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N. Ramakrishnan

Chennai, July 5 Seven out of 12 overseas subsidiaries of the Pune-headquartered Bharat Forge Ltd made a loss last financial year.

The auditors of two subsidiaries – Bharat Forge Scottish Stampings Ltd and Bharat Forge America Inc – expressed a possibility of these subsidiaries’ inability to continue as going concerns, including the potential closure of Bharat Forge Scottish Stampings, according to Bharat Forge’s 2008-09 annual report.

These two companies, according to the directors’ report, have implemented various measures to adapt themselves to lower volumes, including a significant headcount reduction, a tight control on costs, development of new products and an efficient working capital management.

It is expected that these steps, along with the support provided by the parent company, will enable these subsidiaries to survive the present downturn and report good performance when the markets recover.

According to the annual report, the year gone by was a catastrophic one for the global automotive industry, with sales falling drastically in the second half. It is clear that 2009-10 will be an even more challenging year and the markets are going to be much more volatile, the annual report says.

Bharat Forge reported consolidated 2008-09 revenues of Rs 4,744 crore, up 2.6 per cent over the year, with profit after tax falling 81 per cent to Rs 58 crore. Nearly 52 per cent of its consolidated revenues come from Europe, 16 per cent from the US, 22 per cent from India and 10 per cent from Asia-Pacific.

The company has four plants in India, three in Germany, two in China, and one each in Sweden, Scotland and the US.

Bharat Forge’s Chairman and Managing Director, Mr Baba Kalyani, said in the annual report that the company, in the short run, focussed on cutting costs, reducing working capital and aligning capacities with demand. It also put a freeze on capital expenditure.

An earnings update presentation made after the results were announced in May, a copy of which is available on the company’s web site, mentions a capex holiday for 2009-10 as one of the measures to counter the downturn.

According to Mr Kalyani, the company’s strategy in the long term is to more aggressively grow its non-automotive business, which now makes up 21 per cent of consolidated revenues. The company’s aim is to grow this to 40 per cent by 2011-12.

“Our move to non-auto is not a defensive move of de-risking the company from automotive business cycles. It is a proactive move to be a significant player in the high growth areas of the future,” he has said in the annual report.

He has identified this as the third strategic shift made by the company, the first being the move in the second half of the 1990s to increase exports and the second being the move to acquire overseas facilities.

As part of its thrust on the non-automotive business, Bharat Forge has formed joint ventures with: NTPC Ltd for balance of plant for the power sector; Alstom to make turbines and generators for sub- and super-critical power plants; and, Areva to manufacture heavy forgings for power sector applications.

The company has set up facilities for the non-auto business at Mundhwa and Baramati, in Maharashtra. Full-fledged production at these facilities will begin this year.

“A lesson of 2008-09 is that we must move even more swiftly into the non-auto space,” Mr Kalyani has said in the annual report.

According to the earnings update, the start of production at these two plants coincided with the global economic recession and credit freeze, which has affected demand in the non-auto business too.

In FY10, the facilities may not ramp up at a rate expected previously. This is likely to result in lower than expected capacity utilisation from these facilities. The company is now aggressively identifying additional customers and product segments for the new non-auto facilities to speed up the ramp up.

More Stories on : Automobile Components | Overseas Investments | Financial Performance

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