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BHFC logged healthy operating profit in Q1 (4% beat on EBITDA despite a ~4% miss on revenue), amid improvement in profitability at subsidiaries. BHFC expects a stable-to-positive business outlook, with profitability at overseas subsidiaries seen improving this year and the next. Order win momentum sustained (Q1: Rs9.8bn ), particularly in Defence, with orderbook at Rs54bn now vs Rs52bn in Q4, even as domestic artillery gun orders are yet to follow. Outlook for base businesses is also improving; we expect domestic CVs to enter an upcycle from FY26E, while pre-buy from CY25 may aid the US Class 8 market. We upgrade FY26E EPS a tad on better margins and introduce FY27 estimates, retaining our BUY and raising TP to Rs1,850/sh (21x EV/EBITDA rolled-over to Jun-26E; features 25x EV/EBITDA for Defence and 20x EV/EBITDA for Others).

Healthy profitability performance

Consolidated revenue rose 6% YoY to Rs41bn (below estimates); among segments, India Industrials business (led by Defence) and the India PV business led the growth (+45% YoY/+31% YoY, resp.), while the domestic CV business saw a 9% fall. Exports revenues overall were flattish YoY. Consolidated EBITDA rose 25% YoY to7.4bn, standing ~4% above Consensus estimate. EBITDA margin improved by 260bps QoQ to 18%; the margin improvement QoQ was due to gross margin expansion. Margins of subsidiaries rose to 5.1% vs. 2.7% in Q1FY24/-0.9% in Q4FY24. Adjusted PAT rose 59% YoY to Rs3.5bn.

Earnings call KTAs

1) Expects a stable-to-positive FY25; Industrials space is seeing good traction, while Defence is continuing to ramp up well; the management sees the company entering a new growth trajectory hereon. 2) The company won new orders worth Rs9.8bn in Q1 of which Rs7.8bn pertained to Defence; the executable Defence order book now stands at Rs54bn vs Rs52bn in Q4; BHFC is confident of clocking 50% growth in the Defence business this year while maintaining profitability. 3) Current orders in Defence largely pertain to exports; order for domestic artillery guns (no. of ATAGs; ~300, with potential orders worth ~Rs45bn) may materialize soon; India has requirement of 4K such guns and BHFC has strong capabilities to cater to these programs. 4) BHFC has gained market share in domestic CVs; it expects to perform better than the industry (expects -5% to +5% industry performance) on growth in content per vehicle. 5) North American Class 8 truck market production levels are steady; outlook for next year is stable; BHFC has a sufficient pipeline for this as well as the next year. 6) Expects double-digit growth in Aerospace this year and the next; Oil & Gas exports have recovered from a low base and are moving toward the positive territory. 7) The Board has approved capital raise of Rs20bn; BHFC expects to utilize proceeds for organic as well as inorganic growth in India. 8) JSA Autocast is seen crossing the Rs10bn revenue mark soon, along with strong margin improvement. 9) Expects overseas subsidiaries to clock strong improvement in profitability this year (esp. Europe), with the next year expected to be even better.

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