Bharat Forge – Value Creator

We rate Bharat Forge Ltd (BFL) a BUY. Flagship company of Kalyani Group, BFL is engaged in manufacturing forged and machined components for the automotive and non-automotive sectors. It is the largest exporter of auto components from India and leading chassis component manufacturer in the world. Manufacturing operations spread across 12 locations and 6 countries including four in India, three in Germany, one each in Sweden, Scotland, USA and two in China. Manufactures specialized components for the aerospace,  power, energy, oil & gas, rail & marine, mining & construction equipment and other industries. During Q2 2010, total income decreased by 48% y-o-y to INR7,107 million. BFL recorded net loss of INR407 million due to restructuring costs and redundancies charged.

Investment Highlights

Diversification into energy sector. As part of its strategy to migrate from a component manufacturer to a supplier of components & systems for the capital goods sector, BFL has identified the Energy sector (Wind, Thermal, Hydro & Nuclear) as a huge opportunity. It is proposing JVs with NTPC, Alstom and Areva to manufacture Balance of Plant for power sector, Turbines & Generators for sub & super critical power plants and heavy forgings for both nuclear & conventional power plants & other capital goods sectors.

Focus on automotive and non-automotive segments. By 2007-08, BFL had significant presence in engine and chassis components with a customer base comprising several OEMs. During this period of growth, it focused primarily on automotive forgings. After establishing itself in this market it diversified into non-automotive forgings. This move further de-risked the business and opened up opportunities of growth in large global market segment. Consequently, large investments were made and capacity creation plans were rolled out for non-automotive forging operations at Baramati and Mundhwa in Maharashtra

Global presence. BFL is present across key markets like US, India and Europe. Due to bad market conditions, production and demand for vehicles showed a negative trend across all markets. However, with economy showing signs of revival, demand and subsequently production is expected to pick-up thus providing scope for further expansion and penetration across markets.

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