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Home arrow News arrow Business News arrow Bharat Forge Non Auto strategy continues to gain traction - 32% in Q1 FY10
Bharat Forge Non Auto strategy continues to gain traction - 32% in Q1 FY10 Print E-mail
Written by Vijay   
Monday, 27 July 2009
Pune : Bharat Forge Ltd. has registered a standalone revenue of Rs. 363.8 Crores for the First Quarter of the Financial Year 2009- 10, which is a growth of 18.6% on a QoQ basis and a decline of 44.0% on a YoY basis. The Combined revenue of BFL plus its wholly owned subsidiaries reached Rs. 609 Crores.

The company's Non Auto strategy continues to gain traction & the share of Non Auto on a standalone basis in Q1 FY10 was 32% as against 28% in FY 2008-09.

"The automotive industry in India has started showing early signs of recovery which is likely to strengthen in the coming quarters while the volumes in the US & European market are starting to stabilize at lower levels. Going forward, we hope that this would translate in to improved off-take for components," said B N Kalyani, Chairman & Managing Director, Bharat Forge Limited.

Non Automotive Business

The two new non automotive facilities at Baramati & Mundhwa have started to contribute to the top line. Capacity utilization at these facilities has been subdued primarily because of weak market conditions. As a result, the ramp up at these facilities will be slower than earlier projected. The company is actively looking at adding customers and products to tie up the capacities, in addition to the businesses already tied up. The Ring rolling facility at Baramati will go into trial production in the coming weeks.

BFL is looking at tapping infrastructure led demand (Replacement & OEM) in the domestic non auto market in sectors such as power, Railways, Metals & Mining and General infrastructure. The company has made some progress in terms of utilizing the auto capacity for non auto products & hopes to make further inroads on the same in the coming quarters. BFL is hopeful of addressing new segments in the domestic non auto market which have not been addressed till date.

Exports

Intrestingly, the exports for the quarter grew by 19.7% on a sequential basis to reach Rs 142.7 crores. However, on a YoY basis, the drop in exports revenue was 52%. During the quarter, the realization on exports has improved substantially and reflects the current market exchange rates.

The export markets have started showing very early signs of recovery. Month on month volumes in certain segments like the Passenger Vehicle segment in Europe have picked up on the back of impetus provided by the scrappage schemes. There are signs of the market bottoming out but recovery in these markets is still some distance away.

Bharat Forge' Domestic revenues on a YoY basis have declined by 36.5% but have grown by 25.3% on a QoQ basis.

CY09 will be a year of restructuring for the subsidiaries on account of response to the adverse market conditions.

The Company is in process of restructuring and rightsizing the operations of its wholly owned global subsidiaries. The cost of such restructuring and redundancies will be charged over the full financial year and hence considered on pro-rata basis for above combined results. CY09 will be a year of restructuring at the subsidiaries in order to realign the cost structure to operate profitably at lower volumes. Benefits of this will be visible in the next year.

The subsidiaries have operated at sub-optimal utilization levels during the quarter as a result of sluggishness primarily in the CV market. Subsidiaries have been able to maintain the EBITDA on a sequential basis despite an almost 25% drop in top line. This is the result of the restructuring actions taken in the last few quarters.

The restructuring process has been carried out smoothly and significant manpower has already been reduced. The full benefits of the same will be visible from next year. The restructuring at the subsidiaries will result in a flexible manpower structure to operate at around 50% utilization levels.

The recovery in domestic CV market should gather momentum in the coming quarters.

The Indian CV market after falling sharply in the later part of FY09 has more or less bottomed out and has started recovering. The inventory pipeline has been cleared and the OEM’s have started procurement of components.

With a slow but steady recovery in the Indian Economy, industrial production has started to pick up momentum resulting in increase in movement of goods. This coupled with the stimulus package provided by the government under the JNNURM has resulted in bottoming out and slight uptick in volumes in the M&HCV market. This recovery in the Indian M&HCV market should continue in the coming months; however the volumes for the full year are expected to be down compared to FY09 & delay in the monsoons could act as an impediment in the recovery process.

After a lull in activity in Q3 & Q4 FY09, BFL is witnessing strong traction from all the major CV manufacturers. This has resulted in a QoQ growth of 25% in domestic sales, primarily boosted by the CV segment.

The quarter has seen softening of raw material prices (Steel), the benefits which have been passed on to customers.

Commenting on the results of the company B N Kalyani, Chairman & Managing Director said "The first quarter results are reasonably good considering the current state of the global automotive & manufacturing industry."

 
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