Bharat Forge, a Pune-based company with interests in heavy vehicles and defence equipment, faces bleak prospects in the US where it sells its Class 8 trucks and earns about a fifth of its revenues. In December 2016, orders inflows for these trucks fell 23 per cent YoY, according to the Freight Transportation Research (FTR).
Bharat Forge shares closed at Rs 907 on Monday (January 9) on the Bombay Stock Exchange (BSE), down 0.46 per cent from their previous close. The BSE Sensex ended 0.12 per cent lower at 26,726.
Order inflows for Class 8 trucks in North America dropped to 21,200 units last December YoY, though there was an increase of 10 per cent when compared to November 2016 due to the seasonality factor, Nomura analysts said in a note on Monday, citing preliminary FTR data.
Calendar year (CY) 2016 saw order inflows hovering around 15,400 units, a fall of about 35 per cent when compared to CY 2015, analysts Kapil Singh and Siddhartha Bera at Nomura Financial Advisory and Securities (India) Private Limited, or NFASL, wrote, adding that prospects for Bharat Forge Company (BHFC) in the current year are not so bright.
"2017 production outlook still remains weak with most OEMs having guided for decline in volumes. BHFC indicated that it derived ~20% of its FY16 stand-alone revenues from the NA heavy trucks segment. Class 8 truck production was ~304k units in FY16, but trailing 12-month orders are ~185k units," the analysts said.
Production levels usually lag order inflows by six to eight months. Thus, currently we do not expect any change to our FY18 estimate of ~5% y-y growth for US auto revenues of BHFC," they added.
The company's revenues from domestic medium and heavy commercial vehicle sales, which generates about 17 per cent revenues on a standalone basis, are also bleak. Revenues from new business lines comprising railways and aerospace are negligible to offset the main streams of sales.
These factors have prompted the analysts to downgrade the stock to Rs 797 from its current market price. "The stock is currently trading at ~27x FY18F EPS (+1SD), which we believe is expensive in the current context," they wrote.