Buy Bharat Forge; target of Rs 1069: HDFC Securities

HDFC Securities' research report on Bharat Forge

Bharat Forge’s consolidated PAT at INR 2.2 bn is better than our estimate of INR 1.8bn, led by a performance beat at both standalone and overseas subsidiaries. Performance beat was largely driven by better-than-expected revenue growth at the standalone entity and break-even at the Europe subsidiary. We continue to highlight that BHFC has multiple growth levers to offset any potential slowdown from US Class8 which include: (1) defence orders that are likely to see this segment’s revenue ramp-up to INR 17bn by FY25E, from INR 3.5bn in FY23, (2) strong growth expected in PV and industrial exports, (3) huge ramp-up potential at JS-Auto Cast, given its capacity is expected to increase by 2x and there is a huge demand for castings, both in India and abroad, (4) strong order backlog in aerospace, which would help boost revenue to INR 5bn over next the four years, from INR 1.7bn. Also, the sharp turnaround in overseas subsidiaries in Q1 gives us confidence that the management is on track to normalize subsidiary performance over the course of the year (target to achieve a high single-digit margin by Q4).

Outlook

Further, its long-term stable revenue growth guidance is a testimony to the fact that management has been able to transform BHFC from a cyclical entity to a stable revenue stream, given its well-diversified mix. Reiterate BUY with a revised TP of INR 1,069 (from INR 998 earlier) as we roll forward to June-25 estimates.

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