|Ladies and Gentlemen,|
|It is my pleasure to extend a very warm welcome
to all of you to your company's 41st Annual General Meeting. I thank you
for having spared your valuable time to make it convenient to attend.
The Annual Report containing the Directors' Report
and the audited accounts for the year ended 31st March 2002 has been with
you for some time and, I am sure, you have had the opportunity to peruse
|The Directors, keeping in view the performance of the company, have recommended a dividend on equity shares of 35%. This is in terms of the dividend distribution policy that we enunciated last year.|
|The integration of the Indian economy with the World
economy, which began about a decade ago, has progressed rapidly. As a result,
developments of economic significance that take place in the World also
now impact the Indian economy. Consequently events of 11th September 2001,
which led to the launch of the global war on terrorism, have left their
imprint on the performance of both the World and the Indian economies.
IMF's World Economic Outlook released in April 2002 states that the World economy recorded real GDP growth of 2.5% in 2001. The global economy in recent times has been powered by the US economy. Growth in the US economy in 2001 was only 1.2% as compared with 4.1% growth in 2000. The large drop in GDP growth in the US is perhaps the biggest in any two consecutive years in the last 25 years. IMF has forecast the World economy to grow by 2.8% in 2002 and by 4% in 2003. This translates into relatively better medium term prospects. As regards the US economy, there are some signs of a revival. We hope that this will gain momentum in the next few months.
The World Bank has ranked the Indian economy as the 13th largest in the world. GDP growth in 2001-02 was 5.4%. This makes our economy among the fastest growing particularly among developing countries. In reality however, 2001-02 was one of the most difficult for us and for our economy. Global terrorism apart, the attack on Parliament, the violence in Gujarat and the tension on our international border all took their toll on the economy's performance. Industrial production declined from 5% in 2000-01 to 2.7%. The manufacturing and capital goods sectors were particularly hit with the latter recording a negative growth of 4%. Depressed demand and lack of consumer confidence made market conditions extremely difficult. Bharat Forge's major customer segments were all affected and turned in flat to negative growth.
Shri Jaswant Singh took over as Finance Minister last month. While assuming office, he re-iterated the strong fundamentals of the Indian economy. According to the Finance Minister, there is a need to instill more confidence in domestic and foreign investors. We therefore expect that second generation economic reforms will be re-initiated resulting in the economy returning to reasonable growth of 6 - 6.5% in the current fiscal.
The government's commitment to revive the economy is evident from the Prime Minister's announcement of an 8 point economic package aimed to achieve a compounded economic growth of 8% during the 10th Five Year Plan. We welcome the Prime Minister's initiative and the Finance Minister's acknowledgement of the hardship to middle class taxpayers by restoring some incentives for savings. These measures were expected to contribute in reviving demand and bring back the "feel good" factor. The unsatisfactory monsoon so far however, has dampened sentiment. We hope for a revival in the monsoon to provide a stimulus for agricultural production and economic growth.
While we are optimistic about the revival in domestic and global economies, your company continues to remain vigilant and is prepared to confront the challenges of adverse market conditions. In the past we have demonstrated our resilience. Our strategies have seen us through the most challenging situations. Proof of this is reflected in our performance which, even at the most difficult of times, has been much above industry average. I would like to re-iterate to Members that we are committed to maintaining our leadership position and in building on the breakthroughs that we have made in the international market.
|A recent study by an international consultancy organization
has concluded that India has the potential to become a manufacturing powerhouse
of the world. To succeed, it has been suggested that the country should
adopt an outward looking, international trade oriented economy. With processed
manufacturing accounting for about 70% of international trade, global competitiveness
in manufacturing is a national imperative more so since it can also help
generate large employment opportunities.
Growth in India's manufacturing sector has the potential to double from last decades average of 6% to 11% per annum; value added from manufacturing can increase to Rs 150,000 crores by 2006; and employment in manufacturing can increase by about 13 million. Some of the steps that the government can take to facilitate this include a complete revamp of labor laws; eliminate market distortions by abolishing preferential policies; accelerate privatization of PSU's; undertake financial and power sector reforms; and simplify procedures to reduce administrative and transaction costs.
