In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Bharat Forge Limited (NSE:BHARATFORG) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the industry, BHARATFORG is currently valued at ₹218b. Today we will examine BHARATFORG’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
View our latest analysis for Bharat Forge
Is Bharat Forge generating enough cash?
Bharat Forge’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Bharat Forge to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Bharat Forge’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Bharat Forge’s yield of 1.16% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Bharat Forge but are not being adequately rewarded for doing so.
Is Bharat Forge’s yield sustainable?
Can BHARATFORG improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 78%, ramping up from its current levels of ₹9.7b to ₹17b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, BHARATFORG’s operating cash flow growth is expected to decline from a rate of 32% in the upcoming year, to 9.6% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.