Prabhudas Lilladher's research report on Bharat Forge
Bharat Forge’s (BHFC) 2QFY23 standalone EBITDA margin at 24.3% (-40bps QoQ) disappointed due to higher RM cost (~45bps impact) and one-off charges on defense business (Rs 130mn). Lower share from the export business (57% vs 60% QoQ) despite higher USD realizations also impacted margins. Management highlighted that near-term CV demand looks positive in both India and export markets. Production schedules for Class-8 truck orders are booked for 2023. It has won orders for the export markets, passenger vehicles (18% of revenue, 7x growth since FY16) as well as industrial segments. Its subsidiary KSSL has won a defense export order worth USD 155mn which will be executed over next 36 months. Management expects 3x growth in defense revenue over the next few years, from Rs 3-5bn currently. We increase our EPS estimates by 6/10% for FY24/25E, considering positive outlook for automotive industry as semiconductor supply issue eases out along with healthy order wins in the industrial space.
We remain positive on the stock led by (1) multiple growth levers in domestic & export automotive segment with cyclical turnaround in CV industry and easing of the chip shortage going ahead, (2) strong double-digit growth in high margin non-auto business (3) revenue contribution from defense & renewable segment and (4) rising traction in E-mobility segment. Reiterate BUY with a revised target price of Rs 950 (Rs 875 earlier) at 28x Sep-24E EPS.