Bharat Forge Ltd, a prominent player in the manufacturing sector, is making strides in its growth trajectory, although it faces certain challenges. Its defence segment is experiencing robust demand and solid performance, while its automotive divisions, particularly overseas, encounter notable difficulties.
The defence business of Bharat Forge stands out with an impressive order backlog worth ₹5,400 crore in exports, which ensures earnings visibility for the next three years. The global demand for replacement artillery, combined with India’s pressing needs, has positioned the company favorably within this sector. Bharat Forge is enhancing its production capabilities to meet these demands. Furthermore, a domestic order projected at ₹4,500 crore is anticipated to commence soon, with Tata Advanced Systems poised to share the benefits.
In contrast, the company’s commercial and passenger vehicle sectors are currently navigating turbulent waters. However, management remains optimistic about a potential upswing in domestic demand for commercial vehicles in the newly launched financial third quarter of 2024-25, which is expected to support growth throughout the year.
On the flip side, commercial vehicle exports, particularly to the US and Europe, are hampered by economic downturns and evolving emission regulations. Bharat Forge, recognized as India’s largest exporter of auto components, is bracing for a subdued performance in these markets for the next two years.
In the realm of passenger vehicles, escalating inventory levels have hindered domestic growth, while exports have slowed significantly due to reduced demand in Europe and Brazil. Nonetheless, management anticipates a recovery in exports by FY26 as new orders begin to materialize.
Bharat Forge’s international subsidiaries, especially in Europe and the US, are facing a slump in demand, particularly within the steel forgings segment. To navigate these challenges, the company is prioritizing productivity improvements and is optimistic about a recovery in US demand by the fourth quarter, though a complete rebound may require additional time.
To address the challenges in its overseas operations, Bharat Forge is reevaluating its organizational structure by consolidating facilities and implementing workforce reductions where necessary. In contrast, in India, the company is enhancing efficiency at its older plants through automation initiatives and realigning its workforce.
Additionally, the JS Autocast subsidiary is emerging as a significant contributor to Bharat Forge’s revenue, boasting a strong order backlog and plans to diversify its client base beyond its traditional anchor customers. Following its acquisition of JSA in 2022, Bharat Forge is optimistic about achieving 15-20% revenue growth in its aerospace segment by FY25.
In a strategic move, Bharat Forge’s board has authorized a plan to raise ₹2,000 crore to support both organic (greenfield) and inorganic initiatives within India. The company forecasts consolidated capital expenditure of ₹1,000 crore across FY25-26, aimed at fuelling growth and innovation.
Moreover, Bharat Forge’s stock has experienced a notable increase of 23% thus far in 2024, despite potential short-term challenges that may limit upside potential. The hurdles faced in the commercial, passenger, and overseas markets present significant obstacles. Consequently, how effectively Bharat Forge manages these difficulties while capitalizing on new opportunities will be crucial in determining its growth trajectory going forward.
Summary of Bharat Forge’s Business Segments
| Business Segment | Key Highlights | Growth Outlook |
|---|---|---|
| Defence | Order backlog of ₹5,400 crore; domestic orders from Tata Advanced Systems. | Strong growth anticipated due to global demand for artillery. |
| Commercial Vehicles | Facing economic challenges in exports; management optimistic about domestic demand recovery. | Muted performance expected in exports for the next two years. |
| Passenger Vehicles | Inventory issues and declining exports affecting growth. | Rebound expected by FY26 with new orders. |
| Overseas Subsidiaries | Struggling due to weak demand in steel forgings. | Recovery expected in the US by fourth quarter; time needed for complete turnaround. |
| JS Autocast | Robust order backlog, focusing on diversification. | Expected revenue growth of 15-20% in aerospace by FY25. |
Bharat Forge is not only focusing on overcoming current market challenges but is also strategically positioning itself for future growth through enhanced production capabilities and diversification of its business. With well-structured initiatives and a focus on enhancing operational efficiency, Bharat Forge is poised to navigate through these challenging times and emerge stronger in the coming years.
