The rally has been driven by a recovery in Class 8 truck demand in the US, strong commercial vehicle (CV) demand in the Indian market, improving prospects in the oil and gas segment, and expanding opportunities in the defence space.
However, the sharp gains of about 68 per cent over the past six months have pushed valuations into premium territory. At the current price, the stock is trading at more than 46 times its FY27 earnings estimates.
The immediate trigger for the recent surge has been sales of heavy trucks (Class 8) in the key North American market. Preliminary net orders jumped 47 per cent month-on-month and 159 per cent year-on-year to 47,200 units. This marks the highest level in the past three and a half years and the third consecutive month of order growth exceeding 20 per cent.
While part of the demand still reflects previously deferred replacement purchases returning to the market, FTR, a freight and transportation market data provider, notes that the consistency and breadth of recent order activity suggest that momentum is increasingly being driven by improving freight fundamentals.
Beyond the US, other markets are also showing signs of improvement. Elara Securities pointed out that the commercial vehicle sector has recently seen upgrades, including from Volvo, signalling that demand may have bottomed out and a recovery is under way. Volvo has revised its CY26 growth guidance for Europe from 1.7 per cent to 2.9 per cent, and for North America from -5.7 per cent to 2.7 per cent. While other Indian auto component majors with significant exposure to Europe and the US — such as Samvardhana Motherson, which is facing slowing global passenger vehicle growth, and Sona BLW Precision Forgings, which is dealing with limited organic growth — are encountering headwinds, Bharat Forge appears to be benefiting from more favourable demand tailwinds.
Another potential catalyst for the company is demand for components used in the production and exploration of shale oil and gas in the US. Bharat Forge’s oil and gas vertical stands to benefit from rising crude oil prices, as shale drilling becomes economically viable when prices exceed $70 per barrel. Revenues in this vertical had declined significantly over the past couple of years due to weak crude prices and subdued demand.
Commercial vehicle sales in India are also witnessing strong traction, supported by goods and services tax cuts and improved operating economics. Commercial vehicle manufacturers reported sales growth of 22 per cent year-on-year in February, led by Tata Motors and Ashok Leyland, whose sales rose between 28 and 33 per cent. Nomura Research noted that elevated freight rates and improving fleet operator economics are sustaining replacement demand, thereby supporting volume momentum. Analysts Kapil Singh and Siddhartha Bera of the brokerage said demand conditions remained favourable, with healthy supporting factors across segments. The Truck Freight Index rose 8 per cent year-on-year in February, indicating the potential for a strong CV upcycle in the country.
Axis Securities expects industry growth for CV players to remain in the high single digits to low double digits in FY26, driven by a pick-up in replacement demand and favourable macroeconomic conditions.
The defence vertical is perhaps the strongest long-term growth driver for the company. Of the ₹2,390 crore worth of orders secured in the third quarter, around 77 per cent came from the defence segment. As of December, the defence order book stood at ₹11,100 crore. The company is also exploring new opportunities in unmanned systems and drones across both underwater and aerial domains. The ongoing Iran war and rising defence spending worldwide, including in India and the EU, are opening up global growth opportunities. Bharat Forge expects the defence segment to deliver revenue growth of 30-40 per cent in FY27 and anticipates margins to improve in line with the auto business. Over time, the defence business is expected to achieve profitability levels similar to the auto segment, with higher return on capital employed due to lower capital expenditure requirements.
Reflecting the improved outlook, Motilal Oswal Research has raised its FY26-27 earnings estimates for the company by 8-10 per cent. Analysts led by Aniket Mhatre expect Bharat Forge to post a 31 per cent annual growth in net profit over FY25–28. However, they caution that following the recent rally in the stock, most of the positive factors appear to have already been priced in.
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