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BUY Bharat Forge

October 29, 2007

You probably think we are insane to recommend a BUY when the SENSEX is at an all time high. Well our job gets really tough, when India an oil dependent economy has to face the burden of larger fiscal deficit with rising oil prices [$93 / barrel an all time high]. However, our analysts are extremely careful when they recommend a BUY. You will also see some Book Profits recommendation within the next few hours.

Bharat Forge’s standalone Q2 net profit was 27% ahead of estimates, driven by higher sales and huge surprise in margins. Therefore EPS forecasts is being raised. Following the 50% YTD stock under performance and strong growth visibility, the stock is a definite BUY.

Standalone margins expanded 420bps QoQ at 24.6% (MLe 90bps at 21.3%), driven by better utilization and cost control. This is despite the in-line impact of stronger rupee.Exports (~45% of standalone sales) surged 41% YoY, led by a ramp-up of new programmes in Europe (up 97%) and recovery in China (up ~350%, on a small base), which enabled increase non-US exposure to 50%.

Bharat Forge is expected to report an EPS of Rs 14.5 and 18.2 for FY08 and FY09 respectively. BUY with a target price of Rs 405.

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