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Key Takeaways

• Expanding into high-growth sectors like aerospace, electronics, and AI infrastructure positions Bharat Forge for outperformance in revenue and margin growth beyond consensus forecasts.
  
• Strategic global supply chain shifts and capacity investments enable Bharat Forge to capture premium export opportunities and benefit from India's rising industrial prominence.
  
• Delayed diversification and rising costs amid global market shifts expose Bharat Forge to profitability risks, increased debt, and the threat of declining relevance in the evolving automotive sector.

Catalysts

Engages in the manufacture and sale of forged and machined components in India and internationally.

• While analyst consensus anticipates robust performance from the aerospace vertical, Bharat Forge's projected year-on-year growth above 20 percent appears conservative given management's commentary on "maybe even higher" growth, limited U.S. exposure, and emerging domestic and international opportunities, which could significantly outpace expectations on revenue and margin expansion in this segment.
  
• Analysts broadly expect margin improvements in ferrous castings as a cyclical uptick, yet the company's success in expanding content per customer across steel forging, ferrous, and aluminum castings, combined with its strategy to capitalize on India's rapid infrastructure build-out, could drive much greater and more sustainable margin expansion and topline growth than currently modeled.
  
• Bharat Forge's strategic entry into electronics manufacturing (SMT lines) and the server segment through its partnership with Compal Electronics positions the company at the forefront of India's digital and AI infrastructure buildout, tapping a vast and fast-growing market which could add a high-margin, technology-driven earnings stream over the next decade.
  
• The ongoing global pivot toward diversified supply chains outside of China sharply elevates Bharat Forge's medium-term export growth prospects, as the company stands to benefit disproportionately from India's emergence as a preferred supplier for auto, industrial, and specialty components, with potential for higher volumes and pricing power to drive both revenue and net margin upside.
  
• The expansion and deliberate reservation of capacity in U.S. aluminum operations signals readiness to capture future demand spikes in the Americas as industrial reshoring and EV adoption accelerate, offering the potential for a step-change improvement in international revenue, capacity utilization, and ultimately consolidated EBITDA margins.

Bharat Forge Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Bharat Forge compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Bharat Forge's revenue will grow by 14.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.8% today to 12.2% in 3 years time.
• The bullish analysts expect earnings to reach ₹27.0 billion (and earnings per share of ₹57.98) by about August 2028, up from ₹10.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 46.0x on those 2028 earnings, down from 53.1x today. This future PE is greater than the current PE for the IN Auto Components industry at 29.5x.
• Analysts expect the number of shares outstanding to grow by 2.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.55%, as per the Simply Wall St company report.

Bharat Forge Future Earnings Per Share Growth

Risks

• Bharat Forge faces rising geopolitical risks and tariff-related uncertainties in major export markets like the United States, which have already led to a 2.7% decline in standalone revenue and increased expenses by ₹14 crores this quarter; persistent or intensifying trade barriers could further disrupt revenue streams and pressure export-driven profitability over the long-term.
  
• The company's core forging business remains exposed to secular decline as global electric vehicle adoption accelerates, and management commentary does not indicate a decisive shift from legacy internal combustion engine components; this lack of rapid diversification threatens long-term revenue growth and could lead to EBITDA contraction as ICE demand erodes.
  
• Bharat Forge continues to absorb higher raw material and energy costs amid low pricing power in its commoditized business segments, including delays in passing price increases to customers in the aluminum business, directly impacting net margins and putting ongoing strain on earnings.
  
• High capital expenditure requirements for automation, tech upgrades, and new capacity-as evidenced by ongoing installations in U.S. aluminum and new product lines-raise concerns about future debt levels and free cash flow, which could weaken Bharat Forge's balance sheet and reduce future earnings growth.
  
• Rapid advancements in automotive technologies such as advanced materials, lightweighting, and additive manufacturing, along with OEMs' shift to local sourcing, may reduce the relevance of traditional forging and limit Bharat Forge's export opportunities, leading to increased R&D expenditure just to maintain relevance and squeeze future returns on invested capital.

Valuation

• The assumed bullish price target for Bharat Forge is ₹1592.53, which represents two standard deviations above the consensus price target of ₹1169.56. This valuation is based on what can be assumed as the expectations of Bharat Forge's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1800.0, and the most bearish reporting a price target of just ₹870.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹222.2 billion, earnings will come to ₹27.0 billion, and it would be trading on a PE ratio of 46.0x, assuming you use a discount rate of 14.5%.
  
• Given the current share price of ₹1135.5, the bullish analyst price target of ₹1592.53 is 28.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.