Bharat Forge banks on technology and reduced debts, costs to tackle downturn

Rasheeda Bhagat | Updated on March 12, 2018

Amit B Kalyani

Amit Kalyani, Executive Director of Bharat Forge Ltd.

Bharat Forge Ltd (BFL), part of the Kalyani group with an annual turnover of Rs 12,000 crore, is surviving this economic downturn by striving to “reduce debts, costs and become efficient and lean”, says its Executive Director Amit Kalyani. But there are pockets of opportunities in oil and gas, rail and even passenger car segments for BFL which has presence in auto, power, oil and gas, rail, marine, construction and mining sectors, he adds.

Excerpts from the interview:

These are tough times for businesses across the world. So how are you coping?

Tough times have always defined Bharat Forge. In the past we’ve gone through tough times and emerged stronger because we’ve developed new markets, technologies, capabilities, better cost structure and taken advantage of the slackening pace of the downturn. We are working internally on how to reposition ourselves to take advantage and accelerate our growth, because in a downturn some are more affected than others. If you as a company are strong with technology, balance sheet, good people, have good relationships and respect of your customers, you have the ability and tools to leverage. That’s what we’re doing.

But this has been a really long phase...

Earlier you thought of a recession as six months to one year. The problem this time is that is it a correction or a new normal? Taking the global backdrop, growth rates in Europe have slowed, China has come down from 10 plus to 7.5 percent… that is what they say. Who knows what the real number is? India used to be 8.5 per cent, we are now 4.7 per cent and that too aided by a good agricultural sector. On industry side it’ll be much worse than what these numbers show. And if you look at the impact of that on the hardcore industrial sector where we are really present, it is catastrophic.

The auto sector has been drastically hit; how has that affected you?

Truck sales are now at 54,000-55,000 a quarter; the peak that India did is 350,000-370,000 a year, so 90,000 a quarter. This is not a correction it is a paradigm difference, it is like losing 10 years of growth and that is not a joke in a sector with three or more new entrants.

The same is true in the power sector. Everybody thought power sector investments in India will go from 15,000 MW added capacity a year to some 25,000; 15,000 has come to 7,000, forget 25,000 MW!

So every sector is hurt. What is your strategy to survive and grow?

There are pockets of demand. We are not in a B to C kind of market, where I can advertise with Sharukh Khan or Amitabh Bachchan and somebody buys my product. My demand will come from new products, which have my products going into them, or by our getting into new businesses.

So where do you see new opportunities?

Oil and gas worldwide, especially in North America or US; the gasification of the US economy. They’ve moved away from imported oil to domestic gas. This is going to be the major driver for 10-20 years. Their GDP growth is pretty strong, at 2.5 to 3 per cent; an economy of that size growing at that number is huge.

The dollar’s strengthening must have benefited your export business.

Yes, in one way, but all costs today are global. When the rupee weakens the import of fuel, raw material…though I don’t import raw materials per se, everything is linked to parity. Steel prices are linked to the landed cost of imported steel, imported fuel. So while in dollar terms some of those commodities are actually softening, in rupee terms they have hardened.

So it balances out?

It’s a washout!

Apart from oil and gas, what other areas in your business hold out hope?

Many countries are investing in mass transportation. Railways and other mode of transport are going to see a big push. But Indian Railways is so behind that we have a long way to go. Now the dedicated private corridors are coming up, that is the right way because rail is the most efficient way of transporting large masses of people and goods. We have no inland waterways, such as Germany and other European countries.

In the Indian Railways where does the opportunity lie for you?

On the locomotive side, we’re already supplying components and that is going to grow. Then on the track and switches side there are a lot of technological upgrades taking place.

Is Indian Railways conservative in spending money to expand?

They are conservative but it’s like saying our roads have got potholes, but because there is water I can’t fix them. It is a safety hazard and it impacts the efficiency of the economy. Same is true of railways. Our infrastructure, signaling etc, are outdated; they’re doing a lot of work, don’t get me wrong. But if they have to improve the throughput they have to increase speed, for which they have to invest in technology. This is the sector where the ROI will be phenomenal. They don’t have to buy new land, they have enough track. On incremental investment they can get substantial incremental benefit.

The third opportunity is in the passenger car sector where India has already proven itself as a very high quality and competitive place for manufacturing low cost cars. Our real advantage is not just assembling cars but designing and manufacturing the entire platform. Why was Tata able to develop a Nano and at a price point that shocked everyone? It was because of an integrated concept of design, engineering and getting their suppliers into a collaborative mode. That is a really big opportunity and an area where we can have a really big upside. I don’t want to talk more as what we’re working on is strategically sensitive.

Take the larger picture; today India is a $1.5 trillion-1.6 trillion economy. But in the next 5-7 years it’ll be two or three times more. Look at the impact on some of our core sectors; power demand will shoot up, and so will the components that go into the value chain, right from transporting goods, extracting minerals, converting those minerals into power distribution. The passenger car segment has to grow too.

Do you have any capex plans, or is this a consolidation phase?

No, we only have plans to reduce our debts, reduce our costs, become efficient and lean. That is the only way to survive in a downturn.

This policy paralysis that corporate India was talking about; has it ended with the slew of reforms such as FDI in retail and other announcements?

We’ll believe it has ended when we see it impacting business on the ground, like they say in the US, when the shovel hits the dirt. You can talk about policy changes but the shovel has to hit the dirt.

Published on August 05, 2013

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