier

BHFC has broadened its revenue stream by entering new segments (non-auto)

and global markets. The share of auto business has declined from ~80% in FY07

to ~60% in FY13 and the share of India has reduced from ~60% to ~48% in

standalone operations. Further, it has increased value-addition by focusing on

machined components, the contribution of which has increased to ~51% in

FY13, boosting realizations and margins. Lastly, it has improved its balance

sheet by focusing on controlling debt through lower capex, resulting in fall in

net debt-equity to ~0.3x/0.2x by FY15/FY16.

Shareholding pattern (%)

As on

Mar-14 Dec-13 Mar-13

Promoter

Dom. Inst

Foreign

Others

46.7

14.5

16.3

22.5

46.7

17.5

13.8

21.7

42.1

19.0

9.7

29.3

Auto business – awaiting CV cycle recovery; focusing on PVs

Benefit of US Class-8 demand improvement, driven by pre-buying before

emission norm changes and gradual recovery in the EU would reflect in

FY15/FY16. BHFC is a clean play on the expected domestic CV cycle recovery

from 2HFY15, with over 60% market share in M&HCV components. The PV

segment is a focus area for BHFC and could be an important growth driver. This

segment offers an opportunity size 4x that of CVs.

Stock Performance (1-year)

Non-auto business – play on investment cycle recovery

The non-auto segment offers significant growth potential, as it is much larger

than the auto segment. BHFC is targeting ~60% of its standalone revenues from

the non-auto segment, up from the current ~40%. Its partnerships with global

players (Alstom, Areva, David Brown, etc) bear testimony to its globally cost

17 June 2014

Bharat Forge

competitive engineering/manufacturing capabilities. BHFC’s increasing

penetration with existing and new customers, coupled with economic stability

in the international market and investment cycle recovery in India, would drive

~24% revenue CAGR in the non-auto segment. Increasing contribution of non-

auto to consolidated revenues augurs well for profitability and capital

efficiencies, given the segment’s higher realizations, margins and asset turns.

Multiple levers to support/improve profitability

We expect consolidated revenues to grow at a CAGR of ~16% over FY14-17

(adjusted for FAW JV exit), driven by 22% CAGR in India revenues and 12%

CAGR in international revenues. EBITDA margin should expand ~290bp to

18.2%, driven by higher exports from India, rising contribution from non-auto

business and machined components, and operating leverage. BHFC has

sufficient capacities to drive over 25% revenue CAGR over the next two years,

necessitating maintenance capex of INR1.5b-1.8b per year. We estimate

cumulative FCF generation of ~INR21b during FY15-17, enabling reduction of

net debt to ~INR7b (net debt-equity of 0.2x) from ~INR13.4b (net debt-equity of

0.8x). Improving asset turns and profitability would drive improvement in

consolidated RoE to ~22.6% in FY17 from 17.9% in FY14 – the highest RoE since

FY07.

Valuations attractive for global leader in forgings; Buy

BHFC is primed for recovery in the global investment cycle. While the stock has

outperformed over the last six months, there are several triggers for continued

outperformance. These include: (a) volume recovery led benefit of operating

leverage, (b) improving segment mix, (c) balance sheet deleveraging, and (d)

improvement in capital efficiencies. Valuations at ~17.9x/14.9x FY16/FY17E

consolidated EPS of INR32/INR39 are attractive for a global leader in forgings

and at a discount to the 5/10 year average of 22x/26x. We initiate coverage

with a

Buy

rating. Our target price of ~INR710 (~22x FY16E EPS) suggests an

upside of ~23%.

17 June 2014

Bharat Forge

Stronger, leaner and healthier

Diversified revenues I Lower fixed costs I Declining debt-equity



BHFC has broadened its revenue stream by entering new segments (non-auto) and

global markets. The share of auto business has declined from ~80% in FY07 to ~60% in

FY13 and the share of India has reduced from ~60% to ~48% in standalone operations.



Further, it has increased value-addition by focusing on machined components, the

contribution of which has increased to ~51% in FY13, boosting realizations and

margins.



BHFC has worked on lowering its breakeven utilization in India (from 35% to 30%) as

well as in its wholly owned subsidiaries (from 60% to 50%).

Lastly, it has improved its balance sheet by focusing on controlling debt through lower

capex, resulting in fall in net debt-equity to ~0.3x by FY15.

Strategic

changes

to lend stability to business model

During the global credit crisis, BHFC formulated a revised business strategy to tide

over the volatility in the business and elevate itself to the next level.

Strategic changes: The focus areas

Diversification

New

markets

New

customers

New

sectors/businesses

Cost

reduction

Efficiency

Lower

breakeven

Reduce

working

capital

Fiscal prudence

Freeze on

capacity

Focus on

cash

Optimization

and rightsizing

of operations

Debt reduction

Source: MOSL

The benefits of these strategic changes are visible in BHFC’s financials in the current

downturn. We believe BHFC is now well placed to emerge much stronger, driven by

recovery in the investment cycle in India and globally. We discuss below the

company’s key initiatives that have helped it to emerge leaner and stronger.

1. Broadening of revenue base

Considering the deep cyclicality in the commercial vehicle (CV) business, BHFC

decided to diversify its revenue stream by increasing the share of personal

vehicle (PV) and non-automotive businesses. Geographical diversification to US,

Europe and RoW has helped protect BHFC against concurrent CV cycles in key

markets, globally. Its presence across segments and markets has helped to

largely insulate BHFC from cyclicality in the automotive business, resulting in 4%

CAGR in consolidated revenue CAGR over FY08-13 (from peak to trough).

17 June 2014

Bharat Forge

BHFC’s revenue mix getting more diversified

CVs - Dom

FY07

CVs - Intl

FY08

FY09

PVs - Dom

FY10

PVs - Intl

FY11

Non-Autos - Dom

Non-Autos - Intl

FY12

FY13

FY14

Source: Company, MOSL



New non-auto segments

The non-automotive forgings space, including conventional and non-

conventional energy, power, rail and marine, oil and gas exploration, metals and

mining, and aerospace offers a much larger market than the global automotive

forgings space. In FY06, BHFC started aggressively developing its industrial

components business and invested in large dedicated facilities in Baramati,

Satara and Pune. It targeted five key verticals – oil & gas, construction and

mining equipment, railways, marine engines and components, and aerospace.

Typically, these non-auto components are more complex and have higher

contribution levels per unit of sale. The non-auto segments contributed ~28% of

consolidated revenues in FY13 against 18% in FY08.

