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Valuation and View

Bharat Forge (BHFC) 3QFY23 results were in?line at revenues/Adj.PAT while EBITDA exceeded our estimates by 10.7% at Rs5.4b (est Rs4.8b, +32.7%/18% YoY/QoQ). Lower utilization in overseas business (Aluminum forgings) in Germany and North America led to EBITDA loss of Rs620m (v/s loss of Rs341m in 2QFY23). BHFC has reported ~2.6% QoQ/17.6% YoY growth in tonnage at ~62.75k tons, which were at 16 quarter high indicating strong momentum across business verticals. Key positives going forward will be 1) continues ramp?up in recent acquisitions such as JS Auto cast (guided revenue growth >25% and double?digit margins over 2?3 years), 2) ramp up in defense revenues led by exports. The management has hinted towards sustenance of healthy demand momentum across segments going forward led by industrial and PV(auto) while Europe (CV) to remain stable.

New orders win for 9MFY23 have been healthy across auto, industrial, defense (new defense component order post Rs6b in 3QFY23 taking segment orderbook to Rs20b at KSSL) and JSA Auto (Rs1.5b). With diverse presence, BHFC is better placed than its previous cycles to benefit from i) steady orders and ramp up in domestic/exports PVs and CVs and ii) healthy outlook for industrials (with strong wins in segments like Aerospace, defense, mining, agriculture). We raise FY24/25 EPS by 5?5.5% to factor in for new order wins and other income. We reiterate BUY rating on the stock with revised TP of Rs1,028 (v/s Rs974 earlier) based on ~26x to Mar’25 consol EPS (unchanged). Reiterate BUY as one of our top picks among ancs.

Result Highlights –Revenue/ Adj. PAT in?line, EBIDTA 10% above est

* Revenues grew at Rs19.5b (5% QoQ, 22% YoY, in?line) as tonnage grew (2.6% QoQ, 18% YoY, in?line) at 62.7k tons while ASP grew (2.1% QoQ, 4% YoY, in?line) at Rs311.1k/ton
* Gross margins expanded at 55.9% (+30bp QoQ, +240bp YoY, in?line)
* This resulted EBITDA at Rs5.3b (+18.2% QoQ, 33% YoY, est Rs4.8b). Consequently, EBITDA margins came in at 27.4% (+310bp QoQ, +220bp YoY, est 25.2%).
* Strong op performance offset by higher interest cost at Rs849m (est Rs310m) resulted Adj.PAT at Rs2.9b (+6.5% QoQ, +9.5% YoY, in?line).
* 9MFY23 performance? Revenue/EBITDA/Adj. PAT grew 22%/16%/2%

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