Bharat Forge shares fall on mixed Q3 earnings, weak guidance; should you buy the dip?

Bharat Forge share price: Shares of Bharat Forge, the auto component maker, declined for the second consecutive session on Tuesday, February 13, after the company reported below-than-estimated Q3 results on Monday.

Further, the management's statement that they expect the growth momentum to moderate in both the domestic and export markets across industries weighed on sentiment.

On Monday, the stock settled at Rs 1,130.95 on the NSE, down 13.93 per cent and today, at the time of filing this news, the scrip was trading 3.11 per cent lower at Rs 1,095.80.

A look at Bharat Forge's Q3 report card

The auto components major shared its third quarter results for the period ended on December 31, 2023, on Monday, February 12. The company reported a net profit of Rs 254 crore against Rs 79 crore reported in the corresponding quarter of the previous fiscal (Q3 FY2023). The profit was estimated at Rs 305 crore, according to Zee Business analysts.

Its revenue came in at Rs 3,866 crore, compared to Rs 3,353 crore a year ago. However, the research team had estimated the topline to come in at Rs 4,015 crore.

The earnings before interest, tax, depreciation, and amortisation (EBITDA) for the third quarter stood at Rs 697 crore, against the estimate of Rs 685 crore.

The company's margins stood at 18 per cent against the estimate of 17.1 per cent.

Here's what management said

"Looking ahead in Q4 and further into FY25, we expect the growth momentum to moderate in both the domestic and export markets across industries," Bharat Forge chairman and MD BN Kalyani said.

The company also informed that its board has accorded in-principal approval to raise funds not exceeding Rs 500 crore through term loans, non-convertible debentures, or any other debt instruments.

Weak guidance a concern

Bharat Forge's Q3 earnings were mixed, as per Zee Business Research. The revenues and profits were lower than the estimates. Further, the company said in its commentary that it expects slow growth in the fourth quarter of FY24 and the financial year 2025, which weighed on the sentiment.

Besides, the company also said that it sees a moderation in domestic and international markets, and the profit from aluminium and steel businesses will also be optimised for up to one and a half years, note the researchers.

The experts further highlighted that Bharat Forge is yet to make an operational improvement in its US plant, and the recovery of European business is still slow.

Bharat Forge share price: Past performance 

The company's shares fell around 10 per cent last month, while in a year, they have gained almost 28 per cent.

Should you buy or sell the stock?

Citi and CLSA have maintained a 'sell' call on Bharat Forge with a revised target of Rs 800 and Rs 977, respectively.

CLSA noted that the company's third quarter was above expectations, but growth momentum was slow. Management expects growth momentum to moderate in both domestic and export markets across industries. Its subsidiaries continue to be in red, which is dragging down consolidated profit growth. 

Jefferies has maintained an 'underperform' rating and cut the target price from Rs 1,030 to Rs 950. The brokerage noted that the company's growth is expected to moderate ahead. 3Q24 earnings were above estimates, but growth momentum will slow going forward. "The company's defence business is growing rapidly, led by new order wins, while exports, domestic CV, and PV business might slow down," the brokerage added.

On the other hand, JP Morgan and Morgan Stanley have maintained an 'overweight' rating on Bharat Forge. The brokerages raised the target to Rs 1,250, and Rs 1,346, respectively.

According to JP Morgan, the company's consolidated results were better than expectations. Subsidiary margins continued to improve, but the trajectory was stronger in the India subsidiary while the overseas subsidiary lagged behind expectations.

The brokerage expects revenue growth to moderate to 12 per cent and 10 per cent in FY25 and FY26, respectively, but EBITDA growth should be higher at 21 per cent and 19 per cent, respectively, due to a turnaround in the subsidiaries, according to JP Morgan.