A 14% month-on-month recovery in North America’s Class 8 truck orders in December did little to lift shares of auto parts equipment manufacturer Bharat Forge Ltd (BFL). This business segment accounts for one-fifth of the firm’s consolidated revenue.
Analysts said the growth has come off a low base. Original equipment manufacturers in the commercial vehicles space had started cutting production in anticipation of a huge decline in sales in the US and European Union markets. BFL’s commercial vehicle segment exports had fallen 18% year-on-year in the September quarter.
Therefore, the increase in Class 8 truck orders may well represent a short-term improvement. Moreover, the monthly orders in December were no better than a year ago.
Fuelling this is the continued double-digit decline of about 30% in domestic truck sales in December.
In fact, in its Q2 FY20 earnings update, the management said that the second-half performance may be weaker than the first half.
The silver lining is that BFL has brought down its exposure to commercial vehicles from 70% of exports to 43% over a decade.
“Diversification and prudent investments across fungible manufacturing assets have moved overall bottom cycle returns higher across cycles, reflecting in upward shift in valuation band,” said a report by Edelweiss Securities Ltd.
Despite these benefits of diversification, the BFL stock has followed the weak trend in the Nifty Auto index in the past year.
