Forging giant Bharat Forge will shut all global operations by March 27, less than a week after it announced an India-wide factory shutdown following the outbreak of coronavirus.
The complete lockdown will hit revenues of the Pune-based company, 40 percent of which depends on domestic and export components for trucks. A major chunk of revenues comes from the supply of components to Class 8 trucks in the US.
In a conference call with the analysts, the company's Chairman Baba Kalyani said: “We had predicted a volume of 240,000 units in Class 8 trucks; as of now many truck plants are closed in the US. Our realistic expectation would (now be) 10-15 percent lower than that.”
In Europe, as per Bharat Forge’s expectations, many of its customers are expected to resume operations by the middle of April. “If Covid-19 had not happened then our European subsidiaries and all other subsidiaries would have got positive cash flows,” added Kalyani.
Key customers in the industrial segment (non-auto) like Cummins, Caterpillar are still operational and Bharat Forge is ensuring supply to meet the demand of such customers. About 50 percent of Bharat Forge’s of non-auto revenue comes from oil and gas and rest comes from infrastructure. Of the total business, Oil and Gas is only 5-6 percent of revenue.
“European subsidiaries likely to face a challenging period due to the impact of Covid-19 and focus on cost-reduction measures (target ~10-15% reduction) is expected to reap benefits in FY21/22. Overall, we like Bharat Forge’s strategy of revenue diversification, however, near term demand headwinds remain a concern,” said a report from ICICI Securities.
While the top management ruled out any impulsive acquisition due to the risk to businesses and a prolonged slowdown following the outbreak, the company did say that cost-cutting measures will continue.
“Covid 19 is a reset button for the quarter. If we have to look at the quarter, later on, it will look exactly like the quarter in 2008-09. We will again grow and come out stronger as we did back then,” added Kalyani.
Company executives also said that March had seen impressive registration for trucks before the Centre ordered a lockdown. This had liquidated many of the Bharat Stage IV (BS4) inventory lying in the system.
“The good news was that in the first 23 days of March we saw good registration in the medium and heavy commercial vehicle of 38,000 in India and we believe that the entire inventory of BS4 has been liquidated,” said Amit Kalyani, Deputy Managing Director, Bharat Forge.The company further informed that it has more than Rs 1,800 crore of cash and an undrawn credit limit of Rs 700 crore. It also does not any major capital expenditure plans in the coming year.