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We are doing well in both domestic and international markets: Baba Kalyani, Bharat Forge

“In the next couple of quarter, will try to increase our application of knowledge in the oil and gas business.”

ET Now|
Feb 08, 2018, 03.44 PM IST
ET Now
Baba Kalyani
"We have seen a huge rebound in the mining sector especially from equipment manufacturers to whom we supply and we are almost struggling to meet demand."
Talking to ET Now, Baba Kalyani, Chairman, Bharat Forge, says they have had a large new order win of more than $100 million outside the commercial vehicle space.

Edited excerpts:

Where is the confidence coming from? what are the signs you are reading that you put out this commentary today outlook for fourth quarters and other segments if you could draw a bigger picture before we get to specific parts of the performance this quarter.
All our market segments -- both in domestic as well as in the international markets -- have done well. The commercial vehicle business is doing well both in India and in the US as well as in Europe. The industrial business is doing extremely well on the back of oil and gas and construction equipment increases. Our foray in pass car business which we talked last year is beginning to show a lot of traction. This is increasing at a rapid pace and we expect that to increase further. Overall, globally the economy is doing well. In India, we are beginning to see the commercial vehicle industry and the pass car industry both showing growth rates and we have outperformed the markets and therefore we have gained market shares in many of these areas. We have had a large new order win, more than $100 million which is outside the commercial vehicle space. That tells you how we are diversifying our customer base on global basis.

What spectacular numbers! The NA class 8 truck order inflow also has shown a significant growth since the start of 2017. Can you tell us how much you benefitted from the uptick and do you believe that this kind of a run rate will be sustainable?
As far as commercial vehicles is concerned, we are pretty much involved on a global basis whether it is India, whether it is Europe or whether it is North America and at least in 2018-2019 these run rates will pretty much be there. We are seeing increased manufacturing activity in the US. So, we expect to see even better numbers in 2018. The Indian markets with all the infrastructure drive is beginning to show much larger commercial vehicle sales. Overall, in this segment things look pretty good.

Let us talk about the other two very important segments historically which saw some pain points. But last couple of quarters are emerging out, one is hydrocarbons and the others is mining. We are looking at metal and mining globally in a rebound. Is that also reflecting well in your own businesses and what is the outlook in these two areas in particular?
Outlook is very strong in these areas. We have seen a huge rebound in the mining sector especially from equipment manufacturers to whom we supply and we are almost struggling to meet demand. So it is good problem to have and good problem to solve.

How have you managed to maintain your margins around the 30% mark for second or third quarter running now? Do you see scope for further improving it because you are sounding so positive about your business segments and of course geographies. I remember some 20 quarters back when 12% odd margins went to 20% odd margins, your stock from Rs 200 odd had run to almost Rs 1000. In 15 months, your stock had gone up 5x and now that you are stabilising your margins at 30%. Do you see further scope there?
That is a good number to aim for. We have always said that we operate in the band of about 28-30% but you have to understand that we are able to maintain our margins in spite of the rupee revaluation that has taken place. So our export realisation in rupees is much less than what it otherwise would have been at 68.

There has been increases in oil prices, energy prices that have taken place and of course increase in commodity prices that have taken place and we are able to do that because we have a continuous process of improving productivity. We are very much in with digital manufacturing. Right now, we are implementing digital manufacturing in our shops and I think these are levers that help you reduce your cost, improve your productivity and keep things under control.

Definitely some very positive commentary coming from you and I can surely let you know that the stock price as well seems to be reacting, at least for now, to the optimism that you are reflecting. Rs 753 on the stock but really let us talk business and some of the other new age businesses if you will. What is the outlook when it comes to aerospace, railways, defence, oil and gas? What kind of incremental growth do you see in the future from these businesses?
Well oil and gas is looking good, I think we are now trying to increase our depth in the oil and gas business. In the next couple of quarters, we will try to increase our application of knowledge in the oil and gas business to other sectors of oil and gas, both downstream and upstream. That is a big opportunity for us.

As far as railways are concerned, on an overall basis, we would have liked to do a lot better but the Indian Railways have made a decision go full electric on their locomotives and our focus now is largely on the global diesel loco markets. We are beginning to get traction there. On the defence side, by next year we should see a lot of traction coming in. We have a lot of products that are undergoing tests and validation by the services and they are all doing pretty well. We see some good positive traction coming in by the next year.

How was your meeting with Mr Benjamin Netanyahu when he was here? Do you see more visibility on some large concrete orders coming in defence sector for Indian companies and would you be participating in that as well?
Irrespective of the honourable Israeli Prime Minister, I am focussing more on what our defence minister is doing and I believe we will see a lot of traction coming to the Indian industry from our government itself. This whole Make in India business in defence is going to move forward in a reasonable way in the next few months.

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