Non-auto revenue contribution has increased meaningfully (%)

Consol

Standalone

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL



New markets, segments and customers within auto:

The auto industry follows the cycles of emission technology changes every four

years or so. To reduce the impact of cyclicality, BHFC decided to diversify into

the PV segment and to have a presence across three continents – North

America, Europe and Asia. It is focused on creating a larger presence in PVs, as

this segment is much larger than CVs.

Supply to the PV segment has begun to

gain traction, as stricter emission norms will drive a shift to high performance

parts and from larger to smaller-yet-powerful fuel-efficient engines, in turn

driving the shift from castings to forgings. In the auto segment, BHFC

consolidated its position by increasing its customer base and penetrating deeper

into global markets through its Indian and overseas operations.

17 June 2014

Bharat Forge

Significant increase in contribution from international

markets (% of standalone revenues)

India

USA

Europe

Others

Trend in PV contribution (% of sales)

Standalone

Consol

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

Increasing share of exports from India (% of sales)

Consol

Standalone

Source: Company, MOSL

Why forgings v/s castings in PVs?

Forged components make possible designs that accommodate the highest loads,

operating temperatures and stresses. Economically, forged products are attractive

because of their inherent superior reliability, improved tolerance capabilities, and

the higher efficiency with which forgings can be machined and further processed by

automated methods. The degree of structural reliability achieved in forging is

unexcelled by any other metalworking process. There are no internal gas pockets or

voids that could cause unexpected failure under stress or impact. To the designer,

the structural integrity of forgings means safety factors based on material that will

respond predictably to its environment without costly special processing to correct

internal defects.

2. Focus on value addition

BHFC has evolved from (1) a supplier of forged components to (2) a supplier of

finished components to (3) a development partner for both auto and non-auto

industries. The movement up the value chain has accelerated over the past few

years across automotive and non-automotive components. This has been

achieved as a result of BHFC’s strong technological relationship and close

collaboration with major customers. Machining is the process of removing

excess material from the forging to meet the dimensions required by customers,

converting a forged part into a fully finished and ready-to-assemble component.

Focus on higher value addition has resulted in an increase in the contribution of

machined components to ~51% of standalone revenues from ~40% in FY08.

17 June 2014

Bharat Forge

More importantly, machined components offer higher profitability and have

lower capital intensity.

Increasing value addition evident in higher revenue contribution from machined

components and…

M/Cing Revenues (INR b)

% of S/A Revenues

% of Consol Revenues

FY08

FY09

FY10

FY11

FY12

FY13

Source: Company, MOSL

…reflecting in higher realizations and gross margins (%)

S/A Realizations (INR/ton)

Standalone

Consolidated

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

3. Leaner cost structure

In the last few years, BHFC has focused on reducing its fixed costs and bringing

down breakeven utilization at its domestic as well as international subsidiaries.

It has achieved this through restructuring of manufacturing facilities, rightsizing

of manpower in EU operations and optimizing fixed costs. BHFC has closed its

operations at Scottish Stampings and BF America, and is exiting the China JV. As

a result, it has been able to reduce breakeven utilization in India to 30% in FY13

(from 35% in FY08) and in Europe to 50% (from 60%).

17 June 2014

Bharat Forge

Restructuring of manufacturing operations led to closure of Scottish and American

subsidiaries, and exit from China JV

India

135

200

135

200

Europe

135

180

China

135

180

340

365

380

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

Trend in fixed cost

Fixed Cost (% of consol sales)

23.3

21.2

22.0

20.8

19.0

18.3

Trend in breakeven utilization

FY08

FY13

FY07

FY08

FY09

FY10

FY11

FY12

FY13

India

Europe

Source: Company, MOSL

Goals for next five years

For the next five years, BHFC has set the following goals:



Increase presence in PVs through new product development and customer

penetration.



Enhance market share in the industrial sector and create presence in the

aerospace sector.



Nurture the JV with Alstom to become a world class, cost competitive power

equipment manufacturer.



Focus on becoming a net debt-free company, improving return ratios and

generating cash flows.

17 June 2014

Bharat Forge

Auto business – awaiting CV cycle recovery

Focusing on PVs, offering 4x the opportunity size of CVs



Benefit of US Class-8 demand improvement, driven by pre-buying before emission

norm changes and gradual recovery in the EU would reflect in FY15/FY16.

BHFC is a clean play on the expected domestic CV cycle recovery from 2HFY15, with

over 60% market share in M&HCV components.

The PV segment is a focus area for BHFC and could be an important growth driver. This

segment offers an opportunity size 4x that of CVs.

Stricter emission norms would not only drive higher realizations for BHFC but also

improve its competitive positioning.

Highly levered to global and local CV cycles

BHFC is a leading global automotive forgings player, with manufacturing presence in

India and Europe. The top-5 global OEMs across CV and PV segments are BFL’s

customers. It has transformed itself from a supplier of components to a preferred

technology and engineering driven development partner for all industries that need

forged components. We expect BHFC’s market share to increase further, driven by

its full service supply capabilities, enabling it to build strong and sustainable

customer relationships. There is a trend towards de-integration of OEM facilities due

to emphasis on lower capital intensity, resulting in increased scope for outsourcing

components. On a steady state basis, the CV segment contributes ~58% of

consolidated revenues (~45% from international markets and ~13% from domestic

markets).

CV segment contributes ~55% to steady-state consolidated

revenues

CVs - Intl

CVs - Dom

Trend in HCV volumes and consolidated revenue growth

HCV Vol Growth (%)

60.0

40.0

20.0

0.0

-20.0

-40.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

* HCV volume growth for India, EU & US

Consol Revenue Growth (%)

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Industry, Company, MOSL

Source: Company, MOSL

17 June 2014

Bharat Forge

BHFC’s full service capabilities enable it to engage with OEMs right from development stage

Source: Company, MOSL

17 June 2014

Bharat Forge

International CV business outlook improving

BHFC is one of the global leaders in forged components for CVs, with strong

relations with key OEMs across the globe. Through several strategic acquisitions, it

has established manufacturing presence in Germany and Sweden and developed

dual-shore manufacturing capacities, giving it the ability to cater to the needs of

customers from multiple locations. The international CV business contributes ~45%

of its consolidated revenues. Exports of CV components from India account for ~30%

of total international CV revenues (~20% in FY10) and have been increasing post the

closure of American operations in November 2012.

