With the continuous fall in US truck orders, Bharat Forge's stock is likely to derate further. Bharat Forge is suffering from drop in US truck orders for the last one year. The US class 8 truck order inflows declined 36 percent in March 2016, putting more pressure on earnings.
US truck orders contribute about 20 percent to revenues of Bharat Forge. Inflows of Class 8 truck orders are a benchmark of the volumes of US heavy truck market. During the past 12 months, the Class 8 truck order inflow has been slowing down. Some analysts see no bottoming out and this is adding fears that there would be some more drop in earnings growth.
The Economic Times adds that Bharat Forge's stock has already been derated to 20 times of its estimated earnings for next year as against its trading level of 28 times a year ago. The drop of 36 percent in US Class 8 truck order inflow will adversely affect the earnings of Bharat Forge. The order inflow is indicating its lowest since 2010.
The order backlog of US vehicles, too, fell to 132,000 in February 2016 from the peak level of 190,000 in February 2015. Key truck makers and industry bodies in the US predict 20-25 percent drop in production in 2016.
MoneyControl further adds that Bharat Forge's share price fell five percent as US Class 8 truck orders fell to lowest since September 2012. The order inflow of Class 8 Truck stood at 15,800 units, indicating a drop of 37 percent on year-on-year and 12 percent from the previous month. The stock is underperforming with a target price of INR 650. Bank of America-Merrill Lynch predicts a 13 percent drop in profit for the fourth quarter of 2016, while brokerage firms also predict that stock to derate in the wake of muted earnings.
If the production of US automobile manufacturing drops, this would again affect order inflows to Bharat Forge further. Automobile analysts factored in volume growth to fall 1015 percent from North America for 2016-17 financial year. Analysts see high probability on decline in the US truck market this year and this will further downside in volume projection.
Bharat Forge's stock was hovering at INR794.75 on Bombay Stock Exchange (BSE), while Indian market bellwether Sensex rose marginally 0.31 percent or 77.22 points to 24,960.81 points. Bharat Forge's stock reached a high of INR 803.90 and low of INR790 during the intraday session. Bharat Forge share price hit a record high of INR1,362.90 on 6 April 2015. Stock's 52-week high was INR 720.65 on 12 February 2016.
It was outperforming the market during the past one month until April 5, 2016. During this period, Bharat Forge's stock rose 1.53 percent as against Sensex's gain of 0.96 percent, as reported by Business Standard.
Almost two-third of Bharat Forge's revenues are cyclical in general. Hence, automobile and market analysts maintain negative outlook on Bharat Forge's stock. However, the stock corrected 40 percent from the recent peak in April 2015.
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