Bharat Forge trades 2% down, Kotak downgrades stock to ‘sell’

Shares of Bharat Forge fell 2 percent after Kotak Institutional Equities downgraded it to ‘sell’ from ‘reduce’. The brokerage lowered its outlook on the company due to moderate growth prospects in its core segments over FY2023-35 and expects consolidated revenue to record a moderate 8-9 percent CAGR over the period.

“We see limited growth prospects in the company’s core segments,” according to the brokerage which expects majority growth to be driven by newer segments such as defence, casting, light-weighting and aerospace.

Limited growth prospects in the core segments is attributed to the shift towards EV (electric vehicle) and the elevated competitive intensity from domestic companies. Standalone automotive segment revenues are likely to record a meagre 5 percent CAGR over FY2023-35.

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“We do not expect the standalone automotive business to outperform the CV (commercial vehicle) and PV (passenger vehicle) industry’s volume growth in the medium term, given elevated competitive intensity and lower profitability in the PV forging business. Although it has been gaining market share in the export PV forging business, the pick-up in the electrification trend will weigh on growth prospects over the medium term, as the company derives more than 90 percent of its revenues from engine crankshafts,” Kotak Institutional Equities said.

The brokerage expects the oil and gas segment revenues to decline over the medium term as oil demand is expected to decline, given the pick-up in electrification trends in the automotive industry.

In the second half of FY23, a decline in US Class-8 order inflows along with moderation in auto demand remained the key headwinds, while the brokerage stayed positive on the medium-term growth prospects of the defence business. It, however, warned that there might be a delay in revenue ramp-up in the near term, as the company is yet to receive an order for ATAGS (advanced towed artillery gun system) from the government.

It has reduced its FY2024-25 consolidated EPS estimates for the company by 9 percent, along with its target price from Rs 850 earlier to Rs 660, a 13 percent downside over closing price as on March 6.

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The market capitalisation of the company has gained 1.41 percent over the last one year and has decline around 9 percent in the last month.

At 10.42am, the scrip was trading 1.56 percent down at Rs 750.50, while the benchmark Nifty50 was up 0.14 percent at 17,623.95 points.

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