Starting FY21, we should start seeing recovery taking place. Five years from now, a very large portion of our business will be non automotive, says Baba Kalyani, CMD, Bharat Forge

When we spoke last after Q2 numbers, you were not optimistic but were confident of recovery. Has your confidence translated into reality or would you say that the recovery is getting delayed?

The last time we met, I had said the next six months would be difficult and I think that is what is showing up. The Indian market has been in a difficult situation. The demand side is extremely weak right now and we are a demand-led business. As demand picks up, we should see a strong recovery. We foresee the next quarter also as a weak quarter as we had said last time. But starting FY21, we should start seeing recovery taking place. We are already beginning to see the end of the trough and step by step demand will start going up.

Is it safe to say that the worst is over in Q2 as well as Q3?

Yes, the worst is behind us in terms of demand. But the problem is that the demand is at a low level and picking up from a low level, it is not like going back to 2018 numbers that we saw in the CV business. That was probably a peak year for us as well as the world over in this business. We are seeing a slowdown in demand. In India, it has slowed down by almost 50-60% but the worst is behind us. We are now beginning to see a small incremental growth in demand. We believe FY21 should be a better year compared to FY20.

Just looking at how domestic as well as export revenues have been, there has been a big contraction there -- higher than 30%. Have you reached a cyclical trough? Would tonnage volumes start recovering from FY21 or is the end market demand likely to remain weak?

I believe FY21 will be better than FY20 but I do not think it will come back to FY19 levels which was probably the peak level in all the markets. The Indian CV market was at 461,000-470,000. It is currently running at 250,000. So, in order to get back to 470,000, it will take a little time. We certainly see uptick in the market. FY21 should be a better year. Even internationally, we expect FY21 to be a slightly better year than FY20. FY20 is the end of the trough.

What is your definition of slightly better – double digit or still single digit?

I would say 10-12-15%, something like that. It is very difficult to gauge this number because we still have not seen the impact of the Euro-VI introduction in the market and what it is going to do in the market place, what is the cost increases that people are going to face, whether there are any technical issues that people are going to face, if any disruption is happening in the supply chain because of what is happening in China etc. These are all the questions that we do not know as of now, but we expect FY21 to be better than FY20.

Auto companies are claiming that sales have bottomed out. At wholesale level, their belief is that inventory levels are low and that is a sense which we are getting from CV companies as well. How come that has not translated into early ordering for you?

Well that will start translating into demand only after April because right now everybody is cleaning up BS-IV inventories and building up small volumes of BS-VI because nobody knows what is the impact in terms of customer acceptance of BS-VI vehicles at higher price. That just has to play out in the next quarter.

We are not just a forging company, we are a technology company. The relevance of this business is extremely high. Nowhere in the world can you make products without somebody like us being present - Baba Kalyani

Unless that plays out and we would not know what is going on, that will allow for some time but my overall feel is that once next quarter is over, we should start seeing a normal situation in the market. Slowly, demand will pick up. The inventories are down and the OEMs have done a good job in reducing inventories in the last two quarters and that should help after April 1 when Euro-VI introduction starts 100%.

When do you see the Tesla share price zoom sky high and when do you see the kind of electric vehicles that are being displayed at Auto Expo? It has given us a taste of what is to come. Do some of these events give you a cause for concern when it comes to core business?

We have been readying ourselves for the EV business for the last two years. We have invested into EV technology in the component and subsystems level. We have invested in light weighting technology and all this will happen. In the next six months, people will want to reduce weights of their vehicles. There will be a move towards aluminium. This is what we are doing in Europe, we are restructuring our business to increase our production of aluminium components for which we have amazingly strong demand.

This business with the technology that we have in Europe, produced double digit EBITDA margins and we are very confident of the transition happening.

How would you dismiss the criticism of people who are questioning the relevance of Bharat Forge in today’s disruptive world?

Well, we are an engineering company. We are not just a forging company, we are a technology company. The relevance of this business is extremely high. Nowhere in the world can you make products without somebody like us being present. So you have to start looking at it in a different manner. You cannot remove materials and metallurgy from the world irrespective of whether you go into EV or AI. It is always going to be there.

I have been tracking your company for about 20 years now. Markets have always marvelled about your company’s engineering capabilities. You started as an auto component company, Now, you have become a true blue engineering company. In the next five years, how much of your business will not be connected to auto?

Let me just give you an example. In 2008, we decided to diversify into non automotive components. Today almost 40-45% of our business is in that segment. We have opened up three or four new segments, defence being one and the EV sector being another. Aluminium light weighting components make for a third sector. So, five years from now, a very large portion of our business will be non automotive.

The only area of automotive business where we will continue to grow and we are creating very good traction is going to be in highly specialised components in the passenger car business and irrespective of whether these become electric or remain with IC engine, components will be required and it is largely chassis based components.