CLSA maintains ‘buy’ rating on Bharat Forge

MUMBAI: CLSA has maintained ‘buy’ rating on Bharat Forge with a target price of Rs 1,200 after US Class-8 truck industry showed signs of a recovery with new orders rising 20% in January compared to the same period a year ago.

However, the brokerage flagged concern on possibility of new import taxes in the US.

“The US government’s main focus in autos seems to be on curbing vehicle imports from Mexico and Europe so far. However, an import tax on components cannot be ruled out, which, if implemented, would increase the attractiveness of domestic procurement vs imports for US OEMs (original equipment manufacturers,” said CLSA in a note.

According to CLSA, Bharat Forge derives about 30% of its standalone revenue from forged component exports to North America, mainly the US, which could be impacted if the US imposes import taxes on these products.

Bharat Forge competes mainly with imports from other regions in the US and replacing these imports entirely with domestic supplies may not be possible, said CLSA.

“Assuming no US taxes, we expect a strong turnaround in BFL’s earnings over the next two years led by a cyclical recovery in exports & a rising contribution from new businesses (PV exports, aerospace, railways, etc),” it added.