After a 20% rally in the stock price over the past one month, Bharat Forge has now come under the spotlight for a different reason. Brokerage house Nuvama has turned cautious despite strong growth projections for the company’s defence, industrial and export businesses over the next few years.
Nuvama downgrades Bharat Forge
The brokerage has downgraded Bharat Forge to a ‘Reduce’ rating from ‘Hold’ and set a target price of Rs 1,650. This implies a downside potential of nearly 17% from the current market price.
According to the brokerage report, the concern is not entirely about business growth, but more about valuations after the recent run-up in the stock.
As per the brokerage house, “Valuation comfort is missing, as the stock trades at 29x/24x FY27E/28E EV/EBITDA, post 20% stock price run-up in past month.”
Nuvama, however, continues to see long-term growth opportunities for the company in defence, aerospace, commercial vehicles and passenger vehicle segments.
Let’s take a look at the key reasons behind the brokerage’s cautious stance on Bharat Forge.
Bharat Forge: Expensive valuations after recent rally
One of the biggest concerns highlighted by Nuvama is the sharp rise in Bharat Forge shares over the past month.
According to the brokerage report, the recent rally has already priced in much of the expected future growth. Even though earnings visibility remains healthy, the brokerage believes current valuations do not leave enough room for fresh upside.
Nuvama stated, “Downgrade to ‘Reduce’ (earlier ‘Hold’) with a target price of Rs 1,650.”
The brokerage believes the stock is currently trading at elevated valuation multiples compared to near-term earnings growth expectations.
Bharat Forge: Delay in defence sector order execution
Defence sector remains one of Bharat Forge’s biggest growth areas, but the brokerage has flagged delays in execution of key orders.
According to the brokerage report, the execution timeline for Advanced Towed Artillery Gun System (ATAGS) and carbine orders has been pushed back, which could impact near-term profitability.
Nuvama stated, “We are trimming FY27E EBITDA by 5% due to delay in execution of ATAGS/carbine orders.”
Even though the brokerage remains positive on the long-term defence opportunity, it believes the delay may slow earnings momentum in the coming financial year.
Bharat Forge: Overseas business still under pressure
Another major concern highlighted in the report is the weak performance of overseas subsidiaries.
According to Nuvama, overseas auto revenue declined due to weakness in commercial vehicle demand globally.
The report stated, “Overseas auto dipped 18%, led by 26%/6% decline for CV/PV.”
Nuvama also noted that the company’s overseas subsidiaries are expected to remain loss-making over the next few years, which may continue to weigh on consolidated profitability.
Bharat Forge: Germany restructuring plan in focus
To reduce losses in overseas operations, Bharat Forge is planning to restructure its German subsidiary operations.
According to the brokerage report, the company plans to gradually shift part of the production from Germany to India.
Nuvama noted, “Management plans to restructure Bharat Forge CDP GmbH, Germany by winding down operations and shifting production to India.”
The brokerage believes this move could eventually improve profitability because manufacturing costs in India are lower compared to Europe.
Bharat Forge: Defence and exports still remain long-term growth drivers
Nuvama, however, continues to see strong growth potential in some of Bharat Forge’s key business segments.
According to the brokerage report, the company’s industrial business is expected to benefit from defence and aerospace opportunities over the next few years.
Nuvama stated, “We reckon robust industrials’ revenue CAGR at 26% over FY26-28E led by Defence (57% CAGR) and Aerospace (40% CAGR).”
The brokerage also expects exports to support growth in the automobile business as global commercial vehicle demand gradually improves.
What investors need to know
According to Nuvama, Bharat Forge continues to have multiple long-term growth triggers ranging from defence orders and aerospace expansion to recovery in domestic and export automobile demand.
However, delays in defence execution, pressure in overseas operations and expensive valuations remain the key factors influencing the brokerage’s cautious stance for now.
Disclaimer: The information provided includes a specific brokerage rating and price target for an individual stock. This content is for informational purposes only and does not constitute a recommendation to buy, sell, or hold any security. Investors should consult with a SEBI-registered investment advisor before making any financial decisions, as market conditions and valuations are subject to significant volatility.
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