Domestic biz in tizzy but all's well overseas: Bharat Forge

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With 48% of the company's revenue coming from outside India, at present, Amit Kalyani, executive director of Bharat Forge says it is good days in the overseas business. "There is no slowdown in the overseas business, however it is a difficult period on the domestic front," says Kalyani.

Further, he says the company's non-auto business is performing well, constituting 40% of its revenues. "Our business in the power sector, oil and gas sector, construction and mining, and marine sector is growing at a very strong clip. We continue to gain business, customers and market shares in these sectors," he adds.

Below is an edited transcript of Amit Kalyani's interview to CNBC-TV18. Also watch the accompanying video.

Q: The margins have decline by about 60 basis points, what do you expect to hold?

A: Margins have not declined. Between the last quarter and this quarter we have a rise in steel prices which is a pass through. It had an inflationary impact on both top-line as well as raw material cost but if you remove that we have an increase in margins. Therefore, if you look at the tonnage increase, it is only 1.5%, revenue increase is 6% and profit increase is even higher. Hence, we have gained margins.

Q: It is an increase of Rs 200 crore in the top-line, about 20%, do you think it is a maintainable rate?

A: We have a very strong business outlook for the year. Owing to our diversification strategy, the new customers and the new business that we have developed in non-auto, we see growth continuing.

Q: Can you elaborate it further?

A: One of the pillars of our growth strategy has been the non-automotive strategy which we have talked about in the past. We had strategically said we want a target to get to about 40% of our revenue from non automotive by 2012 end which means year 2012-2013.

In this quarter we have touched 40% of our revenues coming from non-automotives. Our business in the power sector, oil and gas sector, construction and mining, marine is growing at a very strong clip. We continue to gain business, customers and market shares in these sectors.

Q: Could you share the numbers with us? We believe in Q1 it was about 29% growth what has been the growth in the non auto business this time around?

A: It is about 25%.

Q: A lot of your revenue now comes from overseas and it is less of Bharat Forge and you have become a global company. The scenario is not looking very pretty do you expect this slow down to persist for a while in FY13?

A: Right now we are do not see a slow down. We are seeing a stable business but we do anticipate slowdown. At our overseas subsidiary, we have a flexi working capability in place, so about 20% of our workforce becomes flexible, hence, if there is a slowdown we can reduce work force and still maintain a profitable working situation.

Q: While profitability could be maintained by adjusting those parameters, could the topline be a bit sluggish in the near term?

A: As of now, we do not expect that because we are gaining significant market share. We have got a lot of new programmes on the anvil.

Q: Can you give us some guidance?

A: As a company we never give the guidance. We expect to continue growing fairly fast. We have a good year ahead of this year and we expect next year also to be fairly good.

Q: Will it be as good as the 20% that you have reported in the quarter?

A: Our endeavour will be to do that.

Q: Will margins be maintainable because there is definitely pressure? The cost of power, cost of fuel a whole host of it, can all that be passed on?

A: Yes, however, there are some counter balancing factors. If there is some amount of slowdown, raw material and some of those commodity prices should also weaken a bit. 

Q: One of the biggest player in the ancillary space, you would have a fair idea of what slowing down more is international growth the sticky area. Is domestic slowdown because of the interest rate, a bigger problem for you?

A: Right now for most players that are predominately depended on India, it has been a a difficult period, due to a number of reasons including some isolated regions and some general reasons. However, with our diversified business strategy, and the fact that we are entering into some new sectors, we see good growth possibilities.

On the whole, it will depend case to case, business model to business model. There is some slowdown in India, there is bound to be some slowdown in the near term in Europe but US looks good. We are going to have a de-growth in the Indian market.

Q: While automobiles did slow and your strategy of non automotives is well taken, but the non-automotive sectors like power, oil and gas is also noticing a fairly significant drop in capex, can you maintain this pace of growth?

A: Actually, there is no drop in capex, in oil and gas capex and oil and gas is up 40% this year, oil prices and exploration. Countries like US, Brazil are spending more in oil and gas in the next five to ten years and they did in the last 50 years.

Q: What part of your business is from overseas orders?

A: Today, almost 48% of our revenues are from outside India of the Indian standalone operations.