Bharat Forge has experienced several downgrades due to the impact of the Covid-19 pandemic on two of its core businesses – medium and heavy duty vehicles (M & HVC) and oil and gas. The segments represent half of its own-source revenue. While most analysts expected a recovery in the second half of 2020-2021 (FY21), the pandemic and the ensuing disruptions should push any recovery until 2021-2022. The company, which is expected to end 2019-20 with a 26% year-over-year revenue drop, could see a similar drop in revenue even during FY21. Estimates of revenues for fiscal 21 have also been reduced by more than 60%.
The key short-term headwind for the company would be a delay in reviving the truck business. Truck sales in India – which have been in the slow lane – are expected to drop sharply in March. Although the stock of Bharat Stage IV trucks is negligible, the cancellation of orders and the slowdown caused by
The Covid-19 pandemic would delay the recovery of spending and consumption of private capital, hampering demand for trucks.
The recovery of orders for Class 8 trucks in the North American market from November of last year may also be reversed. Based on an initial sales estimate of 240,000 Class 8 trucks for CY20, it is feared that the levy will decrease by up to 15%. The slowdown in truck and car sales in Europe will also affect the company’s revenues.
The other impact for the company will probably be in the non-automotive or industrial segment. In this context, the oil and gas segment, which represented around 18% of revenues in 2018-2019, rose to a third. Crude oil prices had recently hit an 18-year low, fearing that the impact of the pandemic would continue, which would keep oil prices moderate. Bharat Forge supplies shale gas companies in the United States and muted oil prices have made operations unsustainable.
The mixed outlook weighed on the share price, which fell 5% on Tuesday, while frontline indices were up almost 4%. Positive values for action, compared to 2008, are low leverage and a more diverse business model, which can help when demand rebounds.