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Sector Outlook: Positive
Bharat Forge Ltd. saw its revenue increase by 16.6% from last year to Rs 2,328.6 crores, surpassing expectations. This growth was mainly due to defence orders and car exports. The company shipped more products this year, and the price per ton also rose by 13.1%. Overall, including its global businesses, revenue rose by 14.7% to Rs 4,164 crores, helped by its expanding Aluminium operations abroad and defence sales internationally. While growth in India was stable, the company did exceptionally well internationally, especially in its industrial products which grew by 72% from last year. Its earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased significantly, both in India and globally, due to better product mixes and cost savings in Europe, despite some unexpected costs. Profit after tax also went up considerably to Rs. 389.7 crores, benefiting from lower interest and depreciation charges. Additionally, the company announced a final dividend of Rs. 6.5 per share, bringing this year’s total to Rs. 9 per share compared to last year’s Rs. 5.5 per share.
Key Concall Highlights
- The company has defence orders worth Rs. 5,192 crores, with 80% aimed for exports, ready to be completed soon. This figure doesn’t include upcoming domestic contracts expected after the elections.
- In Europe, the aluminium business is doing well, operating at 75% capacity due to strong demand for versatile drivetrain components, contributing to profits.
- In the US, facilities are running at half their potential but are expected to reach full capacity by 2027 following expansions. These expansions are set to stabilise operations over the next few quarters.
- Profits from international branches are likely to rise in 2025, helping to increase overall profit margins.
- Last year, the company spent Rs. 800 crores on Indian operations and USD 60 million on international sites.
- Plans for the coming year include spending Rs. 500 crores in India and USD 65 million abroad, mainly to expand US aluminium operations and for maintenance in Europe.
- The defence business will be moved to its subsidiary, KSSL, next year after new facilities are ready and necessary approvals are obtained.
- Investments in JS Auto are paying off, with revenues reaching Rs. 570 crores this year and a strong profit margin in the last quarter. Revenue from JS Auto is expected to double in the next 4-5 years.
- The company anticipates more defence contracts globally, which should continue to boost growth and order intake. Additionally, potential significant orders for artillery systems in India could greatly increase the company’s defence orders.
Valuation and Outlook
Bharat Forge Ltd. faces a varied outlook in the coming years. The company’s defence business and exports are expected to drive growth, with a strong order book of Rs. 5,192 crores planned for execution over the next three to four years. Defence and industrial sales to China and Europe should significantly contribute. However, the company’s main segments like commercial vehicles, construction equipment, tractors, and oil & gas might perform weakly due to high competition and the growing trend towards electrification, which could limit revenue increases. Nevertheless, the company sees a positive turn by the end of 2025 for its US branch, driven by recovering demand, strategic price adjustments, and better use of their manufacturing capacity. Bharat Forge also plans to double its aerospace business revenue in three to four years and improve overall performance through better capacity use, cost control, and hiking customer prices. These efforts make Bharat Forge a promising company for the long term.
