Diwali spark missing, banking on exports: Bharat Forge

The slowdown in the domestic auto market was bound to be an issue for auto component maker Bharat Forge, but focus on exports and cost cutting measures helped the company beat street estimates for the second straight quarter.

Even the advent of Diwali has not enthused sentiment and the market remains void of demand, says Executive director Amit Kalyani. The company is relying on strong growth in overseas subsidiaries which are benefiting from improving European economy and a steady US market. In Q2, exports were about 55 percent of  Bharat Forge's revenue and Kalyani expects the third quarter to be the same.  Also Read: Bharat Forge Q2 Net dips 7% at Rs 96cr
The company is also looking at non-auto markets where some demand pool is visible. It is also awaiting new product launches, which makes Kalyani hopeful that the second half will atleast remain neutral.
He says the company has seen some impact of rupee depreciation, but not the full extent of it because of the forward covers. So its realisation is still not in line with underlying market realisation. Below is the verbatim transcript of Amit Kalyani's interview on CNBC-TV18 Q: In the first half of the year although we have seen a big slowdown in the environment, Bharat Forge has managed to hold on to their margins at around 26 percent level. For the second half, what are the key triggers that can lead to either an improvement in the margins or sustenance at these levels?
A: If we have to either sustain or improve these numbers we need volume and the first half we saw Q1, Q2, slight improvement in Q2 over Q1 but right now in the second half we are not seeing any strong demand pool in the market and we expect Q3 to be at or about Q2 levels.
The whole Diwali pool is not translating into much action on the ground. So there isn't too much positive sentiment but as far as global markets go, some of our global markets are picking up, Europe is improving, US is steady, some of the non-auto markets hopefully we are starting to see a little bit of demand pool and our new products that we have introduced will start coming online. So those should contribute to at least neutralizing if not giving a positive boost to the second half in spite of domestic market slowdown. Q: What is the percentage contributed by exports in your current quarter’s revenues and how seminal is the improvement in the export markets coupled with rupee depreciation and definitely Europe coming out of recession after all your sales to that continent has risen by 69 percent to Rs 216 crore so give us some idea of what might be this export percentage or revenues in Q3?
A: For Q2, exports was about 55 percent of the revenue, significantly higher than the domestic. In Q3, it should be pretty much the same. The problem is domestic markets are very weak. The foreign market especially Europe and US are steady. Rupee has appreciated, we have seen the impact of the rupee depreciation to some extent unfortunately not the full extent because of our forward covers that we had. So our realisation is still not in line with underlying market realisation. Q: Will it be in Q3?
A: It will be higher than what it was in Q2, but not at 61.5 that we are at today. Q: Give us some numbers in terms of what your revenue looks like? You gave us in adjectives your picture of the domestic scene and the export scene?
A: Unfortunately, I cannot give you a direct number because we don’t have numbers from our customers, but truck production, medium and heavy commercial vehicle in the last month was between 13,000 and 14,000. That is a far cry from what the average used to be. We were running at an annualized number of 320,000 which would translate into 80,000 per quarter and we are now at a run rate of 14,000-15,000, which is 45,000 a quarter. So that should tell you the picture that we are seeing in the domestic market.