Bharat Forge's robust Q4 results prompt brokerages to raise target price; valuation concerns persist

JM Financial has maintained a 'buy' rating on the stock with a raised target price of Rs 1,400 per share. According to the brokerage, the outlook for the domestic CV segment is flattish.

"While the growth in the auto segment is expected to moderate, medium-term performance is expected to be led by execution of robust order book in defence/aerospace," it said.

According to analysts at JM Financial, cost-control initiatives and positive operating leverage are likely to support margins in international operations. They increased the consolidated earnings estimate by 2 percent for FY26. "Inability to win/execute new defence orders remains a key risk," the report said.

According to Motilal Oswal, Bharat Forge's defense business is expected to be its key growth driver over FY24-26 with an order book of Rs 5,190 crore to be executed over the next 3-4 years.

Further, strong traction in outsourcing opportunities from China and Europe to India, especially in the industrials segment, is likely to be the other key driver for the company going forward, it said.

Also Read | Bharat Forge net profit surges 59.3%, revenue gains 16% in Q4

Analysts at Motilal expect the company's aerospace business to double in the next 3-4 years. "With the capacity ramp-up of overseas subsidiaries and new order wins with better pricing, its performance is likely to improve over FY24-26," they said.

Despite the positive outlook, the brokerage downgraded the stock to Neutral as it believes that after the recent sharp run-up, the stock appears fairly valued. It, however, maintained a target price of Rs 1,370 per share.

Nuvama Institutional Equities like Bharat Forge as the company has established itself as a dominant player in domestic and global industrial and auto forgings segments with lead market share amongst many global OEMs.

They have successfully diversified revenue base beyond auto forgings making significant inroads into oil and gas, defence, aerospace, and transportation.

"The company is further diversifying into aluminium components for the global PV market apart from sharpening focus on select large defence projects including its recent EV foray in our view will further strengthen long-term growth visibility," the brokerage said.

Though defence growth is likely to be robust, core segments such as CVs, construction equipment, tractors and oil & gas are expected to register muted growth over FY24–26E, Nuvama said, adding that subsidiaries are expected to see robust growth, and positive earnings in FY26E.

The brokerage retained a 'reduce' call on the stock with a raised target price of Rs 1,160 per share, based on 18x/8x standalone/ subsidiaries EV/EBITDA.

The international brokerage maintained an 'underperform' rating on Bharat Forge but raised the target price to Rs 1,075 per share. While the fourth-quarter consolidated EBITDA of the company showed a notable 37 percent on-year increase, it fell short of estimates by 10 percent, primarily due to weaker performance in the arms, analysts noted.

Also Read | Bharat Forge stock jumps 15% as Q4 net profit soars, firm eyes strong profitability in FY25

Despite this, Bharat Forge's defence business is showing promising scalability, and the company anticipates a turnaround in its overseas operations in FY25. While Jefferies acknowledges the structural initiatives undertaken by the company, concerns persist regarding the cyclical challenges in exports.

Additionally, the report highlighted apprehensions about the rich valuations of Bharat Forge. Jefferies has revised the EPS projections for FY25-26 upward by 2-3 percent.

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