Bharat Forge Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Neutral

Core Business Slowdown Dampens Financial Performance

Bharat Forge Ltd. (BHFC) had a weak Q3 performance, with standalone revenue falling to ₹20,959 million, down 7.4% from last year and 6.7% from the previous quarter, mainly due to lower demand in Europe. Gross profit dropped 4.4% year-on-year to ₹12,559 million, though margins improved slightly to 59.9% due to lower raw material costs. EBITDA declined 8% YoY to ₹6,098 million, with margins at 29.1%, impacted by higher employee costs and lower revenue. Net profit also fell 8.4% YoY to ₹3,460 million, with margins at 16.5%. On a consolidated level, revenue dropped 10.1% YoY to ₹34,755 million, while EBITDA slipped 4.3% YoY to ₹13,513 million, though annual margins improved due to lower raw material costs. However, net profit (PAT) dropped 16.4% YoY to ₹2,128 million, with margins at 6.1%, showing weaker overall profitability.

Key Concall Highlights

Business Highlights

Commercial Vehicles (CV): Revenue in India was ₹2,279 million (down 11.8% YoY, up 3.6% QoQ), while exports fell to ₹4,985 million (down 5.0% YoY, down 4.1% QoQ).
Passenger Vehicles (PV): India revenue grew to ₹985 million (up 27.9% YoY, up 7.1% QoQ), but exports dropped to ₹2,424 million (down 12.5% YoY, down 26.1% QoQ).
Industrial Segment: India revenue declined to ₹5,126 million (down 13.1% YoY, down 19.8% QoQ), but exports grew to ₹4,081 million (up 8.0% YoY, up 13.1% QoQ).
Defense Business: Q3 revenue was ₹3,370 million, with a 9-month total of ₹14,880 million (49% YoY growth). New orders worth ₹1,000 million in Q3FY25 increased the total order book to ₹57,000 million as of December 31, 2024.
JSA Performance: Revenue rose 20% YoY in Q3FY25 to ₹1,660 million. Margins improved by 50 bps to nearly 14%. Strong diversification in customers and products has reduced risks. The business is expected to reach ₹10,000 million in revenue in two years.

Other Highlights

Aerospace Expansion: Bharat Forge approved investments in machining for landing gear components and a ring mill to produce high-precision forgings for jet engines, expanding its aerospace business.
Capital Expenditure (CapEx): Plans to invest ₹3,000 million in FY26 for standalone operations. Additional investments in Indian subsidiaries will be between ₹2,000–2,500 million, making the total CapEx ₹5,000–5,500 million.

Valuation and Outlook

Bharat Forge Ltd. had a tough Q3, with both standalone and consolidated financials taking a hit due to weaker exports and lower revenue from its defense segment. Despite this, the company managed to keep its margins stable, likely due to a good product mix and effective pricing. In the short term, growth is expected to remain slow, mainly because of uncertainties in export markets, especially in Europe, along with geopolitical tensions and trade war concerns. Management is cautious about the Euro market and expects more clarity by Q1FY26. However, the company is betting on its newer segments, like aerospace and castings, to drive future growth. With fresh investments in aerospace components and a strong outlook for its ferrous casting business, Bharat Forge aims to scale up significantly. Overall, the near-term outlook remains cautious due to ongoing uncertainties and weakness in its core business.