Bharat Forge shares slip 7% post Q3 earnings; what should investors do?

Shares of Bharat Forge fell 7% today after firm involved in the manufacturing of forging and automotives among others reported a 81.35 per cent fall in consolidated net profit for the quarter ended December 2022.

Net profit fell to Rs 78.72 crore in the third quarter ended December 2022, hit by higher expenses against a consolidated net profit of Rs 422 crore in the same period last fiscal.

Subsequently, Bharat Forge stock slipped 7.1% to Rs 811.80 against the previous close of Rs 873.85 on BSE. The share has been falling for the last two sessions.

In a year, the stock has gained 14.32% and fallen 6.79% since the beginning of this year. Total 0.90 lakh shares of the firm changed hand amounting to a turnover of Rs 7.38 crore. Market cap of the firm fell to Rs 38,189 crore on BSE.

However, revenue from operations rose 40% to Rs 3,353.36 crore as against Rs 2,394.69 crore in the same period last fiscal. Total expenses in the last quarter rose to Rs 3,178.9 crore against Rs 2,093.39 crore in the year-ago quarter. Cost of raw materials and components consumed stood at Rs 1,543 crore in the third quarter as against Rs 1,082.45 crore in the same period a year ago.

Chairman & Managing Director BN Kalyani said in the third quarter, the company's Indian operations secured new business worth Rs 265 crore across automotive and industrial applications.

"The overseas operations posted an EBITDA loss of Rs 62 crore due to ramp up related issues of the new Al (aluminium) forgings capacities in Germany and USA. They continue their journey towards profitability with focus on improving capacity utilisation, cost optimisation, price increases and cost compensation from customers," he added.

On the outlook, Kalyani said, "As we look ahead into Q4 FY23, we expect growth momentum to continue across both the domestic and export markets. Aiding the standalone performance, we expect the new verticals to start registering meaningful contribution at a consolidated level and EPS accretive in FY24."

Himanshu Singh - Research Analyst, Prabhudas Lilladher said, "We remain positive on BHFC given (1) multiple growth drivers in domestic & export automotive segment (upcycle in CV industry & easing chip shortage), (2) double-digit growth in high margin non-auto segment (3) contribution from defense & renewable segment and (4) rising traction in E-mobility division. Retain 'BUY' with an unchanged TP of Rs 1,000 at 28x Dec-24E EPS."

JM Financial too has given a buy call on Bharat Forge with a target price of Rs 960.

"We see long-term growth triggers in BHFC intact, like the steady CV cycle in US and India and strong ramp-up of PV and defence vertical. Also, cost-optimisation initiatives and positive operating leverage are likely to support margins going forward. We estimate EPS CAGR of 21% over FY22-25E. Maintain BUY with a Mar'24 TP of INR 960 (25x forward earnings). Slowdown in global autos and weak profitability at international subsidiaries are key risks," said the brokerage.

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