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Results above estimates; growth prospects remain positive

* BHFC's Q4 EBITDA grew 29% yoy to Rs4.3bn and came in 15% above our estimate, driven by better scale. Revenue grew by 28% yoy to Rs16.7bn, 12% above estimates on higher sales in the domestic industrials and overseas auto segments.

* We reduce our FY23E/24E EPS by 4%/3% to Rs25.6/Rs31.9, factoring in input cost pressures. Following the revision, we build in robust FY22-24E revenue/earnings CAGRs of 15%/21%, led by the cyclical recovery in the underlying auto and industrial segments in both domestic and overseas markets. Margins are likely to improve to 28.1% in FY24E from 26.9% in FY22.

* Our positive view on BHFC is 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, aerospace, E-mobility, and Light-weighting solutions.

* Retain Buy with a TP of Rs810 (Rs840 earlier), based on 24x P/E for the standalone business on Jun'24E EPS (25x Mar'24E earlier). Our target P/E multiple has reduced due to an increase in the cost of equity and a reduction in margin assumptions over the medium term in our DCF model.

What we like? 1) In FY22, the Indian operations secured new orders worth ~Rs10bn across automotive and industrial applications. This includes EV orders of ~Rs5bn. 2) In the US operations, new orders worth $150mn have been secured across steel and aluminum forging operations; xEV orders account for ~80% of aluminum orders. 3) The total EV order-book for Germany, US and India regions stands in excess of ~Rs15bn. 4) ATAGS has successfully completed field trials and orders are expected in FY23. 5) Export PV revenues are expected to grow at 30% in FY23, supported by pending orders.

EBITDA above estimates: Revenue grew by 28% yoy to Rs16.7bn (est.: Rs15bn), above estimates due to higher sales in the domestic industrials and overseas auto segments. Tonnage grew by 3% and realization grew by 24%. EBITDA grew by 29% to Rs4.3bn (est.: Rs3.7bn), above estimates, owing to operating leverage benefits. EBITDA margin expanded by 20bps to 25.7%. Accordingly, adjusted PAT grew 46% to Rs2.6bn (est.: Rs2.2bn), above estimates, mainly led by higher operating profits. Overseas subsidiaries’ adj. PBT profit stood at Rs147mn vs. Rs309mn last year. The profitability was impacted by cost pressures and the recent commencement of the US aluminum facility. Net debt (standalone) stood at Rs14.2bn as of Mar’22 vs. Rs16.3bn as of Dec'21.

Maintain Buy with a TP of Rs810, based on 24x P/E for the standalone business on Jun’24E EPS. Net debt-to-equity is expected to improve to 0.03x in FY24E from 0.24x in FY22E, with an average FCF generation of Rs14bn/year. Key risks: 1) lower-than-expected growth in key segments and geographies; 2) supply constraints at the company and customer-end; and 3) adverse commodity and currency rates.

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