Broker's call: Bharat Forge (Buy)

| Updated on June 08, 2020

Reliance Securities

Bharat Forge (Buy)

CMP: ₹372

Target: ₹551

Bharat Forge Limited is the market leader in the Indian auto components space, the largest forging company in India, second largest forging company globally and the biggest exporter of automotive chassis components from India.

Strong rebound in automobile business post a major slump and strong double-digit growth in high-margin engineering business will be the biggest triggers for Bhart Forge’s earnings and valuation re-rating close to engineering conglomerates going forward.

Its standalone and consolidated margin is expected to improve by 420 bps (270 bps below peak) and 510 bps (160 bps below peak) over FY20-23E, respectively.

Considering the multiple positive triggers on revenue and margin front from a long-term perspective, we expect the stock’s valuation to steadily move towards its previous peak multiple. In light of Covid-led uncertainty and in line with shift in our focus to two-year horizon, we derive a two-year target price based on P/E multiple of 22x (20 per cent discount to historical mean P/E of 27x) FY23E earnings.

We initiate coverage on Bharat Forge with ‘buy’ and a two-year target price of ₹551.

Published on June 09, 2020

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