Stock Market Result Update on Bharat Forge for 2QFY2012

Stock Market Result Update on Bharat Forge for 2QFY2012 with an Accumulate recommendation and a Target Price of `323 (12 months).

Robust exports growth drives standalone performance: Bharat Forge (BHFC) posted better-than-expected 26.6% yoy (6.1% qoq) growth in its standalone revenue to `910cr, driven by robust 57.6% yoy (13.3% qoq) growth in exports revenue. The non-auto segment (up 24.1% yoy) and new facilities (up 86.4% yoy) also witnessed impressive growth in 2QFY2012. EBITDA margin slipped marginally by 56bp yoy (63bp qoq) to 23.7% due to higher manufacturing expenses. Led by stable operating performance, a substantial increase in other income and lower tax rate, net profit jumped by 56.1% yoy (9.2% qoq) to `106cr.

Strong consolidated performance: BHFC reported strong 25.3% yoy (flat qoq) growth in its consolidated top line to `1,559cr, aided by strong exports growth and continued improvement in operations at its US and European subsidiaries. Overseas subsidiaries revenue grew by 23.4% yoy to `649cr, while their operating margin expanded by 170bp yoy to 5.9%. Consolidated OPM expanded by 50bp yoy to 16.2%, leading to 55.2% yoy growth in PBT to `155cr.

Outlook and valuation: We expect BHFC to register strong revenue CAGR of 17% over FY2011-13E, led by robust growth momentum in exports and non-auto segments. Further, margin expansion led by rationalization of overseas capacities and moderating raw-material cost pressures will aid the company’s bottom line to post strong 31.5% growth over the same period. At `283, the stock is trading at 13.1x FY2013E EPS. We maintain our Accumulate rating on the stock with a target price of `323, valuing it at 15x FY2013E earnings.