Bharat Forge is to liquidate its plant and machinery in America, after continuous losses recorded from the acquired assets seven years after the company bought these.
The Pune-based company had acquired the assets and business of Federal Forge Inc, through its wholly owned subsidiary, for $9.1 million in mid-2005. It has now begun the sale process of these assets, talking to a couple of interested parties.
The company has invested a total of Rs 98.7 crore (including the acquisition cost) into Bharat Forge America, the US subsidiary, since the buyout. On account of prolonged recessionary conditions in the US automotive market for products manufactured by BFA, its operations were in losses.
With a sellout, Bharat Forge will cease to have a manufacturing unit in America. General Motors, the world’s second biggest automotive company, was one of the indirect clients of BFA. The slower than expected revival in GM’s operations has hit several component suppliers such as BFA.
Kishore Saletore, group chief financial officer at Bharat Forge, said, “We are hoping to get a minimum realisation of Rs 30 crore from the sale of assets of BFA. The process is on; we have already received some offers. This does not mean our exit from the US market. We will supply from the Indian plants.”
The company had taken restructuring initiatives including but not limited to new products, improvement in processes at BFA and successfully negotiated a union labour contract, with reduction in wage cost. Despite all these, due to overall market conditions, it might be difficult for BFA to achieve overall turnaround in the immediate future, the company stated.
In its balance sheet, as a matter of prudence, Bharat Forge has provided Rs 70.4 crore towards diminution in the carrying cost of its investment, the charge being included under 'exceptional item'. Such impairment has dragged the company's stand-alone net profit to Rs 55.1 crore for the quarter ended March 31, 2012, a drop of 45 per cent as against the Rs 100.6 crore reported in the same quarter last year.
Net sales grew 19 per cent to Rs 977 crore for the quarter, as compared to Rs 821 crore in the corresponding period a year before.
The company, which has been trying to reduce its exposure to the automotive sector, has 62 per cent of its revenue coming from there. It has stated that headwinds in India' automotive sector will impact growth, to be neutralised to some extent by growth in areas like Europe and China.
The non-automotive business posted strong growth of 32 per cent during the last financial year. The company says it has a strong order pipeline and expects the non-automotive business to continue to grow. “We are expecting a turnover of about Rs 5,000 crore from the power vertical. This should form about 33 per cent of the total turnover of Bharat Forge in the next three to four years,” added Saletore.