India’s Truck Parts Suppliers Get A Surprise Boost Amid Covid-19 Gloom
Some auto component makers may benefit from the revival in U.S. truck market.
As the pandemic decimated demand at home, Indian suppliers of truck components such as Bharat Forge Ltd. and Motherson Sumi Systems Ltd. have something to cheer about: rising demand for heavy trucks in the U.S.
Sales of Class 8 trucks—gross vehicle weight rating of more than 16.5 tonnes—rose to a 12-month high of 32,000 units in September in the U.S., according to data from FTR, a transport intelligence provider. That was driven by a stronger than expected economic and freight recovery.
The U.S. accounts for 24% of India’s $8.8-billion auto-component exports, most of which are for the Class 8 truck market, Hetal Gandhi, director at Crisil Ltd., told BloombergQuint over the phone. She said such a sharp recovery in demand did not take place during the last two recessions, though it comes on a low base.
Bharat Forge, which derives nearly a third of its consolidated revenue from this segment, is expected to benefit the most. Motherson Sumi, whose overseas subsidiary PKC commands a large share of supplies to heavy-duty trucks, also stands to gain. So do Ramkrishna Forgings Ltd. and GNA Axles Ltd.
Shares of Ramkrishna Forgings have surged more than 2.5 times since July-end, the most among peers. That compares with Bharat Forge’s 22% rise, GNA Axles’ 40%, and Motherson Sumi’s 14% jump.
The companies are yet to respond to BloombergQuint’s emailed queries.
Indian auto component and forging companies have seen demand fall, first because of a prolonged auto slowdown in India and then a washout caused by the coronavirus lockdown. Exports contracted 3% year-on-year to Rs 1.02 lakh crore in the year ending March 2020, the Automotive Component Manufacturers Association of India said in a report. Revenues, according to ICRA Ltd., are expected to decline 14-18% in the ongoing financial year amid the Covid-19 disruption. Any demand boost offers relief.
Replacement demand that got deferred in the past has started to recover in the American market, Ashish Modani, vice president and co-head at ICRA, said. “Ageing fleets that have come for replacement has been driving demand, coupled with underlying improvement in the economy.”
JM Financial expects orders for Class 8 trucks to rise 20-22% year-on-year in FY21. “As July-August 2020 levels of Class 8 orders may sustain going ahead, we anticipate beginning of a new upcycle continuing into FY23,” the brokerage said in a report. “Driven by the upward revision in Class 8 orders, we have revised our export CV revenue forecast by 18% for FY21.”
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Gandhi said Indian companies can easily tap this spike. “Given that utilisation levels are low in Indian markets, plus emissions norms are more or less same, it will not be difficult for players to ramp up and switch quickly if the orders increase.”