Bharat Forge

While the core businesses of commercial vehicles (India and the US) and Oil & Gas would continue facing cyclical headwinds in FY21, the company is focusing on taking cost out and improving productivity. The new initiatives are targeted to contribute ~20% of revenue by FY25. It is targeting to reduce contribution from CVs to ~25% (from ~45% IN FY19) by ramp-up in the passenger vehicles and aerospace businesses.

Key Insights :

- Over the last three years, Bharat Forge has built a strategy to address the megatrends impacting the transportation industry with a focus on light weighting and e-mobility.

- In defence, it is focusing on four areas: artillery guns, ammunitions, special vehicles and air defence systems.

- It expects the core business of India CVs, US CVs and Oil & Gas to remain under pressure in FY20/21. However, passenger vehicles is a bright spot

- Aerospace is well poised for ramp-up with all certifications in place, enabling execution of orders on hand.

- Bharat Forge is taking advantage of the downturn to restructure its manufacturing to lower-cost locations within India (from Pune to Baramati). It had set some ambitious cost-cutting targets four months back and already attained 60% of those.

- Over FY19-25, it expects revenue growth to be driven by PVs (15-19% CAGR), aerospace (38-40%) and rail exports (~21%). New initiatives in e-mobility, defence, CLWT and BS6/Turbochargers are expected to contribute ~20% of revenue by FY25.

Valuation view: Bharat Forge is witnessing a downcycle in its core businesses, with Quarter 1 FY20 being the first quarter of an earnings decline. At the current price, the stock is factoring in these cycle pressures, as reflected in over 45% correction from the peak of Mar'18. The stock trades at 21.4x FY20E EPS

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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