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Bharat Forge – Obstacles Remain

March 6, 2009

Adverse macro environment affects domestic and international operations – Parent revenues affected by slowdown in CV sales (~40-45% of parent revenues). We expect muted recovery, spurred by pre-buying in 3/4Q FY10. Overall revenues and profit estimates at the parent level benefit from a weaker rupee and incremental non auto exports. In the subsidiaries, we now forecast losses at the EBITDA level over FY10 – given the expected c40% slump in European truck sales.

Non Auto Business: There is no visibility of revenues in the non-auto business. Management has maintained its target of Rs5 bn in incremental revenues from the non auto business over FY10-FY11E. We factor in 50% of the potential revenue in our estimates, given the decline in oil and gas capex due to the sharp fall in oil price, and the slowdown in marine and general engineering industries.

Citi has cut earnings by 1-27% over FY09EFY11E. European business is likely to incur a loss. Bharat Forge is likely to report an EPS of Rs 8.39 for FY09 and Rs 6.21 for FY10.

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