Bharat Forge Limited Project Analysis

Bharat Forge Limited
(Project of Corporate Finance of Prof. Ram Kumar Kakani)

by

Asokendu Samanta
(SMSID 104118, SID RB09035)

Post Graduate Certificate in Business Management (PGCBM 15)
Powai, Mumbai

1 May 2009, [11:00 a.m.]

A Project On Bharat Forge Limited 1

Bharat Forge Limited
(Project of Corporate Finance of Prof. Ram Kumar Kakani)

Asokendu Samanta
SMSID 104118, SID RB09035, PGCBM 15, XLRI, Center- Powai, Mumbai,
Email: asokendu@hotmail.com, May 1, 2009 [11:00 a.m.]

Abstract – Bharat Forge Limited (BFL), one of the world's largest forging companies is based in Pune,
India and has nine manufacturing plants in India, Germany, Sweden, United States, Scotland, United
Kingdom and mainland China. The flagship company of the USD 2.4 billion Kalyani Group was founded
by Indian billionaire Baba Kalyani in 1961 and is listed both in BSE and NSE. BFL manufactures various
forged and machined components for the automotive and non-automotive sector (Fig. 1). In this present
report, analyses of BFL, mainly from corporate finance point of view are made. Various aspects (cash
flow analysis, ratio analysis, capital budgeting, valuation of stock, working capital management, analysis
with its peers) are done chapter wise collecting data mainly from company’s website and annual report.
Sample calculations (ratio, NPV, IRR, Intrinsic value of stock) are shown in details and remarks are made
wherever required. At the end, conclusions are drawn in chapter seven analyzing all aspects.

Key Words: Bharat Forge Limited, Capital Budgeting, Cash Flow Analysis, Intrinsic Value, IRR, NPV

Fig. 1 Bharat Forge has the main business in automotive sector, though is expanding in various horizons
[Source: Company’s annual report 2007-08]

Asokendu Samanta (SMS ID 104118), PGCBM 15, Center: Powai, Mumbai


Contents
Abstract 1
Contents 2-3

Chapter 1 Profile of the Company 4-7

1.1 Introduction 4
1.2 Manufacturing Units and Products 5
1.3 Customer of Bharat Forge 5
1.4 Award, Recognition and Honors 5
1.5 Major Milestone and Financial Facts 6
1.6 Competitors of Bharat Forge Limited 7

Chapter 2 Financial Statement and Cash Flow Analysis 8-12

2.1 Balance Sheet, Profit And Loss, and Cash Flow 8

Chapter 3 Financial Analysis and Planning 13-22

3.1 Introduction 13
3.2 Common Size Balance Sheet and Income Statement 14
3.3 Ration Analysis 16
3.4 Comparison with Peer 20

Chapter 4 Valuation Of Stock 23-26

4.1 Introduction 23
4.2 Constant Growth Dividend Model 24
4.3 Two Phase Growth Dividend Model 25

Chapter 5 Capital Investment Decision 27-34

5.1 Introduction 27



5.2 Average Tax Calculation 29
5.3 Capacity Expansion Plan 29
5.3.1 Straight Line Depreciation Method 29
5.3.2 Written Down Value Depreciation Method 32

Chapter 6 Working Capital Management 35-37

6.1 Introduction 35
6.2 Short Term and Long Term Loan 37

Chapter 7 Conclusions 38

7.1 Summary 38

References 39
Abbreviation 39



Chapter
ONE

PROFILE OF
THE COMPANY

1.1 INTRODUCTION

B harat Forge Ltd. (Table 1.1), the flagship company of the US $ 2.4 billion Kalyani Group
(Ref. 1), is a leading global ‘Full Service Supplier’ of forged and machined - engine &
chassis components. It is the largest exporter of auto components from India and leading
chassis component manufacturer in the world. Global leadership is BFL’s dream and under
the visionary leadership of its Chairman, Mr. B. N. Kalyani, the company is steadfastly marching towards
its goal.

Table 1.1 Quick facts of Bharat Forge

Company Bharat Forge Limited (BFL)

Website www.bharatforge.com
Head Quarter Mumbai, Maharashtra, India
Established in 1961
Type Private (BSE, NSE)
Chairman Mr. B. N. Kalyani
Product Forged and machined - engine & chassis components
Total Employee 4000
Total Asset / Net Profit Rs. 2879.01 Crore / Rs. 273.59 Crore



1.2 MANUFACTURING UNITS AND PRODUCTS
With manufacturing facilities spread across 12 locations and 6 countries (Fig. 1.1), four in India, three in
Germany, one each in Sweden, Scotland, USA and two in China, the company manufactures a wide range
of safety and critical components for passenger cars, SUV’s, light, medium & heavy commercial vehicles,
tractors and diesel engines. The company also manufactures specialized components for the aerospace,
power, energy, oil & gas, rail & marine, mining & construction equipment, and other industries. It is
capable of producing complex large volume parts in both steel and aluminium.

Fig. 1.1 Global presence of Bharat Forge (Ref. 1)

1.3 CUSTOMER OF BHARAT FORGE
Its customer base includes virtually every global automotive OEM and Tier I supplier. Daimler Chrysler,
Toyota, BMW, General Motors, Volkswagen, Audi, Renault, Ford, Volvo, Caterpillar - Perkins, Iveco,
Arvin Meritor, Detroit Diesel, Cummins, Dana Corporation, Honda, Scania and several others source
their complex forging requirements including machined crankshafts, front axle beams and steering
knuckles from Bharat Forge.

1.4 AWARD, RECOGNITION AND HONORS
BFL is a recipient of several national and international honors, recognition and awards (Ref. 1). Forbes
Magazine has listed it for consecutive three years in its global “Best under a Billion” list. Automotive
Component Manufacturers Association of India (ACMA) has honored it over past four years for its export
excellence. Outlook recognized BFL as the Best Value Creator for 2004 among large companies. BFL has
also been awarded the Indo German Chamber of Commerce (IGCC) Award for ‘Outstanding



Contribution towards Promotion of the Indo-German Economic Relations for the Year 2005’. Bharat
Forge received GKD-NIQR award for “Outstanding Organization” in 2005.

1.5 MAJOR MILESTONE AND FINANCIAL FACTS
Mile stones and a few financial facts of Bharat Forge Limited are given in Table 1.2 (Ref. 1) and Table
1.3 (Ref. 2) respectively.

Table 1.2 Major mile stones of Bharat Forge

Year Mile Stone

1961 Incorporation
1962 Technical agreement with SIFCO, USA for hammer forging technology
1966 Start of hammer shop commercial production
1972 Execution of maiden export order to Greece
1984 Technical agreement with Tokyo Drop Forge, Japan for technology up-gradation
1985 Entry in the USSR market
1986 Technical agreement with Jidosha Buhin Kogyo, Japan for machining of front axle beams
1990-91 Breakthrough in the markets of Japan, USA and UK for the critical suspension and engine
components like front axle beams and machined crankshafts
1991 Implementation of a large US $50 million forging facility up-gradation program in Weingarten
(Germany)
1993 ISO 9002 accreditation
1996 Technical agreement with Metalart Corporation, Japan for small forgings
1999 QS 9000 accreditation
2004 Acquired one of the largest German Forging Companies, CDP Aluminiumtechnik now known
as Bharat Forge Aluminiumtechnik.
2005 Acquired Federal Forge in USA and Imatra Kilsta, AB, Sweden along with its wholly owned
subsidiary Scottish Stampings in Scotland. Signed a JV with FAW Corporation, - the largest
automotive group in China.

Table 1.3 A few financial facts of Bharat Forge (Rs. in crore)

Mar’ 08 Mar’ 07 Mar’ 06 Mar’ 05 Mar’ 04

Total Asset 2879.01 2841.19 2253.25 941.60 617.35

Total Income 2315.25 1938.55 1631.04 1226.47 851.14

Net Profit 273.59 240.95 206.97 161.63 124.91



1.6 COMPETITORS OF BHARAT FORGE LIMITED
Bharat Forge has a few competitors. The comparisons between them (Ref. 3) are shown in Table 1.4.

Table 1.4: Comparisons (March 2008) between Bharat Forge and its competitors

Share Price* Market Cap Sale Turnover Net Profit Total Assets
(Rs.) (Rs. Cr.) (Rs. Cr.) (Rs. Cr.) (Rs. Cr.)
Bharat Forge 125.60 2,796.51 2,196.50 273.59 2,879.01
Mahindra Forge 45.50 311.98 214.13 -14.17 974.09
Ahmednagar Forge 42.25 147.54 661.16 63.44 551.84
Jayaswal Neco 12.50 141.11 1,473.62 85.59 783.77
Hinduja Foundry 65.90 123.07 451.42 16.92 420.03

* At the close of 9 April, 2009

Market Cap (Rs. Cr.)
3,000.00
Sales Turnover (Rs. Cr.)

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
Bharat Forge Mahindra Forge Ahmednagar Forge

Fig. 1.2 Comparison (based on March 2008) of three companies
[Chart prepared by author collecting data from Ref. 3]

Analysis and Remarks: It can be observed from Table 1.4 that Bharat Forge is well ahead from its
nearest competitor Mahindra Forge in every aspect (market cap, sales, net profit and total asset). It
can also be observed that in spite of global economy meltdown, Bharat Forge made a good profit
(Rs. 273.59 cr) in March 2008, when Mahindra Forge suffered losses. The bar charts (Fig 1.2) of
Market cap and Sales turnover between Bharat, Mahindra and Ahmednagar Forge also establish
the supremacy of Bharat Forge.



Chapter
TWO

FINANCIAL STATEMENT
AND CASH FLOW ANALYSIS

2.1 BALANCE SHEET, PROFIT AND LOSS, AND CASH FLOW

B harat Forge Ltd. has a lot of associated companies. As such it has its own balance sheet and a
consolidated balance sheet. Similarly it has its own profit and loss account and cash flow and
a consolidated version. In the present project, emphasis is given on its own balance sheet,
profit and loss account and cash flow rather than consolidated versions. Certain important
financial statements of Bharat Forge are shown below. These are Balance sheet (Table 2.1), Profit and
loss account (Table 2.2) and Cash flow statements (Table 2.3) for the last five years.



Table 2.1 Balance sheet of Bharat Forge
[Arranged by author collecting data from annual reports, Ref. 2]

Balance Sheet
Rs (Crore)
Mar' 08 Mar' 07 Mar' 06 Mar' 05 Mar' 04
Sources of Funds
Shareholder's Fund
Equity share capital 44.54 44.54 44.46 39.56 37.68
Preference share capital 0.00 10.00 10.00 20.00 30.00
Reserves & surplus 1428.74 1272.26 1109.67 383.00 183.56
Loan Funds
Secured loans 461.58 373.57 381.60 383.21 219.05
Unsecured loans 825.91 1028.04 610.86 34.67 66.52
Deferred Tax Adjustment
Deferred tax liabilities 138.53 119.77 103.02 85.39 85.02
Deferred tax assets -20.29 -6.99 -6.37 -4.22 -4.47
Total 2879.01 2841.19 2253.25 941.60 617.35

Application of Funds
Fixed Assets
Gross block 2029.63 1735.06 1265.12 948.78 821.97
Less : accumulated depreciation 711.77 583.13 489.87 421.33 370.79
Net block 1317.86 1151.93 775.25 527.46 451.18
Capital work-in-progress 427.14 274.80 370.70 275.90 87.71

Investments 593.67 450.71 444.02 38.35 34.3765

Current Assets
Inventories 338.12 302.79 254.27 186.08 133.13
Sundry debtors 356.29 253.95 188.55 143.06 100.14
Cash and bank balance 164.99 736.28 505.41 28.13 8.60
Other current assets 88.11 83.67 91.31 66.44 44.32
Loans and advances 678.50 472.33 495.71 361.07 236.63
Current Liabilities
Liabilities 634.33 575.69 511.49 431.82 338.08
Provisions 451.33 309.80 361.73 257.37 148.78
Net Current Assets 540.34 963.52 662.03 95.60 35.96
Miscellaneous expenses not written 0.00 0.23 1.25 4.30 8.13
Total 2879.01 2841.19 2253.25 941.60 617.35



Table 2.2 Profit and loss account of Bharat Forge

Profit and Loss Account
Rs (Crore)
Income
Sales (Gross) 2293.21 1966.15 1632.10 1243.23 853.15
Less: Excise Duty 172.61 156.02 120.65 91.41 70.05
Net Sales 2120.60 1810.13 1511.45 1151.82 783.10
Operating Income 75.90 54.30 66.48 67.24 48.95
Other Income 88.40 80.88 53.11 7.40 19.09
Exceptional Income/(Expenditure) 30.35 -6.75 0.00 0.00 0.00
Total Income 2315.25 1938.55 1631.04 1226.47 851.14

Expenditure
Manufacturing Cost 1674.34 1396.83 1188.33 891.60 591.85
Profit before depreciation, interest and tax (PBDIT) 640.91 541.72 442.72 334.86 259.29
Depreciation 138.94 99.80 73.04 52.56 45.77
Profit before interest and tax (PBIT) 501.97 441.92 369.68 282.31 213.52
Interest 104.99 82.11 54.79 34.23 32.36
Profit before tax (PBT) 396.98 359.81 314.89 248.08 181.17
Tax 123.39 118.86 107.93 86.45 56.26
Profit after tax (PAT) 273.59 240.95 206.97 161.63 124.91

Table 2.3 Cash flow of Bharat Forge

Cash Flow Statement
Rs (Crore)
2007-08 2006-07 2005-06 2004-05 2003-04
A. Cash Flow From Operating Activities
Profit Before Tax (PBT) 396.98 359.81 314.89 248.08 181.16

Adjustment for Interest / Depreciation / Others
i) Depreciation and amortization 138.94 99.80 73.04 52.56 45.77
ii) Interest paid 104.99 82.11 54.79 34.23 32.36
iii) Other adjustments 5.24 9.41 3.77 5.23 6.88
Total 249.17 191.32 131.60 92.01 85.01

Adjustment for Dividend/ Other income
i) Interest received (27.98) (53.93) (29.12) (0.40) (0.48)
ii) Dividend (26.06) (16.21) (9.75) 0.00 0.00
iii) Profit on sale of investments (30.55) (0.38) (0.14) 0.00 0.00
iv) Other adjustments (1.08) (0.22) (3.83) (2.00) (3.02)
Total (85.66) (70.74) (42.83) (2.41) (3.51)



Operating Profit Before Working Capital Changes 560.48 480.39 403.66 337.68 262.67

Changes in Working Capital
(Increase) / Decrease in Current Assets
i) Inventories (35.33) (48.52) (68.18) (52.95) (6.72)
ii) Sundry debtors (106.29) (65.49) (45.41) (43.13) (19.53)
iii) Other current assets, loans and advances (71.09) (30.23) (59.01) (66.67) (50.27)

Increase / (Decrease) Current liabilities
Liabilities 96.37 65.82 85.73 50.26 91.18
Total (116.34) (78.43) (86.88) (112.48) 14.67

Cash Generated From Operation 444.15 401.96 316.79 225.20 277.33
Direct Tax Paid (98.52) (106.19) (98.55) (87.27) (54.38)
Net Cash From Operating Activities (A) 345.63 295.77 218.24 137.93 222.95

B. Cash Flow From Investment Activities
i) investment in subsidiary companies (52.05) (52.91) (152.16) (3.97) (34.38)
ii) (Increase) / Decrease in investment in MF (90.92) 46.22 (253.51) 0.00 (88.87)
iii) Capital expenditure (540.78) (286.91) (304.94) (260.34) (0.50)
iv) Interest Capitalised (0.82) (4.73) (5.42) (2.15) 8.49
v) Sale proceeds of assets 22.72 0.39 1.62 (2.02) 0.48
vi) Loan on wholly owned subsidiaries (41.49) (10.75) (4.46) (0.62) 0.00
vii) Non operating income- interest, dividend 84.59 70.06 38.38 0.40 0.00

Net Cash Used in Investment Activities (B) (618.75) (238.62) (680.50) (268.70) (114.77)

C. Cash Flow From Financial Activities
Increase / (Decrease) in share capital / borrowing (64.20) 319.22 455.66 127.98 (62.41)
Adjustments to net worth (38.03) 9.60 597.11 101.94 0.00
Interest paid (104.15) (77.89) (50.48) (34.70) (31.82)
Dividend (91.79) (77.22) (62.74) (44.92) (28.70)

Net Cash Used in Financing Activities (C) (298.17) 173.71 939.55 150.29 (122.93)
Net Change in Cash and cash Equivalents (A+B+C) (571.29) 230.86 477.29 19.52 (14.74)
Cash, Equivalent at Begin of Year (Opening Balance) 736.28 505.41 28.13 8.60 23.34
Cash, Equivalent at Close of Year (Closing Balance) 164.99 736.28 505.41 28.13 8.60



Analysis and Remarks

Analyzing the above mentioned statements, the following points can be observed.

1. It is observed from Profit and Loss account that net profits have been increasing constantly from
2003-04 to 2007-08 with a growth of nearly 15%, which is a healthy sign of the company.

2. Cash flow from operating activity is increased steadily from 2005-06 to 2007-08. In terms of
growth it is 35.53% from 2005-06 to 2006-07 and 16.85% from 2006-07 to 2007-08. This is
mainly because sales have increased at a rate of 16-20 %.

3. Cash flows from investment activity are fluctuating. In 2004-05 it was (268.70 cr), in 2005-06 it
was (680.50 cr), in 2006-07 it was (238.62 cr) and in 2007-08 it was (618.75 cr). It is observed that
Bharat Forge has invested a good amount (540.78 cr) in capital expenditure recently in 2007-08,
leading to a huge cash outflow. This is mainly because of its expansion plan in Pune for close die
forging and crankshaft machining (details are given in capital budgeting chapter, chapter 5)

4. Cash flow from financial activity is negative in recent year 2007-08. This is mainly because
decrease in share capital and outflow due to dividend and interest paid. In 2005-2006, there was a
huge inflow of cash from financial activity due to adjustment of net worth.



Chapter
THREE

FINANCIAL ANALYSIS
AND PLANNING

3.1 INTRODUCTION

B In this chapter, financial analysis and planning of Bharat Forge are discussed. Common size
balance sheet (Table 3.1) and income statement (Table 3.2) are prepared for ready
comparison. Various ratios are calculated. These are mainly short term solvency ratio, long
term solvency ratio, turnover ratio and profitability ratios. Sample calculations of each ratio
for financial year 2007-08 are shown. These ratios are compared with its nearest peer Mahindra Forge.
Analysis and remarks are made whenever is applicable.



3.2 COMMON SIZE BALANCE SHEET AND INCOME STATEMENT

Table 3.1 Common size Balance Sheet of Bharat Forge

Common Size
Balance Sheet
Sources of Funds
Shareholder's Fund
Equity share capital 1.55 1.57 1.97 4.20 6.10
Preference share capital 0.00 0.35 0.44 2.12 4.86
Reserves & surplus 49.63 44.78 49.25 40.68 29.73
Loan Funds
Secured loans 16.03 13.15 16.94 40.70 35.48
Unsecured loans 28.69 36.18 27.11 3.68 10.77
Deferred Tax Adjustment
Deferred tax liabilities 4.81 4.22 4.57 9.07 13.77
Deferred tax assets -0.70 -0.25 -0.28 -0.45 -0.72
Total 100 % 100 % 100 % 100 % 100 %

Application of Funds
Fixed Assets
Gross block 70.50 61.07 56.15 100.76 133.14
Less : accumulated depreciation 24.72 20.52 21.74 44.75 60.06
Net block 45.77 40.54 34.41 56.02 73.08
Capital work-in-progress 14.84 9.67 16.45 29.30 14.21

Investments 20.62 15.86 19.71 4.07 5.57

Current Assets
Inventories 11.74 10.66 11.28 19.76 21.57
Sundry debtors 12.38 8.94 8.37 15.19 16.22
Cash and bank balance 5.73 25.91 22.43 2.99 1.39
Other current assets 3.06 2.94 4.05 7.06 7.18
Loans and advances 23.57 16.62 22.00 38.35 38.33
Current Liabilities
Liabilities 22.03 20.26 22.70 45.86 54.76
Provisions 15.68 10.90 16.05 27.33 24.10
Net Current Assets 18.77 33.91 29.38 10.15 5.82
Miscellaneous expenses not written 0.00 0.01 0.06 0.46 1.32
Total 100 % 100 % 100 % 100 % 100 %



Table 3.2 Common size Income Statement of Bharat Forge

Common Size
Income Statement
Income
Sales (Gross) 100 % 100 % 100 % 100 % 100 %
Less: Excise Duty 7.53 7.94 7.39 7.35 8.21
Net Sales 92.47 92.06 92.61 92.65 91.79
Operating Income 3.31 2.76 4.07 5.41 5.74
Other Income 3.86 4.11 3.25 0.60 2.24
Exceptional Income/(Expenditure) 1.32 -0.34 0.00 0.00 0.00
Total Income 100.96 98.60 99.94 98.65 99.76

Expenditure
Manufacturing Cost 73.01 71.04 72.81 71.72 69.37
Profit before depreciation, interest
and tax (PBDIT) 27.95 27.55 27.13 26.93 30.39
Depreciation 6.06 5.08 4.48 4.23 5.36
Profit before interest and tax (PBIT) 21.89 22.48 22.65 22.71 25.03
Interest 4.58 4.18 3.36 2.75 3.79
Profit before tax (PBT) 17.31 18.30 19.29 19.95 21.23
Tax 5.38 6.05 6.61 6.95 6.59
Profit after tax (PAT) 11.93 12.26 12.68 13.00 14.64


Analyzing the above mentioned common size statements, the following points are observed.

1. Reserves and surpluses have increased to nearly 50% of the total asset in March 2008, which
was nearly 30% in March 2004.

2. Working capital (Current asset – Current liabilities), is decreased in FY 2007-08 compared to
FY 2006-07.

3. Manufacturing cost is nearly 70% of gross sales. This is nearly constant for last five financial
years.

4. Net profit is 12% of gross sale, indicates that Bharat Forge is not a net profit margin based
organization. In fact it utilizes its assets (volume based gain).



3.3 RATIO ANALYSIS
Table 3.3 Short term solvency ratio

Bharat Forge
Mar ' Mar ' Mar ' Mar ' Mar '
08 07 06 05 04
Short Term Solvency Ratio
Current Ratio 1.33 1.84 1.57 1.01 0.91
Quick Ratio 1.05 1.54 1.31 0.77 0.68
Cash Ratio 0.13 0.73 0.52 0.04 0.02

Calculation for Short Term Solvency Ratio of Bharat Forge (FY 2007-08)

Current assets 1626 .00
Current ratio = = = 1 .33
Current liabilitie s 1224 .19
Current assets − Inventory 1626 .00 − 338 .12
Quick ratio = = = 1.05
Cash 164 .99
Cash ratio = = = 0 .13

Remarks

1. Current ratio 1.33 indicates that Bharat Forge has its current liabilities covered 1.33 times. To a
creditor or a supplier this is satisfactory as the ratio is greater than 1.

2. It is seen that current ratio was less than 1 in Mar’04, which means net working capital was negative.
This was not a good sign for a healthy firm. However in the subsequent years current ratios are greater
than 1.

3. Quick ratio is the acid test of the company. It is seen that in recent years Bharat Forge has quick ratios
greater than 1. This is a very healthy sign of the company as company has sufficient cash in hand.

4. As company like Bharat Forge deals with lots of inventory, as a result a difference (20-30%) between
current and quick ratio is observed always.

5. A very short term creditor might be interested in cash ratio. It is observed that in FY 2007-08, cash has
decreased significantly from the previous FY 2006-07. This is not encouraging fact to a short term
supplier of Bharat Forge.



Table 3.4 Long term solvency ratio

Bharat Forge
08 07 06 05 04
Long Term Solvency Ratio
Total Debt Ratio 0.49 0.53 0.48 0.53 0.59
Debt Equity Ratio 0.87 1.06 0.85 0.94 1.14
Equity Multiplier* 1.95* 2.14 1.94 2.13 2.46
Times Interest Earned Ratio 4.78 5.38 6.75 8.25 6.60
Cash Coverage Ratio 6.10 6.60 8.08 9.78 8.01
* Equity Multiplier = 1+ Debt equity ratio, however in present case minor difference is observed due to account of deferred tax

Calculation for Long Term Solvency Ratio of Bharat Forge (FY 2007-08)

Total assets − Total equity 2760.76 − 1473.28
Total debt ratio = = = 0.49
Total assets 2760.76
Total debt 1287.49
Debt equity ratio = = = 0.87
Total equity 1473.28
Total asset 2879.01
Equity multiplier = = = 1.95
PBIT 501.97
Times interest earned ratio = = = 4.78
Interest 104.99
PBIT + Depreciation 501.97 + 138.94
Cash coverage ratio = = = 6.10
Interest 104.99

Remarks

1. It is interesting to notice that Bharat Forge maintains a constant total debt ratio for the last five years
which is nearly 0.5.

2. Equity multiplier = 1 + debt equity ratio. But in this case a minor difference is observed due to deferred
tax accounting.

3. Time interest ratio 4.78 in FY 2007-08 indicates that company has 4.78 times interest obligation
covered.

4. Cash coverage ratio 6.10 indicates BFL has a good capability to generate cash from operations.



Table 3.5 Turnover ratio

Bharat Forge
08 07 06 05 04
Turnover Ratio
Inventory Turnover Ratio 4.95 4.61 4.67 4.79 4.45
Day’s Sales in Inventory 73.71 79.12 78.10 76.18 82.11
Receivable Turnover 6.44 7.74 8.66 8.69 8.52
Day’s Sales in Receivables 56.71 47.14 42.17 42.00 42.84
Total Asset Turnover 0.80 0.69 0.72 1.32 1.38
Capital Intensity 1.26 1.45 1.38 0.76 0.72

Calculation for Turnover Ratio of Bharat Forge (FY 2007-08)

Cost of good sold 1674 .34
Inventory turnover = = = 4 .95
Inventory 338 .12
365 days 365
Day’s sales in inventory = = = 73 .71
Inventory turnover 4.95
Sales 2293 .21
Receivable turnover = = = 6 .44
Account receiable 356 .29
365 days 365
Day’s sales in receivable = = = 56 .71
Re ceivable turnover 6.44
Sales 2293 .21
Total asset turnover = = = 0 .80
Total assets 2879 .01
Total assets 2879 .01
Capital intensity = = = 1 .26
Sales 2293 .21

Remarks

1. Inventory turnover ratio 4.95 times indicates, Bharat Forge sold off the entire inventory 4.95 times
over the year. In other words inventory sits 73.7 days (Day’s sales in inventory) on average before it is
sold. A marginal change is observed in recent years over last year.

2. From days sales in receivables (56.71 days) indicates that on average Bharat Forge takes 56.71 days to
collect its credit sales. In recent year (FY 2007-08) this ratio is more. This indicates Bharat Forge took
longer time to collect its credit than previous years.

3. Total asset turnover 0.80 indicates for every rupee in assets, Bharat Forge generated Rs. 0.80 in FY
2007-08. It has increased from the past two years but decreased from FY04 and FY05.



Table 3.6 Profitability ratio

Bharat Forge
08 07 06 05 04
Profitability Ratio
Profit Margin 11.93 12.26 12.68 13.00 14.64
Return on Asset (ROA) 9.50 8.48 9.19 17.17 20.23
Return on Equity (ROE) 18.57 18.16 17.78 36.52 49.72

Calculation for Profitability Ratio of Bharat Forge (FY 2007-08)

Net income 273.59
Profit margin = = × 100 = 11.93
Sales 2293.21
Net income 273.59
Return on asset (ROA) = = ×100 = 9.50
Total asset 2879.01
Net income 273.59
Return on equity (ROE) = = ×100 = 18.57

Du Pont Identity

Net income Sales Assets
Return on equity (ROE) = × ×
Sales Assets Total equity
= Profit margin × Total asset turnover × Equity multiplier
= 11.93 × 0.80 × 1.95
= 18.60

Remarks

1. For every rupee in sales, Bharat Forge generates a little less than 12 paisa in profit. This ratio has
decreased in recent year from the previous four years which may be a concern for the company.

2. Return on asset (ROA) is a measure of profit per rupee of assets. Though it has increased in FY 2007-
08, it was observed very high in FY 2003-04.

3. Return on equity (ROE) is a true bottom line measure of performance as the goal of a company is to
benefit share holders. For the last three years it has been increasing marginally, which may attract more
share holders to invest their money in Bharat Forge.



3.4 COMPARISON WITH PEER
Table 3.7 Comparison in short term solvency ratio

Bharat Forge Short Term Mahindra Forge
Solvency
Mar ' Mar ' Mar ' Mar ' Mar ' Mar '
08 07 06 08 07 06
1.33 1.84 1.57 Current Ratio 1.26 1.73 2.26
1.05 1.54 1.31 Quick Ratio 0.65 1.05 1.72
0.13 0.73 0.52 Cash Ratio 0.01 0.03 0.02

Remarks

1. It is observed that current ratios both for Bharat Forge and Mahindra Forge are nearly same in FY
2007-08 and FY 2006-07. However, quick ratio of Bharat Forge is better than Mahindra Forge. It
indicates that Bharat Forge has more liquidity in current asset than Mahindra Forge.

2. Cash ratio is very low for Mhindra. This will discourage short term supplier to supply material to
Mahindra Forge.

Table 3.8 Comparison in long term solvency ratio

Bharat Forge Long Term Mahindra Forge
Solvency
08 07 06 08 07 06
0.49 0.53 0.48 Total Debt Ratio 0.22 0.46 0.29
0.87 1.06 0.85 Debt Equity Ratio 0.27 0.84 1.05
1.95 2.14 1.94 Equity Multiplier 1.27 1.84 2.05
Times Interest Earned
4.78 5.38 6.75 0.91 2.00 -0.33
Ratio
6.10 6.60 8.08 Cash Coverage Ratio 1.81 3.18 0.28



Remarks

1. Debt equity ratio of Mahindra Forge is not encouraging in recent year which is 0.27. It means that
they are loosing their control.

2. It is observed that Times interest earned ratio was negative for Mahindra Forge in FY 2005-06. It
indicated that they did not have their interest obligation coverage during FY04-05. However the ratio is
increased in successive two financial years. On the other hand Bharat Forge has a good coverage for
interest obligation.

Table 3.9 Comparison in turnover ratio

Bharat Forge Turnover Mahindra Forge
Ratio
08 07 06 08 07 06
Inventory Turnover
4.95 4.61 4.67 7.96 8.08 5.45
Ratio
Day’s Sales in
73.71 79.12 78.10 45.85 45.17 66.97
Inventory
6.44 7.74 8.66 Receivable Turnover 9.42 8.76 13.08
Day’s Sales in
56.71 47.14 42.17 38.74 41.66 27.90
Receivables
0.80 0.69 0.72 Total Asset Turnover 0.25 1.13 0.93
1.26 1.45 1.38 Capital Intensity 4.00 0.88 1.07

Remarks

1. For the case of Inventory turnover ratio, Mahindra Forge has advantage. Their inventory sits only 46
(FY 08) days on average before it is sold. Whereas for Bharat Forge it is nearly 74 days.

2. For receivable turnover ratio also Mahindra has an edge. They receive their credit sales in 39 days
(FY 08) on an average, whereas Bharat takes 57 days on average to collect their credit sales.

3. Total asset turnover is very low (0.25) in FY08 of Mahindra. Though it was good in the past. On the
other hand Bharat’s ratio is nearly constant, indicating their sales are proportional to their assets.



Table 3.10 Comparison in profitability ratio

Bharat Forge Profitability Mahindra Forge
Ratio
08 07 06 08 07 06
11.93 12.26 12.68 Profit Margin -5.50 -4.95 -5.16
Return on Asset
9.50 8.48 9.19 -1.39 -5.57 -4.80
(ROA)
Return on Equity
18.57 18.16 17.78 -1.77 -10.29 -6.74
(ROE)

Remarks

1. Profitability ratios are not at all encouraging for Mahindra Forge. The consecutive negative numbers
indicate that they are now a loss making company. On the other hand at the time of global melt down
also, Bharat Forge’s continuous profit corroborates the fact that they are now the market the leader.



Chapter
FOUR

VALUATION OF STOCK

4.1 INTRODUCTION

V aluation of stock is done in this chapter. Dividends given by the company for the last ten
years are shown in Table 4.1. Two methods, constant dividend growth and two phase
growth are considered for this purpose. Assumptions are clearly mentioned for each case
and calculations for each case are shown. At the end the intrinsic value of the stock is
compared with the current market price of the share and verdict is given whether it will be profitable to
buy or sale the share of Bharat Forge. Table 4.1 shows the dividend paid by Bharat Forge in the last ten
years. In Table 4.2, market value is calculated.

Table 4.1 Dividend given in the last ten years (May-June)

Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Dividend
175 175 150 125 100 60 35 30 50 30 40 40
(%)
Dividend
per share 3.50 3.50 3.00 2.50 2.00 1.2 0.7 0.6 1.0 0.6 0.8 0.8
(Rs)*

*Face value of share = 2 Rs as given in company’s Profit and Loss Account



Table 4.2 Maket value measure

Bharat Forge
08 07 06 05 04
Market Value Measure
Number of shares (Crore) 22.33 22.35 21.79 20.38 19.52
Earning per share (EPS) 12.25 10.78 9.50 7.93 6.40
Dividend per share 3.50 3.50 3.00 2.50 2.00
Retention ratio 0.71 0.68 0.68 0.68 0.69
Long term growth rate (g) 13.26 12.26 12.16 25.01 34.18

Calculation for Market Value of Bharat Forge (FY 2007-08)

Net income 273.59
Earning per share (EPS) = = = 12.25
Shares outs tan ding 22.33
Pr ice per share 125.60
Price earning ratio = = = 10.25
Earning per share 12.25
Market price of share 125.60
Market to book ratio = = = 1.90
Book value per share 1473.28 / 22.33
Dividend paid 3.5 × 22.33
Retention ratio = 1 − = 1− = 0.7143
Net profit 273.9
Long term growth rate (g) = ROE × Re tention ratio = 18.57 × 0.7143 = 13.26 %

4.2 CONSTANT GROWTH DIVIDEND MODEL

Assumptions

i) Expected rate of return (R) = 14.5%
ii) Constant dividend growth model

Valuation of share of Bharat Forge (Constant Growth Method)

D × (1+ g ) 3.5 × ( 1 + 0.1318 )
Value of a share = = = Rs. 300.10
(R −g ) ( 0.145 − 0.1318 )

Verdict: As the intrinsic value (Rs.300.10) of the share is more than current market price
(Rs.125.60) of the share, one may buy the share.



4.3 TWO PHASE GROWTH DIVIDEND MODEL
Assumptions

i) Initial growth (g1) = 13.18 % (as calculated before) (It will continue up to 5 years)
ii) Second phase growth (g2) = 10% (from 6th year onwards)
iii) Expected rate of return (R) = 14.5%

Table 4.3 Calculation of expected dividend and its present value

Future Growth Expected Present
Year Rate (g1) Dividend* Value

1 0.1318 3.96 3.46
2 0.1318 4.48 3.42
3 0.1318 5.07 3.38
4 0.1318 5.74 3.34
5 0.1318 6.50 3.30

*Expected Dividend = Present Dividend × ( 1 + g1 )n where, n = particular year
Expected Dividend
Present Value = , where, n = particular year
( 1 + R )n

Valuation of share of Bharat Forge (Two Phase Growth Method)

From 6th year onwards it will be acting as a growing perpetuity. So the price at the end of
year 5 is given by

Div 6 Div 5 × ( 1 + 0.10) 6.5 ×1.1
P5 = = = = 158.89
( R − g2 ) ( 0.145 − 0.10) 0.045

The present value of P5 today,

P5 158.89
= = 80.74
(1 + R ) 5 ( 1 + 0.145)

The present value of all dividends today = (3.46+3.42+3.38+3.34+3.30+80.74) = Rs. 97.64

Verdict: As the intrinsic value (Rs.97.64) of the share is less than current market price (Rs.125.60)
of the share, one may sale the share to earn profit.

It is interesting to observe that two different models (Constant Growth and Two Phase Growth) give two
different intrinsic values of the share, one is higher than market price and one is lesser than market price.
This is mainly due to the assumption of growth rate (g2). Variation of Bharat Forge stocks is shown in
Fig. 4.1.



Fig 4.1 Variation of stock price of Bharat Forge during last five years
[Source: http://www.moneycontrol.com]



Chapter
FIVE

CAPITAL
INVESTMENT DECISION

5.1 INTRODUCTION

I nvestment decisions is an important aspect for the growth of the company. Fig. 5.1 shows that
Bharat Forge has initiated an expansion plan in Pune, India for close die forging and crankshaft
machining. An out flow of Rs. 540 Cr. (noticed in cash flow statement) due to capital
expenditure in FY 2007-08 corroborate the facts of expansion project. In this chapter capital
budgeting decisions are discussed with various techniques namely payback period, net present value,
Internal rate of return and profitability index. Average tax of Bharat Forge is calculated for the last five
years which is needed in calculating capital budgeting. Having made certain assumptions, NPV, IRR, PI
are calculated both for straight-line depreciation and Written Down Value depreciation method.
Calculations are shown for each case. And at the end decision are given whether it is profitable in
accepting this project.



Fig. 5.1 Capacity expansion plan of Bharat Forge
[Source: Company’s annual report 2007-08, page no. 68]



5.2 CALCULATION OF AVERAGE TAX OF BHARAT FORGE

Table 5.1 Average tax rate of Bharat Forge

Average Tax (Rs Crore)

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

PBT 396.98 359.81 314.89 248.08 181.16
PAT 273.59 240.95 206.97 161.63 124.91
Taxes Paid 123.39 118.86 107.93 86.45 56.26
Average Tax (%) 31.08 33.03 34.28 34.85 31.06

Table 5.2 Individual tax components of Bharat Forge

Individual Tax (Rs Crore)
Components
Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Current Tax 98.20 100.73 89.14 85.84 53.66
Deferred Tax 18.39 16.13 15.49 0.61 2.60
Fringe Benefit Tax 6.80 2.00 3.30 - -
Total Tax 123.39 118.86 107.93 86.45 56.26

5.3 CAPACITY EXPANSION PLAN
Bharat Forge has initiated an expansion project of close die forging and crank shaft machining at Pune.
This expansion plan is discussed by two methods (Straight line depreciation and Written down value
depreciation method).

5.3.1 Straight Line Depreciation Method

Following data are collected / assumed for the expansion plan

i) Capital expenditure = Rs. 540 Cr (From Cash flow account of Bharat Forge 2007-08)
ii) Let us assume that revenue will increase by Rs 410 Cr on each year
iii) Assume that rise of operating cost = 70 Cr (nearly 4% of the total operating cost of Bharat Forge)
iv) Book value of the machine at the end of 4 year = Rs. 110 Crore (It will be scrapped at that cost)
v) Depreciation (Straight line method)
vi) Average tax rate 34 % (as calculated in Table 5.1)
vii) Expected rate of return R = 15%



Table 5.3 Capital Budgeting (Rs. Cr) of Bharat Forge (SL Method)

Capital Budgeting Of
Bharat Forge
Year 0 Year 1 Year 2 Year 3 Year 4
Expansion Plan
Investment
Cost -540.0 110.0
Tax 0.0*
Change in Net Working Capital -30.0 30.0#
Shipping and Installation Cost -50.0
Cash Flow from Investment Activity -620.0 140.0

Income
Revenue 410.0 410.0 410.0 410.0
Expenses 70.0 70.0 70.0 70.0
Operating Profit 340.0 340.0 340.0 340.0
Depreciation (Straight-line)$ 120.0 120.0 120.0 120.0
Earning Before Tax 220.0 220.0 220.0 220.0
Tax (@34%) 74.8 74.8 74.8 74.8
Net Income 145.2 145.2 145.2 145.2
Cash Flow From Operating Activity -620.0 265.2 265.2 265.2 405.2
(Add Depreciation)

Note: * As the Selling price = Book value, no tax is paid
# At the end of 4th year, working capital will be + ve (inflow of fund)
$ Depreciation (Straight-line) = (620-110)/4= Rs 120.0 Cr per year

Calculation of Pay Back Period

(620.0-265.2-265.2) = 89.6 Cr.
(89.6*12)/265.2 = 4.05 Months

So, Pay back period = 2 years and 4 months

Calculation of NPV (Net Present Value)

265.2 265.2 265.2 405.2
NPV = − 620.0 + + + +
( 1 + 0.15 ) ( 1 + 0.15 )
2
( 1 + 0.15 )
3
( 1 + 0.15 )4
= − 620.0 + ( 230.60 + 200.53 + 174.37 + 231.67 )
= − 620.0 + 837.17
= 217.17



Calculation of IRR (Internal Rate of Return)

For calculation of IRR, NPV will be zero.
Let us assume that, rate is x

265.2 265.2 265.2 405.2
So, − 620.0 + + + + = 0
(1 + x ) (1 + x ) 2
(1 + x ) 3
( 1 + x )4

By Trial and error,

Let us take x = 10%, NPV = 316.270 (too high)

To decrease this value we have to increase the value of x.

Let us take x = 30 %, NPV = 3.505 (little high)

By interpolation (if y is the interpolated value)

0.1 − 0.3 316.27 − 3.505
=
0.1 − y 316.27 − 0

So, y = 0.30224

So, IRR = 30.22%

Calculation of PI (Profitability Index)

Summation of Cash Flow From Year1 837.17
PI = = = 1.35
Cash Outflow At Year 0 620.00

Table 5.4 Capital Budgeting Decision (Depreciation-Straight Line Method)

Pay Back NPV IRR PI
Period

Criteria 2 years NPV > 0 IRR > PI > 1.0
(Assume) Discount
Rate (15%)
Present Case 2 yr 4 months + 217.17 30.22% 1.35
Remarks Should Not Can Be Can Be Can Be
Be Accepted Accepted Accepted Accepted



800
If IRR > Discount Rate, NPV = +ve
If IRR < Discount Rate, NPV = -ve
Net Present Value (Rs, Cr) 600

400

200 +ve NPV IRR = 30.32%

0
-ve NPV

-200
0 10 20 30 40 50

Discount Rate (%)

Fig 5.2 NPV and IRR of the present analysis (SL)

5.3.2 Written Down Value Depreciation Method

Following data are collected / assumed for the expansion plan

i) Capital expenditure = Rs. 540 Cr (From Cash flow account of Bharat Forge 2007-08)
ii) Let us assume that revenue will increase by Rs 410 Cr on each year
iii) Assume that rise of operating cost = 70 Cr (nearly 4% of the total operating cost of Bharat Forge)
iv) Machine will be scrapped at the end of 4 year at Rs. 110 Crore
v) Depreciation (Written Down Value @ 30%)
vi) Average tax rate 34 % (as calculated in Table 5.1)
vii) Expected rate of return R = 15%

Table 5.5 Depreciation based on written down value (WDV)

Depreciation
Written Down Value
Value before Depreciation 590.0 413.0 289.1 202.4

Depreciation (@30%) 177.0 123.9 86.7 60.7

Value after Depreciation 413.0 289.1 202.4 141.7



Table 5.6 Capital Budgeting (Rs. Cr) of Bharat Forge (WDV Method)

Capital Budgeting Of
Bharat Forge
Expansion Plan
Investment
Cost -540.0 110.0
Tax 10.8*
Change in Net Working Capital -30.0 30.0
Shipping and Installation Cost -50.0
Cash Flow from Investment Activity -620.0 150.8

Income
Revenue 410.0 410.0 410.0 410.0
Expenses 70.0 70.0 70.0 70.0
Operating Profit 340.0 340.0 340.0 340.0
Depreciation (WDV) 177.0 123.9 86.7 60.7
Earning Before Tax 163.0 216.1 253.3 279.3
Tax (@34%) 55.4 73.5 86.1 95.0
Net Income 107.6 142.6 167.2 184.3
Cash Flow From Operating Activity -620.0 284.6 266.5 253.9 395.8
(Add Depreciation)

Note: * As the Selling price (Rs 110 Cr) < Book value (Rs. 141.7 Cr), Company will get tax benefit (Tax benefit
= 0.34 *(141.7-110) = Rs. 10.78 Cr)
As per the calculation shown before the Pay back period, NPV, IRR and PI are tabulated in Table 5.7.

Table 5.7 Capital Budgeting Decision (Depreciation-Written Down Value Method)

Pay Back NPV IRR PI
Period

Criteria 2 years NPV > 0 IRR > PI > 1.0
(Assume) Discount
Rate (15%)
Present Case 2 yr 3.3 + 222.23 31.00% 1.36
months
Remarks Should Not Can Be Can Be Can Be
Be Accepted Accepted Accepted Accepted



800
If IRR > Discount Rate, NPV = +ve
If IRR < Discount Rate, NPV = -ve
600

Net Present Value (Rs, Cr)

400

200 +ve NPV IRR = 31%

0
-ve NPV

-200
0 10 20 30 40 50

Discount Rate (%)

Fig 5.3 NPV and IRR of the present analysis (WDV)


1. An expansion project at Pune is analyzed by Straight Line (SL) and Written Down Value
(WDV) depreciation methods. It is observed that in both the cases decisions are same.

2. Average tax rate of Bharat Forge is calculated in Table 5.1 which is required for capital
budgeting calculation.



Chapter
SIX

WORKING CAPITAL
MANAGEMENT

6.1 INTRODUCTION

W orking capital management defines cash cycle and operating cycle (Fig. 6.1). It also
defines inventory period, receivable and payable period. It will give an idea whether
company is taking short term loan to manage its seasonal variation. In this present chapter
operating and cash cycles of Bharat Forge are calculated and attempts have been made to
find out how Bharat Forge is trying to manage its short term requirement.

It can be seen from Table 3.5, of Chapter 3 that for Bharat Forge, inventory periods are 73.71, 79.12,
78.10, 76.18 and 82.11 days for the 2007-08, 2006-07, 2005-06, 2004-05, 2003-04 financial years
respectively. So, average inventory period of BFL for the last five years is 77.84 days.

From the same table, receivable periods are 56.71, 47.14, 42.17, 42.00, 42.84 days for the 2007-08,
2006-07, 2005-06, 2004-05, 2003-04 financial years respectively. So, average receivable period of BFL
for the last five years is 46.17 days. It is observed that receivable periods for 2005-06, 2004-05 and 2003-
04 were nearly constant which were on an average 42 days. However, in the recent year (2007-08), it is
increased 20.3% from the last year (2006-07) and 34.48% from 2005-06 financial years.

Similarly payable turnover periods are 138.28, 150.43, 157.11, 176.78 and 208.50 days for the 2007-08,
2006-07, 2005-06, 2004-05, 2003-04 financial years respectively. So, average receivable period of BFL
for the last five years is 166.22 days. It is observed that payable period was very high in 2003-04, which
was 2008.5 days. In recent past BFL is paying its supplier in less time.



Fig. 6.1 Cash flow time line and the short term operating activities of a typical manufacturing firm
[Source: Ross et al. 2009]

Bharat Forge Limited: Operating and Cash Cycles

Average Inventory Period = 77.84 days
Average Receivable Period = 46.17 days
Average Payable Period = 166.22 days
Average Operating Cycle = Av. Inventory Period + Av. Receivable Period = 77.84
+ 46.17 = 124.01 days
Average Cash Cycle = Av. Operating Cycle – Av. Payable Period = 124.01 –
166.22 = - 42.21 days

Remarks: It is interesting to notice that Cash cycle of Bharat Forge is
negative. It means that Bharat Forge usages supplier’s money for daily
operation.

It is observed from Table 6.1 that though sales have increased by 16.63% from FY07 to FY08, Net
Working Capital has decreased significantly by 43.92 %. Inventory days are decreased marginally by
6.84%.



Table 6.1 Comparisons of working capital

FY 2006-07 FY 2007-08 Changes (%)

Sales (Rs, Cr) 1966.15 2293.21 + 16.63 %
Working Capital 963.52 540.34 - 43.92 %
Inventory Days 79.12 73.71 - 6.84 %
Creditors Days 150.43 138.28 - 8.08 %
Debtor’s Days 47.14 56.71 + 20.30 %

6.2 SHORT TERM AND LONG TERM LOAN
It is observed from the annual report of Bharat Forge, that Bharat Forge has taken short term loans (Table
6.2) from banks under a buyers line of Credit for import of goods, etc. Import of goods is acting as a
seasonal variation (Fig. 6.2) in this case.

Fig. 6.2 Short term financing to manage seasonal variation [Source: Ross et al. 2009]

Table 6.2 Loan taken by Bharat Forge

Loans (Cr)
FY 2007-08 FY 2006-07 FY 2005-06

Secured Loan 461.58 373.57 381.60
Unsecured Loan 825.91 1028.04 610.86
Short Term Loan 88.82 224.39 133.89



Chapter
SEVEN

CONCLUSIONS

7.1 SUMMARY

A nalysis on Bharat Forge Limited is carried out in this report mainly from financial aspects.
It is understood that Bharat Forge is a market leader in forging work not only in India but
also in global market. It has received many accolades. It is observed that when its peers
are making losses, Bharat Forge continues making profits. The following conclusions are
drawn based on the analysis on Bharat Forge.

i) Bharat Forge Limited is one of the largest forging companies in the world having customers like
Daimler Chrysler, Toyota, BMW, General Motors, Volkswagen, Audi, Renault, Ford, Volvo,
Caterpillar, Honda and several others.
ii) Its assets and net profit in FY 2007-08 are 2879.01 Cr. and 273.59 Cr. respectively, whereas its
nearest competitor, Mahindra Forge has 974.09 Cr. and -14.17 Cr. (loss) respectively.
iii) Net profits of Bharat Forge have been increasing constantly from 2003-04 to 2007-08 with a
growth of nearly 15%, which is a healthy sign of the company.
iv) As company like Bharat Forge deals with lots of inventory (volume based company), a difference
(20-30%) between current and quick ratio is observed always.
v) It is observed that two different models (Constant Growth and Two Phase Growth) give two
different intrinsic value of the share, one is higher than market price and one is lesser than market
price. This is mainly due to the assumption of growth rate (g2).
vi) Bharat Forge has initiated an expansion project of close die forging and crank shaft machining at
Pune. Straight line depreciation and Written down depreciation method gives similar opinion
whether the projects can be accepted.
vii) It is observed in working capital management that Bharat Forge’s cash cycle is negative. It
indicates that Bharat Forge efficiently uses its supplier’s money in its operation.



References

1. Official website of Bharat Forge Limited (http://www.bharatforge.com)
2. Annual reports (2007-08, 2006-07, 2005-06, 2004-05 and 2003-04) of Bharat Forge Limited
3. Web site (http://money.rediff.com)
4. Web site (http://www.moneycontrol.com)
5. Corporate Finance, Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe and Ram Kumar
Kakani, 8th Edition, 2009, Tata Mcgraw Hill Publication, New Delhi.
6. Fundamentals of Financial Management, Gregory A. Kuhlemeyer, 11th Edition, 2001, Printice –Hall.
7. Class Note on Corporate Finance, by Prof. Ram Kumar Kakani, PGCBM 15 Course, XLRI,
Jamshedpur, 2009.

Abbreviation

BFL Bharat Forge Limited
BSE Bombay Stock Exchange
EPS Earning Per Share
FY Financial Year
IRR Internal Rate of Return
IV Intrinsic value (of Share)
NPV Net Present Value
NSE National Stock Exchange
PAT Profit After Tax
PBT Profit Before Tax
PBIT Profit Before Interest and Tax
PI Profitability Index
ROE Return On Equity
SL Straight Line (Method of Depreciation)
WDV Written Down Value (Method of Depreciation)


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