Bharat Forge Q3: PAT dips over 14% YoY to ₹289 cr, revenue sees robust growth. Should you buy the stock?

The company posted a net profit of ₹268.12 crore in September 2022 period.

It needs to be noted that Bharat Forge’s PAT in Q3FY22 was higher due to an exceptional items gain of ₹95.93 crore. While the company posted an exceptional items gain of ₹4.3 crore in Q3FY23.

Profit before exceptional items came in at ₹380.07 crore in Q3FY23 versus ₹328.73 crore in Q3FY22. But compared to Q2FY23 where profit before exceptional items was at ₹358.45 crore, the latest quarter reported a decline due to rising interest costs.

Coming at the top-line front, revenue from operations stood at ₹1,952.10 crore in Q3FY23 — registering a growth of 21.85% from ₹1,602.09 crore in Q3FY23, and also up by 4.73% from ₹1,863.93 crore in Q2FY23.

Sequentially, revenue was up due to a 9.4% growth in Export sales. Domestic revenues declined by 1.7% due to lower PV production & seasonal weakness in tractors.

Further, EBITDA margins at 25.2% in Q3 improved by a 90 bps QoQ driven by a better product mix.

In terms of segment-wise performance, on the domestic front, in the quarter, the company’s MHCV production witnessed sequential growth while the Passenger vehicles and LCV sector production declined by~ 10% & 14% respectively. BFL’s revenues from the PV segment declined in line with industry volumes.

Meanwhile, the industrial business continues to display stable performance with the segment registering flat sequential performance largely due to seasonality in Agri/ tractor segment. Q3FY22 revenue included the supply of Oxygen cylinders, normalized for this the YoY performance is a 50% improvement.

Internationally, automotive export revenues have witnessed growth on both QoQ & YoY basis across Commercial & Passenger Vehicle segments. Revenues from the CV segment have grown by 5% while the PV segment revenues have grown by 10% sequentially.

Passenger vehicles revenue from export was at a record high of ₹267.1 crore. Bharat Forge expects this trend to continue as demand sustains.

On a geographical basis, Bharat Forge said, North America CV and PV volumes continue to show robust growth on the back of fleet replacement and strong demand for personal mobility. The European automotive market continues to remain gloomy with the only silver lining being MHCV truck volumes which have recorded a YoY growth in CY22.

B.N. Kalyani, Chairman & Managing Director said, in Q3FY23, JSA performance witnessed a sequential growth of 20% in topline and 52% in EBITDA. During the quarter, they secured new orders worth ₹153 crore.

To further grow its presence in the castings space, Kalyani said, JSA has signed a BTA with Inda Shell Mould to acquire its SEZ unit in SIPCOT, Erode. They expect the transaction to close by March 2023.

Further, in Q3 of the current fiscal, Bharat Forge along with KSSL secured contracts worth ₹600 crores, taking the order book to ₹1,950 crore as of December 31, 2022.

The fulfilment of these orders along with the export of the Artillery Gun system will commence from the beginning of FY24, Kalyani added.

Going ahead, Kalyani said, “as we look ahead into Q4 FY23, we expect growth momentum to continue across both the domestic and export markets. Aiding the standalone performance, we expect the new verticals to start registering meaningful contribution at a consolidated level and EPS accretive in FY24.”

On Bharat Forge’s financial performance, Mitul Shah, Head of Research at Reliance Securities said, “We expect healthy growth in domestic M&HCV industry as well as likely improvement in Class 8 trucks on the expectation of semiconductor ease in 1HFY24E. We believe that with strong top-line performance and declining commodity cost, the company would be able to expand its margins from its current low level and improve return ratio.”

As per Shah, BHFC’s leadership position in automotive forgings, focus on diversification, and expected cyclical recovery in the core segments, support our positive view. Moreover, its aggressive expansion in defence play would fuel revenue growth going ahead.”

At present, Shah added, “we have a BUY recommendation on Bharat Forge. We will revisit our estimates post-management con-call.”

Bharat Forge re-appointed B. N. Kalyani as the Chairman and Managing Director for another 5-year tenure starting from March 30, 2023, to March 29, 2028. Also, the company re-appointed G. K. Agarwal as the Deputy Managing Director for 1-year tenure with effect from April 1, 2023, to March 31, 2024.

At the time of writing, Bharat Forge’s share price traded at ₹867.90 apiece down by 2.41% on BSE. The company’s market is at over ₹40,400 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.