SYNOPSIS: Bharat Forge is reshaping its growth profile as defence revenues rise from Rs. 410 crore in FY23 to Rs. 1,772 crore in FY25, supported by an Rs. 11,000 crore order book, reducing dependence on cyclical auto demand and improving long-term revenue visibility.
Traditionally a leader in automotive components, is now making significant inroads into the defence sector. With India boosting domestic defence production and modernization efforts, the company’s expanding defence portfolio is attracting attention as a potential driver of future growth.
Bharat Forge Limited, with a market capitalization of Rs. 68,988.19 crore, closed at Rs. 1,443 per equity share, down by 0.76 percent from its previous day’s close price of Rs. 1,454.10 per equity share.
The company was founded in 1961 and headquartered in Pune, India, is a global manufacturer of forged and machined components. The company operates through Forgings, Defence, and other segments, supplying products for automotive, transmission, power generation, oil and gas, rail, marine, construction, mining, e-mobility, and defense sectors, as well as critical aerospace components such as landing gear and engine parts.
Financial Outlook
The company reported revenue of Rs. 4,032 cr in Q2FY26, up 9.3 percent YoY from Rs. 3,689 cr in Q2FY25 and 3.2 percent QoQ from Rs. 3,909 cr in Q1FY26, indicating steady top-line growth. EBITDA rose to Rs. 724 cr, reflecting a 11.8 percent YoY increase from Rs. 647 cr and a 8.0 percent QoQ growth from Rs. 670 cr, highlighting operational efficiency improvements.
Net profit for Q2FY26 stood at Rs. 299 cr, up 23.0 percent YoY from Rs. 243 cr and 5.3 percent QoQ from Rs. 284 cr in Q1FY26, demonstrating strong bottom-line expansion. Overall, the company delivered consistent growth across revenue, EBITDA, and profit, with YoY gains outpacing quarterly improvements, signaling a positive momentum in both scale and profitability.
Over the past five years, the company has demonstrated strong growth, achieving a revenue CAGR of 13 percent, a profit CAGR of 21 percent and a price CAGR of 20 percent, reflecting both its operational performance and market confidence.
A return on equity (ROE) of about 11.6 percent and a return on capital employed (ROCE) of about 12.2 percent and debt to equity ratio at 0.71, demonstrate the company’s financial position. At the moment, the company’s P/E ratio is 65.3x higher as compared to its industry P/E 29.8x.
Defence Segment: A New Growth Engine
BFL’s defence ambitions are primarily housed under its subsidiary, Kalyani Strategic Systems Ltd (KSSL). Over the past few years, the subsidiary has evolved from a prototype-focused entity into a high-volume manufacturer capable of handling large-scale, government-backed contracts. Revenue from defence has seen a sharp rise from Rs. 410 crore in FY23 to Rs. 1,561 crore in FY24 and further to Rs. 1,772 crore in FY25, highlighting a compound annual growth trajectory that significantly outpaces the auto segment.
A major catalyst for future revenue growth is the executable defence order book of Rs. 11,000 crore as of January 2026, including a landmark Rs 1,662 crore contract for 2.55 lakh Close Quarter Battle (CQB) Carbines awarded by the Ministry of Defence. These contracts, which involve the supply of indigenously designed, developed, and manufactured (IDDM) weapons, ensure verified revenue visibility over the next 5 years, providing a stable cash flow base that is unmatched by the cyclical automotive segment.
Notably, the defence orders are structured for mass production, with technology co-developed with DRDO, ensuring that intellectual property remains in India and margins are retained within the company. The execution of these orders is expected to significantly ramp up capacity utilization in BFL’s defence and aerospace facilities at Khed and Baramati, unlocking operating leverage as factories move from low utilization to full-scale production.
Auto and Industrial Segments: Cyclical but Significant
Despite the defence boom, BFL’s traditional automotive business remains a significant contributor, accounting for 53 percent of standalone revenue, with commercial vehicles (CVs) representing 35 percent and passenger vehicles (PVs) 18 percent. The company’s revenue from industrial segments including power, oil & gas, construction & mining, rail, and marine applications was 47 percent of standalone revenue in FY25, offering partial diversification from auto cyclicality.
However, the automotive business is currently facing headwinds: FY25 saw a -5.4 percent YoY decline in CVs and -5.7 percent YoY in PVs, while H1FY26 experienced a 20.9 percent YoY decline in CV revenue, primarily due to weakness in the U.S. Class-8 truck export market. Overseas operations, particularly in Europe, continue to post structurally low PBILDT margins of 2–4 percent, while U.S. operations have turned profitable following the ramp-up of the aluminium forging facility.
Future Outlook: Defence as the Revenue Catalyst
The defence segment’s rapid scaling and large order book are set to transform Bharat Forge’s revenue profile over the next 3–5 years. Bharat Forge’s current defence order book now accounts for almost 70 percent of its total standalone revenue for FY25, this segment is on track to offset the volatility of the automotive market. Execution of large-scale contracts, including CQB Carbines and artillery systems, will not only stabilize cash flows but also justify higher market valuations, as reflected in the company’s P/E re-rating from an auto-ancillary benchmark to a high-growth defence capital goods valuation.
Additionally, the monetization of greenfield facilities in India and the U.S., along with strategic acquisitions like AAM India, is expected to enhance cash generation and support further investments. If executed successfully, the defence segment could become the primary driver of consolidated revenue and profitability, while the auto and industrial businesses continue to provide a base-level revenue cushion.
Conclusion
Bharat Forge is at a pivotal moment in its history. Its defence segment, backed by a substantial order book, government contracts, and indigenous IP, provides a structural growth lever that can significantly boost revenue and profitability over the next 5 years. While the auto segment remains cyclical and exposed to global headwinds, the scale and predictability of defence orders position Bharat Forge to watch for medium- to long-term growth.
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