Bharat Forge on the edge as India-US trade pact holds the key to tariff relief
Summary
- Bharat Forge’s only hope in the short term would be the bilateral trade agreement between India and the US. Even if the pact is worked out, it is uncertain whether a baseline import tariff of 10% would stay
Bharat Forge Ltd shares plunged nearly 20% after the US announced a reciprocal tariff on Indian imports. In the nine-month period ended December (9MFY25), the company derived 37% of its standalone revenues from exports to the American continent.
A large chunk of that could be from the US, even though country-specific data is not available. Though India is likely to negotiate a bilateral trade agreement (BTA) with the US, it could be a tough negotiation given that India has not managed to conclude a BTA with the UK for at least a year.
The US has levied reciprocal tariff rate of 26% on imports from India, including a baseline import tariff of 10%. It would be challenging to pass on entire import duty burden to customers in the US. Thus, Bharat Forge would find it difficult to protect its standalone Ebitda margin of 28.4% in 9MFY25.
Can Bharat Forge take a leaf out of Nissan Motor, Japanese car manufacturer’s playbook? In response to the recent 25% tariffs imposed by the Trump administration on imported automobiles, Nissan Motor is considering relocating some of its vehicle production destined for the US market from Japan to its plant in Tennessee state of the US.
Sure, Bharat Forge already has a presence in the US with two plants—one for steel forging in Michigan and another for aluminium forging in North Carolina. The former has a capacity of 30,000 tonnes per annum, whereas the latter has a capacity of 10,000 tonnes. While some US-based customers can be served using these manufacturing plants, scaling up the plants would still take time.
In such a scenario, Bharat Forge’s only hope in the short term would be the BTA between India and the US. Even if the BTA is worked out, it is uncertain whether a baseline import tariff of 10% would stay. However, in that case, the burden of import duty becomes manageable through a combination of higher pricing and cost efficiency.
With the company’s consolidated profit after tax up 10% year-on-year in 9MFY25, the stock’s slide from the peak of ₹1,804.50 in June has largely to do with the derating of valuation multiple. Based on Bloomberg consensus FY26 EPS estimate of ₹33, the stock trades at a price-to-earnings (P/E) multiple of 28x, almost half of its peak P/E of 55x. However, the P/E multiple could rise again should earnings drop due to the reciprocal tariffs.
Also read | Will India press for an early harvest in trade talks with US?
