Bharat Forge gains 2% on healthy medium term growth prospects

Shares of Bharat Forge were up 2 per cent to Rs 872.50 apiece in Monday’s intra-day trade, in an otherwise range-bound market. The spike comes after the management re-iterated healthy medium term revenue prospects, supported by growth in defense, aerospace, e-mobility, and aluminum segments.

The stock of casting & forging company traded close to its record high level of Rs 896.40, which it had touched on November 11, 2022. In the past six months, it rallied 30 per cent, as against 14.4 per cent rise in the S&P BSE Sensex. However, it declined 2 per cent in a month, as against 0.53 per cent gain in the benchmark index.

Earlier this month, the company showcased its capabilities and growth prospects across key verticals at its analyst meet in Pune.

Analysts at ICICI Securities said that the company's key targets by FY30 include 12-15 per cent revenue CAGR, EBITDA margin >20 per cent at consolidated level, and RoCE up 500 bps from FY22 levels.

"The company’s capabilities in defence space need special mention, wherein it has indigenously developed armoured vehicles, Advanced Towed Artillery Gun System (ATAG) guns (successfully tested, ready for induction in Indian Army, order anticipated anytime soon), bullet shell casing, etc, with IP rights staying with BFL and opportunity size in this space pegged at thousands of crores in the next decade. With drivers in place for its base business and exponential growth envisaged across new verticals, we have a positive view on the stock, with medium to long term investment horizon," the brokerage firm said.

Going forward, the management expects revenue growth to be strong in the domestic market in FY24, while a muted performance is expected across overseas markets, especially for North-America Class8 trucks, European HCVs, and construction equipment.

That apart, analysts at Emkay Global Financial Services believe that the company has significant revenue exposure to the ICE engine and transmission components.

"Over the medium term, the company is focusing on increasing presence in EVs and Hydrogen vehicles, via initiatives such as component portfolio expansion; electric 2W/3W vehicle assembly; and retro-fitment of electric drive train to ICE vehicles. Considering the muted growth prospects in the overseas auto segment ahead and limited upside potential, we retained HOLD rating on the stock, with target price of Rs 820/share," the brokerage firm added.