The shares of Bharat Forge Ltd were trading about 3% higher on NSE on Friday’s morning trade. This is on the back of the broad recovery observed in markets after Thursday’s carnage. The acquisition of JS Autocast Foundry India Pvt Ltd by Bharat Forge has also helped sentiments.
JS Auto, supplier of critical machined ductile iron castings for the wind, hydraulic, off-highway and automotive applications, will help Bharat Forge expand its presence in the industrial casting space. As of now, JS Auto has a capacity of about 45,000 tons and operates at 50-55% utilization. The sales of JS Auto has grown at a CAGR of 17.7% over the past 5 years. CAGR is compounded annual growth rate.
This acquisition will also help it capitalize on the decarbonization opportunities. “This acquisition will substantially increase its revenue from the Renewable Energy space as JS Auto garners a large contribution from the wind energy segment" said analysts at Motilal Oswal Financial Services Ltd in a report. The management said that the non-auto and non-oil & gas will grow more than 2x in the next three years.
Further, the report said, “JS Auto is a preferred supplier to its clients and shares many common customers with Bharat Forge. While this acquisition brings in additional customers, it enables Bharat Forge to address a higher share of existing wallets and carry out value-added work in the industrial segment." Also, the common and new customers will enable synergies at the front end.
As far as the transaction is concerned, Bharat Forge has not disclosed the deal size. It will acquire JS Autocast for an upfront consideration plus fixed deferred payment at the end of third year. This acquisition is expected to be earnings per share accretive from the first year as per the management and is expected to close by Q1FY23.
“With the addition of castings, Bharat Forge will be able to address low-volume, high-value products in the Industrial segment by offering a much wider portfolio of products to its customers. The company is well positioned to benefit from a cyclical recovery in its core business (excluding India tractors), aided by a ramp-up in aluminum forgings (in its overseas subsidiaries) and consolidation of recent acquisitions" added the report.
