Kalyani Group’s flagship firm Bharat Forge Ltd’s shares jumped 3.5% on Tuesday, energized by strong order flows from the US market. A 68% year-on-year jump in orders from North America’s Class-8 truck segment was the trigger.

That augurs well for Bharat Forge, as this segment accounts for 10-12% of its revenue. Nor does this appear to be a one-off surge, as order rose by 168% year-on-year in the previous month too. After a long-drawn downtrend, orders from this segment could grow at around 12-15% per annum over the next two fiscal years.

But this is not all. The firm garners around two-fifths of its revenue from the US region that has shown steady signs of growth in the last two quarters. Higher exports therefore should aid revenue growth.

Meanwhile, the continuous improvement in truck sales in India after the implementation of the new BS-IV emission norms and strict enforcement against overloading has led to strong double-digit growth in demand for trucks in the domestic markets too.

The effect of this was already visible in Bharat Forge’s September quarter performance. A 27% growth in sales volume was backed by a 11% rise in net realizations, lifting revenue by 44% against a year ago. A favourable product mix and operating leverage supported operating margin in spite of rising material costs. Operating margin therefore was up 157 basis points from the year-ago period, culminating in a 61% jump in net profit.

So it is not surprising to see Bharat Forge’s stock outperform the Nifty Midcap 50 Index. At Rs698, the stock trades at 25 times fiscal year 2019 earnings, which is high relative to some domestic peers. This could cap upsides unless the growth trajectory in revenue and earnings continues in the quarters ahead.

Analysts are also concerned about capacity constraints in the medium term, as most of the firm’s facilities are operating at nearly full throttle at present. Rumour mills on the Street hint at some acquisitions planned to enhance capacity and exposure in new industrial segments. Diversification into areas like aerospace, oil and gas, and even hybrid vehicles may aid valuations. Of course, how this will impact profitability given the competition in the industrial segment, remains to be seen.

Until then, Bharat Forge’s valuations and earnings will be closely linked to the fortunes of the truck segment.