Bharat Forge price targets: Defence orders strong but St mixed on core segment prospects

Bharat Forge Ltd reported a beat on Q1 operational front, led by execution of defence orders and recovery in oil & gas business, even as sales growth for the June quarter came in lower than Street expectations. The Q1 profit was hit by one-time impairment charges, while the Bharat Forge board okayed Rs 2,000 crore in fundraising.   

Despite defence growth being robust, core segments such as CVs, CEs, tractors and oil & gas are likely to register a weak performance, limiting standalone revenue and Ebitda CAGR to 8 per cent and 9 per cent over FY24–27E, said Nuvama that expects Bharat Forge's subsidiaries to post positive earnings only in FY26. 

It suggested a lower target price of Rs 1,540 for Bharat Forge against Rs 1,570 earlier, based on 35 times Sep-26E EV/Ebitda for defence and 15 times Sep-26E EV/Ebitda for the remaining businesses. It maintained its ‘REDUCE’ call on the sock.

"After a robust 34 per cent CAGR over FY21–24, we expect auto exports’ CAGR to taper to 5 per cent over FY24–27E. This moderation is despite PV exports growth expectation at 9 per cent CAGR, owing to muted CV exports at 3 per cent CAGR. CY24 NA Class 8/Europe HCV production is likely to decline on order-book exhaustion and lower freight availability, as per OEMs such as Volvo and Daimler," Nuvama said.

Emkay Global said Bharat Forge logged healthy operating profit in Q1, as it reported 4 per cent beat on Ebitda despite a 4 per cent miss on revenue. Profitability at subsidiaries improved, Emkay Global said. 

Bharat Forge expects a stable-to-positive business outlook, with profitability at overseas subsidiaries seen improving this year and the next. Order win momentum sustained, particularly in defence, with orderbook at Rs 5,400 crore now against Rs 5,200 crore in Q4, even as domestic artillery gun orders are yet to follow, the brokerage said. 

"Outlook for base businesses is also improving; we expect domestic CVs to enter an upcycle from FY26E, while pre-buy from CY25 may aid the US Class 8 market. We upgrade FY26E EPS a tad on better margins and introduce FY27 estimates, retaining our BUY and raising target price to Rs 1,850 per share (21x EV/EBITDA rolled-over to Jun-26E; features 25x EV/EBITDA for Defence and 20x EV/EBITDA for Others).

Prabhudas Lilladher said Bharat Forge Q1's consolidated revenue grew 5.9 per cent YoY, coming in 4 per cent lower than its estimates. Gross profit grew 13.5 per cent YoY while margin improved 370 bps YoY to 55.3 per cent.

The strong improvement in gross margin was led by execution of defence and recovery in the Oil & Gas business. Ebitda grew 20 per cent YoY with a margin expansion of 212 bps YoY to 18 per cent. Reported PAT declined 18.3 per cent YoY due to an exceptional item which was related to impairment in its Indian subsidiary KPTL, it noted.

"We maintain our view that the steady order wins in the defense export segment validates BHFC’s capabilities, and hence we remain positive on the significant long-term potential in the domestic defence segment. This is likely to be partly offset by slower growth in the global/domestic CV segment. Hence, we expect consolidated revenue growth to slow to 14 per cent/12 per cent YoY in FY25F/26F (21 per cent in FY24)," Bharat Forge.

This brokerage suggested a neutral rating and a target of Rs 1,605 on Bharat Forge.