Bharat Forge, a diversified manufacturing giant, is poised for significant growth in its defence, aerospace, and auto components segments, projecting a 25 per cent revenue increase in Indian manufacturing for FY27 despite current high valuations.
Key Points
- Bharat Forge projects 25 per cent revenue growth in Indian manufacturing for FY27, driven by strong execution, export market recovery, and healthy demand in India and the US.
- The defence segment is expected to see a significant ramp-up from H2FY27 with orders for Advanced Towed Artillery Gun System (ATAGS) and close quarter battle (CQB) carbines, holding an order book of Rs 11,000 crore.
- Aerospace revenue, which was Rs 400 crore in FY26, is anticipated to achieve strong double-digit growth due to global outsourcing, new wins, and expanding OEM relationships.
- Despite a 12 per cent year-on-year fall in export revenue for Q4FY26, a rebound in US truck production and strong passenger vehicle exports indicate a recovery trend.
- The company's diversified portfolio, moving beyond MHCVs to EV platforms and into multiple segments, is expected to reduce cyclicality, though current valuations are high at 56 times expected FY27 earnings.
Bharat Forge offered strong guidance despite an uncertain macro environment and modest fourth quarter (Q4FY26) results.
The defence segment could see a big ramp up from the second half of 2026-27 (H2FY27) as orders for Advanced Towed Artillery Gun System (ATAGS) and close quarter battle (CQB) carbines arrive.
The company is also witnessing growth in aerospace and the data centre business.
The Q4FY26 standalone adjusted earnings were at Rs 370 crore.
Key Growth Drivers and Financial Performance
Defence, aerospace, and the JSA Autocast subsidiary remain key growth drivers.
Exports lagged due to global softness and tensions.
The standalone revenue rose 4.5 per cent year-on-year (Y-o-Y) to Rs 2,260 crore.
Volumes declined 8 per cent Y-o-Y to 62,201 million tonnes (Mt), while realisations grew 13.1 per cent Y-o-Y to Rs 363 per kg.
The auto segment revenue declined 7.1 per cent Y-o-Y to Rs 1,060 crore and non-auto revenue grew 17.5 per cent Y-o-Y to Rs 1,210 crore.
Export revenue fell 12 per cent Y-o-Y to Rs 1,080 crore.
However, it was up 19 per cent Q-o-Q due to inventory restocking and a rebound in US truck production.
Passenger vehicle exports were also strong, driven by demand across North and Central America.
Aerospace exports were strong, high horsepower engines were stable and the oil & gas segment was weak.
The export revenue for FY26 stood at Rs 4,010 crore, down 15.2 per cent Y-o-Y, impacted by prolonged destocking in US truck markets.
The domestic commercial vehicle (CV) revenue was good and overall domestic auto revenue grew 32 per cent Y-o-Y.
The operating profit margin was stable Q-o-Q at 27.3 per cent, and balance sheet strength was impressive, with net debt-to-equity at just 0.18.
Bharat Forge has acquired a 30 per cent stake in Fortuna Engineering for Rs 130 crore.
Consolidated Results and Future Outlook
The consolidated revenue rose 17.5 per cent Y-o-Y to Rs 4,530 crore. However, net profit fell 17 per cent to Rs 233 crore.
Margins also contracted 50 basis points Y-o-Y to 17.2 per cent.
Margins of overseas subsidiaries improved to 3.7 per cent in Q4 from 1.2 per cent a year ago.
For FY26, revenue was up 11 per cent to Rs 16,811 crore, while operating profit was up 9 per cent and net profit grew 18 per cent Y-o-Y to Rs 1,090 crore.
The free cash flow for FY26 improved to Rs 370 crore post capex of Rs 1,100 crore.
For FY27, barring major geopolitical disruptions, the management is optimistic of 25 per cent revenue growth in Indian manufacturing, with improvement in operating profit due to strong execution, export market recovery and healthy demand in India and the US.
Growth is expected to be led by aerospace, followed by defence and auto components.
Segment-Specific Projections
The full-year defence revenue was Rs 1,560 crore in FY26.
The defence order book stood at Rs 11,000 crore at FY26-end, with multi-year revenue visibility.
ATAG production ramp-up and CQB carbine commercialisation are expected to contribute to revenue from H2FY27 onwards.
Bharat Forge is addressing emerging opportunities in Europe, with recent order wins.
Aerospace revenue was Rs 400 crore in FY26 and contributed 26 per cent of industrial export revenue in Q4FY26.
Management expects strong double-digit growth in the segment, driven by global outsourcing, new wins and increasing relationships with aerospace original equipment manufacturers (OEMs).
The portfolio is moving beyond medium and heavy commercial vehicles (MHCVs) to electric vehicle (EV) platforms.
Subsidiary JS Autocast reported a revenue of Rs 760 crore and operating profit of Rs 100 crore in FY26.
A slowdown in wind related business led to near-term softness.
Bharat Forge could conservatively post consolidated annual revenue growth in mid-teens, with higher margins and higher operating profit growth till FY28.
Moving into multiple segments will help to reduce cyclicality.
But geopolitical tensions are a serious concern.
The recent rally in stock price implies that the positives are factored in with valuations running at price to earnings of 56 times the expected FY27 earnings.
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