Research:Edelweiss
Rating:Accumulate Edelweiss has maintained its ‘accumulate’ rating on Bharat Forge (BFL) from a long-term perspective. The company is currently in a phase of de-risking its current line of business and expanding forging capabilities to new non-automotive sectors such as oil and gas, railways, aerospace and defence. BFL is optimistic about the domestic commercial vehicle (CV) market and expects the CV demand to grow almost 10% in FY09E.
It expects a revival in sales to the US CV market from Q3 FY09E onwards. BFL hopes to improve operating margins of its overseas subsidiaries by 100 bps to ~9% over the next year, with efforts like product and process rationalisation constantly underway at every plant. The company is targeting utilisation levels of ~50-60% by the first full year of production. BFL’s margins are likely to start improving, given the commencement of its higher margin non-auto business, expected bounce-back in exports to the US and better sequential performance of its subsidiaries.
The company has also signed a memorandum of understanding (MoU) with National Thermal Power Corporation (NTPC) for investing in a new joint venture (JV) facility to manufacture components for power plants. It’s a 51:49 JV where the timelines for investments and execution are yet to be decided. Production at this facility is likely to begin in ~18 months from the start of construction.
