Bharat Forge Ltd.'s June-quarter earnings prompted a mixed but broadly constructive brokerage verdict, with Morgan Stanley raising its target price despite a weak quarter, while Jefferies and Goldman Sachs highlighted margin pressure, manpower shortages and execution delays. Analysts nevertheless retained a positive medium-term view, citing the company's defence pipeline, export recovery and expansion into new manufacturing opportunities.
Brokerages said the quarter was affected by transitory factors, including manpower shortages and the shutdown of the company's US PMT plant. Jefferies lowered its earnings estimates on softer margins, some delay in gun-order execution and higher capital expenditure, but continues to expect a 30% EPS CAGR through FY29. Morgan Stanley said the improvement in defence margins and higher capex to capture upcoming opportunities were key positives.
The company also lowered its global manufacturing growth outlook to 20%-25% from 25% earlier and plans to spend around Rs. 1,800 crore on capex in FY27.
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Bharat Forge Q1 Highlights (Standalone, YoY)
- Revenue rose 11.5% to Rs. 2,347 crore from Rs. 2,105 crore.
- EBITDA increased 2.5% to Rs. 585 crore from Rs. 571 crore.
- EBITDA margin stood at 24.9% versus 27.1% a year ago.
- Net profit declined 5.3% to Rs. 321 crore from Rs. 339 crore.
Bharat Forge said its outstanding defence order book stood at Rs. 11,196 crore. The company won new orders worth Rs. 1,352 crore in India during the quarter, including Rs. 681 crore of India defence orders.
Management said the company faced an indirect impact from manpower challenges during the quarter and expects the Navy to become a significant customer going forward. It is also building capacity slightly ahead of demand.
The company plans to raise funds for investments in semiconductors, power generators, aerospace and large engines. Capital expenditure is expected at around Rs. 1,800 crore in FY27.
Here's what brokerages are saying after Bharat Forge announced Q1 results:
Jefferies
- Maintained 'Buy'; Target Price At Rs. 2,500
- Called the quarter modest but retained a positive growth outlook.
- Cut FY27-FY29 EPS estimates by 4%-16% due to softer margins, some delay in execution of the gun order and higher capex.
- Continues to expect around 30% EPS CAGR over FY26-FY29.
- Expects earnings growth to be driven by a rebound in exports and defence ramp-up.
- Continues to favour the company's expanding manufacturing footprint.
- Sees Bharat Forge benefiting from broad-based tailwinds for Indian manufacturing.
Morgan Stanley
- Maintained 'Overweight'; Target Price Raised To Rs. 2,469 From Rs. 2,233
- Called the quarter weak but said the weakness presents an opportunity to add.
- Said Q1 was affected by transitory issues.
- Highlighted improvement in defence margins as a key positive.
- Higher capex should help the company capture upcoming manufacturing opportunities.
- FY28 estimated P/E stands at 42 times, versus 38 times for auto suppliers and around 49 times for industrial peers.
Goldman Sachs
- Maintained 'Neutral'; Target Price At Rs. 2,120
- June-quarter earnings missed expectations.
- Manpower shortages and the US PMT plant shutdown affected profitability.
- Expects profitability and visibility to improve across defence and adjacent businesses.
- Sees lower margins in the standalone, K Drive Mobility and JSA businesses.
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