Future growth for Bharat Forge will be India-led: Baba Kalyani

BUSINESS LINE, JAN 9

Manu P. Toms

Mumbai, Jan. 9

By expanding into the non-automotive space, Bharat Forge — one of the world's largest forging companies — expects to bounce back to its earlier levels of profitability. With its large exposure to overseas markets, the forging company saw business going slow in the last few quarters. It declined 37 per cent to Rs 434 crore for the second quarter of the current fiscal.

However, with the robust domestic growth, product diversification and revival in overseas markets, the company hopes to do well. “In the next two-three quarters it (business) will come back to normal,” said Mr Baba Kalyani, Chairman and Managing Director, Bharat Forge, in a recent interaction. Excerpts:

Now you are aggressively targeting business from the non-automotive space. What is the strategy behind this move?

We have set a target of 40 per cent of our sales from the non-automotive space by 2012, and we are pretty much on target. The ratio currently is 21:79 and is moving towards 30 per cent.

Being the largest auto component exporter, how did the downturn in the global market affect your business?

Quite badly, our export numbers have come down. Last year, degrowth started in October 2008. At that time it went down to 20 per cent. Then it started slowly picking up. We are probably now running at 60 per cent (of 2007 levels). We are gaining momentum in this not because markets are coming back but because we are getting customers. We are hopeful that in another two-three quarters it will come back to normal.

How are your overseas plants doing as those markets are still not out of the woods?

We have restructured our overseas plants to what demand we see. They are running at a lower capacity but they will run profitably. We have taken a lot of restructuring costs this (financial) year.

How did you readjust yourself to the downturn?

The good thing is the Indian market is doing exceedingly well. Fundamentally, it is not that it is a recession and that after three years it is going to be back to be normal. What is really happening in the industry is it is resetting itself. The whole industry is going to get reset.

The US was producing 16.5 million vehicles in 2007. It came down to 10 million in 2009. Nobody is betting that it will get back to 16 million in three years. It may be 12 million. So the whole supply industry has to readjust to that. That is the reality in the US and Europe. But in India and China and emerging markets we are growing at a faster rate than we thought.

What is the contribution of exports to your overall revenue?

On an average our export (ratio) is 40:60. When export is at its peak 60 per cent of the sales will be exports and in times like this it will be 40. Going forward, it will be more India-led growth because non-automotive side – power plants and nuclear business – will be Indian.

What is the outlook for the overseas markets?

North America is reviving slow but steady. At least it is no longer going in the south direction.

In Europe, we see a revival but it is largely because inventory has gone out of the system in 2009.

In 2009, the downturn in Europe was extremely bad not because the demand went down that much but because the stocks were high.

Now there are no stocks in the system and we see real demand. Although it is lower than what was before it is higher than 2009 levels. But, I think in Europe, the pain is not over yet. It will be another two-three years before it will get back to recovery.