Maintain ‘neutral’ on Bharat Forge with a target price of Rs 852 per share despite the correction in the stock price. We value the stock on a P/E basis and attribute the ~17x target multiple to the average FY17-18f EPS of Rs 50 to arrive at target. Currently, risks to exports (60% of revenue in FY15) balance out potential upside in the domestic non-auto segments, in our view.
Volvo recently commented on its October truck deliveries that “Production in North America will be adjusted as a consequence of lower demand and high inventories in the distribution channel”. We believe this raises red flags suggesting industry demand will be weak in 2016. We had been highlighting that while the current North America order book remains quite strong (~5x production levels), a slowdown in order inflows could pose a risk to industry production levels in 2016.
Previously, October 2015 order inflows for class-8 trucks in North America (preliminary data as per Freight Transportation Research) fell sharply by 45% y-o-y to 25,010. While this is the eighth consecutive month of decline (order inflows fell by ~24% y-o-y over the March-Oct 2015 period), 45% decline in October is the highest seen during the period.
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