Despite a weak Oct-Dec quarter earnings, Bharat Forge is confident of the company's performance going ahead. According to Baba Kalyani, CMD of the company, fourth quarter won't see much reduction in demand as European and North American economies start improving.
He is hopeful that things will move in an upward direction next quarter onwards.
"Right now there is also reduction in demand as well as reduction in inventories. So, it is kind of a double whammy. So, we see this leveling off and from the next quarter onwards we see things moving in an upward direction," he said in an interview to CNBC-TV18.
Blaming it on the sluggish growth in non-auto business globally and slowdown in China, Kalyani added that "everybody is talking about volatility and uncertainty with some amount of cautious optimism for later part of 2013."
Bharat Forge's net profit fell by 54 percent year-on-year to Rs 47.5 crore in the third quarter of financial year 2012-13. Net sales went down by 28 percent to Rs 660.5 crore from Rs 921 crore during the same period.
Below is the edited transcript of Kalyani's interview to CNBC-TV18.
Q: There are cost pressures kicking in, both on revenues and margins. Exports too are getting troubled. What is it that you foresee for the next few quarters from Bharat Forge?
A: Our revenue was about Rs 673 crores, which is about 28.5 percent lower than the same quarter last year. The real challenge was the much larger drop in exports, which was about 33 percent. This was little more than what we had anticipated. The overall macro environment around the world, in all the economies, has witnessed a sudden downward trend in this quarter especially in the month of December. That has been rather difficult. So, this was little more than what we had expected. The domestic reduction was pretty much in-line with what we had expected largely because of the downturn in commercial vehicle business and almost no new business coming in into the capital goods space.
Q: How much longer do you see the export pain continuing? When do you expect it to trough out?
A: We expect last quarter and this quarter to be kind of leveling off. I think we are already beginning to see some kind of leveling off of the downturn. We do expect to see better numbers coming from the next quarter onwards as both European as well as North American economies start improving a little. Right now there is also reduction in demand and in inventories. So, it is kind of a double whammy taking place.
Q: Even the non-auto business has been a bit laggard in the current quarter. What is the problem there?
A: The non-auto business has been the biggest surprise for us because on a global basis this sector has dropped off quite considerably. We still do not understand the reasons for it dropping off. One of the reasons is that there is a large inventory built-up on a global basis in this sector. The second reason is the slowdown that happened in China and dramatically in the last two quarters. So, there are several factors as to why this dropped off. Any of the big names in the business, whether it is customers like Caterpillar or Cummins, everybody is talking about volatility and uncertainty with some amount of cautious optimism for later part of 2013.
Q: Through the course of the next year, are you going to be looking at some kind of capex expansion for your sells or even improving the utilisation levels of the current capacity?
A: No, right now we have no plans to add any more capacities. We have enough capacities in place. So, we have no plans for any capex in the coming year. I think our focus in going to be to bring in more business. The focus is going to be on getting more cost out of our system and that is going on. We have a pretty robust system in place. We are able to take costs out as we see lower production levels. We are also able to see some visibility on new businesses in many areas. So, we are focusing on that. I expect leveling of this quarter and from the next quarter onwards, we should start seeing some upward movement.
Q: The point you were making about non-auto share for yourself. What do you see as the contribution from this segment over the next couple of years?
A: Fiscal year 2013 will be closer to 40 percent; it should be about 38-39 percent. So, the share is going up but our topline is coming down. So, focus is going to be to get our topline up and we do expect the same focus. Strategically, we are diversified into this segment. I think it is the right thing to do, except that the world has got far more connected today and you see a downturn in global markets almost at the same time nowadays.