The Kalyani group’s flagship Bharat Forge Ltd’s stock has lost a third of its value since April, following worries on the near-term outlook for its international business. The drop is in spite of a decent show put up by the diversified castings and forgings companies for the September quarter.

The key concern is slowing truck sales in its main markets. In its media release during the September quarter, the company said the demand for trucks in North America would be flat, or marginally lower, in 2016 and single-digit growth may be seen in Europe. One could see this in the company’s September quarter results, where net revenue from the international business dipped by 4.4% year-on-year.

A Nomura Research report highlights the risks for Bharat Forge’s near-term overseas business. Truck maker Volvo has announced a cut in production of trucks due to low demand and high inventory in the distribution channels in North America. Earlier, brokerage firms had also been talking of demand ebbing for commercial vehicles, although high-growth rates in the year-ago period had established a high base. Yet, the 45% year-on-year drop in order inflows for trucks in the region is the highest in eight consecutive months of decline.

About a fifth of Bharat Forge’s stand-alone revenue comes from supplies to trucks in North America, which is why analysts have toned down revenue growth expectation for fiscal years 2016 and 2017. And this is not all. Two other businesses—oil and gas and construction—which were areas that Bharat Forge diversified into, are also caught in a cyclical downturn.

That said, the firm is tirelessly exploring new areas like aviation and defence which analysts reckon will pick up 18-24 months hence. For now, the domestic business, largely the automotive segment, remains the sweet spot as commercial sales are buoyant and passenger cars are also not badly off. Domestic non-auto segments like cement, sugar and power and mining too have offset the pain in the company’s overseas turf.

Yet, for the September quarter, Bharat Forge’s net profit fell by 10%, and operating margin fell short of Street’s expectations.

However, analysts reckon that these would be temporary rumblings, which are factored into its stock price that trades at about 15 times its fiscal 2017 estimated earnings.

The writer does not own shares in the above-mentioned companies.

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