Brokerages offer mixed views on Bharat Forge, share price dips

Brokerages were divided on the prospects of Bharat Forge Limited after the company declared its first quarter results.

The company, which makes an array of critical and safety components for several sectors, including automobiles, reported a 34 percent year-on-year increase in consolidated net profit at Rs 213 crore in the June quarter of the current financial year.

Let us look at what brokerages are saying:

Broking firm Motilal Oswal Financial Services Limited (MOFSL), which has maintained its ‘buy’ rating on the stock,  has said that established businesses incubated over the last 5-10 years have reached pivotal moments and have the potential to offset any anticipated challenges in the core operations.

“The defence segment is poised for significant growth, with execution already underway. The e-mobility sector presents a substantial opportunity and possesses foundational elements, but the competitive landscape is yet to evolve,” analysts added in the note.

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In Q1, Bharat Forge won cumulative orders worth Rs 277 crore in defence from multiple customers and product segments, and the company said these will be executed over the next 18 months.

Analysts at JM Financial have said that the order book for the company remains healthy. “We see long-term growth triggers in BHFC intact, like
the steady CV cycle in the US and India and strong ramp-up of PV, aerospace and defence vertical,” JM’s August 9 note said. Easing raw material prices, cost-optimisation initiatives and positive operating leverage are likely to support margins going forward.

Prabhdas Lilladher has said that multiple growth drivers in domestic and
export automotive segment (upcycle in the CV industry and easing chip shortage helping PVs), a strong order book leading to strong growth in high margin non-auto segment, the contribution from the defence and renewable segment and rising traction in the e-mobility division will steer momentum in the favour of the company.

Global firm Morgan Stanley has an ‘overweight’ rating on the company largely led by impressive Q1 with defence and aerospace forming 12 percent of standalone topline strong core business and sizeable defence opportunity.

Jefferies, on the other hand, has an ‘underperform’ tag on the stock. The global broking firm suggests that the EBITDA grew mainly because of the robust performance of subsidiaries. Furthermore, the firm added that valuations seem rich amid cyclical headwinds.

Similarly, CLSA has downgraded the stock to ‘underperform’ citing the same reasons as Jefferies.

At 2:50pm, the stock was quoting Rs 949.6, down 1.5 percent from the previous day’s close on the National Stock Exchange.

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