Shares of Bharat Forge Limited were trading nearly 3% higher on the NSE in Friday’s morning trade. This is on the back of a broad correction in the markets after Thursday’s carnage. The acquisition of JS Autocast Foundry India Pvt Ltd by Bharat Forge has also helped the sentiment.
JS Auto, a supplier of critical machined ductile iron castings for wind, hydraulic, off-highway and automotive applications, will help Bharat Forge expand its presence in the industrial casting space. As of now, JS Auto has a capacity of around 45,000 tonnes and operates at 50-55% utilization. JS Auto sales have grown at a CAGR of 17.7% in the last 5 years. CAGR is the compound annual growth rate.
This acquisition will also help in capitalizing on the opportunities of decarbonisation. Analysts at Motilal Oswal Financial Services Ltd said in a report, “This acquisition will significantly enhance its revenue from the renewable energy sector as JS Auto has achieved a major contribution from the wind power segment.” Management said non-auto and non-oil & gas will grow more than 2x over the next three years.
In addition, the report said, “JS Auto is a preferred supplier to its customers and shares many common customers with Bharat Forge. While this acquisition brings in additional customers, it makes Bharat Forge one of the existing wallets.” Enables us to address the high stakes and do value added work in the industrial sector.” Also, common and new customers will enable synergy on the front end.
As far as the transaction is concerned, Bharat Forge has not disclosed the size of the deal. It will acquire JS Autocast at the end of the third year for an upfront consideration and fixed deferred payment. This acquisition is expected to increase earnings per share from the first year according to management and is expected to close by Q1FY23.
“In addition to casting, Bharat Forge will be able to address low volume, high value products in the industrial segment by offering its customers a more comprehensive portfolio of products. The company is well positioned to benefit from a cyclical improvement in its core business (excluding tractors in India), aided by ramp-up in aluminum forgings (in its overseas subsidiaries) and consolidation of recent acquisitions.
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