Corporate Overview
Our Capitals
Statutory Reports
- Management Discussion and Analysis
- Board’s Report
- Report on Corporate Governance
- Business Responsibility Report
Storms rage and subside. Tides rise and ebb. Crises come and go. At Bharat Forge, we have remained resilient and patient to tide over the current challenges while retaining our strategic focus to become a future-ready enterprise that is more digital, more competitive and more evolved. We are leveraging our engineering expertise to create tomorrow’s solutions with our clients. We are nurturing new businesses even as we become leaner, stronger and more agile. Like the Bamboo tree, rooted in strong foundations, we will be ready to flourish when the time is ripe.
Financial Year (FY) 2021 has been a year of unprecedented challenges and uncertainties. The COVID-19 pandemic disrupted the way of life, businesses, and the overall economic scenario across the globe. Every country had their set of problems and adopted strict containment measures, including nationwide lockdown. Output in the US contracted 3.4% and in Euro Area by 7.2% in Calendar Year (CY) 2020.
In the Indian context, the GDP declined by 24.4% in the first quarter of FY 2021. However, since the second half of the year, there has been a steady recovery with the economy returning to growth in the fourth quarter and a sharp rebound in all end markets. For FY 2021, the Indian economy contracted by 7.3%.
Though renewed outbreaks are posing fresh challenges, especially in India where the second wave has been devastating, the outlook for the global economy remains positive after a year of negative performance. The aggressive roll-out of vaccines globally provides hope in this global battle against the pandemic.
The sector saw sales bottoming out during the first half of the year due to existing challenges as well as halted productions and supply chain disruptions due to pandemic. Since then, it has been on the recovery path, especially the US Class 8 trucks market which has seen robust growth in sales supported by government stimulus and recovering economy.
The Indian automotive industry continued to be under pressure in FY 2021. Several regulatory changes have increased cost of ownership and delayed recovery. The production of passenger vehicles and medium & heavy commercial vehicles in India have declined by 47% and 24% respectively during FY 2018 to FY 2021. While near-term outlook is negative, the industry is expected to bounce back in the medium to long term supported by various government measures like Vehicles Scrappage Policy, push for Atmanirbharta (self-reliance) and Production Linked Incentive (PLI) schemes.
The production of passenger vehicles and medium and heavy commercial vehicles in India have declined by 47% and 24% respectively during FY 2018 to FY 2021.
In these unprecedented times, I am proud of the remarkable efforts that we have taken for all stakeholders. The utmost priority was the safety of our people, stakeholders and community as well as our commitment to customers. All our global manufacturing facilities operated in line with the local government regulations. This ensured higher safety standards and simultaneously uninterrupted operations to fulfil the requirements of our customers.
We stood by the communities to provide relief measures including distribution of over 1,000 PPEs to the frontline warriors, 16,000 masks, food packets, and medical kits. We worked towards strengthening the healthcare infrastructure by making provision for oxygen beds, producing ventilators, and distributing oxygen concentrators. We are also helping strengthen the Primary Health Care Centers in villages through improving infrastructure, creating isolation wards, providing COVID-19 medicines, medical apparatus and medical equipment.
Our overall performance for FY 2021 reflects the challenging backdrop amidst which we operated. On a standalone basis, shipment declined 18% to 165,396 tons and revenues by 20% to ₹36,515 Million in FY 2021. Revenue from domestic business was lower by 8% to ₹16,388 Million primarily led by a decline in industrial business. The exports business declined 26% to ₹19,642 Million led by sharp decline in industrial and commercial vehicle business in the Americas. Low capacity utilization and the subsequent operating deleverage adversely impacted profitability parameters. EBITDA and PAT were ₹7,348 Million and ₹3,121 Million respectively in FY 2021.
Although the full year performance is subdued, it is noteworthy that we have made a strong sequential recovery from Q2 FY 2021 onwards and continue to sustain this encouraging trend. Unlike the earlier downcycles where our balance sheet was weak, this time it remained strong with sufficient liquidity to tide over tough times. Our cash position as on March 31, 2021 was ₹26,752 Million as compared to ₹18,676 Million as on March 31, 2020. Net debt/equity was at a comfortable 0.16.
