Emkay Global Financial's research report on Bharat Forge
Bharat Forge’s Q2FY23 revenue grew by 16% YoY (3-yr CAGR at 14%) to Rs18.6bn, 11% above our estimates, owing to inventory build-up with CV customers, execution of new orders in global PVs, and higher defense revenue. EBITDA declined by 1% (3- yr CAGR at 15%) to Rs4.5bn, 3% above our estimate, led by higher revenue. Our earnings estimates for FY23-25E are broadly unchanged, despite the increase in revenue assumptions by 3-5%, owing to a reduction in operating margins.
Going forward, a muted outlook is expected by Paccar (OEM), Volvo (OEM), and Americas Commercial Transportation for North America Class 8 trucks for CY23/CY24 and Europe heavy trucks for CY23. Considering subdued global CV outlook and limited upside potential, we retain HOLD with a Dec-23 TP of Rs820 (Rs785 earlier), based on 24x P/E for standalone and 13x P/E for subsidiaries. The increase in TP is due to rollover to Dec-23 valuation (Sep-23 earlier) and higher profitability for subsidiaries because of the recent order-win relating to artillery guns. Key upside risks: Higherthan-expected growth in major segments, new order-wins, and favourable commodity/currency rates.