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Financial Highlights:

Q4FY25 Result Highlights In Q4FY25, Bharat Forge (BFL) reported 11% YoY decline in standalone profit after tax (PAT) to Rs 346 cr. A key highlight for the quarter was the US subsidiary achieving EBITDA break-even for the first time in several quarters, despite an uncertain demand outlook across most segments due to a challenging global macroeconomic environment. Standalone revenue for the quarter fell 7% YoY to Rs 2,163 crs, driven by a 14% decline in domestic business and a 1% drop in exports. The domestic revenue contraction was primarily due to a significant 30% YoY fall in the non-auto segment, largely linked to the conclusion of certain export orders at KSSL. Standalone EBITDA margin declined 60 basis points (bps) sequentially to 28.5%, although it improved 40 bps YoY. At the consolidated level, margins contracted 30 bps quarter-on-quarter (QoQ) to 17.7%, though they improved 230 bps YoY. For FY25, standalone revenue slipped 1% YoY to RS 8,844 cr, with domestic revenues up 2% and exports down 4%. Non-auto segments, particularly defence, aerospace, and oil and gas, were key growth drivers. Standalone EBITDA margins improved 70 bps YoY to 28.3%, though the overall standalone business posted a 7% YoY decline. Notably, consolidated long-term debt reduced to Rs 1980 cr from Rs 2460 cr, lowering net debt-to-equity to 0.35x from 0.61x. During the quarter the company secured new orders worth Rs 4,343 Crores including Rs 3,417 Crs towards the ATAGS order. As of March 2025, the defence order book stood at Rs 9,420 Crores. Bharat Forge group secured new orders worth Rs 6,959 Crore in FY25 with Defence accounting for 70% of those.

Key Conference call takeaways

Export and Domestic Business Performance

• Commercial Vehicle (CV) exports declined by 12% year-over-year to Rs.460 cr in FY25, primarily due to weakness in the North American Class 8 truck market, although CV exports to Europe showed some recovery after a weak Q3.
• Passenger Vehicle (PV) exports dropped by 1.5% YoY; however, demand conditions improved quarter-on-quarter, particularly in Europe and select Latin American regions.
• Non-auto exports rose 13% YoY, mainly driven by strong performance in High Horsepower (HHP) engines and the aerospace segment. Aerospace contributed 24% to industrial exports in Q4 and 14% for the full year.
• Domestic revenues declined 14% YoY, significantly impacted by a 30% drop in the domestic non-auto segment, largely attributed to the completion of export-linked orders at KSSL.
• Overseas subsidiaries saw improved performance in Q4, with the US subsidiary posting a positive EBITDA margin of 1.3% — a milestone after several weak quarters.

Strategic Priorities and Profitability Focus

• Management has refrained from issuing any specific growth guidance for its export business, which accounts for 30% of consolidated revenues, due to global trade volatility and tariff uncertainties.
• In the domestic market, BFL expects growth in line with industry trends across both PV and CV categories.
• Domestic non-auto growth is expected to be fuelled by defence sector expansion and new opportunities in supplying components for small nuclear reactors. A 15–20% YoY growth has been guided for the defence business in FY26.
• The company is prioritizing profitability improvement through various initiatives: exploring strategic options for the steel forging business in Europe, enhancing aluminium business operations to reduce losses, leveraging its North American manufacturing footprint to win new business, and minimizing losses in the e-mobility vertical.
• BFL also aims to complete the integration of AAM India in FY26 and subsequently use the platform to expand its product portfolio.

GuidanceSegment-wise Outlook and Guidance

• Company expects 15–20% growth in FY26 in defence vertical, as it has the advanced towed artillery gun systems (ATAGS) order to be executed in a couple of months.
• BFL anticipates continued weakness in the CV export business in FY26 due to a potential delay in emission norm changes in North America and ongoing demand challenges in Europe.
• In the PV segment, exports stabilized after a robust FY24, though an uncertain policy landscape in key markets like North America could suppress discretionary spending and volumes going forward.
• The non-auto segment reported 3% YoY growth in FY25, led by oil & gas recovery and sustained momentum in aerospace. The company expects aerospace momentum to continue for the next 2–3 years, supported by the commissioning of its new ring mill and machining facilities in 2027.
• BFL incurred a capex of Rs.750 cr during FY25, and it has provided a capex guidance of Rs.500 cr for FY26. The company mentioned that very minimal investment is required for overseas subsidiaries.

Outlook & valuation

Bharat Forge delivered weak earnings for the quarter ended Q4FY25 owing to weakness in the North-American business environment and a subdued recovery in the Europe CV business. However, we believe that BFL is well positioned to deliver a steady earnings growth trajectory over the medium term, with defence segment set to drive the next leg of growth. At the same time, core segments such as CVs, construction equipment, tractors, and oil & gas may witness subdued performance.

Key growth drivers for BFL would be 1) the robust order backlog of Rs. 9,500+ crs to be executable over the next three years, 2) new order wins and multiple initiatives, JS Autocast (JSA) is likely to emerge as one of the fastest growing businesses, attaining an ARR of 1000 cr over the next 2-3 years; 3) the aerospace segment is set to clock strong growth in the coming years, 5) Make in India’s initiative to develop India as a leading global defence manufacturing hub, 6) Rising global military spending due to increasing geopolitical tension, 7) Government capex and allied infrastructure development supporting commercial vehicle business, 8) Increasing infrastructural spends and private capex driving growth in industrials segment. Given the weakness in Europe, the turnaround in overseas subsidiaries may happen with a lag of a couple of quarters. Moreover, the company is keen on enhancing its aerospace business, aiming for a doubling of revenues in the next 3-4 years. Through capacity ramp-up initiatives in overseas subsidiaries and securing new orders with better pricing, BFL is poised to improve its performance over FY26-27E, supported by a strategic focus on capacity utilization optimization, cost efficiencies, and customer price increases.

Amid the global disturbance and moderation in truck demand, the revenue visibility appears strong for BFL due to the diversified business mix. We expect growth in the defence order book is likely to continue and expand the margin. Company refrained from export guidance due to a lack of visibility. Focus will be to improve profitability. We anticipate a decline in demand for CV and PV in the US market due to a weakening economy and potential price increases. Conversely, the India-US trade agreement may provide Indian suppliers with an opportunity to capture market share from China and other nations in the medium term. At a CMP of Rs. 1,209, the stock is trades at 31x FY26E. We maintain a HOLD rating on the stock.