Bharat Forge shares: Defence biz prospects strong, core segments face challenges, say analysts

Bharat Forge Ltd reported an in line quarterly results, with adjusted profit rising 33.4 per cent year-on-year (YoY) to Rs 357.40 crore on 21 per cent rise in sales at Rs 2,249.40 crore. Analysts said the recent defence ramp-up is promising but the demand outlook for commercial vehicles and industrial exports is softening. They have neutral to positive rating on the stock post the second quarter results.

Bharat Forge offers forged and machined automotive chassis and engine components such as crankshafts, front axle beams, connecting rods, steering knuckles to commercial and passenger vehicle manufacturers.

Motilal Oswal Securities said while Bharat Forge's core India business is on the growth path, the underlying macro environment in the US and EU is showing signs of weakening. The brokerage said the newly established businesses incubated over the last 5-10 years have reached pivotal moments and that they have the potential to offset the anticipated challenges in core operations.

"The defence segment is poised for significant growth, with execution already underway. The e-mobility sector presents a substantial opportunity and possesses foundational elements, but the competitive landscape is yet to evolve," it said while suggesting a target of Rs 1,250 on the stock.

Emkay Global said Bharat Forge's Ebitda margin improved 118 basis points sequentially to 27 per cent and that PAT for the quarter was in line with consensus estimates. It is expecting defence to contribute 20 per cent revenue contribution in FY26E against 5 per cent in FY23) but said the outlook for underlying CV industries, both global and domestic, and industrial exports is softening.

The brokerage noted that global CV OEMs have projected 8-15 per cent industry decline in developed markets in 2024; domestic CV growth is also seen moderating on a high base.

"Industrial exports outlook muted as well. We build 17 per cent FY23-26E EPS CAGR (trim FY24E EPS on global CV-market decline; growth upside from the defence ramp-up over FY25E-26E largely offset by its margin-dilutive nature). Amid balanced risk-reward, we maintain HOLD, with revised target of Rs 1,030 per share  at 16.5 times standalone FY26E EV/Ebitda," it said.

Nuvama Institutional Equities said a weakening of European/US economies poses a challenge ahead for core segments such as MHCV, CE and oil & gas. This, coupled with lower domestic MHCV/PV growth, should lead to moderation in revenue and Ebitda CAGR to 13 per cent and 14 per cent over FY23–26E, it said. 

"Our Sep-24 target price stands at Rs 1,020, based on 17 times core EV/Ebitda. Upgrade our valuation multiple to factor in improved outlook in defence segment. Maintain ‘REDUCE’," it said.

 

 

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