Downgrades due to Covid-19 to keep Bharat Forge stock under pressure

Bharat Forge has been downgraded several times as a result of the impact of the Covida 19 pandemic on its two main business sectors: medium and heavy duty vehicles (M&HCV) and oil and gas. These segments account for half of its independent income. While most analysts expect a recovery in the second half of 2020-21 (FY 21), the pandemic and the resulting disruptions are expected to lead to a recovery in 2021-22. The company, which is expected to close financial year 2019-20 with a 26% decrease in turnover compared to the previous year, could even experience a similar decrease in financial year 21. Revenue estimates for FY 21 have also been reduced by more than 60%.

 

The most important moment for the company in the near future is the delay in restarting the truck production activity. Truck sales in India, which were at a low level, are expected to fall sharply in March. Despite the low stock of Bharat IV trucks, the cancellation of orders and the delay of the

 

The Covida 19 pandemic will slow down the recovery of investment spending and private consumption, which will discourage demand for trucks.

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The recovery in orders for class 8 trucks on the North American market since November last year is also going in the opposite direction. On the basis of an initial sales estimate of 240 000 class 8 trucks for CY20, there is a risk that the selection will be reduced to 15 %. The delay in European sales of trucks and passenger cars will also have an impact on the company’s revenues.

 

Another impact on the business is likely to occur in the non-automated or industrial segment. Within this segment, the oil and gas sector, which accounted for approximately 18% of revenues in 2018-19, fell to one-third. Crude oil prices have recently reached their lowest level in 18 years, as it is feared that the effects of the pandemic will slow down and lead to lower oil prices. Bharat Forge supplies oil shale companies in the United States and the low oil prices have made the operation unprofitable.

 

The weak outlook affected the share price, which fell 5% on Tuesday, despite the fact that indices rose by almost 4% on the front. The positive points for equities compared to 2008 are low leverage and a more diversified business model, which can help restore demand.