Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Bharat Forge: Eyeing global leadership - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Bharat Forge: Eyeing global leadership

Apr 7, 2004

Bharat Forge (BFL), the world's second largest forging company, is aiming to acquire global leadership and in order to fulfill these global designs, the company acquired a Germany based blue chip forging company, Carl Den Peddinghaus (CDP), for a total consideration of US$ 35 m (Rs 1.5 bn). In this article, let us try and analyse the current deal and also have a look as to what the company is further doing to achieve global leadership. As can be seen from the chart below, BFL's exports, which accounted for nearly 40% of its revenues in FY03, were heavily reliant on the US markets. Even in the US markets, the company's expertise lied in the CV segment. Therefore, if the company had to continue with its robust growth, it became imperative for the company to tap the huge potential in passenger car forgings and at the same time diversify its presence across different markets. This is where the acquisition of CDP made a lot of sense.

There are quite a few synergies to be exploited between the two:

As is shown in the figures below, CDP is extremely strong in Europe with almost 80% of its revenue coming from these markets. It has a small presence in Asia, which accounted for just 5% of its revenues in FY03. BFL on the other hand has a strong presence in Asia with India and China accounting for nearly 70% of its revenues in FY03. Therefore, the latter's relatively thin presence in Europe is compensated by the former's strong presence in the same and vice-versa. In the US markets however, both are reasonably placed.

Apart from the geographical synergies depicted above, there exists a good fit of product synergies as well. While 51% of the CDP's revenues in FY03 came from the passenger car segment, it forms a small 6% of BFL's revenues. On the other hand, the CV market accounted for 63% of BFL's revenues, while it contributed 23% to CDP's revenues during the same year.

Therefore, the acquisition will not only help BFL in geographical de-risking, it will also help it in product de-risking. Since the company was heavily reliant on the US CV industry for its exports, the current deal will help it tap the enormous potential in the passenger car industry and that too in two of the strongest car markets in the world, the US and Europe. Moreover, the company's entry into China also augurs well for the company as the best names in the industry have their manufacturing base in China. Not only this, CDP has some top of the heap passenger car makers like BMW, Audi, Volvo and General Motors as its customers and hence BFL can leverage upon these strong customer relationships.

In view of the growth potential in the global arena, the company is planning to add capacities not only through acquisitions but also by expansions at its own plant in India. Therefore, the company is setting up two additional 6,000 MT press line to cater to the passenger car segment. It is also planning to set up a large forging press line to increase forging capacity to meet the demand for machined heavy-duty crankshafts. Besides, the company aims to be an end-to-end solutions provider and in this regard it is also setting up a full-fledged product testing and validation facility, expected to come up by mid FY05.

The capacity expansion plans would entail sufficient capital expenditure and the company has envisaged a capital investment of approximately Rs 3.5 bn in the next 12-15 months. While Rs 1.5 bn would be raised through a rights issue with attached warrants, the balance would be mopped up through company's internal accruals and debt financing.

The stock is currently trading at Rs 764, implying a P/E of 25x its expected FY04 earnings. The company is targeting revenues of US$ 1 bn by FY08, which would require it to grow at a CAGR of nearly 45% from its FY03 levels of US$ 156 m. Although, the company has shown a lot of aggressive intent in achieving its target so far, the bargaining power of an auto ancillary player is on the lower side and pressure on the auto industry will lead to squeezing of the company's margins.

Equitymaster requests your view! Post a comment on "Bharat Forge: Eyeing global leadership". Click here!


More Views on News

BHARAT FORGE Announces Quarterly Results (4QFY19); Net Profit Up 198.5% (Quarterly Result Update)

May 22, 2019 | Updated on May 22, 2019

For the quarter ended March 2019, BHARAT FORGE has posted a net profit of Rs 3 bn (up 198.5% YoY). Sales on the other hand came in at Rs 17 bn (up 13.8% YoY). Read on for a complete analysis of BHARAT FORGE's quarterly results.

BHARAT FORGE Announces Quarterly Results (3QFY19); Net Profit Up 35.8% (Quarterly Result Update)

Feb 18, 2019 | Updated on Feb 18, 2019

For the quarter ended December 2018, BHARAT FORGE has posted a net profit of Rs 3 bn (up 35.8% YoY). Sales on the other hand came in at Rs 17 bn (up 21.7% YoY). Read on for a complete analysis of BHARAT FORGE's quarterly results.

Sandhar Technologies IPO: Worth Betting on This Automotive Component Manufacturer? (IPO)

Mar 17, 2018

Should you subscribe to the IPO of Sandhar Technologies Ltd?

More Views on News

Most Popular

My Top 7 Stocks to Profit from Sensex 100,000(The 5 Minute Wrapup)

May 16, 2019

Tanushree Banerjee explains everything you need to know about the Rebirth of India and Sensex 100,000.

3 Indian Stocks Replicating Amazon's Successful Strategy(The 5 Minute Wrapup)

May 10, 2019

The one critical element that has made Amazon a force to reckon with...

3 Stocks to Bet on to Become a 'Dividend Millionaire'(Profit Hunter)

May 14, 2019

As markets continue to rattle amid earning season, upcoming elections, volatile crude price and US China trade war, it's a great idea to add some stability to your portfolio by adding dividend stocks.

Indian Steel: The Perfect Multibagger Opportunity(Profit Hunter)

May 17, 2019

A structurally strong Indian Steel Industry will help India achieve 8%+ GDP growth in the coming years.

The Bitter Pill that Will Lay the Foundation for Sensex 100,000(The 5 Minute Wrapup)

May 14, 2019

These companies will help the Sensex more than double from current levels.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


May 23, 2019 (Close)


  • Track your investment in BHARAT FORGE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks