Bharat Forge - 50% Fib Level, Bullish Divergence


(prabhakarpandey) #1

Bharat Forge Limited (BFL), is a Pune-based Indian multinational company involved in automotive, power, oil and gas, construction & mining, locomotive, marine and aerospace industries.

The company was founded by Nilkanthrao Kalyani in 1961. The current chairman of the company is his son, Baba Kalyani. It is part of the Kalyani Group, which is a USD 2.5 billion conglomerate with 10,000 global work force.

Bharat Forge has signed a Joint Venture with France-based power generation company Alstom for turbines and generators. The Alstom holds 51% of the shares and Bharat Forge 49% in the joint venture. Alstom Bharat Forge Power Ltd also has started its manufacturing facility at Sanand in Gujarat.

In 2015, Bharat Forge had total sales of over US$ 1.3 Billion and has a market capitalisation of over US$4.5 billion. It was rated as one of the best companies in Asia by the Forbes magazine because of its high growth rate.

SEZ- Bharat Forge’s Special Economic Zone (SEZ) named as Khedcity is the biggest SEZ in Pune spread over 1,000 hectares (4200Acre) of notified land in Khed taluka. (source - wikipedia)

Bharat Forge used to be a darling stocks notching up hefty gains in past years also showcased in numerous occasions as tremendous wealth creator in Motilal Oswal annual wealth creation research report. Currently the stock has taken a beating due to decline in the sales and profits. From a technical perspective the stock presents a good short term(few months) trading proposition.

Please refer to my post with the full writeup and the chart : http://trade-and-invest.com/content/bharat-forge-50-fib-level-bullish-divergence

Reasons for investment/trading choice are as follows:

  1. Current price is sitting at a sweet spot, at Fibonacci retracement level of 50% from a long term chart of weekly levels. The retracement covers a period of 3 years which gives a good opportunity to enter.
  2. RSI is near the oversold territory.
  3. MACD indicator shows bullish divergence, while the price is making lows the MACD is showing diverging highs.

Points to be cautious about:

  1. Although 50% looks attractive, but I am not so certain if this would be the best level to enter. If it corrects up to 61.8% Fibonacci retracement level that would be really a nice place to enter. Currently Sensex PE is trading tad higher than mean PE of 20 which means some correction might be on the card for broader stock groups and if it happens to correct and reach 61.8% that would be a fantastic level to enter.
  2. The earnings of 2016 for Bharat Forge have taken a beating and were low compared to past years, need to watch out – if any decline in earnings then more corrections in the prices are expected.

So to summarize: 50% Fib level – price of – 775 is good, but better would be 61.8% level which is a price of 635 level. I might go with 50% allocation at 775 and 50% at 61.8 level, still thinking(not invested yet)……

More on Bharat Forge:

Financials Consolidated ( 5 year period between 2012 to 2016):

sales growth ~25%

Profit growth - 53.97%

net profit margin FY16 - 16.28%

RoE FY16- 19.25%

debt / equity FY16- 0.4 ( consistently reducing YoY )

your input/comments are highly appreciated.
Disclosure - Not invested Yet, but watching closely.


(prabhakarpandey) #2

updated chart attached:


There are four distinct entry levels:

  1. 50% Retrace from low of mid 2013 Fib level - price - 775. I won’t invest at this level.
  2. 50% Fib retrace from low of 2009 - price 718. I will be putting 50% allocation for this stock at this level.
  3. 61.8% Retrace from low of mid 2013 Fib level - price - 635. I will put 50% allocation for this stock at this level.
  4. 61.8% Retrace from low of 2009 - price - 565. If it ever manages to reach here, i might try to allocate at this level too.

disclosure - placed order for entry @ 718 level.


(Chemist) #3

Bharat Forge Q1 profit falls 37.72% to Rs122 crore

Q1 earnings reflect decline in oil & gas market: Baba Kalyani, Bharat Forge


(prabhakarpandey) #4

Yes, the company is facing problems and that’s the reason for the correction in prices.
However my inclination to this was majorly based on technical parameters, and as you can see even with declining profits the price rebounded at the level i indicated with ~12% rise today. so basically my conviction is majorly based on technical and i also think that management is good and they will come out from this temporary problem.

Disclosure - invested yesterday at 718 level.


(Chemist) #5

Amit Kalyani, ED of Bharat Forge.**


(prabhakarpandey) #6

From technical parameters - today’s price broke out of 30 day EMA on weekly levels, although 60 day EMA resistance level is right above and we have strong resistance at 915. The volume was HUGE ~98 lack shares were traded, this is the second highest volume in a given day for the last 10 years of data. Let’s see if it will be able to continue momentum.


(Finrahul9) #7

Hi it seems that bharat forge rise in the last trading session was more of short covering . You will notice open interest declined during the session.


(Chemist) #8

(Finrahul9) #9

Thank You Swap nil. 2 observations

  1. The profit to stop loss ratio is very minimal . It should be at least 2:1 for a good strategy.

  2. We can now track the recommendations of business line and check , how many recommendations work . Based on this info we can take future calls.


(ajit14) #10

Hello ,
Pl. note that for writing a full date for any post/reply . As I am new I came to know a difficulty . Thanks to including me for this valuable VALUEPICK


(Chemist) #11

Bharat Forge eyes sales of 220,000 class 8 trucks this fiscal

Read more at: http://www.moneycontrol.com/news/business/bharat-forge-eyes-sales220000-class-8-trucks-this-fiscal_7418101.html?utm_source=ref_article.


(Chemist) #12

Bharat forge Research Report BNP-Paribas

Bharat Forge - BNP Paribas - 9th August.pdf (489.3 KB)


(bbbhutra) #13

(bbbhutra) #14

Bharat Forge conducted its analyst meet in Pune on 22 April - No dearth of opportunities

http://www.financialexpress.com/industry/no-dearth-of-opportunities-for-bharat-forge/648465/


(Shyam) #15

Is it a good buy now? I see it has corrected to an extent in the current carnage…


(Chemist) #16

(Chemist) #17

http://punemirror.indiatimes.com/pune/civic/chief-accountant-of-kalyani-technoforge-kills-self-blames-a-company-director/articleshow/60148858.cms


(Chemist) #18