Non-auto segments to drive growth for Bharat Forge as demand recovers

Despite demand challenges and export headwinds, analysts say Bharat Forge's diversified revenue base, strong defence order pipeline

The stock of automotive (auto) components major Bharat Forge has risen 14.6 per cent over the past month. Despite ongoing demand challenges, strong operating performance in the July–September quarter (Q3) of 2025-26 (FY26), a diversified revenue base, and expectations of a gradual recovery have lifted sentiment. At the current price of ₹1,446, the stock trades at 51x its 2026-27 (FY27) earnings estimates.

 

Standalone revenues fell 13.3 per cent year-on-year (Y-o-Y), reflecting lower volumes (tonnage) and realisations. Tonnage was down 11.9 per cent, while average sales realisation slipped 1.6 per cent. The volume miss stemmed from a sharp drop in North American truck production and destocking. As a result, commercial vehicle exports to that market declined 63 per cent Y-o-Y and 48 per cent sequentially. 

Exports were also weighed down by higher freight costs and uncertainty surrounding commercial vehicle (CV) demand in North America due to US tariffs. Domestic business felt the impact of lower CV production. 

Overall domestic revenue fell 6 per cent Y-o-Y, dragged by a 7.5 per cent drop in non-auto revenue. Within this, CV revenue edged up just 1 per cent Y-o-Y amid lower production volumes ahead of anticipated goods and services tax rate changes. Medium-term growth for the segment is expected to come from the government’s capital expenditure push and rising construction and manufacturing activity.

 

In the defence business, order wins stood at ₹735 crore versus ₹847 crore in the previous quarter, with an executable order book of ₹9,470 crore. On top of this, the company secured a ₹1,400 crore carbine order and another order from the Indian Navy for unmanned marine systems.

 

The defence outlook, according to analysts Deep Shah and Meghna Gundu of Yes Securities, remains strong, supported by the execution of marquee orders such as the Advanced Towed Artillery Gun System beginning in calendar year 2026 and running for up to three years, along with the carbine and Navy orders. The company expects FY27 revenue to exceed FY26 levels, given the robust pipeline.

 

According to Emkay Research, the defence uptick in FY27 and the offsetting of US tariff-led headwinds by industrial business growth in India, rising exports to non-US regions, and a ramp-up in defence manufacturing will support overall performance. Analysts led by Chirag Jain believe the worst of the cycle is already priced in and have raised their target multiple to 20x September 2027 enterprise value to operating profit, from 17x earlier. The brokerage has an ‘add’ rating with a target price of ₹1,450.

 

Despite muted standalone sales, margin performance was a standout. Gross margins expanded by 460 basis points (bps) Y-o-Y and 250 bps sequentially to multi-quarter highs. Operating profit margins improved by 50 bps Y-o-Y and 80 bps sequentially, driven by cost rationalisation and stronger subsidiary performance due to a better mix.

 

Motilal Oswal Research expects defence, aerospace, and JSA Autocast (acquired in 2022) to be the key growth drivers. Analyst Aniket Mhatre notes that a recovery in export demand depends on how US tariffs on India compare with other countries. While Q3 is expected to be similar to the second quarter, the brokerage foresees the demand environment improving from the fourth quarter onwards. It has a ‘neutral’ rating with a target price of ₹1,286.