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Bharat Forge – Weak Castings

May 21, 2008

Recurring parent PAT at Rs 683m (+6% Y/Y), was in-line with estimates. EBITDA margin rose 70 bps y/y (50 bps above estimates) led by stronger growth in exports, and (we reckon) the attendant beneficial DEPB impact. However, slower growth in domestic demand, margin pressures due to rise in input costs, a volatile currency, and slower-than-expected turnaround in operations of subsidiaries and JV operations are a dent on its bottom line.

Although subsidiary operations are expected to improve over the next two years, parent PAT is forecast to account for c80-85% of consolidated PAT over the next 2 years – and parent operations are thus the key to long-term growth and profitability. We forecast strong earnings CAGR of 26% in standalone PAT over the next two years, driven by steady improvement in export sales (notably in non auto segment).

Bharat Forge’s EPS for FY09 is expected to be mere Rs 14.3 while that of FY10 is expected to hit Rs 20.25.

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