Offshoring from India for international CV business to increase (% of international CV

business revenues)

From other operations

From India operations

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Source: Company, MOSL

US Class-8 CV volumes to pick up on pre-buys before emission norm change

in CY15

BHFC is largely focused on Class-8 trucks (HCVs) and light trucks. It has strong

relationships in the US CV market and has significantly increased its auto exports to

USA on the back of supplies to the M&HCV segment. Based on outlook given by

various OEMs, US Class-8 trucks are expected to grow 6-12% in CY14, driven by

replacement demand and economic recovery. Replacement of aging trucks

continues to be the primary driver of new purchases, with a near-record average

fleet age of 9.57 years. Trucks bought in the last peak in 2004-06 are now 8-10 years

old, supporting solid replacement demand. Repair costs ramp up after 4-5 years,

further driving replacement of trucks. Freight growth and regulatory changes should

encourage replacement of older equipment. Further, Class-8 truck cancellations at

5.2% of gross orders, is below the 10-year average of 9.1%. Cancellations have been

below 10% for the past 14 months, a positive indicator of fleet sentiment.

US/NAFTA

CY14 Growth (%)

Key comments

Volvo

The construction

market continues

to recover and

replacement

demand remains

high

Daimler

upto 10

Significant market

growth of up to

10% due to the

increasingly

dynamic economy

PACCAR

Cummins

upto 12%

Ongoing fleet

replacement and

some expansion of

industry fleet

capacity reflecting

modest overall

Source: Company, MOSL

17 June 2014

Bharat Forge

US Class-8 volume momentum positive since August 2013

Average age of 9.6 years for

Class-8 trucks coupled with

peak volumes during

CY05-08 augurs well for

replacement demand

CY11

CY12

CY13

CY14

25,000

20,000

15,000

10,000

5,000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec

Source: Bloomberg, MOSL

North America Class-8 cancellation data indicates positive

fleet sentiment

Trend in Class-8 truck volumes and average fleet age

Source: Bloomberg, MOSL

EU HCV volumes to remain stable after pre-buying in CY13

While BHFC is focused on luxury PVs in the EU, it is increasing its revenues from the

HCV segment in the EU through exports and BF Kilsta (Sweden). EU HCV volumes

had benefited from pre-buying before emission norm changes to Euro VI from 31

December 2013, registering ~8% growth CY13 (6% de-growth in 9MCY13). While

17 June 2014

Bharat Forge

1HCY14 HCV volumes would be sluggish due to the impact of pre-buying, OEMs

expect up to 5% de-growth in CY14, depending on sustenance of economic stability

and quantum of replacement demand. All leading indicators suggest stability in the

Euro zone economies, auguring well for recovery in HCV volumes in 2HCY14.

OEMs expect HCV demand to be sluggish in 1HCY14 due to pre-buying in 4QCY13

Europe

CY14 Growth (%)

Key comments

Volvo

Daimler

-4

slightly negative

Demand in

Developments during

Europe is

the rest of 2014 will

expected to be depend in particular on

slow in the

the extent to which the

beginning

economic revival in

of the year and Europe can offset the

then gradually negative impact of the

improve.

purchases brought

forward

PACCAR

0 to -10%

Some

customers are

purchasing

Euro 5 vehicles

ahead of the

introduction of

the Euro 6

emission

requirement in

2014

Scania

Pre-buys in Europe

during 2013 will impact

the first half of 2014

while Scania’s

assessment is that

economic activity in

Europe has stabilised

and that there is a

replacement need

Source: Company, MOSL

EU HCV volumes still well below peak of CY05-08 and near EU HCV volumes expected to be stable, despite 8% growth in

CY02 levels

CY13 due to pre-buying

CY11

CY12

CY13

CY14

35,000

29,000

23,000

17,000

11,000

5,000

Source: Bloomberg, MOSL

Euro zone industrial production indices showing sustained

Euro zone manufacturing PMIs indicate improving confidence recovery over last nine months

EU PMI

-2

-4

Industrial Production Indices (YoY %)

Source: Bloomberg, MOSL

17 June 2014

Bharat Forge

Domestic CV cycle to recover from 2HFY15; BHFC best play on CV cycle

recovery

After declining at a rate of ~25% over FY12-14, we expect domestic CV volumes to

recover from 2HFY15, driven by clarity on the new government-led kick-starting of

the investment cycle. We estimate 10%/23%/22% growth in CV volumes in

FY15/FY16/FY17. Given its strong positioning with key OEMs (including new

entrants), we believe BHFC is the best play on CV cycle recovery. BHFC enjoys over

60% market share for forged and machined automotive chassis and engine

components. Further, shift towards multi-axle vehicles and new generation trucks

would drive an increase in usage of forged parts, auguring well for BHFC. The

domestic CV segment contributes ~15% of consolidated revenues and ~25% of

standalone revenues. We expect BHFC’s domestic CV revenues to grow at a CAGR of

~21% over FY14-17E.

Domestic CV revenues (as a % of standalone and consolidated revenues)

% of S/A revenues

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

% of Consol revenues

Source: Company, MOSL

Trend in domestic M&HCV volumes

33.1

M&HCV ('000 units)

33.3

-0.7

184

276 274

31.9

7.5

200

-22.7

245 323 347 268

-25.5

220 271 330

90 111 71

Growth (%)

23.0 22.0

10.0

M&HCV ('000 units)

6.5 6.5 11.7 3.7

-12.6-14.3

Growth (%)

-3.5

-16.2

-14.6

-30.1-27.9

-31.6-32.5

-33.0

Source: Company, MOSL

PV segment a focus area; could be an important growth driver

The global PV market is four times larger than the CV market, but contributes just

~20% to BHFC’s consolidated revenues. While international PVs contribute ~16% to

consolidated revenues, the contribution of domestic PVs is just ~4%. We believe the

PV segment offers significant headroom to grow through increased penetration by

BHFC, benefiting from vendor consolidation in international business and emission

norm-led shift from castings to forged components.

In international PVs, BHFC recently bagged large multi-year orders for EUR250m

from a German OEM, in addition to multi-years orders from Ford and Daimler

17 June 2014

Bharat Forge

Chrysler. While Ford Motor USA has initiated development of crankshaft forgings

with BHFC, Daimler Chrysler has chosen it to supply crankshafts and camshaft

forgings for its car engines in Germany. BHFC has also won an order to supply

control arm forgings to a global passenger car company in Australia. In addition, it

has bagged a new multi-year order to supply steering knuckle forgings to Dana (US).

