IGI Logo

Class 8 orders hit by supply constraints; demand remains healthy

US Class 8 truck orders have been affected by supply chain disruptions and volatility in commodity costs over the past few months. As per industry intelligence agencies such as FTR, demand for new trucks from fleet operators continues to be healthy. Commentaries from global CV OEMs also suggest that the order backlog remains long as truck build slots for 2022 are completely filled. Given the volatility in the supply chain and commodity prices, OEMs are cautious in accepting new truck orders for 2023. However, underlying demand remains healthy auguring well for BHFC. Ramp-up of new orders and strong underlying PV demand in India and US/EU will likely drive growth for BHFC’s PV segment. Domestic industrial business is likely to be driven by new orders, while exports (industrials) are expected to be supported by supply chain diversification-related demand. Consistent rise in in the US rig count will drive the O&G segment. We see long-term growth triggers in BHFC intact, like the CV cycle in US, EU, and India. Also, cost-optimisation initiatives are likely to support margins. We maintain our estimates and expect revenue/EPS CAGR of 13%/34% over FY22- 24e. We reiterate BUY with a Mar’23 TP of INR 925 (25x forward earnings). Prolonged chip shortage, significant correction in crude oil prices, and profit unsustainability at international subsidiaries are key risks.

* Supply challenges affect Class 8 truck orders; demand remains healthy: During AprMay’22, Class 8 truck orders were down c.51% YoY amid supply-chain constraints. As per FTR (refer exhibit 1), disruptions in China and Russia stalled improvement in the supply chain, affecting OEMs’ new order intake even as demand for new trucks from fleet operators remains healthy. Commentaries from global CV OEMs (refer exhibit 1) suggest that while demand from fleet operators is still healthy, long backlogs and supply chain constraints continue to keep new orders trending within a narrow range. Build slots for 2022 are completely filled and OEMs are cautious on accepting orders for 2023 given supply constraints and volatility in commodity prices. Order cancellation remains at lower levels and most OEMs expect improvement in chip supplies in 2HCY22. Overall, we expect BHFC’s international CV revenue to grow at c.13% CAGR in FY22-24e.

* Domestic CV demand remains robust: In the domestic CV market, demand continues to be robust led by a) improving fleet operator’s profitability on gradual freight hikes and the benefit of the recent correction in fuel prices, b) government’s thrust on infra development, and c) new order wins (EV-related order for DC-DC application). We expect BHFC’s domestic CV business to grow at c.32% CAGR over FY22-24e.

* Strong momentum in PVs to continue: We expect BHFC’s PV business to post healthy revenue performance at c.13% CAGR over FY22-24e led by growth in underlying markets and ramp-up of aluminium forging products (new products launched in FY22). Gradual easing in chip supplies, new products and ramp-up of orders from recently added customers will drive growth in the domestic PV business.

* Non-auto business to lead the growth: As per the management, the O&G segment is expected to remain healthy owing to crude oil price being above USD100/bbl. US rig count has been rising over the past few months, which augurs well for BHFC. In the India market, focus on import substitution opportunities (in cap goods) and ramp-up of operations at the Nellore plant will drive growth, going ahead. Overall, we expect 19% revenue CAGR for BHFC’s non-auto business over FY22-24e.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer