Buy Bharat Forge Ltd For Target Rs. 1,250 By JM Financial Services
Margins in line; Export prospects clouded by tariff uncertainty
In 4QFY25, Bharat Forge (BHFC) reported revenue was below our estimate owing to muted CV export demand and weakness in domestic industrial business, excluding defence. Standalone EBITDA margin came-in at 28.5% (+20bps YoY), in line with JMFe. Consol. EBITDA margin expanded 220bps YoY to 17.7% due to easing of losses in overseas operations and E-mobility. The order book for the defence segment remains strong and the management expects 15-20% revenue growth in the defence segment in FY26. Aerospace momentum also remains healthy. However, exports are expected to remain under pressure due to weakness in global CV demand and tariff related uncertainty. Therefore, we have cut our revenue estimates by 8% / 6% for FY26E / FY27E from our previous estimates. We have also reduced our EPS estimates by 13% / 10% for FY26E / FY27E from our previous estimates. We ascribe 32x PE to arrive at Mar’27 fair value of INR 1,250. Maintain BUY
* 4QFY25 –Standalone margin in line with estimates: BHFC’s stand. net sales stood at INR c.22bn (-7% YoY, +3% QoQ), c.5% below JMFe owing to weakness in CV exports and domestic industrial segments. Total tonnage stood at c.67.3kt (+1% YoY, +9% QoQ). Realisation decreased by 8% YoY (-6% QoQ). Reported stand. EBITDA margin was 28.5% (+20bps YoY, -60bps QoQ), in line with JMFe. Consolidated revenue stood at INR 38.5bn (-7%YoY, +11%QoQ). EBITDA margin stood at 17.7% (+220bps YoY, -30bps QoQ) due to easing of losses in overseas ops. / E-mobility. Consol. EBITDA stood at INR 6.8bn (+6%YoY, +9% QoQ). Consol. PAT stood at INR 2.8bn (+25% YoY, +33% QoQ).
* Domestic business outlook: Domestic revenue declined 14% YoY (-1% QoQ) to INR 9.3bn in 4Q. CV revenue grew 10% YoY (+17% QoQ) to INR 2.7bn, supported by market. Capex push by Govt. and increase in construction & mfg. activity remains medium-to-long term growth drivers. PV revenue stood at INR 901mn (+15% YoY, -9% QoQ). The management expects steady performance to continue as vehicle demand is likely to be flat to moderately positive in FY26. Industrial segment revenue declined 24% YoY (-7% QoQ) to INR c.5.7bn. During 4Q, BHFC secured new orders worth INR 43.4bn, including INR 34.2bn ATAGS order. Revenue from this ATAGS order will be spread over 2 years and is expected to commence from 4QFY26. BHFC’s defence order book stands at ~INR 94bn (domestic + exports). Overall, BHFC expects 15-20% revenue growth in the defence segment in FY26, driven by a robust order book, healthy pipeline and growing opportunities both domestically and internationally.
* Export business outlook: Export revenue declined 1% YoY (+7% QoQ) to INR 12.3bn in 4QFY25. CV segment revenue stood at INR 4.6bn (-12% YoY, -7% QoQ), as marginal recovery in EU CV sales was offset by continued weakness in NA CV market. PV segment revenue declined 2% YoY (+33% QoQ) to INR 2.4bn. Sequential growth was primarily led by strong demand in select regions of LATAM. Industrials revenue increased c.13% YoY (+9% QoQ) to INR 4.5bn, led by contributions from HHP engines and aerospace. Aerospace accounted for 24% of industrial exports in 4Q and the company expects the growth momentum to continue. The management withheld guidance on the exports business due to on-going tariff-related uncertainties.
* Overseas manufacturing operations: During 4QFY25, overseas manufacturing subsidiaries revenue stood at ~INR 12bn (-11% YoY, +12% QoQ). EBITDA margin at EU operations declined 170bps YoY (flat QoQ) to 1.2%. BHFC has taken action to reduce its interest cost across its overseas subsidiaries and is reviewing its EU manufacturing footprint. The US manufacturing operations turned EBITDA positive in 4Q. Additionally, the US Aluminium forging plant is ramping-up steadily, operating at 60-65% utilisation level, with output capacity expected to double upon commissioning of phase 2.
* Other highlights: 1) BHFC’s standalone gross LT debt remained flat QoQ at INR 12.9bn in 4QFY25. Consolidated gross debt marginally reduced by INR 174mn QoQ to INR 19.8bn. 2) Capex guidance for FY26 stood at INR 5bn and the company is setting up a new dedicated forging and machining facility for aerospace. 3) BHFC has received CCI approval for AAM acquisition and the transaction is expected to conclude by Jun’25 end. 4) Mfg. facility for server and electronics segment is expected to commence in 2HFY26. 5) The company expects E-mobility business to achieve EBITDA break-even by FY26 end.
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SEBI Registration Number is INM000010361
