Bharat Forge: Recommendation Review

Bharat Forge is the second largest forging company in the world. It is a supplier to virtually all the global automotive original equipment manufacturers (OEMs) and has a majority of its revenues coming in from the automobile sector. The company’s global presence and efforts to diversify risks by spreading its operations to areas like capital goods, infrastructure, EPC, etc. had us recommending the scrip in DSIJ Vol 28 Issue # 3 (dated January 27, 2013), when it was trading at a price of Rs 260 per share.

However, since our recommendation, global and domestic macroeconomic cues have seen the stock prices of Bharat Forge falling by 18 per cent. The shape of the automobile industry in India has remained bad throughout FY13. Demand has been affected on various fronts and sales volumes have been indicative of a downward trend in the industry.

On the other hand, two rate cuts have taken place recently, and this is expected to ease the lending rates, which have been a major drag on the industry. Moreover, we had recommended the scrip with a two-year horizon, wherein we factored in an improvement in the overall economic situation. Automobile sales figures are a good indicator of economic health as they account for a number of vital factors. If these variables pan out as expected, Bharat Forge, which has such an extensive presence in the global automobile industry, is bound to see an uptick in its performance.

Also important to remember is its increasing presence in sectors apart from the automobile industry, which will help Bharat Forge shield the adverse impact to some extent and lend stability to operations. We thus recommend that investors hold the scrip to garner returns over time.