IGI Logo

In 1QFY25, Bharat Forge (BHFC) reported consolidated revenue was 3% below JMFe on weak export performance partially offset by strong ramp-up in defence segment. Standalone EBITDAM came-in at 27.9% (+210bps YoY). Consol. EBITDAM increased 260bps QoQ to 18% (+270bps YoY), 150bps above JMFe led by improvement in profitability at subsidiaries. Management highlighted that while NA Class 8 demand remains steady, EU CV sales remain weak. Outlook for domestic CV segment is flattish. While the growth in Auto segment is expected to moderate, medium-term performance is expected to be led by execution of robust order book in Defence/Aerospace (INR 54bn order book for Defence). Cost-control initiatives and positive operating leverage are likely to support margins in the international operations. Maintain BUY with a Sept’25 TP of INR 1,700 (35x forward earnings vs. 30x earlier). Deferment / delay in defence order execution remains a key risk.

* 1QFY25 – Revenue slightly below JMFe; Margin beats estimates: BHFC’s stand. net sales stood at INR 23.4bn (+10% YoY, flattish QoQ); 3% below JMFe owing to weak exports. Total tonnage stood at c.67.5kt (flattish YoY, +1% QoQ). Realisation increased by +10% YoY (-1% QoQ). Reported stand. EBITDAM was 27.9% (+210bps YoY, -40bps QoQ). Consolidated revenue stood at INR 41.1bn (+6%YoY, -1%QoQ); c.3% below JMFe. EBITDAM stood at 18% (+270bps YoY, +260bps QoQ), 150bps above JMFe led by improved profitability at subsidiaries. Consol. EBITDA stood at INR 7.4bn (+24%YoY, +15% QoQ), 6% above JMFe. Consol. adj. PAT stood at INR 1.7bn (-18% YoY).

* Domestic business outlook: Domestic revenue increased 23%YoY (+8% QoQ) to INR 11.7bn. CV revenue decreased 9% YoY (+3% QoQ) to INR 2.5bn. CV demand is expected to remain muted in the near-term with healthy recovery expected during 2HFY25. PV revenue stood at INR 816mn (+31% YoY, +4% QoQ) led by new business execution. BHFC indicated that new programs, structural market growth and premiumization is expected to drive growth going ahead. Domestic Industrial segment revenue increased 37% YoY (+10% QoQ) to INR c.8.4bn led by strong growth in Defence segment. Order pipeline remains strong led by higher capex spends. During 1QFY25, BHFC secured new orders worth INR 9.8bn across Defence, Casting and Forging business. Of this, defence order wins stands at INR7.7bn and BHFC’s defence orderbook stands at ~INR 54bn (domestic + exports). This is expected to drive strong growth in the mediumterm. Further, the company expects to secure order for ATAG guns from Govt of India in the near-term.

*  Export business outlook: Exports revenue decreased 1%YoY (-6% QoQ) to INR 11.7bn. CV segment revenue stood at INR 5.3bn (+6% YoY, +1% QoQ). Management indicated that North American Class 8 truck production is likely to remain steady. EU CV sales remain muted as recovery remains anaemic. For FY25, BHFC’s CV exports are expected to remain stable with a moderately negative bias. PV segment revenue decreased 1% YoY (- 16% QoQ) to INR 2.8bn. BHFC re-iterated its focus on increasing mkt. share and content per vehicle. Industrials revenue declined c.9% YoY (-8% QoQ). While O&G segment witnessed recovery, demand in EU was muted. BHFC indicated that Aerospace segment is on the cusp of rapid growth in the medium-term (aiming to double over next 2-3 years).

* Overseas manufacturing operations: During 1QFY25, overseas manufacturing subsidiaries revenue stood at INR 13.2bn (-1% YoY, -3% QoQ). EBITDA margin at EU operations improved 60bps QoQ to 3.5% led by improved pricing and positive operating leverage. EU operation is currently operating at c.75% utilization level. Management indicated that it expects EBITDA margins to consistently improve going ahead led by cost reduction efforts, focus on value added business and higher capacity utilization. The company also indicated that US Aluminium forging plant is gradually ramping-up (50% utilisation level) and it is expected to break-even by FY25 end.

* Other highlights: 1) BHFC has reduced standalone gross debt by INR 2.7bn during 1QFY25 to INR 14.3bn. Standalone net debt/EBITDA ratio stands at 0.8x. Consolidated gross debt reduced by INR 3.1bn to INR21.5bn. 2) Capex guidance for FY25/26 stands at c.10bn each towards expansion of both India operations (INR 5bn) and overseas operations (INR 5bn towards US AL plant – phase 2 and EU plant maintenance). 3) Board has approved fundraise of INR 20bn towards greenfield and inorganic opportunities within India. 4) Company targets 50% YoY growth in defence revenue during FY25. Total order value of long-awaited 307 ATAG guns amounts to INR 40-45bn and the company expects order win from Govt. of India in the near-term.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361