It has also begun supplying to its second Chinese customer, while exports to Renault

are being scaled. It has won a USD100m order in Europe, which will be executed

over the next five years. The management has indicated that BHFC will target to

supply ~1m crankshafts in the European passenger car market by FY18.

Global luxury cars witnessing strong growth

CY11

600,000

500,000

400,000

300,000

CY12

CY13

CY14

International PV contribution expected to increase

PVs

% of total

9,046

9,124

9,303

7,034

4,363

9,265

7,028

200,000

FY11

FY12

FY13

FY07

Source: Company, MOSL

FY08

FY09

FY10

Source: Company, MOSL

In India, passenger cars have traditionally used castings. The contribution of the

domestic PV segment to BHFC’s consolidated revenues is, therefore, small.

Progressively, with stricter emission norms and advanced turbocharged engines,

more forgings are being used. BHFC has been working with OEMs on their platform

development and will benefit when they launch new products using high

performance forged components.

Domestic PV revenue growth linked to industry fortunes

-13

-26

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company, MOSL

PV Vol Gr (%)

Dom. PV revenue growth (%)

Domestic PV business contribution to revenues

% of S/A revenues

% of Consol revenues

17 June 2014

Bharat Forge

Trend in domestic PV volumes

PV ('000 units)

27.0

22.9

11.8

7.0

6.4

1.7

Growth (%)

9.2

PV ('000 units)

13.6

0.6

-0.1

7.1

1.9

-4.8

-9.3

13.1

2.4

-6.0 -5.3 -7.0

Growth (%)

19.7

15.0 15.0

10.0

724 731 722 948 776 745 817 860 739 763 767 814 687

Source: Company, MOSL

Stricter emission norms to drive higher realizations, improve competitive

positioning

Emission norm changes have meaningful implications for the auto industry. To

adhere to reduced particulate emission, engines require significant changes. The

global introduction of Euro VI regulations required advanced powertrain solutions,

driving the shift towards high performance parts. According to Meritor, trucks

complying with Euro VI regulations command a price premium of ~EUR5,000 over

trucks complying with Euro V regulations. Such regulatory changes provide an

opportunity for BHFC to increase its presence in the global PV industry, driven by

technological shift from castings to forgings. Suppliers that emerge as preferred

partners for OEMs may be able to leverage their global scale to further reduce

technology costs and increase their industry influence. We expect BHFC to benefit

from the trend of vendor consolidation.

Source: Cummins Inc, MOSL

17 June 2014

Bharat Forge

Non-auto business – play on investment cycle

recovery

To benefit from increasing market/customer penetration



The non-auto segment offers significant growth potential, as it is much larger than the

auto segment. BHFC is targeting ~60% of its standalone revenues from the non-auto

segment over next few years, up from the current ~40%.



Its partnerships with global players (Alstom, Areva, David Brown, etc) bear testimony

to its globally cost competitive engineering/manufacturing capabilities.

BHFC’s increasing penetration with existing and new customers, coupled with

economic stability in the international market and investment cycle recovery in India

would drive ~23% revenue CAGR in the non-auto segment.



Increasing contribution of non-auto to consolidated revenues augurs well for

profitability and capital efficiencies, given the segment’s higher realizations, margins

and asset turns. BHFC’s international non-auto business is largely serviced by its more

efficient Indian operations.

BHFC plans to venture into

5-6 new sectors in the

coming 5-7 years, and make

each of these new verticals

USD100m businesses.

Non-auto segment drives diversification, growth and superior profitability

Non-automotive forgings, including conventional and non-conventional energy,

power, rail and marine, oil and gas exploration, metals and mining, and aerospace,

offer a global market much larger than automotive forgings. In FY06, BHFC set out

on a new growth path, where it focused on aggressively developing its industrial

sector components business and chalked out a large investment plan to develop

dedicated facilities in Baramati, Satara and Pune. It has developed and built strong

relationships with customers in the non-automotive space, with the number of non-

automotive customers more than doubling over the last 5-6 years. While existing

non-auto business can be broadly divided into three verticals – (1) energy, (2)

transportation, and (3) mining and construction, it is also exploring areas like

aerospace that have long lead times. It plans to venture into 5-6 new sectors in the

coming 5-7 years, and make each of these new verticals USD100m businesses. Non-

automotive forgings are more complex and have higher contribution levels.

Broad overview of BHFC’s non-auto business

Source: Company, MOSL

17 June 2014

Bharat Forge

Non-auto segment capacity in place for further scale-up

Facilities

Location

Capacity

40,000 TPA

Products

Large closed Die

forgings upto 2.5T

and 4.5m long

Machined

components supply

Large rings, Gear

blanks, connectors,

bearings, Valves

Forge ingots upto 70T

Industry

Energy sector, Hydro carbon exploration sector,

transportation including Aerospace, Railways and

Marine sector

Locomotives, Marine and power generation

Wind sector, Oil and gas sector

Centre for Advanced Manufacturing

80mtr Ton Hammer

Baramati

Machining Shop

Ring rolling facility

Baramati

12,000 nos

25,000 TPA

Heavy forge division

4,000T press

Machining facility for Heavy

forge division

Pune

60,000 TPA

Wind turbine components, Hydro, Gas and steam

turbine components and components for Mining,

Metal Industry and General engineering applications

Wind sector

Satara

1,400 nos

Machined

components supply

Source: Company, MOSL

JVs with global capital goods players testimony of its capabilities

BHFC has entered into JVs with global players like Alstom (for turbines in super

critical thermal power plants), Areva (heavy forgings for nuclear power plants),

David Brown (for industrial gear boxes) and NTPC (BOP equipment for power

sector). These JVs are a testimony to BHFC’s manufacturing/engineering capabilities

and inspire confidence in its ability to significantly scale-up the non-auto business

globally.

To benefit from eventual investment cycle recovery in both local and global

markets

The non-auto business is linked to the investment cycle, since it caters to

infrastructure development – energy, transportation, and construction and mining.

BHFC’s non-auto business revenues were impacted in FY13 due to macro headwinds

in both India and global markets, resulting in 5% de-growth in non-auto segment

revenues despite increasing traction with new customers/new segments. While the

economic outlook for the US and EU is stabilizing, the Indian economy seems to

have bottomed out with recovery expected from 2HFY15. International non-auto

revenues contribute ~19% of consolidated revenues, whereas domestic non-auto

revenues contribute ~9%.

