Bharat Forge shares fall after Q2 prints. Should you buy this auto stock?

Bharat Forge shares trade at a current price on BSE ₹854.30 per piece down ₹32.40, or 3.65% as of the time of writing. The shares fell by at most 4.96% following the Q2 announcement. They reached an intraday lowest of 3.65% ₹842.75 apiece. The shares rose to an intraday peak of 842.75 in the early trading hours on Monday ₹895.90 per piece — slightly below the 52-week peak of ₹896.40 per piece — before correction.

BharatForge’s market capital is estimated at around $1.5 billion, based on the current price. ₹39,790 crore.

BharatForge reported a 13.9% decline in standalone net profits in Q2FY23. ₹268.12 crore is compared to a PAT of ₹The same period last year saw 311.76 crore. Sequentially the Q2 PAT grew at 10.04%. ₹Q1FY23: 243.37 million

The company’s top-line was healthy. It earned a standalone revenue of approximately $3.5 million from operations. ₹1,863.94 Crores in Q2FY23— representing a 16.02% increase from ₹1,606.59 million in Q2FY22— also, it climbed by 5.94% ₹1,759.39 million in Q1FY23.

Bharat Forge had a 24.3% EBITDA margin during the quarter under consideration, compared to 26.1% Q1FY23. The company said that margins were declining due to unfavorable product mixes (including Kalyani M4 vehicles being supplied to the MoD), and raw material pass through suppressing margins. EBITDA stood at ₹Q2FY23: 452.3 million — Lower than ₹455.3 million in Q2FY22 ₹Q1FY23: 460 crore

Segment-wise, the company had a revenue of ₹Q2FY23: Domestic commercial vehicles in India – 242.8 crore more than ₹Q2FY22, 165.9 million Commercial vehicles exports plunged to ₹463 crores in Q2FY23 ₹In Q2 last fiscal, it was 478 crore In passenger vehicles, however, domestic revenue shot up to a record high. ₹99.3 Crores in Q2FY23 ₹A year ago, the same quarter saw 79.9 crore. However, exports to this sector came in at ₹242.3 million against ₹Q2FY22: 107.3 Crores Industrial segment domestic revenue rose to ₹339.6 million in Q2FY23 ₹Q2FY22 was 298.9 million, with exports at ₹361.1 crore slightly less than ₹Q2FY22: 368.4 Crores

Bharat Forge reported that Indian operations have secured new business value in Q2 FY23. ₹850 crore across automotive & industrial applications, driven by market share gains in the PV business and new product introduction in the Industrial space. KSSL, a defense vertical of the company, has secured an export order in the amount of $155.50 millions to supply Artillery Guns to a zone that is not conflict. The contract will be completed in three years.

Bharat Forge further highlighted that the company’s long-term borrowing has increased. ₹Q2FY23: 2,510.2 crore compared to ₹As of March 31, 2022, 2,315.1 crore

On a geographical basis, Bharat Forge mentioned that the performance of the European operations has been adversely impacted mainly by lower-than-anticipated sales volumes for the Aluminium forging business. The Greenfield Aluminium Forging plant in North America is still at the ramp-up stage and operates at utilization levels below EBITDA breakeven.

It said that it continued to expect the business to turn around during the second half fiscal.

Do you need to invest in BharatForge shares following the Q2 results

BharatForge indicated that they expect stable performance for Q3FY23 due to higher-end market demand than Q2 FY23. The European Aluminum operations will see a gradual recovery over these next two quarters, according to Bharat Forge.

Mansi Lall – Research Analyst, Prabhudas Lilladher said, “Standalone revenue at ₹18.6bn (+6% QoQ), came slightly higher than our estimates ₹18.4bn. This could be attributed to USD appreciation. We are still waiting for more information on volumes. Gross margins were however significantly lower at 55.6% (-310bps QoQ). We are still waiting for clarity about the raw material costs situation. EBITDA margin was affected by a contraction of 40bps QoQ, to 24.3. This is much less than our 26.2% estimates and street estimates 26.6%.

Lall expressed optimism about the future of BHFC, saying, “We remain optimistic on BHFC because the domestic CV demand trend has now improved after many years of decline.” Although CV exports currently face headwinds, there is a long-term positive outlook. We remain optimistic about the industrial sector. Revenue growth will be further supported by the company’s efforts to diversify into other businesses.

Meanwhile, Mitul Shah – head of Research at Reliance Securities said, “We expect healthy growth in domestic M&HCV industry as well as likely improvement in Class 8 trucks on expectation of semiconductor ease in 2HFY23E. We believe the company will be able to increase its margins and improve the return ratio with strong top-line performance, declining commodity costs and strong bottom line. BHFC’s leadership position in automotive forgings, focus on diversification and expected cyclical recovery in the core segments, supports our positive view. At the moment, we have a BUY rating for Bharat Forge.

Disclaimer: The opinions and recommendations expressed above are the views of individual analysts and broking firms and not Mint.