For Bharat Forge, defence a winner, but auto a sore spot
Source: Live Mint
Bharat Forge Ltd’s growth engine appears to be chugging along, though not without a few bumps. While its defence business is on a good footing, the auto segments, particularly overseas, are fighting an uphill battle.
Bharat Forge’s defence segment has an impressive order backlog of ₹5,400 crore in exports, offering earnings visibility for the next three years. Global demand for replacement artillery, including India’s requirement for guns, are crucial defence drivers. So, the company is scaling its production capabilities. Moreover, a domestic order worth ₹4,500 crore is expected to kick off soon, with Tata Advanced Systems sharing the benefits.
Conversely, its commercial vehicle and passenger vehicle businesses are navigating turbulence. Bharat Forge’s management is optimistic that domestic demand for commercial vehicles will pick up in the just-begun financial third quarter of 2024-25, aiding growth for the year.
But commercial vehicle exports, particularly in the US and Europe, are facing headwinds due to economic downturns and changing emission rules. Bharat Forge, India’s largest exporter of auto components, anticipates a muted performance in these regions for the next two years.
As for passenger vehicles, rising inventory levels have constrained domestic growth, while exports have slowed due to weak demand in Europe and Brazil. However, management expects a rebound in exports by FY26 as new orders materialise.
Bharat Forge’s overseas subsidiaries, particularly in Europe and the US, are grappling with weak demand, especially in the steel forgings segment. The company is focusing on improving productivity and expects a recovery in the US by the fourth quarter, though a complete turnaround may take longer.
To tackle the challenges in its overseas business, Bharat Forge is streamlining its operations by consolidating facilities and reducing staff, while in India, it’s boosting efficiency at older plants with automation and workforce realignment.
Further, the JS Autocast subsidiary is emerging as a key contributor, with a robust order backlog and plans to diversify beyond its anchor customers (Bharat Forge completed its acquisition of JSA in 2022). In the aerospace segment, Bharat Forge expects 15-20% revenue growth in FY25.
Bharat Forge’s board has approved a plan to raise ₹2,000 crore to fund organic (greenfield) and inorganic initiatives in India. The company’s consolidated capital expenditure is projected at ₹1,000 crore over FY25-26.
Meanwhile, the stock is up 23% so far in 2024 even as sharp near-term upsides may be curbed. Challenges in the commercial, passenger, and overseas markets present significant headwinds. Bharat Forge’s ability to manage these obstacles and seize emerging opportunities, along with its strategic financial initiatives, will be vital in shaping its growth path.
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