Bharat Forge Q4 earnings have beaten street estimates this quarter. However, the stock is taking a hit today owing to the cautious management commentary. Baba Kalyani, chairman and managing director of Bharat Forge shared his views and outlook on business going forward.
“Demand flattening out is largely an issue of inventory corrections that are taking place. I don’t think the basic demand is coming down anywhere. You have all kinds of issues going on with a trade war between the US and China and many other volatile economic activities going on. We have — in the Indian market place — the automotive industry also having a huge inventory related problem. So I think the first quarter and a little bit of the second quarter is going to be quite volatile and soft,” he said.
“I don’t think we have got into the structural issue in terms of demand in the automotive area. I think the issue is that there has been excess production in the last year probably in the last two quarters, in the domestic market and there has been a huge inventory build up in most places and I think that will get corrected. That has to get corrected. Now you have a transition that is coming from Euro-IV to Euro-VI from April 1, 2020. So that should generate a fairly strong pre-buy once these inventories are corrected. So I think we are going to see a very volatile process. The demand won’t be linear, it will be non-linear but the demand when it comes will be pretty strong,” he added.
“I think second half of this year, an uptick should start. There should be a pre-buy as far as commercial vehicles (CVs) are concerned because of the Euro-VI coming in on April 1, 2020. However, the problem is that you are going to have a non-linear demand. Inventory correction is going to take place in Q1 and then you are going to have demand coming back and then you are going to have pre-buy coming in probably at the end of second quarter, all of third quarter and part of the fourth quarter,” said Kalyani.
In terms of growth trends, he said: “If I look at the medium-term, we will do quite well. If I look at just FY20, I think we are looking more at a flat low single digit of 7-8 percent type growth.”
Sharing his expectations from the Lok Sabha elections outcome, he said: “I am happy that we will have a new government in place and I think it is a government that will deliver to the aspirations of the people and the economy. We are very much looking forward to a much higher growth in the industrial sector, much higher growth in sectors like defence, construction, all the infrastructure sectors which have a direct demand in terms of vehicles, in terms of trucks, in terms of everything that we do.”
Expect export market to do well
Bharat Forge's export basket is large with 6-7 product lines
Will see cash flow generation hereon as we don't have any capex plan
Have completed our capex, should strengthen our balance sheet now
Steel and mining production is going up domestically