Neutral Bharat Forge Ltd for the Target Rs 1,931 by Motilal Oswal Financial Services Ltd
Margins likely to revive gradually from Q2 Plans fund raise of INR 25b to fund future growth
* Bharat Forge’s (BHFC) 1QFY27 standalone adjusted earnings at INR3.4b came in 12% below our estimate of INR3.9b, primarily due to lower-thanexpected margins. BHFC posted a consolidated loss in 1Q which was attributed to a one-off provision of INR3.5b toward CDP restructuring.
* Due to margin pressure witnessed in 1Q and losses in US operations, we have cut our FY27 earnings estimate by 7%. The GST rate cut has helped revive the domestic auto business, which augurs well for BHFC. Further, the US Class 8 cycle appears to have bottomed out, with clear signs of revival. Defense, aerospace, and JSA are likely to remain the key growth drivers for BHFC over the coming years. We now expect BHFC to post a CAGR of 17%/24%/39% in revenue/ EBITDA/PAT over FY26-28. However, following the recent rally in the stock, most positives seem to be factored in (valuation now at 64x FY27E EPS and 44x FY28E EPS). Reiterate Neutral with a TP of INR1,931 per share (valued at 40x FY28E EPS).
Highlights from the management interaction
* Management indicated that the overall demand environment remains favorable despite cost escalations. India and the US continue to witness firm demand. In EU, CV demand remains strong, while PV demand is stable.
* BHFC maintained its FY27 growth outlook of 20–25% for the Indian manufacturing business, with growth expected to be more pronounced in 2HFY27 and a sustained momentum expected even in FY28.
* Over the next five years, automotive growth is expected to be driven primarily by new products from JSA and K-Drive, while growth in non-automotive businesses will likely be driven by defense, aerospace, power generation, semiconductors, data centers, and other industrial segments.
* During the quarter, the forging business secured new orders worth INR5.2b, defense won INR6.8b of orders, and the ferrous casting business secured ~INR1.5b of new orders. The outstanding defense order book stood at INR112b as of June 30, 2026.
* The company plans to raise up to INR25b through either debt or equity to support organic growth and M&A opportunities.
Valuation and view
Due to margin pressure witnessed in 1Q and losses in US operations, we have cut our FY27 earnings estimate by 7%. The GST rate cut has helped revive the domestic auto business, which augurs well for BHFC. Further, the US Class 8 cycle appears to have bottomed out, with clear signs of revival. Defense, aerospace, and JSA are likely to remain the key growth drivers for BHFC over the coming years. We expect BHFC to post a CAGR of 17%/24%/39% in revenue/ EBITDA/PAT over FY26-28. However, following the recent rally in the stock, most positives seem to be factored in (valuation now at 64x FY27E EPS and 44x FY28E EPS). Reiterate Neutral with a TP of INR1,931 per share (valued at 40x FY28E EPS).
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