Bharat Forge Ltd shares were on the radar of investors on Friday after jumping 7% on the NSE in morning trade. Investors are encouraged by the company’s strong June quarter performance and management’s comments.
The company’s standalone earnings were ahead of analysts’ expectations on the revenue growth front, aided by solid traction in its auto business and easier raw material costs.
In a post-earnings conference call held on Thursday, the company’s management said that despite the slowdown environment, demand for commercial vehicles in the US and Europe was stable. On the other hand, the volume of passenger vehicles is facing some challenges due to supply chain constraints. Nonetheless, its industrial business now accounts for about 40% of standalone revenue and management expects this segment to be one of the biggest growth drivers in a few years.
Investors will remember that Bharat Forge is entering the non-auto segment and analysts believe its diversification efforts are paying off. Analysts at Motilal Oswal Financial Services Ltd highlighted that over the past decade, the company has broadened its revenue stream by entering new segments (non-auto) and markets across the globe, resulting in the share of auto business. has fallen to about 62. % in FY20 from around 80% in FY07.
In addition, earnings from its overseas subsidiaries are expected to change. The company aims to achieve 8-8.5% EBITDA margin in overseas units. Ebitda is short for earnings before interest, taxes, depreciation and amortization.
“While its core business continues to see a sharp cyclical recovery, management’s initiatives to diversify into aluminium, light-weight and EV components are beginning to bear fruit. The first full-fledged from its recently acquired businesses in FY23 The contribution of the year will be visible,” added. Motilal Oswal’s report
Sharing the optimism, analysts at JM Financial Institutional Securities Ltd said that the benefits of cost-optimization initiatives and recent moderation in commodity prices are likely to support margins going forward. Domestic brokerage houses said prolonged supply crunch, significant correction in crude oil prices and volatility of profits in international subsidiaries are the major risks.
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