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To expand footprint in North America; demand robust for Class 8 trucks: Bharat Forge

North American Class 8 truck orders reported double-digit growth for two months. Speaking to CNBC-TV18, Baba Kalyani, CMD of Bharat Forge said that North American heavy truck market is beginning to show signs of some robustness.

April 03, 2017 / 02:43 PM IST

Speaking about business outlook and demand scenario going forward Baba Kalyani, CMD of Bharat Forge said that North American heavy truck market is beginning to show signs of some robustness.

North American Class 8 truck orders reported double-digit growth for two months. The order average for last 3 months at 21,900 vs 15,200 between August and November. Year on year orders in February were up 28 percent at 22,900 units in 2017.

Markets including Western Europe, North America and even to some extent Latin America are better positioned than what they were last year, said Kalyani in an interview to CNBC-TV18.

Below is the verbatim transcript of the interview.

Latha: What is the status of the North American truck market? Are you definitely sure that it has troughed out and you are seeing more strength?

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A: The North American heavy truck market has bottomed out. It is beginning to show signs of some robustness. However, I would say that from our side, where we are sitting, we are seeing almost all markets whether it is Western Europe, North America and even to some extent Latin America, all in a much better position than what they were last year.

Sonia: On an average for the last three months, we have seen these truck orders come in at around 22,000 units or so. Do you think things can get better from here or is this level that could be sustained over the next few months?

A: Last year the heavy truck market was somewhere in the region of 205,000-210,000. We have not got the full numbers yet. This year's projection was that it would be around the same. The expectation now is it might be at least 10-15 percent better than that. So, things are looking up; things are looking up in every geography, every sector of the economy and that is good news.

Anuj: Last year in November you had made an acquisition as well in US, Walker Forge, and we had spoken about it after that, that was this sense of market bottoming out, any more acquisitions in the work right now?

A: We are always on the lookout for something that works for us. Our acquisition strategies are very different than other companies, but we wanted to get a footprint in North America for a long period of time. We had one, many years ago which had to be sold out because it was in a location where we were not being very competitive. However, this one is good and we plan to expand the footprint organically, not necessarily through acquisition, but we will also look at opportunities as and when they exist.

Latha: Can you give us a little more colour about the domestic auto ancillary market. The medium-heavy commercial vehicle segment was showing a bit of a subdued performance. Is that turned around or looking like turning around and what about the non-commercial vehicle demand?

A: As I have said in my Q3 update, we had expected Q4 truck market in India to be pretty strong largely on pre-buy because of Euro-IV implementation and that exactly is what happened. There was a strong pre-buy. Now, because of the Supreme Court order on no Euro-III vehicles can be sold after April 1, we expect to see even Q1 to be much better than the original plan.

Sonia: I also wanted to ask you about the shale gas drilling equipment business because we have seen a significant amount of pickup there and you have a big presence there or rather a growing presence in that segment. What kind of growth do you see over the next three to six months? Your oil and gas revenues itself went up four times quarter-on-quarter in the quarter gone by, are you looking at more growth from this segment?

A: In the medium-term, yes, we are looking at a much higher growth from the segment. In short-term what you saw, it went up from almost nothing to wherever it was. So, that is why it looked like four times. The base level was very low.

However, we are now focusing to a very large extent on the domestic requirements of oil and gas equipment. What we have seen is that we supply to the US market and the US customers then supply the same product back into the Indian market. Under the 'Make In India' activity, it might be a lot better if we supply it directly.

Sonia: So that would mean better margins and more volumes for you as well, right. If you don't have to route it through the US markets and back to India?

A: It physically goes to the US and then comes back.

Latha: You see that changing?

A: Yes, I think it will change. I think we have to get 'Make In India' activity bite into our economy a little harder than what it is biting right now.

Latha: The other segments - railways and aerospace, aerospace in particular, have you seen anything come by, any timeline when we can see it hit the profit and loss (P&L)?

A: We are exactly on track as far as our aerospace business is concerned. We have said that by 2020 we will have that as a USD 100 million vertical and we are pretty much on track. We have the domestic aerospace market which has started getting traction. So, we are quite confident that we will be on track.

However, you have to understand, in the aerospace, the USD 100 million is the critical mass that we have to do hard manufacturing. After that it is going to be exponential growth.

Latha: Final question on the state of the economy itself. You service a large number of segments even if automobiles dominate. What is the sense you are getting, is there a capex uptick, are we turning around as an economy?

A: I think the Indian economy is doing, in my opinion, extremely well. One can always argue that it needs to do better, but it is doing extremely well. Look at the auto sector numbers; they are doing well in spite of a very major decision of demonetisation where we had all kinds of debate. I think that decision was very wisely taken, very reasonably well implemented and that is behind us, most important is that it is behind us.

We are seeing a lot of investment in the core sector; we are seeing a lot of opportunities in railways. Defence opportunity is something that is, I would say, in the pipeline, we haven’t seen anything on the ground yet, but it is just a matter of time when you will start seeing it on the ground.
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