Bharat Forge stock down over 3% on corporate governance issue, weak outlook

CLSA raises concern on company selling 49% stake of defence subsidiary to promoters

Forging major Bharat Forge's stock was down over 3% during the early hours of trading on concerns of growth in the first quarter and corporate governance issues. The stock at Rs 722.80 was down 3.17% compared to the previous close.

According to the company's annual report, Bharat Forge has sold 49% stake in its defence subsidiary to the promoter group.

A CLSA report said that this move hints towards corporate governance issues and is a negative.

"Kalyani Strategic Systems (KSSL) stake sale is a surprise. The company has sold its 49% stake in KSSL to the promoter group. KSSL is the entity which was supposed to bid and execute various defence projects. This is seen as a big corporate governance issue from the promoters’ side. Seems like this move will be a lost opportunity for the company to fully tap the defence business," said a note from CLSA.

The note further added that KSSL has made no P&L contribution so far but there have been rising hopes that defence opportunities could fructify in the coming years.

The analyst firm also cut the company's EPS by 11% for FY17-18 on weak export outlook.

"BFL’s focus on scaling up new businesses is commendable, but cyclical headwinds will overshadow the benefits in the near term. We now expect the standalone topline to decline YoY in FY17, which along with a weaker mix will also put pressure on margins," said CLSA.