Bharat Forge’s Q3 profit falls 15% on weak industrial performance

Auto component maker Bharat Forge today reported a 15.4% decline in net profit for the October-December quarter, owing largely to the weak demand scenario in the domestic and international industrial markets.

The net profit came in at Rs 166.10 crore against Rs 196.30 crore a year ago. The dip in profits came despite improved revenues from the automotive business. In the quarter under review, Bharat Forge’s sales in the M&HCV sector grew 28% vis-a-vis market growth of 21.9% driven by product specific market share increase, the company claimed in a press release. 

“During the quarter, despite higher automotive sales, continued weakness in the industrial sector across both, domestic and international markets adversely impacted the overall topline,” BN Kalyani, chairman & managing director, Bharat Forge was quoted as saying in the release.

“Our focus on developing new processes, expanding the product portfolio by sweating our existing assets and leveraging our innovation capabilities is opening up new growth avenues. The company is starting to garner order wins from existing as well as new customers both in India and globally. This strategy will be the cornerstone of our next phase of growth in the coming 12-18 months,” he added.

According to Kalyani, Bharat Forge’s ‘Make in India’ strategy to focus on import dependent sectors such as oil and gas, mining, power and transportation amongst others is progressing well with slew of initial sample orders for new products and systems.

“We continue to witness success in all our new initiatives, including growing business in PV segment, expanding product portfolio across automotive and industrial segments, and improving traction in the ‘Make in India’ vertical which creates a strong platform for future growth. However, the commodity allied sectors continues to witness lower demand on back of weak prices,” Kalyani added.

The company has initiated actions to rationalize cost across all activities to realign with the prevailing demand environment and put more thrust on operational efficiency, accelerating new product development and new customer acquisition, it said.

OUTLOOK

Automotive Business

According to the company, the outlook for the European heavy truck demand is expected to be flat to slightly positive in CY 2016, but truck demand in North America is expected to decline going forward due to elevated inventory and a weakness in the global commodity markets.

Subsequently, the company’s performance in the CV segment is expected to outperform the underlying market driven by ramp of new order firmed up in the past 2 years. The company continues to work on increasing product offering to the customers in the various regions.

According to Bharat Forge’s estimates, the US passenger vehicle industry is witnessing a period of relatively strong growth and profitability, with annual sales reaching prerecession levels. Shifts in consumer preferences and expanded regulatory requirements related to safety and emission standards are expected to create a positive demand environment.

BFL continues to expand its market share, enhance value addition and increase product offering for the passenger vehicle sector, it added.

Industrial business

Bharat Forge is facing challenges in the industrial business as the industrial sector globally is undergoing a transition to realign cost structure to the low demand environment coupled with low prices. This has led to curtailing of capex, mothballing of projects and focus on increasing competitiveness. The company’s industrial business, once the engine of growth driven by shale gas and mining boom has declined by 36% in first nine months of FY 2016.

While the above factors have adversely impacted the company’s industrial business, they are also opening up new opportunities in terms of collaborating with customers to identify and address pain points, capture market share from beleaguered suppliers and develop products catering to surface and sub-sea segments, the company said.

Indian Defense & Aerospace Opportunity

Bharat Forge has been a key supplier of components to the Indian defense establishment for over 3 decades. Defense is at the core of the Government’s “Make in India” initiative. The focus is not only on creating capabilities within India to develop, engineer & manufacture end use systems, but also to achieve localization of the components & consumables required over the life span of the systems.

The company will focus on capturing the opportunity through supply of critical components for the Defense and aerospace sector, it added.