Bharat Forge expects margins to remain strong ahead

In an interview to CNBC-TV18, Amit Kalyani, Executive Director, Bharat Forge spoke about the company's Q2 earnings performance, which saw marginal decline compared to the same period last year.

Below is an edited transcript of Amit Kalyani's interview on CNBC-TV18. Q: What has the export business looked like this time around? What have you done in terms of realizations?
A: For the quarter, we had a total tonnage of about 46,000 tonne, which was about 14 percent lower than last quarter. But in terms of realisations we had a higher realization per tonne because of product mix and significantly higher value addition so revenue drop was only 5 percent. Exports were higher than last year by 8 percent, slightly lower than Q1 because of the slowdown in Europe and the impending slowdown in the US.
We had a total EBITDA of Rs 207 crore which is about 24 percent, same as last year and a profit before tax (PBT) of about 16 percent. So in terms of numbers, because of the lower top-line we had a slight impact in the total size but otherwise in terms of percentages, we look okay. Exports were about Rs 466 crore for the quarter. Q: Just wanted to concentrate on the EBITDA this time around. What exactly has the company done in terms of a consolidated performance? What margin picture did you perform in this quarter? What would be the guidance for FY13?
A: First of all as far as guidance, I do not think as a company we give guidance. For the FY13 initially when we started out, we had a pretty strong performance outlook. Since then a couple of our key markets like Europe and the North American heavy commercial vehicle markets has slowed down very substantially. So this is definitely going to have some impact and this impact is going to remain for the next two quarters. We should start seeing a pullback or increase in business after that.
When you have a slowdown, the inventory impact plays a significant role in immediate slowdown and this is what we have seen right now.
In terms of overseas subsidiaries, the European performance is affected because of the European slowdown. China has seen very poor performance simply because our main markets in China are down by 40 percent. If you look at the heavy commercial sector or the construction equipment sector, they have de-grown between 35-60 percent in China during this period. So that had an impact on the performance of our Chinese subsidiaries as well. Q: If you can just give us a comparison, what has the PBT loss been in the China operations this time around? Where do your capacity utilization levels stand of the China subsidiaries?
A: Our utilization levels in China are between 30-35 percent and our loss after minority interest in China for the quarter was about Rs 12 crore. Q: It has been rough for the domestic market where it is down about 16 percent. Just give us a sense in terms of production cut backs that you would possibly voluntarily be undertaking. What would your guidance be for the next couple of quarters for the domestic business?
A: First half domestic markets have been very slow. Started off little better in Q1 and Q2 was lower. Basically, we have reduced our production. We run our facilities at peak efficiency and we run them for lower number of days in order to make up for the reduced production demands. Q: How has the non-auto business done this time? As a percentage of revenues, do you stick by your targets that you had for FY13 and FY14?
A: The non-auto business domestically has not done well but the export side has done very well. So if you look at non-auto on a consolidated basis, we have about 5 percent growth. But for exports, it is a 30 percent growth and for domestic, it is 25 percent down, which is clearly a reflection of what is happening in India and a huge potential that we have overseas.
The non-auto side is that we have a lot of programmes that will come online for the next six months which will create a base for us going forward.
One of the main reasons for margins to remain strong in this quarter is that our non-auto business has shifted towards higher value addition. And that is a trend, which will continue to get stronger over the next few quarters.