Baba Kalyani, chairman and managing director of India’s largest forging and metal components manufacturer Bharat Forge, today expressed the opinion that the current economic setback on account of the second wave of COVID-19 is of a temporary nature.
“The lock down in India to curtail the spread of Covid has clearly had an impact on demand & production in the automotive sector. We are optimistic that this weakness is temporary in nature and we will witness growth in India as business activities normalize,” BN Kalyani said, commenting on a strong performance by Bharat Forge during the three months ended March 2021.
For the fourth and final quarter of FY21, the company — which gets about half its revenue from the automotive sector and the other half from industrials — saw its total revenues for the three months jump by 26% to Rs 1,307 cr, largely due to a 43% increase in export revenue. Export revenue accounted for more than half of the total, at Rs 731 cr.
The company had seen a sharp impact in the year gone by due to the COVID-19 pandemic, both due to restrictions imposed on industrial activity as well as a sharp decline in demand for automobiles — especially goods and public transport carriers.
However, during the fourth quarter, the company was able to see strong demand in the automotive segment — particularly from overseas markets.
REVENUE BREAKUP
Total India revenues during the fourth quarter rose to Rs 576 cr from Rs 392 cr in the year-ago period. However, this was not enough to offset the sharp declines seen in the earlier quarters, and overall India revenue for the full year remained lower by around 12% at Rs 1,697 cr.
Bharat Forge said India’s automotive production has been declining in recent years, but the medium term outlook is positive.
“The spate of changes in regulations coupled with deteriorating fundamentals of the underlying economy led to torrid times for the [automotive] industry as seen from the graphs below. Enhancement of safety norms, increase of axle load norms, GST, emission norms change from BS Ill to BS VI within a short span of time resulting in increased Total Cost of Ownership were some of the headwinds the industry has had to encounter.
“The declining trend in underlying demand was underway even before the Covid 19 pandemic. Over the period FY18 to FY21, production volumes for MHCV [medium & heavy commercial vehicles] and PV [passenger vehicle] segment has declined by 47% and 24% respectively,” it noted.
Nevertheless, it said the medium to long term outlook is very encouraging, especially for the MHCV sector.
On the industrials side, the company said it will continue its concentrate on areas such as construction, mining, defense, power and engineering, but will also now focus on the renewable energy space.
“We are present in a small way in this supply chain but the acquisition of Sanghvi Forgings provides a relatively new & bigger capacity to address this sector requirement. Today, most of the component requirement is being address by way of imports. Our endeavor will be to grow this business in the medium to long term,” it said.
OVERSEAS
Bharat Forge said it saw strong demand growth from overseas automotive markets.
International revenue — comprising mostly of exports — rose even faster than India revenue during the fourth quarter to Rs 731 cr from Rs 490 cr last year.
About 70% of the international revenue comes from the automotive segment, comprising both commercial vehicles and passenger vehicles. In comparison, only around half of the Indian revenue came from the automotive segment due to the contribution of industrial and other contributors.
“The global automotive industry has picked up smartly post the covid19 lockdown and all segment have witnessed sharp rebound across geographies. The company’s main addressable segment, Class 8 Heavy trucks in North America and 16T & above Heavy Duty Trucks in Europe have seen sharp increases in demand.
“Demand outlook provided by the OEM’s is quite robust going ahead. There are certain uncertainties which could hamper the progress of the industry including the shortage of ships, container shortage and sharp increase in commodity prices,” it said.
However, things were not as good in the company’s industrial segments overseas, as it focuses on oil & gas and aviation.
“The export industrial business over the past year was significantly impacted by the decline in crude oil prices and its subsequent impact on shale related activity,” it noted, adding that it gets a significant portion of its industrial revenues from the shale sector in North America. Shale gas production had been on the down swing for the last several years due to low crude oil prices.
“With the recovery in global business activity and crude prices, we are also witnessing revival in demand and expect a good pickup in ordering from our customers,” it added.
It said the aviation sector continues to be impacted by the Covid 19 pandemic and the restriction on aviation travel, and the company continued to “work on engaging with customers” in the space.