Bharat Forge’s stock goes up by 7% diversification bet pays off

In a post-earning conference call, the company’s management said that the demand for commercial vehicles is stable in Europe and the US despite the recessionary conditions.

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Bharat Forge Ltd’s shares were in the eyes of investors as they opened at a 7% hike on Friday morning after their great performance in the June quarter.

The company’s standalone earnings were beyond the expectations of analysts and expectations on the revenue front and were aided by solid traction in its auto business and easing the cost of raw materials.

In a post-earning conference call, the company’s management said that the demand for commercial vehicles is stable in Europe and the US despite the recessionary conditions. On the flip side, passenger vehicle production is being affected by issues and constraints in the supply chain.

Bharat Forge has been diversifying into non-auto sectors and analysts and experts suggest the diversification card has worked.

Analysts at Motilal Oswal Financial Services Ltd highlight that over the last decade, the company has broadened its revenue stream by entering new segments (non-auto) and markets across the globe, resulting in a decline in the share of the auto business to around 62% in FY20 from around 80% in FY07.

“While its core business is seeing a sharp cyclical recovery, the management’s initiatives to diversify into aluminum, light-weighting, and EV components have started to fructify. FY23 will see the first full-year contribution from its recently acquired businesses,” added the Motilal Oswal report.