Trend in non-auto business market mix

Domestic

International

100%

19,454

10,478

5,195 6,319

6,735

7,354

3,603

9,638

75%

50%

25%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company, MOSL

Non-auto market mix

International

India

6,661 5,102 5,606

3,525 3,095 5,450

2,075 2,202

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

17 June 2014

Bharat Forge

International market outlook stabilizing

Modestly improving economic growth in most developed markets should help

improve business prospects. Demand for capital goods is sensitive to changes in

business confidence and is correlated with economic swings. Key industry indicators

such as industrial production and non-residential construction point to a modest

uptick in growth for the global capital goods business. Revenues of global industrial

players also suggest that the pace of revenue decline has moderated. The CY14

outlook reflects cautious optimism, suggesting possibility of a gradual recovery in

the global investment cycle. Based on the outlook given by its key customers, the oil

and gas segment is expected to grow 8-10%, while power and mining and

construction are expected to remain stable. Currency movements have increased

the competitiveness of Indian manufacturing and created opportunities for export-

led business models.

International non-auto revenues

From India

From Europe

% of Consol revenues

4,245

2,490

FY09

1,522

2,081

FY10

3,034

4,320

FY11

6,529

3,949

4,768

6,353

3,880

1,315

FY07

4,493

1,826

FY08

FY12

FY13

Source: Company, MOSL

Manufacturing PMIs point to modest uptick

EU PMI

US PMI

Source: Bloomberg, MOSL

17 June 2014

Bharat Forge

Snapshot of comments by global capital goods companies

Segment

Power

Energy & Marine

Company

Alstom

Wartsila

Commentary

Demand in a number of markets is weak and should remain so in the short term and the level of

turnkey and equipment contracts booked is substantially lower than expected in Thermal Power.

Our market outlook for 2014 remains cautious, although a slight improvement may be seen in

certain areas. Based on our current order book and project pipeline we expect some growth in

net sales during 2014 and profitability to remain at a similar level to that of 2013.

There are encouraging signs in the world economy and we're seeing some in our own business,

and that gives us optimism for sales in our Construction and Power Systems segments and we

think they'll each be up about 5% in 2014.

The underlying global economic outlook will support a strong market, with spending on offshore

exploration and production growing 8 percent to 10 percent annually through 2017. Aker

Solutions expects several offshore drilling rigs and floating production facilities to be ordered over

the next 12 to 18 months.

We do not anticipate any significant recovery in the global economy in 2014 and thus expect

practically unchanged investment and project activity compared to 2013 in the markets served by

ANDRITZ, with some major projects likely to be awarded in the hydro and pulp sectors.

In the short term, there are some positive early-cycle macroeconomic signs, such as strengthening

growth in the US and the more encouraging growth in many parts of Europe. However, there are

also some uncertainties related to the impacts of quantitative easing and the speed and strength

of economic development in the emerging markets, especially China.

In North America, we expect our truck business to grow in 2014. We are forecasting that the 2014

market size for heavy-duty trucks to increase 8% YoY. While GDP is expected to grow in the

eurozone in 2014 for the first time in three years, we expect our revenues to be relatively flat.

Demand from our European-based Power Generation customers will remain weak in 2014, given

that most of these products are shipped to developing markets.

Despite the generally positive forecasts for the global economy, we continue to assume that

noticeable impulses will first be felt toward the end of the year. Well, our estimates and we're

conservative and if business picks up as it already has been indicated and has been forecasted, we

are prepared for taking benefit from this and so we can meet expectations.

While we think it's prudent to remain cautious on the global economy at this time, we're

increasingly confident in our 2014 outlook based on the momentum from the fourth quarter.

Source: Company, MOSL

Mining, Construction Caterpillar

& Power

Oil & Gas

Aker Solutions

Diversified

Industrials

Power &

Automation

Andritz

ABB

Power & Engines

Cummins Inc

Diversified

Industrials

Siemens AG

Diversified Industrials Honeywell

Oil & Gas spending is expected to grow at 11% CAGR

Order backlog for GE at all-timehigh levels (USD b)

Services

175

129

200

147

204

152

203

153

Equipment

210

157

216

160

223

166

Total

229

168

244

245

180

181

Source: GE, MOSL

Source: Wood Mackenzie, MOSL

Domestic non-auto segment play on investment cycle recovery

A strong decisive mandate in the recent Elections has re-kindled the expectations of

an uptick in India's investment cycle. In our opinion, India's capex J-Curve will be

kick-started by (1) reorientation of fiscal expenditure which could accelerate

spending on flagship projects, and (2) government's attempt to address the

17 June 2014

Bharat Forge

contentious issues in several sectors, leading to increased capex by CPSUs. This

phase will be followed with revival in industrial cycle culminating with traction in

greenfield projects.

Projects completed (as a % of projects under implementation) have touched

abysmally low levels of 3.4%, and impacted the virtuous cycle of cash flow

generation in the system. The initial round of demand improvement will be catered

to by fast tracking these projects. Cabinet Committee on Investments has already

cleared projects worth ~INR20t (~25% of the projects under implementation in the

economy) and with more last-mile push, attempt should be to expedite

implementation. Order finalization during May 2014 (ttm basis) stands at INR1.9t,

and is up 29% YoY. Order awards on a ttm basis have gradually inched up from lows

of INR1.4t in June 2013 to INR1.9t currently.

Domestic non-auto revenues impacted by economic slowdown

Domestic Non-Autos

% of S/A revenues

2,075

FY07

2,202

FY08

3,525

FY09

3,095

FY10

5,450

FY11

6,661

FY12

5,102

FY13

5,606

FY14

% of Consol revenues

Source: Company, MOSL

Outstanding Project Investments (% YoY): Phases of

Investment cycle slowdown

-10

Projects completed at low levels as economic viability poor,

impacting cash generation cycle

12.5%

10.5%

8.5%

6.5%

Projects completed had consistently

remained at 7%+ of projects under

2.5%

implementation

Projects Completed ttm, as % of Prj under Impl

Execution impacted

given

regulatory, financing

and viability constraints

4.5%

Source: CMIE, MOSL

17 June 2014

Bharat Forge

Few pockets of hope: Geographic diversification, cost optimization, new products, etc

Company

Voltas

Management Comments

Business prospects are somewhat brighter in certain Middle East geographies, with a clear-cut

investment thrust, especially in infrastructure and construction. This is more pronounced in Qatar, KSA

and most recently Dubai.

