Bharat Forge share price jumps 2%; Motilal Oswal says buy, stock may rally 33%, check target price

Bharat Forge share price jumped over 2 per cent on Tuesday. The company is expected to grow on the back of US aluminum capacity, recent acquisitions in the industrial business, and foray into the e-mobility business, according to Motilal Oswal Financial Services. Bharat Forge share price has tanked more than 7 per cent in the past one month, but has gained 8.51 per cent in the last one year. Going forward, Motilal Oswal sees 33 per cent upside in the stock. On Tuesday, Bharat Forge shares hit an intraday high of Rs 666, up 2.75 per cent on the Bombay Stock Exchange.

First year of cyclical recovery in core business curbed by chip shortages

Analysts at Motilal Oswal stated that after witnessing a cyclical downturn until FY21, accentuated by the COVID impact, Bharat Forge is undergoing a cyclical recovery in its core businesses in both domestic as well as international markets. “With firm crude oil/commodity prices and higher infrastructure investments by the governments in the developed markets, non-autos exports would see a sustained recovery over the next few years,” the brokerage said.

Aluminum forgings – a play on lightweighting the EVs/ICE

Stricter CO2 emission regulations globally and the advent of electric vehicles (EVs) has led to an increase in aluminum usage. Bharat Forge’s overseas subsidiaries are witnessing a strong demand of aluminum-forged components for chassis from EVs and hybrid PVs and hence, the company has doubled its capacity to 40,000 tons from 20,000 tons. “With all capacities on stream and already fully booked, the aluminum forgings business is expected to ramp-up to EUR 200-220 million in the next 3-4 years from EUR 59 million in CY20,” according to Motilal Oswal.

Strengthening industrial business through acquisitions

Motilal Oswal analysts said Bharat Forge is seeing tremendous opportunities in industrial space (renewable, off-highway, and others) and has invested in expanding its capacities via Sanghvi Forgings) and capabilities via JS Autocast) through acquisitions in the last nine months. The company has a relatively smaller contribution from renewable energy and industrial segments in India. The acquisitions of Sanghvi Forgings and JS Autocast are targeted towards reinforcing its presence in these segments. 

“With the addition of castings, BHFC will be able to address low-volume and high-value products in the industrial segment by offering a diversified portfolio of products to its customers. Management expects the non-autos business to become ~2x in three years,” the brokerage said.

Bharat Forge has been working on building its capabilities in components for EVs across vehicle segments through various organic initiatives. Apart from targeting lightweighting opportunities in the EV space, the company is also aiming for sub-systems as well as complete electric powertrains across vehicle segments. Motilal Oswal estimates Bharat Forge’s consolidated revenue, EBITDA, PAT at 10%, 17% and 24% CAGR over FY22-25, respectively.

Growth levers in place for improved consolidated performance

According to the brokerage firm, cyclical recoveries across key businesses and contributions from the new businesses are expected to propel a sharp recovery for Bharat Forge over the next 2–3 years. This along with a ramp-up in the overseas aluminum forging business is likely to drive improved consolidated performance. Motilal Oswal maintained BUY rating on the stock with a target price of Rs 860, implying 33% potential upside. Bharat Forge is Motilal Oswal’s top pick in the auto component industry.