Baba Kalyani, chairman and managing director, Bharat Forge is hopeful that the company will clock double digit export growth in FY15. This optimism is based on traction seen in the company’s presence in Europe and North America.
"FY14 we should be going pretty much at the same rate as we have seen in the first quarter, maybe little more. In FY15, we should see higher amount of export compared to this. I do not want to put a number on that but we will see a double digit growth in exports," he told CNBC-TV19.
Meanwhile, the steep fall seen in the rupee will not help Bharat Forge despite its widely spread export market adds Kalyani as the company’s realisation will continue to be in the range of 57-58 against the USD level. He expects the rupee to see a level of 62 against the greenback going ahead.
Also read: Recalibrating future investments, says Baba Kalyani
Below is the edited transcript of Kalyani's interview to CNBC-TV18.
Q: The export realisation that you are seeing and the improvement because of rupee depreciation. Last quarter your average dollar realisation stood at about 57/USD and now with the rupee depreciation, how much more in terms of realisations can you clock in, thereby how much can you increase your margins beyond 25 percent level?
A: Our realisations are still running around at the same levels- 57-58 against the dollar because they were forward booked last year. However, overall export volumes are beginning to go up. We are going to see some traction in both the European and North American markets and that is a positive sign for us.
We also believe that 2014 should also be a better year than 2013 in these markets and we are seeing some new opportunities in other markets that we never operating before like Japan and some other areas.
Q: In that case, how much do you expect your sales might increase on exports? If you can give a percentage in FY14 and more so in FY15, where you may have more visibility in terms of booking orders?
A: FY14 we should be going pretty much at the same rate as we have seen in the first quarter, maybe little more. In FY15, we should see higher amount of export compared to this. I do not want to put a number on that but we will see a double digit growth in exports.
Q: What about the currency, you indicated that you had forward booked for the current year. Current year you do not get any advantage of rupee at 65/USD. Next year how much might that mean in terms of the multiplication level of 65/USD?
A: We will certainly get some advantage with the currency but normally one books currency a year ahead so that advantage that we will get would be seen only next year in terms of currency and it depends on where the currency lands. Right now we are seeing the currency coming back to 62/USD.
Q: I want to ask you more about export market. you mentioned you are getting into markets like Japan but your China joint venture (JV) is under quite a bit of pressure in the quarter gone by. It registered a loss, the intense competition there. How many more quarters of pain do you think you would have to see from the China jv before it turns into the black?
A: I do not know because we have tried everything in China to get our JV working, we have had few quarters of profits and then the whole market collapsed especially the commercial vehicle (CV) market which was quite difficult the whole of last year. It is beginning to pick up right now but there is also a lot of competition and more than competition, there is also a lot of structural change that is beginning to take place in the Chinese economy.
When one looks at the truck segment, one of the clear signs that you can see is that a lot of multinational companies (MNC), who are getting into the truck business seem to be doing better than the local companies. This is different than what our experience in India has been. I think the market for us will be a little volatile although we should do a lot better than what we did in the past one year.
Q: The shades in the domestic market, is demand falling because we got news that Bosch has shut its plant for three days to avoid inventory pile up?
A: I think in the domestic market, the demand has been falling for the whole of last 12-16 months and specially in the CV segment. But I think it is bottoming out. I do not see any further fall in demand. I think it is beginning to bottom out and going forward, in the next few months one will start seeing demand coming up slowly.
I do not think we are going to see a big reversal in terms of demand pickup, but it is slow and steady upward movement in demand as some of the other factors in the economy starts showing some improvement. We hopefully will have a good monsoon and a good agricultural season in the latter part of this year. I think all this would start seeing the demand coming up. I think the demand downturn has kind of bottomed out in the domestic market.
Q: The expectations that the demand situation was bad but within that you managed to hold on to margins at 25 percent. Do you think you could sustain margins at these levels or was Q1 was just a one-off?
A: We have done a couple of things internally. In the last two years, we have reduced our cost quite dramatically, we have used technology to bring in fuel efficiency, reduce our energy cost. We have improved productivity and as a company, we are reasonably diversified in terms of market risks, we have a large export business that splits into three different continents; North America, Europe, Asia.
In each one of them, we have different segments- automotive, which is passenger car; commercial vehicles and the industrial segment and somewhere some segments are beginning to do much better than what they were doing earlier. Overall result being that the export part of the business is showing positive growth. The domestic market has been on the negative side for the past year or so and it is bottoming out and we should start seeing some positive signs in that market in the coming quarters.