Emkay Global
Target: ₹775
CMP: ₹663.75
The demand outlook for CY22 provided by 24 global entities, including CV/PV OEMs, non-auto companies and industry associations, offers a positive read-through for forging companies. India’s MHCV segment is expected to witness a strong 28 per cent volume growth in CY22. North America’s HCV segment is likely to grow 12 per cent and Europe 8 per cent in CY22. The outlook for CY22 remains unchanged, supported by large order books. However, the CY23 outlook has moderated to 9 per cent (vs. 22 per cent earlier) on account of macro uncertainties.
The order book is healthy, but the Russia-Ukraine conflict and China’s Covid lockdowns have created temporary supply issues. The outlook for the industrial segments remains robust owing to increased infra spends and an upturn in the oil & gas segment, which is likely to see up to 45 per cent growth in CY22.
For Bharat Forge (BHFC), we trim our FY23E/FY24 EPS by 3 per cent/5 per cent to account for some moderation in the demand outlook and lower margins. In a bear-case recession scenario, if we build in a 15 per cent drop in exports (excluding oil and gas segment), our FY24E EPS declines about 16 per cent).
Following the EPS revision, we expect a revenue CAGR of 14 per cent over FY22-24.