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Steady domestic operations, robust defence outlook - Bharat Forge Q3 Review

ICICIdirect Research 15 Feb 2023 DISCLAIMER

What’s Buzzing 

Bharat Forge (BFL) reported a healthy performance on a standalone basis in Q3FY23. Standalone revenues came in at Rs 1,952 crore up 4.7% QoQ amid 2.6% tonnage growth to 62,755 MT. The growth was led by international operations wherein revenues grew 9.4% QoQ to Rs 1,166 crore. Domestic revenues were down 1.7% QoQ at Rs 759 crore. 


Standalone EBITDA in Q3FY23 was at Rs 535 crore, with consequent margins at 27.4%, up 310 bps QoQ. Gross margin expanded 37 bps QoQ but savings were realised in other expense (down ~250 bps QoQ) primarily tracking exchange gains. Reported standalone PAT was at Rs 289.1 crore, up 7.8% QoQ. In Q3FY23, BFL’s Indian operations secured new business amounting to ~Rs 265 crore across automotive and industrial application. KSSL, the defence vertical of the company (wholly owned subsidiary) along with BFL secured contracts worth Rs 600 crore with total order book in this domain at ~Rs 1,950 crore as of Q3FY22 with conversion of these into revenue from FY24 onwards. 

Our Perspective 

Bharat Forge is a leading auto component player with exposure across CV, PV and industrial space (including oil & gas domain) amid strong engineering & metallurgy capabilities and is poised to benefit from upbeat domestic demand across the CV, PV space along with steady state overseas CV demand. It is progressing well on the EV front through presence in Tork Motors and JV for manufacturing of e-axles and retrofitting CVs with battery and motors. In the recently concluded investor day, the company showcased capabilities developed over the past decade, especially in the defence, aerospace and e-mobility domains among others. BFL’s capabilities in the defence space need special mention wherein it has indigenously developed armoured vehicles, ATAG guns (successfully tested, ready for induction in Indian Army, order anticipated anytime soon), bullet shell casing, etc, with IP rights staying with BFL. Further, the company has outlined ambitious growth targets as part of Vision 2030, which includes i) 12-15% revenue CAGR, (ii) EBITDA margin >20% at the consolidated level, (iii) RoCE at 25% at the consolidated level, (iv) capital allocation for organic/inorganic growth. We continue to like the stock from a long term time horizon.

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