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Bharat Forge slips on reports of brokerage downgrade

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Bharat Forge fell 3.89% to Rs 896.95 at 11:26 IST on BSE after a foreign brokerage reportedly downgraded the stock to sell from buy, citing weak operational outlook.

Meanwhile, the BSE Sensex was down 13.97 points, or 0.05%, to 26,832.56.

On BSE, so far 1.54 lakh shares were traded in the counter, compared with an average volume of 1.07 lakh shares in the past one quarter.

The stock hit a high of Rs 905.60 and a low of Rs 876.55 so far during the day. The stock hit a record high of Rs 1,362.90 on 6 April 2015. The stock hit a 52-week low of Rs 735.45 on 16 October 2014.

The stock had underperformed the market over the past one month till 12 October 2015, sliding 7.03% compared with 5.05% rise in the Sensex. The scrip had also underperformed the market in past one quarter, falling 11.01% as against Sensex's 2.74% decline.

The large-cap company has an equity capital of Rs 46.56 crore. Face value per share is Rs 2.

Despite recent stock correction, the brokerage still sees 20% downside, reports suggested. The stock witnessed a sharp decline recently following a consistent fall in new truck orders in the US.

According to reports, the brokerage has reduced fiscal year ending March 2016-fiscal year ending March 2018 earnings per share forecast by 7-26%, factoring in slower growth across businesses. It expects valuations to contract sharply, given weakening growth expectations.

The brokerage, however, likes long-term structural story of BFL given its improving capabilities, growth from new businesses (aerospace and passenger vehicle exports) and large headroom to grow industrial exports. However, it believes that benefits of these will play out gradually in coming years while simultaneous cyclical weakness across key end segments will have a significant impact in the near term.

Bharat Forge's operational outlook has weakened significantly on a worsening outlook for industrial exports, continued decline in new truck orders in the US, and slow recovery in its domestic industrial business, the brokerage reportedly said.

According to recent reports, order inflows for class 8 trucks (the largest size trucks) in North America fell by 21% to 19,460 units in September 2015 over September 2014 (preliminary data as per Freight Transportation Research). This is the seventh consecutive month of decline. Order inflows fell by 18.5% year-on-year (YoY) over the March-September 2015 period. This is also the lowest level of order inflows since October 2013. Over April-August 2015, production averaged around 28,000 per units per month, while order inflows averaged around 21,000 units.

Reports suggest that Bharat Forge derived around 20% of its financial year ended March 2015 (FY 2015) standalone revenues from the North American heavy trucks segment and a slowdown in this could have an impact on sales growth in financial year ended March 2016.

Bharat Forge's net profit rose 34.7% to Rs 195.32 crore on 14.4% rise in net sales to Rs 1103.58 crore in Q1 June 2015 over Q1 June 2014.

Bharat Forge (BFL), the Pune-based Indian multinational is a technology driven global leader in metal forming having transcontinental presence across nine manufacturing locations, serving several sectors including automotive, power, oil and gas, construction & mining, locomotive, marine and aerospace.

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First Published: Wed, October 14 2015. 11:29 IST