Bharat Forge shares surge 13% today; should you buy or sell as stock rallies 140% from April lows?

The company’s stock has zoomed nearly 140 per cent from April lows of Rs 207.85 apiece

Bharat Forge share price surged over 13 per cent to Rs 492.15 apiece on BSE despite Rs 127.32 crore loss in the April-June quarter. The company had reported a profit of Rs 171.9 crore in the corresponding quarter of the last fiscal. Bharat Forge is among companies that are directly or indirectly related to the defence industry. Bharat Forge stock has zoomed nearly 140 per cent from April lows of Rs 207.85 apiece. Following the Ministry of Defence’s announcement of putting an embargo on the import of 101 defence weapons and equipment, market analysts turned positive on this stock. The management of the company informed that for the coming quarter, they are witnessing marginal improvement in demand across both domestic and export markets. “Bharat Forge’s 1QFY21 operating performance was commendable considering EBITDA breakeven at 20% utilisation,” Motilal Oswal Financial Services said.

The brokerage firm added that with enhanced capabilities, improved efficiency, low gearing, and a strengthened position in the global supply chain, Bharat Forge would come out stronger from this downcycle. The company’s focused products are part of the government’s localization drive and it is also looking at their potential export. “Two of the key product offerings on the priority localization list are the Towed Artillery Gun and Ultra Light Howitzer Gun,” Motilal Oswal said.  It further added that even without this opportunity, the company is confident of doubling Defence revenues by FY23, supported by small projects and consumable supplies.

Around 1.45 PM, Bharat Forge shares were trading 12.32 per cent higher at Rs 488.30 apiece, as compared to a flat BSE Sensex in afternoon deals. Research and Brokerage firm Edelweiss has also maintained buy rating to the stock, factoring peak cycle multiple of 30x given robust class 8, improving prospects for defence business, etc. During the quarter the company reported consolidated revenues of Rs 1,154.2 crore, down 50 per cent on-year with the pandemic and lockdowns taking a toll on the company’s production and sales.

Emkay Global Financial Services has also recommended to buy Bharat Forge shares. “Company’s leadership position in automotive forgings, focus on diversification and expected cyclical recovery in the core segments support our positive view,” it said. The brokerage firm expects a gradual recovery in major segments by H2FY21, led by low base, new products, the addition of new customers and a gradual pickup in economic activity. “In addition, there is the significant growth potential for nascent segments such as Defense, Aerospace and Railways over the medium term,” it added.

Antique Stock Broking has upgraded its rating to hold from sell earlier. Although business improvement visibility in few key segments has improved along with the government’s announcement on import embargo on few defence equipment, “we believe financial flow through of these events may have to wait till FY23 too. Similarly, we believe Bharat Forge’s cyclical dependency to continue and stock price will be more inclined towards cycle rather than financials right now,” it said.

(The stock recommendation in this story is by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)