Bharat Forge: It's part of life

As if last year wasn’t difficult enough, Baba Kalyani has said quite clearly that the current year would remain a challenging one for his company. The chairman and managing director of Bharat Forge believes it could be a while before inventories are cleared and sales revive, especially in the commercial vehicle (CV) space. The auto parts maker, a victim of the severe depression in the world automobile markets, saw consolidated sales rise just under 3 per cent last year to Rs 4,774 crore.

That meant profits were badly dented — down 81 per cent to Rs 58 crore. The numbers weren’t really surprising given that the US and European markets bring in about three-fourths of the Pune-headquartered firm’s revenues. Not that the home markets provided much succour — in the March 2009 quarter for instance, domestic commerical vehicle volumes fell 61 per cent leaving the ancillary maker with little business.

Unfortunately, the company could do little about the high fixed costs and as a result, consolidated margins came off by 12 percentage points to 5.34 per cent. The management believes the domestic passenger car market is showing signs of revival. But that can’t help much because the bulk of Bharat Forge’s revenues come from the CV space.

There isn’t much happening in this segment though and that means the firm’s overseas subsidiaries could continue to run below breakeven levels of 50-55 per cent for some more time. The hope lies in the non-auto parts business — the share of which is tipped to go up from 28 per cent of its standalone revenues to 40 per cent by 2012. That’s still some time away. In the meanwhile, at Rs 157, the stock looks way too expensive at 22 times the estimated 2009-10 earnings.