Bharat Forge Ltd Quarterly Results Q1 FY 26 stock analysis

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Sector Outlook: Neutral

Tariff-induced environment soften sales; Estimates beat on margin front

Bharat Forge reported a 10.0% YoY and 2.7% QoQ decline in revenue, coming in at Rs. 21,047 million. The decline was driven by weakness in export revenues, particularly from North America, due to regulatory uncertainty, tariff disruptions, and the rollback of emission norm changes for heavy trucks. Additionally, seasonal weakness in the aerospace and domestic CV business further weighed on topline performance. Gross profit declined 5.2% YoY and 1.3% QoQ, yet gross margins expanded by 307 bps YoY and 90 bps QoQ to 61.2%, on account of stable RM prices (lower annually) and higher inventory stock. EBITDA stood at Rs. 5,718 million, down 12.2% YoY and 7.3% QoQ. The margin contraction (down 70 bps YoY and 134 bps QoQ) to 27.2% was primarily due to higher tariff-related costs and an unfavourable product mix in the export portfolio. Despite softer operating performance, reported PAT grew 25.6% YoY, aided by a lower base and absence of exceptional losses seen in Q1FY25. On a sequential basis, PAT was marginally lower by 2.1%, in line with the decline in operating profit. PAT margins improved sharply by 456 bps YoY and 11 bps QoQ to 16.1%. During the quarter, the company secured new orders worth Rs. 847 crores, including Rs. 269 crores in Defence and Rs. 429 crores in Bharat Forge.

Valuation and Outlook

Bharat Forge delivered a resilient operating performance in Q1FY26 despite a challenging external environment. The topline decline was largely anticipated, reflecting macro headwinds across export markets. However, the company’s ability to sustain margins amid this topline pressure underscores the benefit of diversified end-markets and cost discipline. While export-linked segments remained under pressure, the domestic industrial and defence verticals performed well, highlighting the growing contribution from non-auto and high-value strategic businesses. Looking ahead, the near-term outlook remains cautious, particularly for the export-focused portfolio, as tariff-related uncertainty in the US and subdued sentiment in Europe persist. However, H2FY26 is expected to see a recovery, aided by the execution of the Rs. 9,400 crores defence order book (with another Rs. 1,400 crores expected to be converted), continued growth in aerospace (20%+ full year growth expected), and the full-quarter consolidation of American Axle Q2FY26 onwards, which is estimated to add ~Rs. 1,000 crores to FY26 topline. Additionally, infrastructure-led demand should support the domestic industrial and construction verticals. On margins, Q2FY26 is likely to remain under pressure due to lower volumes and the absorption of tariff costs (~Rs. 14 crores in Q1FY26). Still, improvement is expected in H2FY26 as volume recovery, favourable mix, and cost optimisation kick in. The turnaround in the US aluminium operations (second EBITDA-positive quarter) further reinforces medium-term margin visibility.

Key concall Highlights

Bharat Forge reported Q1FY26 revenue of ₹39,088 million, down 4.8% YoY, with EBITDA at ₹6,817 million and margins at 17.4%, down 110 bps. The recent 25% US import tariff has disrupted export cost structures, with the full impact expected in Q2FY26. Management is working closely with clients to share this burden through price adjustments. The American Axle acquisition, effective from Q2FY26, is set to contribute ₹1,000 crore in FY26, strengthening the company’s position in the LCV and SUV segments. The US aluminium forging business posted its second consecutive profitable quarter, operating at 70% capacity, with a second line under installation. Aerospace is expected to grow 20% YoY with minimal US exposure. In defence, Bharat Forge is pursuing a ₹9,000 crore RFQ pipeline and a ₹1,400 crore tender conversion. Additionally, the company has established SMT and electronics capacity for EV and defence growth, targeting PLI benefits from this investment.