Bharat Forge tweaking biz model

Bharat Forge is gearing up for another challenging year by tweaking its business model even as it continues to increase efficiencies and prune overall costs.

Having suffered 60-75% fall in the order-book last fiscal because of sharp fall in automotive demand in the US and Europe (which are the company’s major geographies outside India), chairman and MD Baba Kalyani has clearly spelt out the company’s focus area in the latest annual report: Doubling revenue share of the non-auto business to 40% over the next three years.

Kalyani has also warned against expecting growth levels of earlier years, making it clear that even 2009-10 “will be even more challenging (than 2008-09) and the markets are going to be much more volatile…growth may not match the levels seen in earlier years. This is the market reality”.

In its bid to expand the non-automotive business footprint, Bharat Forge has already built a 4,000 tonne open die press at Mundhwa, Pune, an 80 tonne hammer and a ring rolling facility at Baramati as part of its efforts to enhance non-auto forgings capacities.
It is also believed to be in the process of building another open die press which would need investments of up to Rs 2,500 crore over the next two years.

“Today, our non-auto business contributes 21% of the consolidated revenues. We want it to rise to at least 40% by 2011-12. We will be getting into supplying specialised forgings for the energy sector - wind, thermal, hydro, nuclear and for marine and railways,” Kalyani says.

Bharat Forge has already entered into agreements for joint ventures with NTPC, Alstom and Areva for the purpose. The JV with NTPC will manufacture Balance of Plant (BoP) for the power sector; the one with Alstom will make turbines and generators for sub- and super-critical power plants while the venture with Areva will make heavy forgings for power sector applications.

Then, Kalyani has also made it clear that the next stage of Bharat Forge’s development will see a complete freeze on capacity expansion, focus on cash generation, cost reduction and optimisation/rightsizing of Indian as well as global operations to effectively operate at lower capacity utilisations.

Bharat Forge reported a standalone net profit of only Rs 0.96 crore during the June quarter against Rs 26.56 crore a year ago as sales almost halved to Rs 350 crore (Rs 637 crore).