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The country’s Rs 25,000-crore forging industry is under stress due to slowdown in the automotive sector and increasing input costs.
“The sector, which had grown by 18 per cent during 2011-12 over the previous financial year, is set to see a flat business during 2012-13, mainly impacted by the slowdown in the automotive industry,” said Babu Rao, President of Association of Forging Industry of India and Managing Director of GSB Forge.
Explaining the industry’s challenges, he said the sector is faced with increasing costs of steel and other raw materials and growing power tariffs, which gets accentuated in the Southern States.
In addition, the sector is dependant on the automotive business which contributes to about 70 per cent of total business.
For instance, in a State like Tamil Nadu or Andhra Pradesh, where industry is subjected to power cuts, they have to depend on costly power supplies or generate power using diesel gen-sets, which work out to Rs 12-15 per unit.
Such high input costs, make the forging industry unremunerative in the backdrop of growing global competition, he said.
The forging industry has installed capacity of 3.75 million tonnes a year and achieved 75 per cent capacity utilisation at 2.8 million tonnes. In fact, this could have gone up but for the overall slowdown, he said.
The industry players are caught between its suppliers, who are increasing costs and original equipment suppliers (including automotive sector players), who want to keep tight control on costs citing slowdown, he said.
DIVERSIFICATION
In order to diversify and reduce dependence on the automotive sector, the forging industry consciously took to some other sectors, including power and manufacturing. However, the overall economic slowdown has impacted them also.
In a fragmented forging industry, majority of the companies come under the small and medium industry category. They do not have the flexibility to adjust to such demanding environment.
While costs are going up, there are challenges in the power sector and increasing competition from Chinese companies. In fact, Chinese companies are supplying equipment and also providing relatively cheaper credit to power sector companies.
rishikumar.vundi@thehindu.co.in
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