Bharat Forge Ltd. (BFL) has registered an improved performance in the quarter across all parameters despite sales remaining flat compared to the previous quarter. This has been achieved on the back of various productivity improvement and cost containment measures taken by the company over the past few months to realign cost with the lower demand level.
For the year as a whole, the strong performance in the first half of the fiscal was neutralized by the across-the-board weak global demand environment towards the end. Even now the demand environment is uncertain with intermittent bouts of volatility, although there are signs of the bottom being reached for various markets.
The industrial sector is still showing extreme weakness across Construction & Mining and Oil & Gas space, for which BFL supplies value-added products.
There is lack of clarity about the pace of demand recovery in various markets. With the company’s lean cost base and dynamic business model, it is well placed to capture demand growth once the environment improves.
At this point BFL expects demand in the first quarter to be stable to slightly positive as compared to the previous quarter, but still lower year over the year. The company’s shipment tonnage marginally declined by one per cent on a sequential and declined by 35.2 per cent on a Y-o-Y basis on the back of a decline in demand across major sectors & geographies.
Revenues were flat in Q4 FY13 at Rs. 6,746 million as compared to Q3 FY13.
Review of Indian market
FY13 has been one of the most challenging years the automotive industry has witnessed in a decade. The industry simultaneously faced several headwinds like high interest rates & inflation, high fuel prices, low or lack of capital investments, weak consumer sentiment, and GDP growth dropping to a decade low.
This had an adverse effect on the industry with only the utility vehicle segment registering growth during the year on the back of new product launches. BFL’s main market, the M&HCV segment, witnessed a steep decline of 27.6 per cent for the year as a whole while it declined by 40.4 per cent in Q4 FY13 compared to Q4 FY12.
BFL sales to the automotive sector (commercial & passenger vehicles, including utility vehicles) declined by 16 per cent in FY13 on a Y-o-Y basis. However, with its strong, sound manufacturing and technological prowess and customer relationships, it won new business in FY13 from both the CV and utility vehicle segments.
Slowdown in industrial activity and lack of capital investment had their impact on demand for components for the industrial sector across segments. The diesel generator segment registered moderate growth due to high power deficit and shortage of coal for power plants.
BFL caters to the industrial sector across Railways, power (renewable & non-renewable), Government agencies and the capital goods segment in the domestic market. During the year, orders from the sectors dried up and revenues from the industrial segment declined by 23 per cent to Rs. 510 crores.
Export markets
FY13 has been a tumultuous year for BFL’s major markets. Strong growth in the first half of the year was followed by an equally weak environment in the second half.
The demand decline in the latter part of FY13 and the havoc witnessed in FY 2008-09 during the global meltdown were identical in the aspect that the decline was sudden & concurrent across markets, customers & segments.
The commercial vehicle industry witnessed declines ranging from around 10 per cent to as much as 40 per cent in the EU, India and China. The performance of the passenger vehicle segment in CY12 was similar to that of the CV segment.
Based on the market data for the past two-three months, the demand environment seems to have bottomed out and there are initial green shoots of demand recovery from certain pockets as evident from uptick in order intake of European OEMs. It is however difficult to go the full distance and definitely claim that the demand will continue in a northwardly direction.
The industrial sector is still showing extreme weakness across construction & mining and oil & gas space, for which BFL supplies value-added products.
The performance of industrial business from the export markets was similar to the automotive segment. Drop in demand in the 2nd half of the year coupled with production cut at OEM end has resulted in destocking of inventory which continues even now.
New orders won
BFL has won new domestic and export orders across auto & industrial sector. Significant progress has been made on enhancing exposure to the passenger vehicle segment across major geographies. New orders in the industrial segment are across the oil & gas, construction and the Railways. The new orders have enabled BFL to add new marquee OEM names and increase the market share with the existing customers. It indeed reflects BFL’s strong focus on innovation and its full service supply capability enabling it to provide technologically advanced components to customers globally. A majority of the new orders are expected to go into serial production towards the end of FY14.
BFL has completed restructuring of its American Operations (BFA) with the sale of its assets for $11.25 million. The transaction does not include the business/order book of BFA which have already been transferred to India.