On a consolidated basis, revenue declined 21% to ₹63,363 Million and EBITDA by 24% to ₹8,618 Million. The respective international businesses were impacted due to local lockdown in those geographies.
We worked towards strengthening the healthcare infrastructure by making provision for oxygen beds, producing ventilators, and distributing oxygen concentrators.
Our international businesses have been a drag to the overall business performance for some time now. We have used the current downturn to enhance their competitiveness. We started restructuring their operations in FY 2020 which continued into this year with initiatives around reducing fixed cost and rationalizing product portfolio by shifting to light-weight material with the sole aim of generating sustainable profitability. We will continue to monitor their performance and revisit them in the next 2-3 years.
Another area of focus has been our export industrial business, where a large part of business comes from Oil & Gas. However, this segment is severely impacted, with revenues down more than 80% as compared to the peak in FY 2019. To further mitigate volatility on our business, we have identified renewable energy as a new sector to focus on. This is in alignment with the technology shift happening globally in which the companies are increasingly moving from fossil fuel to renewables. We already have presence in this space and are trying to build on it. Already, positive momentum is happening in this space because of Atmanirbharta with imports that were happening from China shifting to India.
Considering the opportunities in the industrial space, we have undertaken a strategic decision to acquire the stressed assets of Sanghvi Forgings based in Vadodara. This will help enhance our footprint in India and strengthen our industrial product manufacturing capabilities.
Although the full year performance is subdued, it is noteworthy that we have made a strong sequential recovery from Q2 FY 2021 onwards and continue to sustain this encouraging trend.
Challenges and performance aside, FY 2021 has been an eventful year in terms of positive and proactive steps taken by the government to provide relief to various affected stakeholders. Strong tangible steps were taken towards making India a self-reliant, self-sufficient manufacturing giant including the roll-out of Atmanirbharta and PLI schemes across various industries.
The Indian manufacturing sector, whose contribution to GDP stagnated at ~15% over the past many decades, received a much-needed policy boost which holds potential for driving its growth. Progress is already visible in the consumer electronics space and the pharmaceutical space. The trickledown benefit of the PLI is massive and will hopefully result in significant job creation.
The Vehicles Scrappage Policy is a major shot in the arm for Indian automotive sector which was in the making for many years. It is highly relevant in the Indian context, as the country has oldest fleet (average age of over 10 years) of vehicles on the road among other major automotive manufacturing countries.
Strong tangible steps were taken towards making India a self-reliant, self-sufficient manufacturing giant including the roll-out of Atmanirbharta and PLI schemes across various industries.
These recent supportive policy measures by the government provide good ground for growth, much of it being aligned to our growth strategy. The government’s clarion call for Atmanirbharta, through creating a list of items to be manufactured in India, holds in good stead for the defence manufacturing ecosystem which has received a major push.
Bharat Forge is well-positioned to benefit from this. We have been in this business for many years now and have established deep competencies. In view of the largescale opportunities that may arise, we have acquired 100% stake in our defence arm Kalyani Strategic Systems Limited (KSSL). This will enable us to participate in various defence programs and consolidate all defence activities relating to products and equipment under KSSL. Many of our programs, armored vehicles, artillery, etc., are progressing well and we expect positive developments. During FY 2021, our armored vehicles vertical made a breakthrough by securing a prestigious order for supply of Kalyani M4 vehicle for use in high altitude terrain. We have also received an order from the government for development and supply of certain components and products. Our ambitious ATAGS Artillery Gun continues to undergo trials.
As far as the PLI scheme is concerned, details for the automotive components sector is not yet spelt out. However, we expect it will provide opportunity to grow and expand, both in terms of new products and market share.
We have been in this business for many years now and have established deep competencies. In view of the largescale opportunities that may arise, we have acquired 100% stake in our defence arm Kalyani Strategic Systems Limited (KSSL).