The company expects to end the financial year with a marginal organic growth largely contributed by

international markets as the domestic market continues to remain sluggish.

Base orders from a wider spectrum of customers helped offset dearth of large projects in the market.

Exports grew annulling the effect of a contraction in the domestic market opportunities.

We've taken adequate steps to increase our focus further on export markets, not only for Ethanol and

Brewery but also for emerging business.

Though our sales have been affected by the overall dismal business environment; we have been

constantly focusing on our product? market growth strategy. The company has stepped up its

investment in R&D activities to develop new products. International business has also been able to

widen its global footprint in South East Asia, East Africa and Middle East markets and has set up a

distribution and aftermarket network.

There are very limited opportunities in the market which have been available in the last nine months

and in the next, at least two or three quarters, but we have introduced new products in the market and

we have been able to curtail our expenses and costs, whereby we have been able to be competitive,

even though the market margins are lower.

While there is some improvement in the macro environment, the changes are gradual. We are seeing

growth in new order enquires which we are optimistic will translate in the next year. Agri equipment

continues to be a key growth driver and we have commenced work on our in house engine

manufacturing facility and expect to have this operational by end of year.

We have a reason to believe that the worst is over as long as gears are concerned and we believe that if

the election shows positive signs, gear is one of the barometers of the economy because our industrial

gearboxes go into all kinds of industries. So we believe that as soon as the economy starts improving,

the demand for this will keep on increasing.

The cash losses of the discoms of the UP, Rajasthan, Haryana, Tamil Nadu have reduced in the range of

42 to 54%, and all these four states are now paying subsidy upfront on a monthly basis. These are the

advantages and these are the turnaround which we are seeing after the implementation of FRP package

in all these four state.

There has been some improvement in demand from the hotel, hospital, commercial complex and

industrial segment.

Source: Company, MOSL

Elgi Equipments

ABB India

Praj Industries

Greaves Cotton

Thermax

Action Construction Equipments

Elecon Engineering

Power Finance Corporation

Blue Star

Order finalizations improve (12mma basis, INR B)

TTM Orders (INR b)

% YoY

-15

-35

Source: Company, MOSL

17 June 2014

Bharat Forge

“In all, we are aiming to

bag orders worth at least

USD100m from the

Railways and this is the

minimum we are targeting.

But selling crankshafts

alone won’t do enough, and

hence, we are also working

on other new products, but

it is too early to say what

they might be.”

…

with scope of market share gain and new segment driving faster growth

In the non-auto segment, BHFC has been focused on (a) new customer additions, (b)

higher value addition of critical components, and (c) expansion of product portfolio

with existing customers. Going forward, we expect the non-auto business to witness

stronger performance on the back of new contracts, improvement in economic

conditions and start of commercial supplies after the completion of product

validation processes for several ongoing programs. It has developed and built strong

relationships with customers in the non-automotive space, with the number of non-

automotive customers more than doubling over the last 5-6 years.

BHFC plans to venture into 5-6 new sectors in the coming 5-7 years, and make each

of these new verticals USD100m businesses. Typically, these products are more

complex, have longer lead times for validation and have higher contribution levels. It

has recently bagged its first order from the Indian Railways for locomotive

crankshafts. This makes BHFC the only indigenous components supplier for the

Indian Railways. The company is also executing, for the first time in India, a

technology-intensive project involving mechanized laying of tracks within India's

upcoming heavy axle load freight corridor. It has developed “demonstrator parts”

for the aerospace sector for global players.

"Ten years from today, we

are very confident that India

is going to emerge as a

large exporter of defence

products. Today, we are the

largest importer of defence

products. And we are going

to be a fairly important

player in this."

Mr Baba

Kalyani, CMD, Bharat Forge

Defence – next big opportunity

With stress on indigenous development, potential defence opportunity of ~INR400b

(defence imports in 2013) is being opened up. BHFC has building blocks in place in

the defence sector, with JV with Israeli company Elbit Systems focuses on land

systems—artillery and infantry equipment and tanks. This JV is developing a 155 mm

artillery gun. Further, BHFC also has a strategic alliance with Swedish defence and

security company Saab, and has a JV with David Brown catering to defence gearing

solutions.

17 June 2014

Bharat Forge

Overseas subsidiaries of strategic value

But yet to contribute meaningfully to financial performance



BHFC’s overseas acquisitions were driven by its need for enhanced access to

customers, markets and technology, and to develop a dual-shore manufacturing

model.



Though its overseas subsidiaries are yet to contribute meaningfully to financial

performance, they add strategic value. These subsidiaries contributed ~40%/8%/1% to

FY13 consolidated revenue/EBITDA/PAT.



BHFC’s exports from India have grown at a CAGR of ~25% over FY10-14, benefiting

from the enhanced access to customers and markets provided by these subsidiaries.

Acquisitions add strategic value, but meaningful financial contribution yet

to come

On realizing the need to be closer to international OEM customers and to widen its

reach with global automotive companies, BHFC embarked on a series of acquisitions

across geographies. This helped it to establish an international footprint and

strengthen long-term relationships with a wider customer base in newer markets

while offering greater access to technology. BHFC now has complementary

manufacturing capabilities, a diversified product range, strong focus on key markets

like India, US and EU. It has developed strong design and engineering capabilities

and relationships with more than 35 global OEMs and tier-I automotive customers.

Global acquisitions broaden BHFC’s horizon

Year of

acquisition

Equipment

capability

Products

BHFC

CDP BF

Nov-03

BF AluTech

Dec-04

BF America

Jun-05

4,000 to 6,000 ton

press lines

Strong focus on US

light truck market

BF Kilsta

Sep-05

2,500 to 16,000

Tons press lines

Significant focus on

heavy duty engine

components and

heavy components

FAW BF JV

Dec-05

1,600 ton to 12,500

ton press lines

Very wide

manufacturing

capability with

complete range of

forging equipment

End user

industry

Regional

focus

Current

Status

1,600 Ton to 16,000 4,000 to 8,000 Tons Aluminum forging

Ton press lines

press lines

presses

Full spectrum

Strong focus on

Manufacturer of

product capability passenger car chassis niche aluminum

with major focus on components

chassis components

CV engine and chasis

components and

passenger car engine

component

Passenger Car, CV Passenger car

Aluminum

and Non automotive railways,

components for

business

construction

passenger car

equipment

industry

India, USA, Europe & Europe, USA

Europe & USA

China

Profitable

Break-even

Light trucks

Heavy commercial

vehicles

Passenger car, CV,

buses

USA

Closed

Europe

Profitable

China

Exited

Source: Company, MOSL

BHFC has been focusing on effectively integrating its global operations and realizing

synergies between its global operations through (a) sharing of "best practices"

across its facilities, (b) leveraging different customer relationships and offering a

wider portfolio of products, (c) integrating R&D activities to enhance the scope of

product development and reduce product development time, and (d) cross-

fertilizing different plants with enhanced production capabilities. However, its

acquisitions are yet to contribute meaningfully to financial performance, with

~40%/8%/1% contribution to FY13 consolidated revenues/EBITDA/PAT.

