Bharat Forge has always believed in staying in tune with emerging trends and
technology. The acquisition of CDP Aluminiumtechnik, now renamed as Bharat
Forge Aluminiumtechnik - BFAT Germany is one such example. This acquisition
marks the entry of Bharat Forge into the aluminium auto component segment. The
acquisition has further strengthened Bharat Forge’s position in the global Passenger
Car & Chassis Component business.

With BFAT, Bharat Forge has not only ensured a diverse portfolio of offering, but has
also enabled technical superiority, both in steel and aluminium. Allowing customers
to source the complete spectrum of forged auto components across steel & aluminium
segments from a single source.

  
    
BFAT is located at Brand-
Erbisdorf, near Dresden, an area
emerging as a major automotive
hub. BFAT has developed and
patented its technology of
aluminium forgings in Germany.
Its customers include major
automobile manufacturers such
as BMW, Audi, Volkswagen, Ford,
etc.

Aluminium is progressively
becoming the preferred material
for specialised hi-end automotive
applications due to its
significantly lighter weight and  
consequent advantages of fuel
efficiency. Bharat Forge, along
with its subsidiary CDP Bharat
Forge has a leadership position in
steel forgings for commercial
vehicle and passenger car
segment, and the acquisition of
CDP AT will widen the product
offering of the company. In a
nutshell, Bharat Forge now has
the capability to offer forging
solutions for any customer need
in passenger car chassis
components, across steel and
aluminium.
     

Products :

Significant player in Europe in the area of hi-end aluminium forged components used
in passenger cars and other automotive applications.

Manufacturers primarily chassis components for cars including control arms and
steering knuckles etc

  
     
 

Customers :

Major automobile manufacturers such as

BMW, Audi, Volkswagen, Ford, etc.  

    BHARAT FORGE LIMITED

 
(Source: www.bharatforge.com, www.myiris.com,www.hdfcsec.com)
Recommendation: HOLD   (BUY ON DIPS)
Sector: Auto Components Manufacturing
Home Country: India
Listed On: Bombay Stock Exchange & National Stock Exchange, Mumbai
Total Revenue FY 2005: Rs. 12.3 bn
Net Income FY 2005: Rs. 1.6 bn
Debt/Equity Ratio 2005: 1.29
Market Capitalization: Rs. 79.09 bn
Share Price May 15th, 2006: Rs. 407.25
Expected Earnings per share FY:
2006 : Rs. 12.9
2007 : Rs. 16.6
2008 : Rs. 21.2
Expected Price/Earnings Ratio FY: (expected EPS to current market price)
2006: 31.5
2007: 24.6
2008: 19.2
Dividend yield 2005: 0.8%
Estimated reasonable P/E ratio 2008: 20
Target Share Price end 2007: Rs. 424.00
(representing an increase of 4.2% compared to current market price)
Exchange rate as of May 16th, 2006: 45.44 Rs. for the US$
 
Company Profile
Bharat Forge is the second largest forging company in the world. It is one of the most advanced
companies in terms of technology in its industry. The company is a major global supplier of automotive
engine and suspension components. It manufacturers a wide range of forging products and machined 
components for the automotive, diesel engine, railway, earthmoving, cement, sugar, steel, coal, ship
building & oilfield industries and also general engineering equipment.
Bharat Forge is the largest exporter of auto components from India and a leading chassis component
manufacturer in the world. It has built up a strong capability in design and engineering, including a full
fledged product testing and validation facility, which gives Bharat Forge a Full Service Supply Capability -
from product conceptualization to designing to manufacturing and product testing & validation.
 
Analysis
Bharat Forge has positioned itself to take advantage of its global sourcing capabilities, sharing best
practices&benchmarking and benefit from synergies in manufacturing. The recent initiatives of the global
technology center, its acquisitions and the recently formed JV with FAW, China- make BFL a global
company. BFL remains a preferred component supplier for several global car companies and is a low cost
producer with the high technological capabilities. We remain positive on the growth prospects of the
company.
After the acquisitions of three global companies in 2 years time frame, the company has performed
another acquisition. Bharat Forge acquired Imatra Kilsta AB, Sweden with its wholly owned subsidiary
Scottish Stampings. The Imatra Forging group is the largest manufacturer of front axle beams and the
second largest crankshafts producer in Europe having manufacturing facilities at Karlskoga, Sweden and
Ayr, Scotland. Imatra Kilsta AB-Scottish Stampings has a forging capacity of 100,000-ton par annum.
Bharat Forge can now produce all of its core products like- crankshafts, beams, knuckles and pistons in
two locations worldwide and provide design & engineering and technology, and support close to the
customers for these products. With a strong long-term client relationship with auto majors in the world, the
company will continue to get benefit in the long run.
 
Valuation
Following the arguments as stated above we believe Bharat Forge will be able to grow its revenues, net
income and EPS substantially over the coming years. We estimate a growth rate of close to 30% for EPS
until 2008 and arrive at our above EPS estimates. Our estimated reasonable P/E ratio of 20 compares to
a market average of about 12 and P/E ratios for pure growth stocks of 25 to 28. As an industrial company
Bharat Forge can not be valued as a pure growth stock as the capital intensity of the business will make it
harder in the future to continue to grow at the present rate. Part of the growth might be financed by capital
increases, which would increase the number of shares outstanding and potentially limit the EPS growth.
With our estimates for EPS and the P/E ratio we arrive at our target share price of 424.00 Rs., which
represents only an increase of 4.2% compared to the current market price. Even with the excellent
profitable growth prospects of Bharat Forge we can only give a HOLD recommendation, as the stock is
valued so high already.