Whalesbook
EV Strategy Reset After Big Write-Down
Bharat Forge has adjusted its electric vehicle approach following a significant ₹450 crore impairment charge. This write-down affects investments in Kalyani Powertrain Ltd.'s e-mobility division, including Tork Motors. Chairman and Managing Director B.N. Kalyani described the charge as "an acceptance of the need to take a fresh look" at the EV market, citing evolving global adoption trends. This substantial impairment was the primary driver behind the company's standalone net loss of ₹258.8 crore for Q4 FY26, a notable shift from the ₹319.6 crore profit in the same period last year.
Defence and Aerospace Drive Future Growth
Operationally, Bharat Forge demonstrated underlying strength. Consolidated revenue climbed 17.5% to ₹4,528 crore in Q4 FY26, while consolidated EBITDA rose to ₹774 crore from ₹671 crore year-on-year. This growth was supported by improved export performance and robust execution across its various business segments. The company's future growth trajectory increasingly hinges on its defence and aerospace operations. New orders secured in FY26 amounted to ₹4,814 crore, with ₹2,816 crore specifically from defence contracts. This significantly bolstered the defence order book to ₹10,961 crore by the close of FY26, offering substantial revenue visibility. The aerospace segment also saw stronger execution with new customer wins for engine, structural, and landing gear components. This expansion occurs as global military spending is expected to climb to $2.6 trillion in 2026, driven by geopolitical instability and increased defence budgets in key regions.
Market Conditions and Competitor Comparisons
Bharat Forge operates within a challenging global economic landscape. The automotive sector faces headwinds, with global light vehicle sales projected to remain flat in 2026 due to slowing economic growth, high interest rates, and a trend towards hybrid vehicles as pure battery-electric vehicle (BEV) adoption shows signs of slowing in major markets like the US. In contrast, the defence sector's growth is robust. Global defence spending is projected to reach $2.6 trillion in 2026, supported by geopolitical tensions and rising expenditure in Europe and Asia. In terms of valuation, Bharat Forge's price-to-earnings (P/E) ratio of approximately 70-80x is considerably higher than its peers in the forging and auto ancillary space, such as AIA Engineering (P/E ~28.4), Ramkrishna Forgings (P/E ~44.7), and Sona BLW Precision Forgings (P/E ~48.6). Its Return on Equity (ROE) has been around 12.5%-13.5% in recent years, which is respectable but lower than some specialized competitors.
Concerns Over EV Strategy and Margins
The substantial ₹450 crore impairment charge prompts questions about previous capital allocation strategies and foresight in the rapidly changing EV market. While the company emphasizes growth in defence and aerospace, the significant write-down highlights the financial risks associated with diversifying into nascent or volatile technology sectors. Standalone EBITDA margins in Q4 FY26 narrowed to 27% from 29.1% year-on-year, potentially indicating operational cost pressures or shifts in product mix within its core forging business, even as revenue grew modestly. Furthermore, the company is managing a restructuring of its steel business in Europe, adding another layer of complexity and potential drag on profitability. Analyst sentiment is divided; while some maintain 'Strong Buy' ratings with price targets around ₹1,991, others have issued 'Hold' ratings with lower targets, reflecting uncertainty about the sustainability of growth drivers and the impact of these charges. The company's high valuation multiples relative to peers suggest the market has lofty expectations, making any further execution challenges or unforeseen macro shifts a notable risk.
FY27 Growth Outlook and Shareholder Returns
Looking ahead to FY27, Bharat Forge anticipates approximately 25% revenue growth, provided it continues to execute its defence and aerospace order book and benefits from a recovery in export markets. Assuming no unforeseen geopolitical crises, the company expects a proportional increase in EBITDA and profitability from its Indian manufacturing operations. The board has recommended a final dividend of ₹6.5 per equity share for FY26. This forward-looking guidance is underpinned by the strong defence order book and positive trends in North American truck production, though overall global automotive demand remains muted.