Bharat Forge dips 7% on weak performance of overseas subsidiaries in Q3

The company's overseas operations posted an EBITDA loss of Rs 62 crore in December quarter due to ramp up related issues of the new Al forgings capacities in Germany and the US

Shares of Bharat Forge dipped 7 per cent to Rs 811.80 on the BSE in Wednesday’s intra-day trade as the company’s overseas operations posted an EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of Rs 62 crore in the December quarter (Q3FY23) due to ramp up related issues of the new Al forgings capacities in Germany and the US. Overseas subsidiaries had posted an EBITDA loss of Rs 34.1 crore in September quarter (Q2FY23).

The management, however, expects these new capacities to turn around in FY24 and enjoy high-teen margins at 75-80 per cent utilization. “Overseas operations continue their journey towards profitability with focus on improving capacity utilization, cost optimization, price increases & cost compensation from customers,” Bharat Forge said.

In Q3FY23, the company’s consolidated net profit declined 81 per cent year-on-year (YoY) to Rs 78.72 crore on account of higher expenses. It had posted a profit of Rs 422 crore in the year ago quarter (Q3FY22) and Rs 142 crore in Q2FY23. Consolidated revenue grew 40 per cent YoY and 9 per cent QoQ to Rs 3,353 crore.

However, Bharat Forge posted healthy numbers on a standalone basis for Q3FY23. The company’s subsidiaries, however, posted a muted show dragging the overall consolidated performance.

The company’s standalone revenues for the quarter came in at Rs 1,952 crore, up 4.7 per cent quarter-on-quarter (QoQ) amid a 2.6 per cent tonnage growth to 62,755 MT. Standalone EBITDA in Q3FY23 was at Rs 535 crore, with consequent margins at 27.4 per cent, up 310 bps QoQ. Reported standalone profit after tax was at Rs 289.1 crore, up 7.8 per cent QoQ.

“Overall the company witnessed healthy order wins across automotive, forging & defence business, which are expected to come into manufacturing from FY24E. Further, the management informed about its recent acquisition JS Auto, which is expected to grow at high double digit CAGR over next two to three years. We continue to remain positive on the stock amid healthy financial & ambitious growth targets,” ICICI Securities said in a note.

According to Motial Oswal Financial Services (MOFSL), Bharat Forge’s Q3FY23 standalone performance was in line, as strong revenue growth offset higher-than-estimated raw material costs. While all core businesses are seeing a sharp cyclical recovery, Bharat Forge’s initiatives to diversify into aluminum/light-weighting and EV components have started to bear fruit, though we are seeing initial losses due to the ramp-up.

Additionally, it has started to gain momentum in defence orders in export markets. Orders for ATAGs from the Indian Army are keenly awaited, it said.