'Buy Bharat Forge, target price Rs 950'

Hyderabad Brokerage firm, Emkay Global financial services has given a buy call on Bharat Forge with a target price of Rs 950.

The brokerage expects robust growth in the industrial segment, and believes that the acquisitions of Sanghvi Forgings (happened in Jun'21) and JS Autocast Foundry India (JSA) are right steps in this direction. It reaffirms constructive view on BHFC, underpinned by its leadership position in automotive forgings, focus on diversification, and the continuation of cyclical upturn in the core segments. Medium-term performance should be supported by new segments, such as defense, railways, renewables, aerospace, e-mobility and lightweighting solutions. It maintains buy with a TP of Rs950, based on 27x P/E for the standalone business on Mar'24E EPS.

Recently Bharat Forge has entered into a definitive agreement to acquire 100 per cent stake in JSA for an upfront consideration and a fixed deferred payment at the end of the third year of operations.

Bharat Forge management has highlighted that the acquisition would be EPS accretive and is expected to be completed in four months. The acquisition will be done through BF Industrial Solutions, BHFC's wholly owned subsidiary.

Driven by the acquisition of JSA and Sanghvi Forgings, management expects the revenues of the renewable segment to increase to $100-million in the medium term and reiterated the target of doubling industrial revenues in three years, along with new client additions, where JSA has several clients who are already associated with BHFC.

JSA has witnessed robust revenue CAGR of 20 per cent in the past 5 years. JSA generates a large portion of its revenues of 45 per cent from overseas markets and there is scope for growing these revenues through combined efforts. The entry into iron castings will broaden the Bharat Forge's market in both domestic and overseas segments. Synergies are expected in the areas of procurement and foundry related activities, which will reduce manufacturing cost, the brokerage firm said.