Bharat Forge has broadened its revenue stream by entering new segments (non-Auto) and markets across the globe, resulting in a decline in the share of the Auto business to ~56% in FY25 from ~80% in FY07. It has increased value additions by focusing on machined components, whose contribution grew ~50%, boosting realizations and margin.
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Yes Securities Report
We believe, Bharat Forge Ltd. is better placed than its previous cycles as it expected to benefit from-
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defence orders ramp up and pickup in domestic/exports passenger vehicles,
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positive outlook for industrials (with strong growth potential in Aerospace).
To factor in for prevailing macro uncertainty, we cut FY26/27E EPS by ~11.5/5%.
While we expect sharp defence ramp-up in rest of FY26, tariff challenges to aggravate weakness in auto and industrial vertical. The recent correction in the stock though partially factors in near-term challenges.
We downgrade the stock to Add with our SOTP based target price at Rs 1,266 (vs Rs1,351 earlier). Bharat Forge trades at 45x/32x of FY26/27 consolidated earnings per share (vs ~42x 10-year long-period average), supporting upside and diversifying profit pools.
Demand challenges to persist in near-mid-term, we believe.
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