Aim to double sales by 2018: Bharat Forge

The company grew 20 percent in passenger car segment in Q2 and the segment continues to grow at a rapid pace in North America.

However, the domestic segment of the auto component firm fails to meet expectations. According to Kalyani, the Indian market is still at a standstill. The passenger car segment in domestic market is very sluggish. However, Prime Minister Narendra Modi’s ‘Make in India’ campaign will create huge opportunities, he adds. Below is verbatim transcript of the interview:

Q: What was the trend in the quarter gone by and how good was it?

A: We have had a fairly strong performance with growth coming largely from the export markets. Specifically in the North American market, our exports have grown quite dramatically, it has more than double compared to Q2 of FY14.

The good news is that growth from the industrial sector or non-automotive business continues and we are seeing some very robust growth in that business coming in from North America as well as other parts of the world.

Q: Your margins have surprised most analysts, are these sustainable going ahead?

A: These are good margins to have and the large reason for this is the more technology-oriented products that we make with much more value addition, the better we have the ability to control our margins and this has been our strategy for the last couple of years.

How do we reduce the dependence on the automative sector, the commercial vehicle (CV) sector and how do we move in other sectors. It is beginning to pay off largely because everything that we do is the creation of our own R&D, own technology developments.

It is not technology coming from somewhere else. So therefore, we have a better ability to create value addition and control our margins.

Q: Export has been a very strong growth for you with North America doing great, what remains your view on Europe as a whole and the Asia Pacific region as well and what trends we could see going ahead?

A: In North America, we are now beginning to put a lot of focus on the passenger car side of the business. This is an area where traditionally we have had a very low penetration. But we have had a growth of almost 20 percent in this segment, in this quarter. This is a segment in North America that is growing at an extremely rapidly pace.

Already the industry there is looking at 17 million vehicles. So there is a huge opportunity for companies like us to participate in that market. So that is one area where we are going to see more growth coming-in in the next couple of quarters as far as North America is concerned.

On the industrial sector, we continue to increase our penetration in many new sectors including aerospace. We now have four customers in the aerospace sector and this is one sector where value addition is extremely high. When you look at value realisation per tonne of forging, when you look at steel or industrial or automotive and you look at aerospace, aerospace is sometimes multiple times that of this area. So we are getting into sectors, which will generate much higher value for us and a huge opportunity to grow.

As far as Europe is concerned, our business in Europe has been largely dependant on the CV business in Europe. We have a large market share in the commercial vehicle sector and that sector has softened quite a bit in Europe because of the economic problems that Europe has had.

As a strategy we are trying to focus our business more towards the high performance passenger car business not the mass market but the high value passenger car business, a little bit in the side of railways and some industrial products. I am sure that we will find a better way to look at Europe sometimes this time next year.

Q: What about domestic market? We didn’t see too much of a growth quarter-on-quarter (Q-o-Q) in the domestic markets?

A: Unfortunately, we have not had any growth in the domestic market but the problem in the domestic market is that if you look at the automotive industry and if you look at the industrial manufacturing both is almost at standstill.

If you segment automotive industry, in passenger car there is hardly any growth taking place, commercial vehicles we are almost 30 percent below the peak levels of 2011-2012 and whatever little growth you see is in the two wheeler segment and we do not have any exposure to the two wheeler segment.

As far as industrial markets are concerned, we haven’t seen anything. But this whole ‘Make in India’ strategy of our Prime Minister and the government is going to create huge opportunities in the industrial products for companies like us.

Whether it is railways, defence, aerospace, power equipments, mining equipments, we see huge opportunities coming up. I some how feel that market will start ticking much faster and much before we see growth coming back in the CV business.

Q: How big could the defence opportunity be for a company like Bharat Forge?

A: Anything that is non-electronics in defence is a metal component, which is what we are experts of. So whether it is land systems, whether it is artillery systems, whether it is small arms, whether it is ammunitions, you name it, everything is a forging.

The only problem was that the Indian private sector was somehow kept away from all this and I think that is changing and changing very fast. So I see huge opportunities coming out in this sector.

Q: What is the capex plan for your company, any need for fund raising in the months to come this year?

A: We will almost reach to full capacity by Q4 on annualized basis. We have said a couple of months ago that our aim is to double our sales compared to last year in four years time, which is 2018 time frame.

As this fiscal year ends in March and as the new fiscal starts in April of 2015 we will start our capex cycles, we will have to start building capacities for that doubling of growth we need to do.

We are looking at capex of something like Rs 300 crores on annualized basis for two-three years to build up that capacity. That is little more than our depreciation and is not a problem.

Our cashflows are very strong. Hopefully, by next year end we will be a debt-free company. We have very little net debt left in our company. Our balance sheet is strong, our return ratios are good and we are very optimistic about the markets.