Bharat Forge lags in a vital metric

The euphoria in Bharat Forge Ltd has subsided. After hitting an all-time high of ₹1,804 on 21 June, which was in tandem with the excitement in all defence sector stocks, the stock has corrected to ₹1,316.

- Manish Joshi

With that, some froth in its valuation has cleared as it trades at a price-to-earnings of 30x from 40x at peak based on Bloomberg consensus consolidated estimates for FY26. Even so, valuation is not as appealing. Its September quarter (Q2FY24) earnings reveal that Bharat Forge's performance on a key metric has not been up to the mark.

True, standalone Ebitda per tonne substantially rose from ₹86,000 to ₹98,000 year-on-year (y-o-y) in Q2FY25. Ebitda is earnings before interest, tax, depreciation and amortization. EV is enterprise value. But here, absolute Ebitda growth matters more than the per tonne Ebitda.

Valuing a company's performance based on EV/Ebitda gives a better picture of valuations unless one looks at replacement cost-based valuation based on EV per tonne. As sales volume fell by 9% y-o-y to 64,000 tonnes, Ebitda grew by a mere 3% y-o-y to ₹625 crore. Standalone revenue at ₹2,247 crore was flat y-o-y.