The global macroeconomic landscape in FY 2017 was uncertain and was characterized byweak growth. Lacklustre performance in the beginning of the year was partially offset byimproved momentum towards the end of 2016. Important global developments during the yearincluded the US Federal Reserve increasing policy rates partial recovery in globalcommodity prices and a revival in global trade flows.
Developed economies witnessed tepid growth in 2016 in continuum with the trend of thepast few years. At the other end of the spectrum developing and emerging economies havegained in stature and importance in the recent years. Although the growth patterns inemerging economies are uneven we can expect good growth in some of these economies atleast for the medium term. And of course the best performer in the squad continues to beIndia.
Indian economy successfully navigated through the external global turbulence and thetemporary negative impact of demonetization to register a growth of 7.1% in FY 2017.
BUSINESS HIGHLIGHTS: FY 2017
On the back of a weak FY 2016 for the Company FY 2017 was another challenging year forit marked by weak export demand and disappointing growth in the Indian M&HCV space.We ended the year with total standalone revenues in FY 2017 declining by 10.2% to '40661million and standalone Profit After Tax (PAT) down 16.1% at '5851 million.
Despite these weaknesses cash generation during the year was strong enabling thecompany to further strengthen its balance sheet with Long Term D/E (Net) reducing from0.18 in FY 2016 to 0.03 in FY 2017.
Bharat Forge's consolidated revenues for FY 2017 stood at '65982 million compared to'70016 million in FY 2016 down 5.8%. Consolidated Profit After Tax stood at '7107million compared to '6754 million in FY 2016 up 5.2%.
Your company has been recognized and bestowed with many prestigious honours over thepast 12 months. It received the Daimler Supplier Award 2016 - Global Procurement Trucksand Buses for the International supply of best quality crankshafts and front axle beams.We were also the recipient of General Motors Supplier of the Year Award 2016. The"TIME Indian Global Manufacturer for the year 2017" awarded for our leadershipin Indian manufacturing segment was the proverbial icing on the cake.
In my previous letters I had outlined that success at BFL has been achieved onlythrough transformation and it continues to remain the only way forward. Ourtransformational DNA is helping us leverage opportunities across the world. The next stepsbeing taken in this direction to effectively transform the business over the next fewyears are highlighted below.
The Company has always believed in its ability to transform and grow by developingdifferentiated products using technology and in-house R&D capabilities. A recentexample is the conversion of cast iron chassis components to Aluminium forged chassiscomponent for an OEM in India. This innovation created a substantially light-weightchassis which improved fuel efficiency. Over the next few years your Company willleverage its expertise built on 4M's (Metallurgy Metal forming Manufacturing andMachining) and R&D capabilities to provide agile and adaptive solutions to its Indianand global customers.
Our foray in new segments - Defence Aerospace Railways etc. will drive growth andreduce exposure to cyclical ups and downs. In near future our aerospace business islikely to evolve as one of our fastest growing verticals. This growth will be driven bycustomer traction and product expansion including development with unconventionalmaterials. The defence components business is also expected to witness robust growthdriven by our focus on developing new value-added components and products. In the mediumterm our aim is to increase revenues from the newer segments which presently contributeto 5% of the total revenues.
It is possible to grow the topline by doing a sizeable M&A but it comes with therisk of low returns. Our preference is to focus on generating good Return on Investmentswhich allows us to invest in capability building and technologies of the future that willbenefit our customers. Performance over the past 5 years has been a testament to the same.Today Your company is strategically positioned to focus on needs of both the domestic andexport markets and leverage technology to achieve better margins.
MAKE IN INDIA
The 'Make in India' campaign is a manifestation of the Government's lofty ambition totransform India into a global manufacturing hub.
The Company is poised to play a meaningful role in this mission with indigenouslydeveloped cutting-edge technologies and innovations. Our focus on developing newprocesses expanding the product portfolio and leveraging our innovation capabilities isopening up new growth avenues.
