Bharat Forge sees itself benefitting from supplier restructuring amid Covid crisis

by Shahkar Abidi 16 Apr 2020

The ongoing pandemic of Covid19, it seems, has come as an opportunity for Bharat Forge. Part of the $ 3 billion Kalyani Group, Bharat Forge envisages some strategic structural changes in the automotive supply chain in a post -Covid19 world, where OEMs, in order to mitigate uncertainties, will be looking forward to diversifying their component sourcing bases. A big bottleneck for OEMs is the ability to develop, re-engineer and revalidate new components on a constant basis to reduce their fixed costs.

Baba Kalyani, CMD of Bharat Forge, in a recent conference call with investors, claimed that the company’s strength in technology, innovation and strong financials will prove very useful in capturing the changing market dynamics.

It’s not only in India that Bharat Forge foresees far-reaching changes, which are already underway in the US and Europe. Tesla, for example, typically talks to a supplier who can, from the time it is given electronic data, to offer components in four weeks’ time.

Kalyani’s sanguinity, even in the current hugely depressed market conditions, could stem from the Rs 1,800 crore cash pile it has, providing much-needed liquidity in the ongoing lockdown. In addition, the world's largest forgings company also has an undrawn limit of more than Rs 700 crore. Its only fixed cost is that of manpower.

“So, I think we are pretty much well placed. But we will see once the system gets back to work,” remarked Kalyani during the conference call.

Difficult period for overseas subsidiaries
The company claims that although it is a difficult period for its overseas subsidiaries, there is no crisis as such and had the COVID-19 not happened, then its European subsidiaries would have had positive cash flows and profits this year. According to the management, if things return to normal by June or July, then these subsidiaries  can expect to achieve normalcy within 12 months from thereon. Sixty percent of Bharat Forge's business in Europe comes from forgings for CVs and 30 percent from PVs, the remaining 10 percent coming from industrial and other sectors.

Lessons from the past
The Pune-headquartered company, it is to be noted, has overcome downturns a number of times in the past including the global recession in 2008. “To me, this whole COVID-19 issue is more like a reset button for a quarter or a quarter-and- a half. If we were to look at ourselves in the future backwards, we will realise that exactly like what happened in 2008-2009, we were able to grow and become much stronger. Something like that will happen again,” added Kalyani. During the 2008 financial crisis, Bharat Forge had to shut down its operations for more than a week.

To tackle the ongoing lockdown at its plant in Pune, Bharat Forge is drawing upon its past experience. Around 150-odd personnel at the Pune plant are manning key installations. Stressing the importance of taking utmost care of all the data and machines that work on those data, Kalyani added that if one happens to lose these critical data then reprogramming of hundreds of equipment will be needed. “That’s what we are doing. We are ensuring that all our data is securely kept and machines running," continued Kalyani, emphasising that everything gets rebooted and kept ready for opening after the lockdown as “the physical part is very simple”.

Covid-19 delays e-mobility drive
Over the past couple of years, Bharat Forge has been aggressively working on its electrification programmes and has invested Rs 34 crore in Pune-based Tork Motors, which is developing an electric performance motorcycle. It also bought a stake in UK-based Tevva Motors, a provider of electric powertrain solutions for commercial vehicles and buses for Rs 90 crore. However, Covid19 has become a speedbreaker in progress. “Covid19 has kind of put a lot of cold water on it,” laments Kalyani. 

Rajeev Singh, Partner, Deloitte (India) seconds Kalyani when he claims that though the automotive value chain is pretty much intertwined globally, there will be supplier restructuring in the near future. “I will not be surprised if we see a wave of localisation in different geographies,” said Singh, while emphasising that it is not going to be easy for the industry. “Further, the changes may eventually also lead to an increase in mergers and acquisitions in the component industry over the next couple of years,” Singh told Autocar Professional.

Also read: The Times They Are a-Changin' for Bharat Forge