During the past year, I have personally made presentations at several industry platforms where I have taken the opportunity to outline the steps that need to be taken to enhance the competitiveness of Indian manufacturing industry. In my opinion, the global trend is clearly towards manufacturing moving to low cost countries like India, China, Malaysia and Thailand. Our experience is that in spite of the tremendous disadvantages that we face, Indian companies are inherently competitive. Proof of this is that several large Fortune 500 companies have started sourcing from India. However, our competitors are closing in on us. Both the Central and State governments therefore need to take proactive steps that will enable manufacturing industry to take advantage of the global trend of outsourcing. While there has been some progress in implementing industry's suggestions, the pace of change has been slow. We would like to see a greater sense of urgency to facilitate faster economic growth. If this is done, India still has the chance to be the next "workshop of the world."
|Forging Industry Trends:|
|The distinct trend in the automobile industry in the
US and Europe is to outsource automotive components from abroad. This is
therefore a great opportunity for India to become a major source of forgings
for global companies. Bharat Forge's export performance over the past few
years is a manifestation of this trend.
While the potential is there for all to see, it is necessary for individual companies in our industry to take steps that will increase their competitiveness. We need to look inwards and make improvements. For example, we need to implement world class processes; apply technology and innovation to increase productivity and efficiency; make speed to market our USP; focus on developing our human resources; constantly study our competitors; and create a strong brand image for our company and country.
It is a matter of great satisfaction for me that Bharat
Forge has implemented many of these measures. I am particularly happy
that your company is now highly regarded by both customers and competitors
in the international market. In the process, we have built a strong brand
image. For example, Members who may have studied our Annual Report would
have noted that our market share for the range of axle beams that we export
to the US now exceeds 50%. In simple terms, every second heavy truck manufactured
in the US runs on a "Made in India" Bharat Forge axle beam.
|Infrastructure for industries:|
|One of the great successes of the Government of Maharashtra
has been the Mumbai-Pune expressway. Not only has it shortened the distance
between the two cities but it has also contributed to reliable and safe
movement of freight and passengers. The project demonstrates the positive
impact of a world class infrastructure on a region's economy. I would urge
the government to use the experience it has gained in this project to improve
the performance in other infrastructure sectors. In this connection, I would
like to suggest that the power situation in Maharashtra needs to be urgently
Power is a critical input for all manufacturing industries. It was therefore a matter of great concern when a major part of the state was plunged into darkness during the last fortnight of May 2002 and again last week. The estimated loss on account of production in industries surveyed in Pune was about Rs 30 crores per day. More dismaying is the fact that several of these companies could not meet their delivery commitments to customers. This would have adversely affected their reputation for reliability. Customers in international markets, particularly in the automobile industry, are most unforgiving for any disruption in supply of components.
If Maharashtra is to attract large investments and be a preferred base
for international sourcing, the state government will have to take immediate
measures to augment power supply. The state must facilitate investments
in generation, transmission and distribution of electricity. Reliable,
good quality and reasonably priced power is essential for our industries
to compete in global markets. I appeal to the government to give the power
sector the priority that it deserves.
|Performance in 2001-02:|
Depressed domestic markets adversely affected your company's top line. Notwithstanding a 30% increase in income from exports, net sales reduced by 9% from Rs 466.4 crores in 2000-01 to Rs 423.2 crores in 2001-02. Total income in the corresponding period has declined by 11% from Rs 544.8 crores to Rs 483.1 crores. As a result, PBDIT has fallen by 10% from Rs 132.8 crores to Rs 119.7 crores. In spite of this decline in aggregate profits, your company has been able to maintain its operating margin or the ratio of PBDIT to sales at 28%, and with respect to gross sales at 25%. Another positive aspect of our performance has been a 21% decline in our interest expenses. Therefore, despite a 10% decline in PBDIT, profit before taxes (PBT) dropped by only 1.6% from Rs 35.9 crores on 2000-01 to Rs 35.2 crores in 2001-02. However, the provision of deferred tax liability resulted in the decline of profit after tax (PAT) from Rs 32.6
crores in 2000-01 to Rs 22 crores in 2001-02. Had it not been for this mandatory provision, your company's post tax profit would, in spite of unfavorable market conditions that we encountered, have remained more or less the same.
Our performance should also be viewed against the backdrop of the lacklustre performance of most other forging and automobile component manufacturing companies, many of who have been struggling to survive.
Though your company's performance during 2001-02 was subdued, what is satisfying is that we have once again demonstrated strong resilience. This vindicates the strategies that we have been following in the past three years. I have been sharing our business strategies with Members in our various communications but I shall again, for your benefit, highlight them.
Despite severe pressures on our margins, we have succeeded in increasing our ratio of profit before tax to total income from 6.8% in 2000-01 to 7.3% in 2001-02. This was primarily due to our being able to slash interest expenditure by 21%. We are continuing to retire debt and further reduce interest costs. Besides, we have also succeeded in driving down costs in other operational areas namely, raw material, energy and manpower. Our efforts at continuous cost reduction will continue.
