A 102% surge in defence revenue and Rs 11,130 crore executable order book offset margin pressure from tariffs as brokers upgrade ratings on multi-year growth visibility
Bharat Forge is riding a defence-driven growth wave that is fundamentally reshaping its earnings profile. The auto ancillary and forging major delivered consolidated revenue of Rs 4,343 crore in Q3FY26 — up 25% year-on-year — with defence revenue doubling and the executable defence order book crossing Rs 11,130 crore.
While tariff headwinds compressed margins in the near term, the recent US-India trade agreement and strong execution momentum across defence, aerospace, and domestic automotive have prompted two leading brokerages to upgrade their outlook with target prices of Rs 1,946 and Rs 1,994, implying 13-16% upside from current levels.
Defence Vertical Delivers a 102% Revenue Surge
The standout performance in the December quarter came from Bharat Forge’s defence subsidiary, Kalyani Strategic Systems Limited (KSSL), which has emerged as a critical earnings driver. Defence revenue hit Rs 6.8 billion in Q3, surging 102% year-on-year, significantly ahead of expectations.
“Defense revenue at Rs 6.8 billion, up 102% year-on-year, drove the beat,” Nomura noted in its research report, highlighting that this was the primary factor behind the company’s consolidated revenue exceeding estimates.
The defence vertical now holds an executable order book of Rs 11,130 crore, up from Rs 9,400 crore in the previous quarter, including new orders worth Rs 1,878 crore received during Q3. Notably, the company won total orders worth Rs 23.9 billion during the quarter, of which Rs 18.8 billion came from defence, including a significant carbines order.
“Management expects Defense to grow 30-40% in FY27E to reach 18-20% of the revenue by 2030E. Defense margins will be similar to automotive, with a better ROCE,” Nomura reported from the management commentary.
This sets up a multi-year growth trajectory where defence transitions from being a niche contributor to a core pillar of Bharat Forge’s business, with profitability characteristics that match or exceed the traditional automotive forging business.
Margin Compression from Tariff Headwinds
Despite the strong top-line performance, EBITDA margins faced pressure in the quarter. Consolidated EBITDA grew 20% year-on-year to Rs 750 crore, but margins contracted 70 basis points to 17.3% from 18% in the year-ago period.
“EBITDA increased 18% year-on-year to Rs 750 crore with margins contracting by 70 bps amid tariff impacts and input cost inflation,” Geojit noted.
The tariff impact was quantified by management at approximately Rs 310 million during the quarter, translating to roughly 150 basis points of margin pressure. This primarily affected the company’s US aluminum operations and European subsidiaries, which are more exposed to global trade dynamics.
Standalone EBITDA margin for the India operations was stronger at 27.2%, though slightly below Nomura’s estimate of 28%. Overseas subsidiary margins remained challenged at 3.8%, flat quarter-on-quarter, reflecting the difficult operating environment in these geographies.
European operations recorded an EBITDA of Rs 39 crore in Q3, while US aluminum operations posted Rs 10 crore in EBITDA, with tariffs on aluminum impacting both profitability and demand in these markets.
US-India Trade Deal: A Strategic Tailwind
The recent US-India trade agreement has emerged as a significant positive catalyst for Bharat Forge’s medium-term outlook, addressing what had been a persistent overhang on the stock.
“The recent US-India trade agreement strengthens the company’s competitive edge by reducing tariff exposure compared to other markets, while simultaneously boosting confidence in advancing new product development,” Geojit highlighted.
Nomura echoed this view: “The India-US trade deal removes the tariff overhang and new order wins should continue.”
This development is particularly important for Bharat Forge’s strategy in the US market, where it supplies components for commercial vehicles, defense platforms, and aerospace applications. The reduction in tariff uncertainty should enable more aggressive pursuit of new programs and long-term supply agreements that were previously difficult to price competitively.
Strong Performance Across Indian Subsidiaries
The company’s Indian subsidiaries demonstrated robust operational improvement during the quarter, providing diversification beyond the core forging business.
“Indian subsidiaries showed strong EBITDA growth, with JSA’s casting business growing 39% and K-Drive’s EBITDA jumping from 3% to 5% in Q3,” Geojit reported.
JSA, which operates in the aluminum casting space, is benefiting from the domestic automotive recovery and increasing content per vehicle. K-Drive’s margin expansion from 3% to 5% signals improving operational efficiency and scale benefits in the electric vehicle powertrain component business.
Automotive Recovery and Aerospace Growth
Beyond defence, Bharat Forge is seeing positive momentum across its traditional automotive segments and emerging aerospace business. Management indicated that domestic medium and heavy commercial vehicle (MHCV) demand is likely to remain strong for the next six months, while global commercial vehicle demand has bottomed and should improve in FY27.
“Demand: Domestic and Exports demand is gaining momentum for Q4 and FY27F. The company expects high double-digit growth and a commensurate impact on profitability,” Nomura quoted from management commentary.
The aerospace vertical is targeting very strong growth over the next two years as global aerospace supply chains normalize and new programs ramp up. This provides yet another diversified growth engine alongside defence and automotive.
Management expects margins to be supported by improved product mix and cost reduction initiatives, with defence margins potentially improving further from current double-digit levels as volumes scale.
Target Prices and Ratings
Geojit upgraded its rating to Accumulate with a revised target price of Rs 1,994, valuing the stock at 42x FY28 estimated earnings. “Following a positive geopolitical shift and ongoing capacity expansion, coupled with inorganic opportunities in India, the company is well placed to deliver stronger profitability in H2. Margin resilience, driven by defence, aerospace, and overseas subsidiaries, provides a solid foundation,” the brokerage stated. Nomura maintained its positive view with a target price of Rs 1,946, based on 41x FY28 estimated earnings.
At the current market price of approximately Rs 1,724, these targets implies 13-16% upside due to a confidence in a multi-year growth story driven by defence order execution, aerospace scale-up, and automotive recovery, partially offset by near-term margin challenges.