TRANSFORMATION TO CREATE RESILIENT PERFORMANCE
We realized a decade ago that cyclicality in demand coupled with a leveraged balancesheet can lead the Company to a vicious cycle which eventually leads to stagnation.Keeping this in mind we have constantly emphasized on de-risking our business by enteringnew sectors thereby adding breadth to our customer profile. With effective execution ofthis strategy we have been able to achieve de-risking of business as well as deleveragingof the balance sheet.
A study of the Company's financial performance across the past three downturns (FY2009 FY 2013 and FY 2017) shows an improvement in EBITDA from 21.5% in FY 2009 to 27.1%in FY 2017. This coupled with a focus on sweating of existing assets has resulted in theCompany reducing its Debt/ EBITDA ratio from 4.05 in FY 2009 to 1.48 in FY 2017.
NEW BUSINESS WINS
During the year the Company has secured US$ 120 million worth of new business winsspread across geographies and business verticals.
A majority of these wins are for new products developed over the past 2 years.
RE-ENTRY IN THE NORTH AMERICA MARKET
During the year we acquired Walker Forge Tennessee for around US$ 14 million. Thisacquisition creates a strategic manufacturing footprint in North America to leverage ourexisting customer relationships. At the same time it will enable the Company to cater tonew end-market segments and broaden the product portfolio. This will happen through ourproduct offerings in the passenger car and commercial vehicle segments and also inindustrial sectors such as construction and mining.
BUILDING ADVANCED MANUFACTURING CAPABILITIES
Technological advancement and product innovation remain our key differentiators. TheCompany's inhouse R&D team has been committed to work on various projects includingdeveloping technologies to minimize carbon footprint and manufacture light weight productsthat result in lower energy consumption. Innovation is an on-going process which hashelped us explore new ideas and deliver transformative solutions.
Smart manufacturing or Industry 4.0 is a key enabler that can help India realize thegoals of 'Make in India' initiative. At Bharat Forge we are focused on preparing theorganization for the times to come.
On the one hand we have proactively been investing in machines and manpower and onthe other hand we have set ourselves the target of realizing Industry 4.0 standards inthe near future. We are doing whatever it takes to transform Bharat Forge into apowerhouse of advanced manufacturing.
Transformation of a nation or a company cannot sustain without wholehearted peopleparticipation.
The capabilities of our people have brought us this far and we will continue to investin developing our teams to enhance their efficiency and introduce industry-leadingpractices. With strong focus on developing skills and capabilities of our employees wehave invested significantly in building strong knowledge resources within theorganization. We have tie-ups with leading academic institutions worldwide to not onlyoffer continuous learning opportunities for our employees but also to undertakecollaborative research and development. Innovation-driven- manufacturing is deeply rootedin the culture of Bharat Forge. We constantly yearn to master advanced manufacturingtechniques and capabilities.
At Bharat Forge we ensure that all our three foundational pillars - People Processesand Technology - are constantly honed and improved to meet the ever-changing customerneeds while remaining lean efficient and profitable. Leveraging our innovation andin-house R&D expertise has helped the Company's sustained growth and development.
Moving ahead we are graduating to the next level and charting our next course ofgrowth. We are investing in tomorrow's technologies to further hone our innovative driveand thereby lead change. Being a value-accretive and solutions-driven Company we areconstantly fine-tuning our growth strategies and leveraging our intrinsic strengths tocreate and deliver incremental value to our stakeholders.
We do not look at India through the prism of what it is today but what it can becometomorrow. When we started our journey we never thought we could be a major player inmultiple verticals globally but we have reached that harbour. As larger roles andopportunities beckon we have to set sail for exciting new destinations. Our technicalexpertise quality infrastructure continuous focus on innovation global alliances andstrategic vision will help us set a date with our momentous destiny.
I take this opportunity to thank our respected shareholders for their continued trustand support. I would also like to thank all our esteemed stakeholders and bankers fortheir consistent support and look forward to their enthusiastic participation to achievethe ever aspiring objectives of the organization.
Baba N. Kalyani
Chairman & Managing Director