 "Bharat Forge")
Bharat Forge’s (BHFC’s) adjusted consolidated operating profit for the third quarter of financial year 2025 (Q3FY25) came in well below consensus estimates, due to weaker revenue in India and overseas subsidiaries.
The near term looks uncertain, due to weakness in export markets, and demand moderation in the domestic automobile industry and delays in defence execution.
BHFC’s Q3FY25 standalone revenue dropped 7 per cent Y-o-Y at Rs 2,100 crore, while operating profit dropped 5.5 per cent (unadjusted) at Rs 610 crore, and adjusted net profit declined 5 per cent Y-o-Y at Rs 350 crore.
In the first nine months of financial year 2025 (9MFY25), revenue grew 1 per cent to Rs 6,680 crore and operating profit was up 4 per cent to Rs 1,890 crore and adjusted net profit grew 4 per cent Y-o-Y to Rs 1,070 crore.
Bharat Forge’s reported Q3FY25 standalone operating profit of Rs 610 crore (including forex gain) is well below estimates.
Standalone revenues declined 7 per cent Y-o-Y due to 10 per cent Y-o-Y decline in domestic business with declines across all segments except passenger vehicles and 5 per cent Y-o-Y decline in export revenues with weakness across all segments barring in the US. The adjusted standalone operating profit margin (excluding forex gains) was 28.1 per cent (down 70 bps Q-o-Q). The adjusted standalone net profit came in at Rs 350 crore.
Standalone capex for FY26 is estimated at Rs 300 crore, with additional Rs 200-250 crore allocated for Indian subsidiaries. Investments will be concentrated in India, including the new aerospace facility. The management said demand trends in the EU region remain weak, while US demand is steady. There are limited near-term growth prospects owing to weak demand in domestic and export commercial vehicles and moderation of growth in export non-auto segments (construction and mining). Strong growth in defence could offset this to some extent. But even overseas subsidiaries are taking longer to breakeven.
While domestic revenue declined 10 per cent Y-o-Y to Rs 920 crore, exports declined 5 per cent Y-o-Y to Rs 1,150 crore. The defence and JS Auto Cast businesses posted revenues of Rs 330 crore and Rs 166 crore respectively, with growth of 87 per cent Y-o-Y and 20 per cent Y-o-Y.
Management estimates the Indian commercial vehicle (CV) market will post slightly better growth in Q4FY25, while FY26 will be flat. The US Class-8 CV demand is projected to grow 10 per cent in FY26 with uncertainty regarding US tariff changes. Weak demand persists in the EU and the US. The EU operations posted Rs 10 crore operating profit, while US operations reduced losses to Rs 6 crore (with 60 per cent utilisation).
BHFC is conducting a comprehensive review of its European manufacturing footprint. Overseas subsidiaries remain a drag and a key concern. The EV subsidiary, KPTL, also lost Rs 22 crore in 9MFY25.
Aerospace has a quarterly revenue run rate at Rs 500-600 crore and could see a potential doubling by FY27-end given new investments. JS Auto should hit an annualised run-rate of Rs 1,000 crore in the next 6-8 quarters and margin expansion of 250-300 basis points is expected.
Defence revenue stood at Rs 340 crore with slower growth due to the lumpy nature of business. For 9MFY25, defence revenue grew 49 per cent Y-o-Y to Rs 1,490 crore. This segment has an order book of Rs 5,700 crore. A domestic advanced towed artillery gun system order may be awarded in the next 3-4 months with production to commence in 15-18 months.
Capex has slowed in infrastructure and industrial, and this may lead to a slowdown in the domestic non-auto segment. Export industrial revenue grew 7-8 per cent Y-o-Y driven by growth in oil & gas and aerospace. BHFC broadened revenue streams by entering new segments (non-auto) and markets, and auto business contributed 55 per cent in 9MFY25, down from 80 per cent in FY07.
At the current valuations of 34 times price to earnings for the consolidated entity, BHFC looks expensive given the slowdown. Most analysts are cutting estimates and issuing valuation downgrades.
