125% Dividend Payout: Rs 1,130 Defence Stock Turns Ex-Dividend; Should You BUY, Sell Or Hold?

Bharat Forge, a leading automotive and aerospace company, has turned ex-dividend on Friday for its upcoming dividend payout of 125%. The stock price ended at Rs 1,132.60 apiece, broadly flat on BSE with a market cap of Rs 52,722.65 crore on its ex-dividend date. In a year, Bharat Forge shares have gained by 36.5% on the exchange.

The stock's 52-week high and low is at Rs 1,330 apiece and Rs 744 apiece respectively.

As per the regulatory filing, Bharat Forge declared an interim dividend of Rs 2.50 per share having a face value of Rs 2 each for FY24. In percentage terms, the payout is 125%.

Bharat Forge said, the interim dividend shall be paid on or before Tuesday, March 12, 2024, to the equity shareholders of the Company, whose names appear in the Register of Members of the Company or the records of the Depositories as beneficial owners of the shares as on Friday, February 23, 2024, which is the Record Date fixed for the purpose.

In Q3FY24, the company delivered a strong performance with sales growing by 15.9% to Rs 2,263 Crores and EBITDA growing by 30.9% to Rs 645 Crores. EBITDA margins at 28.5% expanded by 330 bps driven by favourable product mix and focus on cost optimisation. The balance sheet continues to remain very healthy with Cash on books of ~Rs 1,000 Crores (Net of Long-Term Loans). At a consolidated level, Revenues have grown by 15% to Rs 3,867 Crores and EBITDA grew by 56% to Rs 673 Crores.

Further, the company said, exports from Indian manufacturing operations across components, defence & Industrial in Q3 FY24 stand at US$ 200 million, a growth of 36% over Q3 FY23. Over time, it said, "we expect this number to grow as the new verticals scale up and we enhance our presence in the industrial space."

Looking ahead in the Q4 & further into FY25, Bharat Forge said, "We expect the growth momentum to moderate in both Domestic & Export markets across industries. We will endeavour to outperform the market driven by our diversified business mix."

Should you buy, sell, or hold Bharat Forge's share price?

In its research note, JM Financial said, "In 3QFY24, Bharat Forge (BHFC) reported standalone EBITDAM of 29.3% (+190bps YoY, +230bps QoQ), 240bps above JMFe. Avg. realisation improved +5% QoQ (+8% YoY). Consol. EBITDA margin improved 160bps QoQ to 18% (+410bps YoY). Management highlighted that while Class 8 demand remains steady in NA, it has turned sluggish in EU. The medium-term outlook for domestic CV is healthy. However, demand is likely to be muted in the near-term owing to general elections."

JM's note added, "Strong double-digit growth in Defence/Aerospace (INR 20bn order book for Defence) is expected to support overall performance. While the growth is expected to moderate in the near term, we see long-term triggers intact, like the steady CV cycle in the US and India and the strong ramp-up of PV, Aerospace and Defence verticals. Cost-control initiatives and positive operating leverage are likely to support margins. We cut our consolidated earnings estimate by 2% for FY25E. Maintain BUY with a Mar'25 TP of INR 1,150 (25x forward earnings). Weakness in the global CV cycle remains a key risk."

Meanwhile, Geojit in its note said, "We expect the incremental revenue from new businesses and products to grow by double digits in the next 2 years due to the pickup of infrastructural projects, defence orders, and the roadmap for EVs. In addition, US aluminium business losses are coming down quite sharply, and we expect to reach the break-even point at 75% utilization from the current 50%. During the quarter, the company secured new business worth Rs 550 crore across automotive, industrial, defence, aerospace, and castings (ferrous & aluminium)."

On the valuation, Geojit said, "We expect the margin to remain resilient due to growth in the defence & auto sectors and informed stable performance across domestic and export markets, with new business to be accretive going forward. Amid the global disturbance and moderation in truck demand, the revenue visibility appears strong for BFL due to the diversified business mix. On a 1 year fwd. the BFL is trading at 30x in line with its long-term average. We roll over and value BFL at 30x FY26E EPS and reiterate our Hold rating at CMP."

Geojit's target price is set at Rs 1,217 apiece on Bharat Forge.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.