17 June 2014

Bharat Forge

Snapshot of financials of key subsidiaries

INR m

Net Revenues

EBITDA

EBITDA Margins (%)

PAT

CY08

10,711

617

5.8

CDP BF

CY13

CY14E

9,794 11,320

935

1,215

9.5

10.7

410

589

CY15E

13,365

1,538

11.5

784

CY08

2,810

290

10.3

153

BF AluTech

CY13

CY14E

2,532

2,915

124

176

4.9

6.0

-7

CY15E

5,176

650

12.6

257

CY08

6,902

319

4.6

-328

BF Kilsta

CY13

CY14E

CY15E

5,508

6,358

6,874

378

588

669

6.9

9.3

9.7

162

235

Source: Company, MOSL

Trend in contribution of subsidiaries to revenues, EBITDA and PAT

Revenues

23,139

14,410

24,558

27,165

21,399

14,712

25,931

20,153

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

1,787 1,822

1,327

EBIDTA

1,114

697

946

432

535

PAT

811

760

(154)

(1,122)

(381)

(523)

(985)

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

Exports from India have benefited from access to markets and customers

BHFC’s acquisitions have given its India operations access to customers, markets and

technologies, translating into robust export business from India. Its exports from

India have grown at a CAGR of ~25% over FY10-14 and contribute ~57%/30% of

standalone/consolidated revenues.

BHFC is able to cater to customers through a dual-shore model. Its acquisitions are

playing a critical role in accelerating the pace of relationship building and business

initiation. Across businesses, it has been putting in continuous efforts for

upgradation and value addition. It is leveraging global synergies to grow the

business in a de-risked manner and move-up the value chain with the global

customers by progressively developing the supply partnership to the next level of

development partnership.

17 June 2014

Bharat Forge

BHFC is one of India’s largest engineering exporters from India, with a relatively diversified

segment mix

Source: CapitalLine, Company, MOSL

Exports from India have grown a CAGR of ~26% over

FY10-14…

Exports from India (INR m)

7,109 12,195 17,346 15,837 18,483 21,998 26,248 31,344

FY10

FY11

FY12

FY13

FY14

FY15E FY16E FY17E

Source: Company, MOSL

% of S/A

% of Consol

…reflected in expansion of standalone gross margins

Source: Company, MOSL

17 June 2014

Bharat Forge

Multiple levers to support/improve profitability

Operating leverage I Limited capex I Debt reduction



We expect consolidated revenues to grow at a CAGR of ~16% over FY14-17 (adjusted

for FAW JV exit), driven by 22% CAGR in India revenues and 12% CAGR in international

revenues.

EBITDA margin should expand ~270bp to 18%, driven by higher exports from India,

rising contribution from non-auto business and machined components, and operating

leverage.

BHFC has sufficient capacities to drive over 25% revenue CAGR over the next two

years, necessitating maintenance capex of INR1.5b-1.8b per year.

We estimate cumulative FCF generation of ~INR20b during FY15-17, enabling

reduction of net debt to ~INR7.7b (net debt-equity of 0.2x) from ~INR13.4b (net debt-

equity of 0.5x) in FY14.

Improving asset turns and profitability would drive improvement in consolidated RoE

to ~22% in FY17 from 17.7% in FY14 – the highest RoE since FY07.

Revenues to grow at ~16.6% CAGR over FY14-16

Net Revenues

Growth (%)

Significant headroom to grow from current capacities

Fixed Asset Turnover (x)

1.6

1.5

1.2

0.8

1.1

1.3

0.9

1.3

1.1

1.5

-18

-30

Source: Company, MOSL

EBITDA margins to improve to new highs (%)

S/A

Consol

Consolidated EPS to grow at 30% CAGR over FY14-16

EPS

Growth (%) - RHS

-37

-67

-72

Source: Company, MOSL

17 June 2014

Bharat Forge

Capital efficiencies to improve to highest level since FY07

RoE (%)

RoCE (%)

-4

-8

-1.1

-2.2

-2.6

-0.3

3.5

0.5

3.1

Improving CFO, minimal capex resulting in strong FCF (INR b)..

CFO

Capex

FCF

6.8

5.8

6.7 8.7

Source: Company, MOSL

…driving meaningful reduction in net debt

Net Debt (INR b)

1.0 1.0

0.8

0.6

0.4

0.6

Net Debt:Equity (x)

0.8

0.5

0.4

0.2

0.0

Dividend per share to increase steadily

Dividend (INR/Sh)

Payout (%)

28 24

Source: Company, MOSL

17 June 2014

Bharat Forge

Valuations attractive for global leader in forgings

Initiate coverage with Buy rating and target price of ~INR710

BHFC is trading at a

discount to historical

valuations, despite

significant transformation

in its business model



BHFC is primed for recovery in the global investment cycle. While the stock has

outperformed over the last six months, there are several triggers for continued

outperformance.



These include: (a) volume recovery led benefit of operating leverage, (b) improving

segment mix, (c) balance sheet deleveraging, and (d) improvement in capital

efficiencies.



Valuations at ~17.9x/14.9x FY16/FY17E consolidated EPS of INR29/INR37 are

attractive for a global leader in forgings and at a discount to the 5/10 year average of

22x/26x.



We initiate coverage with a Buy rating. Our target price of ~INR710 (~22x FY16E EPS)

suggests an upside of ~23%.

FY16 performance sensitivity to revenue growth

Rev.

