Motilal Oswal's research report on Bharat Forge
BHFC’s 2QFY23 standalone performance was a miss due to a one-time cost in the Defense business and cost inflation. While all its core businesses are seeing a sharp cyclical recovery, its initiatives to diversify into aluminum, light-weighting, and EV components have started to fructify. FY23 will be the first year to clock a contribution from the recently acquired businesses as well as from new aluminum forging capacities in the EU and US. We have lowered our FY23 consolidated EPS estimate by ~19% to factor in: a) consolidation of Sanghvi Forgings and JS Autocast (positive contribution) and the 10k tonne aluminum plant in the US (losses in its first year of operation), and b) cost inflation and a one-time charge in the standalone business. However, we upgrade our FY24 consolidated EPS by 4%, led by revenue upgrades in the standalone business as well as a net positive contribution from the above three businesses. We maintain our Buy rating.
We estimate a consolidated revenue/EBITDA/PAT CAGR of 14%/20%/24% over FY22-25. The stock trades at 40.5x/25.6x FY23E/FY24E consolidated EPS. We maintain our Buy rating, with a TP of INR985 (at 25x Dec’24E EPS).