The year gone by was a melange of various propitious domestic reforms initiated by theGovernment along with a few tough policy decisions.
Two major events dominated India's economic landscape namely the passing of longimpending Goods and Services Tax (GST) bill and the demonetisation of high currency notes.The GST will help create common Indian market improve tax compliance & governance andboost investment & growth. It is also a bold new experiment in the governance ofIndia's cooperative federalism. Demonetisation has had short-term costs but it holds thepotential for long term benefits.
Global economic activity is picking up with a long awaited cyclical recovery ininvestment manufacturing and trade. World growth is expected to rise from 3.1% in 2016 to3.5% in 2017 and 3.6% in 2018 according to World Economic Outlook forecast by IMF.Stronger activity and expectations of more robust global demand coupled with agreedrestrictions on oil supply have helped commodity prices recover from their troughs inearly 2016.
Opportunities and Threats
The pace of economic recovery continued to be stable with the Government's renewedthrust on manufacturing sector through Make in India and Skill India initiatives. Thesehave managed to create a positive business environment whereby many Global OEMs and Tier 1players are planning to set up purchasing offices in India and looking at procuring highstandard quality products. With business sentiments having improved in India we expect tosee improved business activity which will push the domestic demand for forging products aswell as exports in the coming years.
The Indian forging industry is gearing up to expand its operational spectrum byevolving and innovating itself to move beyond conventional forging to high-end customisedforging solutions like providing finished and ready to assemble parts rather than supplyof finished forgings.
One of the key challenges faced by Indian forging industry is the price disparity ofraw materials as compared with Chinese and European markets. Prices of major inputmaterials like steel scrap coke and iron ore have dropped by more than 30% globally whileIndian steel prices have not been reduced to that extent. This had made manufacturing andexport of forging products to global destinations unviable for Indian companies. Overallthe industry is expected to maintain a modest growth rate this year but we foreseepositive indications in the long-term which will put the industry back on the growthtrack.
Our Company reported annual turnover of '555.3 mn in FY 2017 which was down by 19.8%as compared to '692.2 mn in FY 2016 on a standalone basis. EBITDA stood at '30.6 mn in FY2017 as compared to '146.6 mn in FY 2016. The Company has reported a net loss of '225.2 mnin FY 2017 as compared to a net loss of '99.9 mn in FY 2016. Export income stood at '143.2 mn in FY 2017 as compared to ' 199.3 mn in FY 2016.
Due to non-availability of raw material the Company was not able to process the ordersin hand leading to a decline in revenues. Lower capacity utilisation (below 25%) higherfixed costs and interest burden were the main reasons for the net loss resulting in acutecash deficit. This led to default in servicing various interest installments and LCcommitments. The Company faced liquidity constraints rendering its account as NPA inNovember 2016.
Our Company has also initiated a process of financial restructuring with its bankswhich is subject to approval. This will help ease our interest costs improve our workingcapital gap and help in achieving higher operational efficiencies in the coming years.
We have come a long way in our journey which started as a closed-die forging company.We have slowly and steadily paved our way into the league of value-add and customisedheavy open-die forging in non-automotive segment. Our diversified product portfolio incritical sectors like oil & gas defence and power has helped us build a kitty ofmarquee clients both in the domestic and international markets.
Our singular focus has been on fostering innovation in our capabilities andcompetencies which we believe is the only way to build a sustainable business. We haveover the years become a preferred choice among our clients who are looking for highquality and specialised forgings from a minimum of 1 kg. to a maximum of 40 MT - a rangewhich gives us a distinct competitive advantage over our peers. Our competitive advantageis a result of years of relentless effort and dedication by our passionate team whosecollective capabilities have helped us sail through times of uncertainty and firmed up ourpresence as a trusted name in the forging sector.
We are constantly striving to strengthen and grow our business keeping in mind themarket scenario and client needs. Forging is a highly specialised area which requiresconstant innovation. We have gradually augmented our capacities and invested resources inscale quality and technology.
New capacities to the tune of 15000 MTPA added in the open die segment taking thetotal capacity to 18600 MTPA.
Our plants and manufacturing sites have received international quality approvals andcertifications
We have invested more than Rs. 150 crores in the last five years in state-of-the-arttechnology with machineries from Germany and Italy.
We are continuously working towards building a long term sustainable business to attainleadership position in the fast-growing non-auto segment. With our diversification inhighly lucrative sectors like Defence and Power along with some major approvals from largecustomers we foresee immense revenue potential for next three to five years.
Higher capacity utilisations in our new plant along with export focus will help usboost our margins in the coming years.
I would like the end the note with this thought by Ralph h. Blum Nothing ispredestined. The obstacles of your past can become the gateways that lead to newbeginnings which reflects the ethos of our philosophy and work culture.
On behalf of my colleagues on the Board of Directors I take pleasure in applauding theuntiring effort of the entire team of Sanghvi Forging for their performance in the lastfinancial year. I would also like to express our gratitude to the regulators bankers ourshareholders and customers for their continued support in enabling us to build one ofIndia's leading forging companies.
Mr. Babulal S. Sanghvi