Home / Markets / Mark To Market /  Bharat Forge to benefit from potential rise in truck production

Bharat Forge Ltd’s investors are cheering the company’s highest order inflow in September for Class 8 trucks in North America. This segment forms a good portion of the company's standalone revenue. 

Note that the growth in order inflows comes after consecutive decline over the past eight months (Jan-Aug) of CY22 by around 50% year-on-year, point out analysts at Nomura Financial Advisory and Securities (India).

This is because original equipment manufacturers or OEMs have been reluctant to take orders for 2022 given the supply shortage, they added.

As such, shares have risen by about 8% so far in the last two days on NSE. According to preliminary data from ACT Research, order inflows for North American Class 8 trucks rose by 102% year-on-year and 169% sequentially to 56,500 units, said analysts at Nomura. They further added, “The increase in order activity in Sep-22 indicates high levels of pent-up demand."

With improvement in supply chain issues, truck production rates are expected to rise. Bharat Forge would be a key beneficiary of this. Recall that in the June quarter (Q1FY23), the company’s commercial vehicle exports grew by only 0.8%. Of course, the adverse macro conditions in Europe have also weighed on its export revenues.

As such, the demand environment here needs closer tracking. To be sure, deterioration in demand in the US or Europe may dampen investor sentiments.

Meanwhile, with respect to medium & heavy commercial vehicle business in India, the demand outlook is strong.

“Overall, we remain positive on Bharat Forge, due to potential upsides to our estimates: 1) defense order for ATAGS guns worth up to Rs1000 crore per year (about 13% of standalone revenues); 2) strengthening USD versus INR (35-40% of standalone revenues come from the US); and 3) new initiatives for the electric vehicle business," said analysts at Nomura in a report on 6 October. ATAGS is advanced towed artillery gun system.

As things stand, shares of Bharat Forge are down by 10% from the 52-week highs seen in November of Rs847.95 apiece.

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