Bharat Forge rallies 8% on stable business outlook post Q1 results

Shares of Bharat Forge have rallied 8 per cent to Rs 796.55 on the BSE in Friday’s intra-day trade after the company reported in-line performance for the June quarter (Q1FY23) with standalone revenue up 5.1 per cent sequentially at Rs 1,759 crore. Looking ahead in to Q2FY23, the management expects stable performance across both the domestic and export markets despite uncertainty arising from the macro- economic headwinds caused by monetary tightening.

In the past one month, the stock has outperformed the market by surging 25 per cent, as compared to a 10 per cent rise in the S&P BSE Sensex. However, in the last one year, the stock has underperformed by falling 4 per cent against a 8 per cent rally in the benchmark index. The stock had hit a record high of Rs 848 on November 10, 2021.

The revenue growth during the quarter was led by international operations wherein revenue grew 11.5 per cent quarter on quarter (QoQ) to Rs 1,048 crore. While domestic revenue were down 3.7 per cent QoQ at Rs 690 crore, due to decline in MHCV production during the quarter.

The standalone earnings before interest, taxes, depreciation, and amortization (EBITDA) margins stands at 26.1 per cent in Q1FY23 was a marginal improvement of 40 bps as compared to Q4FY22 despite a sharp increase in energy cost. Reported standalone profit after tax stood at Rs 243.7 crore, down 7 per cent QoQ.

During the quarter, the Indian operations secured new business worth around Rs 350 crore across automotive & industrial application. At a consolidated level, the European operations have delivered a stable performance as per plan, in-spite of high input prices and weak market conditions.

“The new Greenfield Aluminium Forging facility in North America is still in a ramp-up phase and operating at low utilization levels which has adversely impacted the overall quarterly profitability. We expect this business to turnaround in second half of the fiscal,” the management said.

“Going forward, we expect standalone demand momentum to be strong for Bharat Forge led by sustained recovery in domestic demand, both in auto and non-auto segments; strong export demand in PVs and aerospace and stable demand from oil and gas. Overseas subsidiary margins are expected to normalise as the US Al forging facility ramps to full capacity. Also, near-term cost headwinds are likely to be partially mitigated by favourable currency movement and healthy revenue growth,” analysts at HDFC Securities said in result update.

All businesses are seeing a sharp cyclical recovery. This, coupled with its focus on creating new revenue pools in Aerospace, Defense, and e-Mobility, can lead to a de-risking of the business, according to Motilal Oswal Financial Services. “We have upgraded our numbers for the standalone entity, which will offset the negative impact of the US aluminum forging business that is ramping up. We have maintained our FY23/FY24 EPS estimate. We are yet to build in any contribution from Sanghvi Forgings, and JS Auto,” the brokerage firm said in result update.