Shares in Bharat Forge have witnessed immense investor interest in recent times with the stock reaching a 52-week high Wednesday and more than doubling since August last year.
The firm has witnessed a raft of good news, with both the pick-up in the global economy to the sharp depreciation in the Indian rupee acting as tailwinds.
The auto ancillary generates a majority of its revenues from the European and US markets.
In the most recent third quarter, Bharat Forge was able to ride a slowdown in the commercial vehicles space and post robust results, helped by a strong showing in the high-margin non-auto business -- revenues for the company jumped 24 percent year-on-year to Rs 832 crore while operating profits surged 50 percent to Rs 214 crore.
Also read: Bharat Forge Q3 net doubles to Rs 94 cr, margin up 460 bps
In an interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal, the firm's chairman and managing director Baba Kalyani outlined why he believes Bharat Forge has further scope to improve its profitability going forward.
Below is the edited transcript of the interview on CNBC-TV18.
Sonia: Many of your peers in the auto ancillary space including your own company has seen big returns in the stock markets in the last many weeks and months and one reason could be the way some of the global markets are picking up specially markets like Europe, North America etc. Can you give us senses of how much incremental growth would you expect in FY15 in terms of both your revenue potential as well as the margin growth?
A: The trends both on the truck side as well as on the passenger car side in the US and EU look positive. The US looks a lot more positive than EU and we will see good numbers coming out of the US market for this calendar year, which is going to be a large part of our FY15. So, we are very optimistic that we will see a fairly robust growth in these markets.
Anuj: A large part of that expectation was also because of currency depreciation. Would that change a bit now that we are in a bit of an appreciating scenario at least for the last two or three months?
A: I look at it more in terms of how my exports are growing in terms of dollar volume and we see a fairly strong growth, we see a strong order book, we see a strong pipeline.
On the other side, in the last one-and-a-half, two years when the market was rather difficult both domestically as well as outside, we used that time to trim our costs, to improve our productivity, efficiencies and also develop a lot of new technologies. So, a lot of these things are going to play out in FY15-FY16 and we will see a much stronger performance.
Sonia: When you say stronger performance, what do you mean because your margins have improved significantly, your margin profile has now gone to high 20s -- about 26 percent or so? Do you think you could take your margins much higher or is this the top for now?
A: I think a large part of this depends on how much topline growth do we generate because we have a very low breakeven level in our cost structure. Any incremental topline growth will help us increase overall margins and we are hoping for a fairly good topline growth, we have had difficult period for the last two years but in spite of the difficulty we have done reasonably well in FY14.
We used that time very wisely, we got rid of a lot of problems that we had on our balance sheets, we disinvested our Chinese business, got our money back, shut down our business in North America one-and-a-half years ago and our European business is performing quite well.
Overall, we have done all the right things plus we have developed a lot of new activities and technologies. We have positioned ourselves to be a component supplier in the railway systems, in the defense area, and all that will start playing out as things start improving in the domestic market, which I hope will happen after the elections.
On the commercial vehicle (CV) side in the domestic market, although last quarter was a better quarter compared to the earlier quarters, you will see more of a back-ended improvement in FY15 rather than front-ended.
Anuj: I will go back to North America. I am reading a report which says that the order inflow has been 47 percent higher than your shipments to North America for the last three months consecutively, can this continue at this pace and what would that translate into your export revenues going forward?
A: I will not give a number on export revenues but the order intake has increased largely because it is very clear if you look at the North American truck volume order intake which numbers are given every month.
They are now running at 30-40 percent higher than what was a year ago whereas all that has not translated into production yet because it will get translated into production in the few months. So that is good news, at least after a long time we are beginning to see a very robust market for commercial vehicles.
On the passenger car side, North American automakers are doing extremely well, the numbers are high; there was a little dip during the winter months when the weather issues were there but now it is back to normal, so they are looking at 16 million plus kind of volumes and we are focusing a lot of our attention in trying to get into that market. So, we have a lot of negotiations currently going on, we have a good order pipeline, a good negotiation pipeline that is in place.
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