In my past address, I had mentioned that technology will cause tectonic shifts in the automotive industry. This is already visible to some extent especially in the personal mobility space. A part of our business is exposed to this shift and may come under stress in the medium term. In the worst-case scenario of complete shift away from Internal Combustion Engine (ICE), we predict a hit of 10-12% on our business in the medium- to long-term. The E-mobility business and other verticals we are focusing on will more than make up for this loss of revenues.
Historically, Bharat Forge has always thrived and grown during such technology changes. We are confident of repeating this if the shift from ICE to E-mobility happens. We approached this by investing strategically in startups with existing expertise in E-mobility solutions. Also in FY 2021, the E-mobility business along with all investments and holdings was spun off into a separate 100% subsidiary – Kalyani Powertrain Limited (KPTL). This will ensure dedicated attention to growing the business with right leadership and right focus. KPTL has made tangible progress during the year having initiated discussion with OEM/ fleet operators to provide solutions for the E-mobility platform.
The Aluminum Die Casting facility, Centre of light-weighting in Nellore is now ready for commercial production while two Aluminum Forging facilities are coming up in North Carolina, US and Brand-Erbisdorf, Germany. These centers will work closely with automobile companies to conceptualize new solutions, including those for E-mobility.
Historically, Bharat Forge has always thrived and grown during such technology changes. We are confident of repeating this if the shift from ICE to e-mobility happens.
As we go deeper into defence, E-mobility, light-weight materials and industrial beyond the existing business, the challenges will be different from what we have faced so far. It will entail creating a talent pool with completely new skill sets and intensifying research and innovation.
It is because of this, that we have put these businesses under separate companies which employ large number of young engineers having expertise in software designing. We are continually focusing on strengthening our HR practices to attract and retain talent.
We continue to have deep emphasis on research and innovation, which is the core of our business and enables us to create new products in these areas of growth, with added emphasis on electronics. Our primary R&D centers – Kalyani Centre for Technology and Innovation (KCTI) and Kalyani Centre for Manufacturing Innovation (KCMI) – are leading this.
As we go deeper into defence, e-mobility, light-weight materials and industrial beyond the existing business, the challenges will be different from what we have faced so far.
Your Company has been addressing the topic of sustainability through the solutions we provide to our customers. Our efforts in light-weighting of products are contributing to lighter vehicles which are more fuel-efficient and more importantly consume less resources in manufacturing process. We also have a circular ecosystem for manufacturing where the bulk of the raw material scrap is reused to manufacture clean steel.
As a responsible corporate, we envisage doing more when it comes to either reduced usage of resource or increased utilization of renewable energy in our operations. In Fy 2021, around 16% of the power utilized was from renewable energy sources. We expect more initiatives on sustainability to be rolled out in the coming months.
We have successfully emerged stronger out of every down cycle, improving our margins by re-aligning our product mix, reducing our costs and innovating.
We have successfully emerged stronger out of every down cycle, improving our margins by re-aligning our product mix, reducing our costs and innovating. We are confident that these will enable us to see through this down cycle as well. This time the difference is that we have a strong balance sheet with a significant amount of liquidity to tide over tough times.
We have capitalized on this to acquire land parcel in Khed SEZ (about 45 kms from Pune). We intend to develop our next mega manufacturing facility here to meet the growing requirements of the business with current facilities being fully utilized. This facility will provide the flexibility to house all new initiatives including defence and E-mobility. Also, this location being outside the city limits, is apt for defence business given the sensitive and varied nature of business.
Moving forward, we will continue to restructure our businesses, to make them future-ready, to whatever extent needed. The future is going to be faster, with more variety and newer customers who will expect the supply chain to play greater role in their business. In line with this future, we have created new businesses most of which are non-traditional and are expected to expand and provide us growth opportunities. We expect these efforts will reduce cyclicity in our business.
I thank all our stakeholders for their trust. your continued support has helped us to overcome the down cycle and we see better days ahead following revival in export businesses and improving prospects in the non-automotive segment. Our international business is also now operating at a satisfactory level and improving steadily every quarter. Our new growth engines hold immense potential to become large. We remain poised and prepared for the next decade to create significant and sustainable value for all our stakeholders.
Warm regards,
