Bharat Forge Shares Jump As JS Auto Deal Seen Aiding Growth Prospects

Shares of Bharat Forge Ltd. gained as analysts see the buyout of JS Autocast Foundry India Pvt. aiding product portfolio and customer additions for the auto parts supplier.

Bharat Forge agreed to buy 100% of JS Auto through its wholly owned subsidiary, BF Industrial Solutions Ltd., according to an exchange filing on Thursday. That will include an upfront payment based on enterprise valuation and a fixed deferred payment after three years. The valuation details, however, weren’t disclosed.

JS Auto is a supplier of machined ductile iron castings for wind, hydraulic, off-highway and automotive applications.

“JS Auto will accelerate our diversification journey and enable in addressing the decarbonisation opportunity,” Amit Kalyani, deputy managing director at Bharat Forge, was quoted as saying in the filing.

Shares of Bharat Forge rose as much as 3.98% intraday, the most in four weeks, but pared most of the gains to close 0.4% higher on Friday.

Of the 32 analysts tracking the company, 25 maintain a ‘buy’, three suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price targets implies an upside of 31.3%.

Here's what brokerages have to say about Bharat Forge's acquisition of JS Auto:

Motilal Oswal

• Reiterates 'buy' with a target price at Rs 965—an implied return of 43.5%.

• Acquisition of JS Auto Cast Foundry marks the company's foray into iron castings and enables diversification of offerings.

• JS Auto Cast's revenue at an 18% CAGR to Rs 260 crore in FY21.

• Bharat Forge expects the acquisition to be EPS accretive from the first year itself.

• JS Auto Cast's capabilities in industrial casting segment would strength Bharat Forge.

• The acquisitions of JS Auto Cast and Sanghvi Forgings are likely to help Bharat Forge exploit the tremendous opportunity in industrial space and boost revenue from renewable energy space.

Emkay

• Reiterates 'buy' with a target price at Rs 950—an implied upside of 42.3%.

• Deal should strengthen the product portfolio and support customer additions in the industrial segment.

• The company expects revenue of the renewable segment to rise to $100 million in medium term.

• Synergies from the acquisition visible as JS Auto Cast has several clients who are already associated with Bharat Forge.

• Synergies in the areas of procurement and foundry related activities should lead to cost savings.

• Entry into iron castings should broaden the addressable market.

• Expects robust growth in the industrial segment.

• The acquisitions of Sanghvi Forgings in June 2021 and JS Auto Cast are steps in the right direction.

• Reaffirms constructive view on Bharat Forge due to leadership in automotive forgings, diversification and cyclical upturn in core segments.

• New segments like defence, railways, renewables should support medium-term performance.