Calculus: Slowdown in automotive, industrial sectors hurts Bharat Forge

Bharat Forge reported a fall in its revenue and profit due to slowing demand from the automotive and industrial sectors. With few signs of any significant recovery in the near term in India and overseas, the next two quarters will be challenging for the country's largest exporter of auto components.

A more-than-expected slowdown in the heavy truck market in China, coupled with lower order bookings in Europe and North America due to lower economic activity and hesitancy among customers to invest in new vehicles, took its toll on Bharat Forge's business during the September quarter.

As auto sales slow down, several global OEM's (original equipment manufacturers) have been adjusting production levels to correct inventory pile-up. This has lead to de-stocking of inventory across the pipeline impacting the sales of OEM suppliers such as Bharat Forge.

For the first time in thirteen quarters, Bharat Forge reported a year-on-year decline in total income at Rs 867.59 crore. Net profit was also lower by 3% at Rs 102.78 crore during the September quarter.

Automotive sales were down 4.2% whereas the non-automotive business recorded a marginal growth of 2.6% driven by increase in offtake from the oil and gas sector.

Till the impact of higher inventory gets sorted out, which is expected to take a quarter or two, difficult times remain for Bharat Forge. On the positive side, the company managed to maintain its EBITDA - earnings before interest, tax and deprecation - margin at 24% inline with September 2011 due to cost-cutting initiatives.