Bharat Forge: Can narrative overshadow the joker in the pack?
Chart Beat: For Bharat Forge, non-auto segments to keep the ball rolling So far, so good, although this strong narrative ends here. While Bharat Forge’s consolidated FY24 Ebitda margin expanded 250 basis points (bps) year-on-year to 16.3%, this needs to be analysed closely by bifurcating the numbers into standalone and subsidiaries. The standalone business continues to chug along with 20% CAGR in sales and Ebitda during FY22 to FY24.
But the subsidiaries have been erratic with 26% CAGR in revenue growth, and Ebitda at ₹268 crore in FY22, then turning negative in FY23 at ₹147 crore, before just about breaking even in FY24. The overseas subsidiaries have posted net losses in the past two years. Bharat Forge’s management expects subsidiaries in Europe and the US to be profitable in FY25, but it has not given an indicative margin range.
There could be another factor responsible for the excitement about the stock. That is the transfer of the defence business to Kalyani Strategic Systems Ltd, a wholly owned subsidiary. While the management has not officially commented on this, investors seem to be busy discounting the potential value unlocking.
Bharat Forge’s defence order book was ₹5,200 crore in FY24, with almost 80% from the global markets. The company expects global defence spending to increase, which should help in ramping up the business. Additionally, potential orders for ATAGS (Automated Towered Artillery Guns System) in India could boost domestic order inflow.
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