Bharat Forge positive about revenues from non auto sector

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Bharat Forge positive about revenues from non auto sector

Chairman and managing director of Bharat Forge, Baba Kalyani said that they have a recovery from low levels of 2009-10 in the automotive sector. The company has been trying to focus on other businesses other than automotives.

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Bharat Forge announced it first quarter FY12 results. The company's net profit surged 64% year-on-year (YoY) to Rs 97.42 crore and total net sales for the April-June quarter were up over 36% to Rs 829.34 crore from last year same time.

Bharat Forge's revenue from overseas operations was up 38% YoY to Rs 710.8 crore helped by strong auto demand. Profit before tax overseas was up 54% to Rs 11.1 crore.

Chairman and managing director of the company, Baba Kalyani said that they have a recovery from low levels of 2009-10 in the automotive sector. The company has been trying to focus on other businesses other than automotives. He told CNBC-TV18, "We have won a lot of new businesses in the non-automotive space, especially oil and gas, and industrial equipments, which has been boosting our revenue on the export side."

Here is an edited transcript of Kalyani's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: You have posted strong numbers this quarter driven by exports. What do you expect to see from the export front for the rest of this year, both from the US and Europe?

A: Both our markets, in North America and Europe, look reasonably good. We have seen a recovery from low levels of 2009-10 in the automotive sector. We have won a lot of new businesses in the non-automotive space, especially oil and gas, and industrial equipments, which has been boosting our revenue on the export side. It is a part of our strategy to diversify and de-risk our business model and do many other things apart from automotive. This has begun to pay good dividends for us.

Q: All the events, unfolding in Europe and US, lead to a lot of sentiment damage for companies exposed to those geographies. Is there anything in the macro picture that worries you about a potential slowdown in your business in those areas?

A: This has taken place in a much larger way towards the end of 2008. There is some amount of caution, and we need to wait and watch for things to unfold. Despite the worries in Europe, our customers and the markets that we serve seem to be cautious, but not overly worried.

Q: In the domestic market, the commercial vehicle space seems to be slowing down. Your growth in the domestic market has not been impacted so far. Do you foresee any kind of headwinds building up because you are exposed to the CV space?

A: Yes, we are exposed to the CV space in the domestic market. It has been slowing down from last couple of months, but it was expected. These markets have grown almost 25-30% in the last two years. Some amount of correction and slowdown was expected. It's a cyclic business, but we don't see any major headwinds in this business. We have been gaining market share in this market even today. Apart from the normal cyclical slowdown, we don't see any problem.

Q: Your profit numbers are very strong, but there is a fear on the impact that Bharat Forge may face due to the withdrawal of DEPB benefits. What could be the likely impact for your company?

A: Arithmetically, if the DEPB benefit becomes zero, we will have some impact on our numbers. The government has talked about replacing DEPB with duty drawbacks scheme. We have to wait and see what these new scheme is likely to be and what the differential will be. It wouldn't be very large to impact our numbers in a big way.

Q: You had revenues of over Rs 5,000 crore last year. Given the traction and the contribution from your joint ventures, what would you finish this year with in terms of sales?

A: We are looking at a similar kind of growth in terms of percentage increases as we projected in this quarter. I expect to see a similar growth taking place over the next quarters subjected to what the events of end of last week. I hope that things will not get impacted at least in the manufacturing sector. We are already at very low levels in the automotive business in North America and Europe. Everything has got recalibrated after 2008. As much as 16 million car market has been running now. Whether it goes from 11 million to 8 million, we are optimistic about our performance this year.

Q: Your margin profile is good overall, but its little weak for your overseas subsidiaries. By when do you see a substantial improvement in margin profile of the subsidiaries?

A: This work is in progress and it will happen towards the next year. The year 2012 will be a much better year in terms of margins. There is a bit of lag because of our restructuring in 2009. As capacities ramp up, we will see margin improvement.