MOSL: BHARAT FORGE (Buy)-Building blocks in place for the next phase of growth
BHARAT FORGE: Building blocks in place for the next phase of growth
(BHFC IN, Mkt Cap USD2.7b, CMP INR418, TP INR523, 25% Upside, Buy)
We attended Bharat Forge's (BHFC) Sell-side Analyst Day in Pune on 10th Oct'19. The theme of the meet was 'Looking beyond the cycle…Transformation continues,' where senior management shared insights on the initiatives for the new businesses (e-mobility, defence, etc.) and the focus areas for the existing businesses. While the core businesses of CV (India and the US) and Oil & Gas would continue facing cyclical headwinds in FY21, the company is focusing on taking cost out and improving productivity. The new initiatives are targeted to contribute ~20% of revenue by FY25. It is targeting to reduce contribution from CVs to ~25% (from ~45% IN FY19) by ramp-up in the PV and aerospace businesses. Key insights:
- Over the last three years, BHFC has built a strategy to address the megatrends impacting the transportation industry with a focus on light weighting and e-mobility. It is leveraging on internal strengths and external partners for e-mobility (Tevva Motors, Refu Electronics and Tork Motorcycle). This has helped create competencies on the electronics side.
- The idea of EV business allows BHFC and its customers to be FAME2 compliant (localization). All these above components would be made in India. For EVs, it offers EV powertrains, sub-systems (motors, inverter, converter, etc.), transmission and light weighting solutions (through Alu/Mg castings, carbon composites, etc.).
- In defence, it is focusing on four areas: artillery guns, ammunitions, special vehicles and air defence systems. It already has created seven platforms for artillery guns which are in different stages of testing and validation. It is expecting a major breakthrough in the next 2-3 years in defence, which should double revenues from the current ~INR4.8b (without any guns orders).
Bharat Forge Limited is engaged in the business of steel forgings, finished machined crankshafts, and front axles assembly and components. The Company's segments include Forgings and Projects (Capital goods). Forgings produces and sells steel forging products comprising forgings, finished machined crankshafts, front axle assembly and components, and ring rolling, among others. Projects (Capital goods) include engineering, procurement and commissioning business for power and infrastructure related projects. It manufactures a range of components for various sectors, including automobiles (across commercial and passenger vehicle), oil and gas, aerospace, locomotives, marine, energy (across renewable and non-renewable sources), construction, mining and general engineering. It has factories at Pune, Satara and Baramati. Its manufacturing facilities are spread across India, Germany, France and Sweden. It operates in Delhi, Noida, Hyderabad, Jamshedpur, Kolkata, Chennai and Mumbai.
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