BHARAT FORGE Future looks Brighter

The stock is near at its low of Rs.78 and the reason for this is not far. India’s largest auto component manufacturer is sure to feel the pinch of the slowdown in the auto sector- in India and globally. When auto companies have cut down production, surely there is no way in which Bharat Forge could have remained unaffected.

The company stated that it is planning to cut down production, mainly in Europe where it earns a major chunk of its revenue, as demand has gone down. It also plans to hasten its diversification into high growth areas, including infrastructure and power, to overcome the cyclical nature of auto business. Bharat Forge has three plants in Germany and one each in Sweden, Scotland and the US. It also has two plants in China.

This apart, Bharat Forge’s primary customers in India include Tata Motors, Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland, Bajaj Auto among others. And with all of them cutting production, the going looks tough for Bharat Forge too.

Financially, the company has been showing strains but its more the MTM forex loss which has hastened the fall in the margins. For the second quarter ended 30th September 2008, its total revenue increased 28% but after that the costs have taken its toll. EBIDTA was down on a YoY from 18.2% to 15.2%. Then the company posted a mammoth forex loss of Rs.87.50 crore and this pushed down the PAT, which for the quarter was down at a meager Rs.4.10 crore from Rs.79.10 crore in Q2FY08.

Currently 80% of its revenue comes from the auto sector and taking lessons from this slowdown, it has decided to turn this mix from 80% to 60% by 2012 and to a meager 25% by 2015. The company recently signed a joint venture agreement with power system manufacturer Alstom to make supercritical power equipment. But till then, atleast in the coming few months, FY09 and first half of FY10 looks grim. Thanks