On Monday, Bharat Forge’s share price plunged more than 14% after the forging company reported its December results. In two days, the stock fell more than 19%.
Bharat Forge reported a consolidated net profit of ₹254.45 crore in Q3FY24, a growth of 223% from ₹78.71 crore in the same period last year.
The company’s revenue during the quarter ended December 2023 increased 15.7% to ₹3,922.96 crores from ₹3,389.95 crore in the previous year.
“Looking ahead in Q4 and further into FY25, we expect the growth momentum to moderate in the Domestic and Export market across industries,” Bharat Forge said in a release.
Read here: Bharat Forge share price down 14% after Q3 results: Expects domestic and export markets to see growth moderation.
Most analysts have maintained a bearish outlook on Bharat Forge stock on muted assumptions for near-term performance. Here’s what brokers have to say:
Kotak Institutional Equities
Bharat Forge’s consolidated EBITDA (excluding forex gain) came in 4% below our estimates due to a weaker than expected revenue print and profitability in the EU business. Short-term outlook remains challenging due to slowdown in some of the company’s key segments, Kotak Institutional Equities said.
It is expected that newer businesses will drive growth over the coming years; however, it believes the share price does not adequately factor in EV risks on select core businesses and mounting delays in its newer focused business.
The brokerage cut its FY2024-26 consolidated EPS estimates by 1-11% led by lower revenue growth assumptions, lower profitability assumptions for the EU business and higher finance cost assumptions, partially offset by higher EBITDA margin assumptions for the India business.
Valuations remain expensive due to the cyclical nature of the business, it said, maintaining a ‘Sell’ rating with a revised target price of ₹850 per share.
Nuvama Institutional Equities
Factoring in lower growth assumptions, Nuvama Institutional Equities cut FY25E and FY26E EBITDA estimates by 4% and 3%.
“Weakening European/US economies pose a challenge going forward for core segments such as MHCV and oil & gas. This, coupled with lower domestic MHCV/PV growth, will lead to moderation in revenue and EBITDA CAGR to 12% and 13% over FY23–26E,” said Nuvama Institutional Equities.
It maintained a ‘Reduce’ rating and cut the target price to ₹1,080 per share of ₹1,140 earlier.
Read also: Hindalco Industries share price down 14% after Novelis Q3 results: Capex improvement leads to disappointment
While Bharat Forge’s core India business is on the growth path, it is worth noting that the underlying macro environment in the US and EU is showing signs of weakness. However, the newly established businesses incubated over the last 5-10 years have reached pivotal moments and have the potential to offset the anticipated challenges in core operations, said Motilal Oswal Financial Services.
The Defense segment is poised for significant growth, with execution already underway. The e-mobility sector presents great opportunity and possesses fundamental elements, but the competitive landscape is still evolving, the brokerage firm added.
It cut its FY24E and FY25E EPS estimates by 7% and 6% to factor in a weak demand environment, particularly in auto exports. The brokerage reiterated a “Buy” call with a target price of ₹1,315 per share.
At 10:50 am, shares of Bharat Forge were trading 1.35% lower ₹1,115.00 apiece on the BSE.
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Published: 13 Feb 2024, 10:51 IST