Baba Kalyani Chairman and Managing Director of Bharat Forge said all their business verticals were growing well and saw huge opportunities in defence and oil and gas business. For the oil and gas biz they supply high-end technology products.
Growth engines got a boost after January Index of Industrial Production (IIP) rose higher than expected at 7.5 percent. It was the third successive month of 7 percent plus IIP growth in India.
Kalyani said manufactures saw a huge bump-up in demand and this strong demand has been more than planned and so there would be a need for capacity expansion.
The commercial vehicle business comprising of medium and heavy vehicles was growing at a fast rate in India because of the peculiar business model in India of using trucks with two axles in the front, and therefore the component business has got a boost, said Kalyani.
The HCVs and MHCVs have seen 20-30 percent growth on a sequential basis, he said.
The passenger car business for them has also been gaining ground both globally in UK, US, and domestically also the volumes are expected to go from 3million to 7 million by 2027, he said.
The defence business has been shaping well but they as yet have to see huge orders flows in, said Kalyani in an interview to CNBC-TV18, adding that once the Platform orders (land system, ammunition etc) start this business will be much larger.
With regards to BEML stake sale, he said he hasn’t heard anything new, it’s kind of status quo.
Below is the verbatim transcript of the interview.
Sonia: I wanted to start by asking you whether there are nascent signs of a recovery in the capex cycle or not.
A: Yes, of course there are signs. Most of us who are in the manufacturing business either connected with infrastructure products or connected with automotive are seeing huge bump up in demand creating the necessity to expand capacities. I think a big capex cycle is beginning to start at least in these sectors.
Latha: We were going to invite you yesterday along with MS Unnikrishnan, but I can tell you what Unnikrishnan told us. Very much echoing the words that you just said. He said it feels like 2003. Would you agree?
A: It feels very good. For the first time we are seeing capacities running full-up, demand increasing beyond what we had planned for and therefore a need for a lot of new capacities. The good news is there is a lot of underlying logic and reason why that is happening. That kind of gives you the confidence that this something that is real and you need to be part of it.
Latha: Which sectors sir?
A: If you look at automotive sector take medium and heavy trucks for example you are seeing almost 20 to 30 percent growth every quarter compared to last quarter in this business. When you start looking at it as to why this growth is coming – I mean there are two or three reason. Number one – the types of vehicles that are now coming on the road are heavier vehicles and heavier vehicles require more components and that is our business, supplying components. So, we see per truck far many more components that we need to supply.
Second, we are also seeing to a large extent that people are not wanting to use their older vehicles. Vehicles that are 15 years old because they somehow seem to be too expensive to operate. So, there is a natural scrapping or scrappage of older vehicles that is now beginning to take place and therefore the replacement demand for trucks is beginning to get to a level which is significantly higher than what it was before. I think these are factors that are likely to stay for some time.
Anuj: What about the defence business? How is that shaping and also any further update on BEML, now we are very closed to Karnataka elections, is that process still on or do you think that is now on the back-burner or have you given up on that?
A: To answer your first question the defence business is shaping up reasonably well. Although, I must admit we haven’t seen any big orders and that is something we are hoping for to happen. But we are beginning to see business trickle in, so you will see a much larger amount of revenue coming from our defence business. Once the platform orders starts coming in, in our case, land systems and ammunition and products like that this business will be much larger. But it is happening, it is beginning to happen and let us hope the government decides on the platform orders soon.
Anuj: On the second question, on BEML?
A: On BEML, I haven’t heard anything new in the last couple of weeks so I presume it is kind of status quo where it was few weeks ago. I guess we will hear about it only after the elections.
Sonia: I also wanted to come back to that point you were making about how demand for heavier commercial vehicles has increased and across the industry that is what we have been hearing. Does that give you more leverage on the margin front because you are already siting with almost 30 percent margins, the best in the industry do you think it could get better?
A: We always hope it could get better, but there is a limit to margins that you can make in this business. I don’t think the margins are going to change too much, but I think the volumes are going to get significantly higher. I think for those volumes, we definitely have to add capacity we are now putting up new facilities for enhanced output and that will overall increase our leverage and bottom-line.
Latha: You said that demand is increasing more than your expectation and more than you factories can produce. Can you give us an idea of what is the current capacity utilisation at your various plants and how are you meeting it what are the capex plans that are on the drawing board and in your mind which you are probably going to follow?
A: We have broadly four categories of businesses or four verticals of businesses that we are currently in. One is the medium and heavy trucks that you people all talk about, the commercial vehicle (CV) business. The second is passenger car business, what is commonly known as automotive. The third is our industrial business and the fourth is our defence business.
If you look at our CV business we were hoping that CV business will grow, but we were not hoping that it will grow at this rate. It is growing at a much faster rate and more than the faster rate in India because of our peculiar circumstances of the business model of running a truck more and more trucks are coming with two axles in the front so it is almost like supplying to two trucks. That is how the components are increasing at a dramatic pace compared to numbers. Recently Tata Motors came out with three axle truck.
Latha: You were going to tell us about the other auto sector and industrial sector?
A: The auto sector is doing well. We are gaining more ground in the auto sector globally whether it is Europe, whether it is United States, whether it is India. I think in India we should also see the passenger car sector growing very handsomely in the next couple of years. The current 3 million odd volume on passenger car we are looking at let us say by 2025-2027 somewhere in the region of 6-7 million. It is going to almost doubling of the auto volumes. It just depends on how companies positions themselves and we are positioning ourselves so that we can take away some of the volumes that original equipment manufacturer (OEMs) otherwise would do it themselves. So there is a large opportunity in that.
For full interview, watch accompanying video...
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