The share of value added machined components as a percentage of total manufactured products have progressively increased over the years. Today, machined components account for 44% of your company's sales and we expect this to rise further.
Our recent contract with a major Japanese OEM to supply transmission components for their global operations marks a breakthrough in our efforts to penetrate the international market for small forgings.
I am confident that our strategies will result in your company continuing to set benchmarks for best industry practices.
|Your company's export performance in 2001-02 should be
viewed against the perspective of a world economy that was in recession;
the less than 2% growth in exports from India during the year; and flat
growth in vehicle production in the US heavy truck manufacturing industry,
our largest customer segment. Against this backdrop, Bharat Forge was successful
in increasing its export income by 30% - from Rs 85.1 crores in 2000 -01
to Rs 110.4 crores in 2001-02. Share of exports have, as a result, increased
from 16% of sales to 23%. We therefore, have every reason to feel upbeat
about our export performance. We expect continued growth in exports, which,
in turn, will have a deeper imprint on your company's future performance.
I would like to highlight a few of the important developments with regard to exports.
As Members will observe, your company has made satisfactory progress in becoming a global supplier. We now have a healthy export order book and are confident of notching up an over 50% growth in exports in 2002-03.
|In my speech to Members last year, I had spoken about
how companies that are successful in navigating through a downturn would
emerge winners. I am glad that your company's performance during the year
places us in this category. We will continue to:
Innovative business practices that we have adopted enabled your company to successfully weather the storm last year. We will pursue with these initiatives and continuously upgrade our efforts.
The market situation in our domestic customer segments appears to be gradually improving; though it may still be awhile before demand is fully restored to peak levels. On the export front, I have already shared various developments with you. I am optimistic about our export performance during the current fiscal and beyond. Exports will, in fact, become the key driver of your company's future performance.
|Performance in April-June 2002-03:|
|As Members are aware, your company announced its unaudited
financial results for the first quarter of the current financial year on
20th July 2002. The following are the highlights as compared with the results
in the corresponding quarter of 2001-02.
I am optimistic that we will be able to sustain, and perhaps even step up this momentum, during the remainder of this fiscal and beyond.
|The future of any company and manufacturing industry
in India will depend on how we use our human talent. Though we have pockets
of world class manufacturing industry in our country, we need to improve
our culture and systems so that talent and innovation bloom and flourish.
Innovation requires a culture and system in which hierarchy and conformity
are discouraged, while risk taking is encouraged. This is the qualitative
change that we are trying to bring about at Bharat Forge.
We are now a largely de-layered organization with incentive driven wage structures. In April 2002, we signed a three-year wage settlement with our workers union, which will be effective from 1st July 2001. The agreement is aimed at motivating employees so that they can contribute effectively to the working of the company. The settlement focuses on improving productivity and equipment utilization, and in reducing down times.
Your company's total staff strength reduced from 2865 in March 2001 to
2521 employees by March 2002. We will continue our manpower restructuring
in the current year. At the same time, emphasis on skill and performance
enhancement training that has been an important focus area for us over
the past few years will continue to receive considerable attention.
|I would like to re-iterate our strong commitment to good
corporate governance. We are continuously striving to improve the quality
of our disclosures. Members would have observed that the contents of our
Annual Reports over the past few years contain more information about the
company and its working. I have also been personally writing to Members
to share our midterm performance. Our attempt is to be as transparent as
we can within the limits prescribed by law.
During the year I have, on several occasions, interacted with groups
of business analysts and the media. We have found these interactions useful
in communicating effectively with the external environment and in helping
them to gain a better understanding about our company's goals, priorities
and working. All information about our company is available on our company's
official website www.bharatforge.com.
I would urge Members to access the website regularly so that you are fully
aware about latest developments at Bharat Forge.
|I would like to sincerely thank all our valued customers,
both domestic and international, for their unstinted support at all times.
Their active involvement has been a source of great encouragement and inspiration.
I am sure that your company will continue to have their blessings.
I take this opportunity to express my sincere thanks to the government of India, the government of Maharashtra, and the financial institutions and banks for their encouragement and support to our company. I would like to thank our collaborators for their help and assistance.
I sincerely appreciate the contributions of all our employees and request them to carry on the good work.
|While concluding, I convey my personal gratitude for
the confidence that you have reposed in your company's Board of Directors.
I sincerely hope that you will continue to extend your whole-hearted support
to us so that we, along with the management team, and all employees will
further accelerate the growth and progress of the company.
|10th August 2002|