Growth

(%)

EBITDA

Margins

(%)

15.6

16.4

17.8

17.9

18.6

19.2

EPS

(INR)

22.5

26.0

32.3

32.9

36.3

39.8

PE (x)

24.8

21.5

17.2

17.0

15.3

14.0

TP@22x

495

571

711

723

799

875

BHFC: Ten-year PE band

25.7

21.6

19.4

P/E (x)

5 Yrs Avg (x)

10 Yrs Avg(x)

Source: Company, MOSL

Source: Bloomberg, MOSL

BHFC: Five-year EV/EBITDA chart

EV/EBDITA

10 Yr Avg

5 Yr Avg

BHFC: Five-year P/B chart

8.0

6.0

9.8

10.7

9.4

P/B (x)

5 Yrs Avg (x)

10 Yrs Avg(x)

4.0

2.0

0.0

2.9

3.8

Source: Company, MOSL

17 June 2014

Bharat Forge

Financials and valuations

Income statement

Y/E March

Net Sales

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income - Rec.

PBT bef. EO Exp.

EO Expense/(Income)

PBT after EO Exp.

Current Tax

Tax Rate (%)

Reported PAT

PAT Adj for EO items

Change (%)

Margin (%)

FY12

62,791

23.4

52,826

84.1

9,964

15.9

3,022

6,943

1,860

915

5,998

1,796

29.9

4,202

39.1

6.7

FY13

51,666

-17.7

43,750

84.7

7,915

15.3

3,195

4,720

1,672

1,121

4,169

205

3,964

1,529

38.6

2,435

2,561

-39.1

5.0

FY14

67,161

30.0

56,890

84.7

10,271

15.3

3,579

6,693

1,692

1,249

6,250

-807

7,057

2,100

29.8

4,957

4,390

71.4

6.5

FY15E

71,871

7.0

59,876

83.3

11,995

16.7

3,596

8,400

1,615

1,498

8,283

3,041

36.7

5,242

19.4

7.3

(INR Million)

FY16E

85,701

19.2

70,431

82.2

15,271

17.8

3,802

11,469

1,460

1,556

11,565

4,035

34.9

7,530

43.7

8.8

FY17E

99,280

15.8

81,231

81.8

18,049

18.2

4,217

13,833

1,434

1,697

14,095

5,033

35.7

9,062

20.4

9.1

Balance sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Creditors

Other Current Liabilities

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

FY12

466

21,373

21,839

1,957

886

27,835

52,517

49,798

23,270

26,527

5,168

4,450

37,197

10,961

8,134

6,337

11,765

20,825

11,789

6,462

2,575

16,372

52,517

FY13

466

22,098

22,564

1,643

1,345

28,249

53,800

56,452

26,807

29,645

6,324

4,160

34,266

11,320

6,114

5,554

11,278

20,594

9,511

8,950

2,133

13,672

53,800

FY14

466

26,367

26,832

170

1,645

25,612

54,259

60,054

30,386

29,668

1,500

8,012

36,165

10,386

8,660

4,227

12,892

21,086

10,554

7,526

3,006

15,079

54,259

FY15E

466

30,246

30,712

170

1,645

23,612

56,139

63,184

33,982

29,203

1,750

8,012

39,520

11,814

8,861

5,049

13,796

22,346

11,814

7,526

3,006

17,174

56,139

(INR Million)

FY16E

466

36,141

36,607

170

1,645

21,612

60,034

64,934

37,784

27,151

1,750

8,012

47,741

14,088

10,566

6,636

16,451

24,620

14,088

7,526

3,006

23,121

60,034

FY17E

466

43,296

43,762

170

1,645

19,612

65,189

66,684

42,000

24,684

1,750

8,012

57,595

16,320

12,240

9,977

19,057

26,852

16,320

7,526

3,006

30,743

65,189

17 June 2014

Bharat Forge

Financials and valuations

Ratios

Y/E March

Basic (INR) *

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x) *

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Working Capital Turnover (Days)

Growth (%)

Sales

EBITDA

PAT

Leverage Ratio (x)

Current Ratio

Debt/Equity

* Adjusted for treasury stocks

FY12

18.0

31.0

93.8

4.0

25.8

FY13

11.0

24.7

96.9

3.4

38.0

FY14

18.9

34.2

115.2

4.5

24.7

30.7

16.9

5.0

2.3

15.2

0.8

20.0

17.8

1.3

1.2

23.4

26.9

39.8

1.8

1.3

11.7

11.6

0.9

1.0

-17.7

-20.6

-37.0

1.7

1.3

17.9

15.4

1.1

1.2

30.0

29.8

69.8

1.7

1.0

FY15E

22.5

38.0

131.9

5.0

26.0

25.7

15.3

4.4

2.1

12.8

0.9

18.2

18.5

1.1

1.3

7.0

16.8

18.6

1.8

0.8

FY16E

32.3

48.7

157.2

6.0

21.7

17.9

11.9

3.7

1.7

9.8

1.0

22.4

23.1

1.3

1.4

19.2

27.3

43.7

1.9

0.6

FY17E

38.9

57.0

187.9

7.0

21.0

14.9

10.2

3.1

1.5

8.0

1.2

22.6

25.5

1.5

15.8

18.2

20.4

2.1

0.4

Cash flow statement

Y/E March

N P/ (Loss) bfe Tax & EO Items

Depreciation

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

EO Expense

CF from Operating incl EO

CF from Investments

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

E: MOSL Estimates

FY12

5,995

3,022

-1,710

-2,307

5,000

2,373

7,372

-10,843

7,902

-1,940

-1,343

4,619

1,148

1,197

2,345

FY13

3,919

3,360

-1,193

-385

5,701

2,456

8,157

-2,896

-454

-2,111

-949

-3,513

1,748

2,345

4,093

FY14

6,693

3,579

-1,801

-2,733

5,737

588

6,325

-2,606

-2,637

-1,692

-1,226

-5,045

-1,326

4,093

2,767

FY15E

8,400

3,596

-3,041

-1,274

7,681

1,498

9,179

-3,380

-2,000

-1,615

-1,362

-4,977

821

2,767

3,588

(INR Million))

FY16E

11,469

3,802

-4,035

-4,360

6,876

1,556

8,432

-1,750

-2,000

-1,460

-1,635

-5,095

1,587

3,588

5,175

FY17E

13,833

4,217

-5,033

-4,281

8,735

1,697

10,433

-1,750

-2,000

-1,434

-1,907

-5,341

3,341

5,175

8,517

17 June 2014

Bharat Forge

NOTES

17 June 2014

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17 June 2014