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Bharat Forge Ltd.’s Q2 FY23 results were weak as Ebitda/adjusted profit after tax miss our estimates by ~10%/~12% respectively.
Cost headwinds in overseas business as well as raw material (gross margins contracted 310 bp QoQ at 55.6%) reflected in profit and loss as despite ~6% revenue growth QoQ, Ebitda declined ~1.6% to Rs 4.5 billion (our estimate: Rs 5 billion) with margins at 24.3% (our estimate: 26.6%).
Adjusted for late delivery fee of Rs 130 million for defense business (one‐ off), margins are at 25%. The company has reported ~6% QoQ/7% YoY growth in tonnage at ~61,100.
Also, key positives going forward will be-
continues ramp‐up in recent acquisitions such as JS Auto cast (guided revenue growth more than 25% and double digit margins over two‐three years),
FAME 2 approval for Tork EV motorcycles,
defense revenues expectation of Rs 8‐10 billion (versus Rs 3‐4 billion).
The management has hinted towards sustenance of healthy demand momentum across segments going forward led by industrial and passenger vehicle (auto) while Europe (commercial vehicle) to remain stable. This we believe, should help Bharat Forge navigate inflationary pressure and drive gradual margins expansion over FY23‐25E.
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