NEW DELHI: Kalyani Group‘s has received back-to-back earnings and price target upgrades following its March quarter earnings.
Analysts say the company’s global subsidiaries have turned around, reporting profit before tax (PBT) after a gap of two years, while the domestic non-auto segments continued to show resilience.
Most analysts have largely upped price targets for the stock and see scope of further rerating amid the emergence of new segments, such as renewables and light-weighting.
Nomura India sees the stock at Rs 924, CLSA at Rs 900, Edelweiss at Rs 880 , HDFC Institutional Equities at Rs 860, and Motilal Oswal Securities at Rs 850. These targets suggest up to 17 per cent potential upside over current market price.
Analysts said any delay in revenue rampup from the three new capacities and any change in the near- to mid-term demand outlook on exports remain key risks to the earnings upgrade cycle.
On Friday, the stock traded flat at Rs 760. It had hit a high of Rs 790.30 on BSE on Monday.
The company reported better-than-expected numbers for the March quarter, with revenues beating consensus estimates by 9 per cent and Ebitda coming in 20 per cent ahead of Street estimates.
The auto forgings company has been making significant inroads into oil and gas, defence, aerospace, and transportation businesses, which now account for over 50 per cent of standalone sales.
In March quarter, exports contributed 56 per cent of revenue against 49 per cent in the December quarter. This is led by the improving Class-8 truck demand in North America.
Nomura India is betting on a strong pickup in demand from the defence segment and sees opportunities for non-auto segments amid the push for import substitution under the government’s PLI (production-linked incentive) scheme. It expects demand for NA Class 8 tractors to hit a new high in North America by FY23 while non-auto exports, excluding oil & gas business, to benefit from the ongoing US stimulus.
This brokerage now values the stock at 18 times EV/Ebitda from 14 times earlier and sees scope of further rerating.
“Global subsidiaries continued to turn around, reporting positive PBT after a two-year gap. While lockdowns and global chip shortages could hinder the June quarter numbers, underlying revenue recovery should continue in the second half of FY22 and FY23,” CLSA said and suggested a price target of Rs 900 on the stock.
CLSA expects subsidiaries’ performance may continue to improve, driven by a higher revenue share from new aluminium forging facilities in the US and the EU.
“Our positive view on Bharat Forge is underpinned by its leadership position in automotive forgings, expected recovery in core segments and robust growth in nascent segments such as defence, railways, aerospace, e-mobility and light-weighting solutions,” Emkay Global said.
The company reported Rs 212.12 crore profit for the March quarter compared with a Rs 68.59 crore loss reported for the year-ago quarter. Consolidated revenue from operations stood at Rs 2,082.85 crore compared with Rs 1,741.92 crore in the year-ago quarter.
“The spate of changes in regulations coupled with deteriorating fundamentals of the underlying economy led to torrid times for the auto industry,” the company said in its earnings announcement.
The company said while the near-term outlook is negative, the medium- to long-term outlook is very encouraging, especially for the M&HCV sector.
The management is expecting volumes of Class-8 trucks to rise 50 per cent in FY22 to reach 3,00,000 units. In the defence segment, the company has decided to bring in the entire business under the listed entity, which should increase investor confidence.
The merger of the defence business with Bharat Forge by buying out the remaining 49 per cent stake in Kalyani Strategic Systems (KSSL) will help the company become eligible for larger bids, based on its improved net worth.
To give the defence segment a further boost, the company is also setting up a dedicated defence production facility near Pune to bring all its defence components under one roof.
The company’s recent acquisition of Sanghvi Forgings is seen helping Bharat Forge expand its presence in the industrial segment in India – particularly in the renewable area.
“Better clarity on cyclical and new revenue streams, reflected in management commentary and recent numbers, mark a strong earnings trajectory leading to upside risk to consensus earnings,” Edelweiss said.
HDFC Institutional Equities has revised its price target on the stock to Rs 860, valuing it at 34.5 times FY23E EPS against 32 times earlier) to factor in the reorganised group structure, emerging opportunities.