Bullish Outlook Emerges
Jefferies has upgraded Bharat Forge to a 'Buy' rating, setting a target price of ₹2,150, which suggests a potential appreciation of 24% from its recent
trading price. This optimistic stance is underpinned by a robust third-quarter performance, where earnings before interest, taxes, depreciation, and amortization (EBITDA) saw an 18% year-over-year increase, surpassing Jefferies' projections by approximately 4%. The brokerage attributes this positive trend to enhanced performance across its subsidiary operations. Furthermore, Jefferies anticipates an improving operational landscape, highlighted by indications of a market bottom in the US truck sector, a resurgence in Indian truck demand, easing Indo-US tariff tensions, and continued momentum in the defence segment. Consequently, they have revised their earnings per share (EPS) estimates for FY27 and FY28 upwards by 4% to 18%. Their projections indicate a significant acceleration in earnings growth, moving from a 12% compound annual growth rate (CAGR) between FY24 and FY26 to an impressive 33% CAGR from FY26 to FY28, reflecting strong confidence in the company's future profitability.
Cautious Perspective Issued
In stark contrast, Citi maintains a more reserved outlook, reiterating its 'Sell' rating and establishing a price target of ₹930. This valuation implies a considerable potential downside of 46% from its last recorded closing price. Citi's caution stems from its assessment of the company's third-quarter earnings, which fell short of their expectations, primarily due to a downturn in export revenues. The decline was particularly sharp in the North American truck segment, which experienced a 51% year-over-year drop attributed to inventory adjustments, although management expressed optimism about its future prospects. The brokerage argues that the current stock valuations, standing at 49 times FY27 and 40 times FY28 consensus earnings per share, already fully incorporate most of the anticipated positive developments. This leaves a narrow margin for any unexpected positive news, while any negative surprises could have a pronounced impact. Despite the cautious view on valuation, the company's management remains confident about both domestic and export market strength, anticipating high double-digit topline growth and a corresponding boost in profitability.
Key Growth Drivers
Bharat Forge's management is projecting a strong recovery, with Chairman and Managing Director Baba Kalyani stating that the company has likely overcome its most challenging period. Both domestic and international markets are showing robust signs across various sectors. A significant development on the horizon is the expected commencement of the ATAGS (Advanced Towed Artillery Gun System) order execution in the second half of FY27. This, combined with sustained traction in the aerospace segment and a projected 30-40% year-over-year growth in the defence business for FY27, points towards substantial revenue expansion. The company has also secured significant order inflows, including a defence order valued at ₹18.8 billion within the quarter, bringing total inflows to ₹23.9 billion. This diversification into defence and aerospace, alongside its traditional automotive business, is expected to drive high double-digit topline growth with a proportional increase in profitability, providing a solid foundation for future performance and offering medium-term growth visibility of 18-20%.
