Bharat Forge Rises 16% As Brokerages Up Target Despite Q1 Loss

Shares of Bharat Forge Ltd. jumped to the highest in six months as analysts raised their target prices for the nation's largest exporter of automotive parts on the prospects of exports gathering pace and better outlook on defence business led by import curbs.

That comes even as the company reported a net loss of Rs 56.3 crore in the quarter ended June compared with a profit of Rs 174.1 crore a year ago. It also posted an operating loss of Rs 2.8 crore against the earnings before interest, tax, depreciation and amoritisation gain of Rs 349.6 crore in the year-ago period. The company's revenue dropped 68% year-on-year to Rs 427 crore.

But that didn't deter analysts from maintaining their bullish investment recommendations for Bharat Forge.

Of the 32 analysts tracking the stock, 13 suggest a ‘buy’, 11 suggest a ‘hold’, while the rest recommends a ‘sell’. The average of Bloomberg consensus 12-month target prices implies a downside of 20.2%.

Shares ended 15.6% higher - gaining the most in four months at Rs 502.9 - the highest level in six months.

Here’s what brokerages have to say about Bharat Forge’s first-quarter performance:

CLSA

• Upgrades to 'buy' from 'underperform'; raises price target to Rs 535 from Rs 325 apiece
• Positive Ebitda despite decline in revenue
• Significant cuts in fixed costs with more to follow
• Expects exports to gather pace in the second half of FY21 as business metrics for end markets appear to be bottoming
• Expects a significant uptick in its passenger vehicle revenue
• Should benefit from demand recovery and orders from new entrants in India
• Continuation of a synchronised global downturn in FY22 will be a key risk

UBS

• Maintains 'buy' rating; hikes price target to Rs 490 from Rs 450 apiece
• Defence business closer to fruition
• India business to recover in second quarter of FY21
• Defence import embargo improves likelihood of meaningful medium-term revenue from land and artillery systems
• Impact of cost cuts and digitisation to be more visible from second quarter of FY21
• Remains top pick on prospects of global cyclical recovery and defence optionality

Jefferies

• Maintains 'buy' rating; raises price target to Rs 535 from Rs 480 apiece
• First quarter was weak but there is a cyclical recovery ahead
• FY22-23 should be strong with truck up-cycles in the U.S. and India
• Domestic business bottoming out
• Sees tailwinds from passenger vehicles exports, new emission parts, defence and any manufacturing shift to India
• Sees potential for the stock to climb to about Rs 800 in the next two years

Motilal Oswal

• Maintains 'buy' rating; raises price target to Rs 500 from Rs 444 apiece
• Continued focus on de-risking the business
• Near-term challenges in the commercial vehicle business, while passenger vehicles business may see a ramp-up
• Aerospace and defence ramp-up to dilute weakness in oil and gas
• Better placed than previous cycles, and will emerge stronger with more diversified revenue streams
• Estimates consolidated revenue / Ebitda / profit to grow at 6%/19%/31% CAGR over FY20-23, respectively

Emkay

• Maintains 'buy 'rating; hikes price target to Rs 537 from Rs 363 apiece
• First quarter was weak but above estimates
• Expects domestic revenues to be better in second quarter of FY21 led by pick-up in passenger vehicles, industrial segments
• Expects total revenue growth to turn positive in second half of FY21
• Expects gradual recovery in major segments by second half of FY21 led by a low base, new products, addition of new customers and gradual pick-up in economic activity
• Medium-term growth to be aided by high-potential segments like defence, railways, aerospace and aluminium parts
• Expects revenue / earnings CAGR of 11% / 25% over FY20-23
• Raises FY21 EPS estimates by 13%
• Apply a higher multiple on improved demand outlook

Antique Stock Broking

• Upgrades to 'hold' from 'sell'; raises price target to Rs 457 from Rs 197 a share
• Early signs of cyclical revival in a few segments
• Near Ebitda-break even despite 70% revenue drop was commendable
• Sees improvement in class 8 truck order book and likely revival in domestic truck market from third quarter
• European operations are likely to continue making losses
• Cyclical dependency to continue
• Stock price will be more inclined towards cycle rather than financials

Kotak Institutional Equities

• Maintains 'sell' rating but raises price target to Rs 340 from Rs 285 apiece
• Growth prospects in non-auto, passenger vehicle segment remain strong over the medium-term
• Commercial vehicle segment to remain under pressure in the near-term
• Focus shifts towards cost savings
• Increases FY22-23E EPS estimates by 11-18%
• Valuations are expensive given that 55-60% of the standalone revenue comes from cyclical segments