Hem Securities recommends `Buy` on Bharat Forge

Hem Securities recommended buying on shares of Bharat Forge (BFL) with a price target of Rs 410 in the short term as against current market price of Rs 350. (December 7)

Investment Rationale

> The company has posted a growth of 25 percent in the quarter-ended Sep on the back of high exports. Such a performance of the company along with appreciation in the Indian currency proves that the company has immense potential for increasing its sales outside India as well.

> The company has been able to increase its share of non-US expo-sure to 50 % by now. The company has been able to push sales of engine components in the outer world. The company has been planning to expand its operations over south East Asia.

> The company is engaged in talks with NTPC to establish a joint venture to set up a new Greenfield manufacturing facility in the country. The JV will be put into force by either reducing the exist-ing stakes or by infusing fresh equity. This JV if comes into force, will create immense opportunities for the company and the company will be manufacturing power plant equipment, including turbines, components and accessories, through technological tie-ups with other manufacturers.

Valuation:
Bharat Forge has been a pioneer company in the auto ancillary sector. The company has truly made India global by being one of the fastest growing Indian MNC.The company has its operations over 10 countries. The joint venture plans with the power sector giant NTPC is going to be a new step of its kind and the company will be able to foray into the power sector equipments category. The manufacturing facility of NTPC and Bharat Forge will take up fabrication, casting of forgings and pipings for various industries. This step will enable the company to diversify its operations and enter the emerging power sector and reap the potential benefits. The company has done exceptionally well throughout its inception and is expected to maintain its standards in future too. Since, the company has reduced its US exposure significantly; the depreciating dollar is also not going to have any serious effects on the bottom line of the company.

The stock is presently trading at Rs 350.00, which is about 5.91 times to its book value, and the price-earnings ratio stands at near 30 times. Since the stock is showing immense potential, the broking house strongly recommend a buy signal on the stock with the target price of Rs 410 in the short term.