Analyst Meet / AGM - Analyst Meet
The company is well positioned with capacities and capabilities and will be expanding its reach and will cater to several new customers in the coming quarters
In interaction with Viraj Kalyani CEO.
Domestically, the Auto, non-auto sale ratio of the company has been about 75:25 over the years. The ratio will shift to 60:40 in the coming years, even when all the sectors will continue to grow in absolute terms. Internationally, more than 50% of the export business is in non-automotive sectors, so it's quite different from the domestic business composition.
The company also has a strong presence in power and construction segments and a growing trend in industrial, marine and railways.
The company currently exports to US, Europe and Japan with long term relationships with the existing customers. The company expects its exports sale to be about 40% of total business from the current level of around 22-25%. The company is not overexposed in EU and currently doesn't have any business in MENA (Middle East and North Africa) or Russia.
In FY'15, particularly for H1 the company's focus was on increasing customer satisfaction even if it meant going all out to fulfill customer orders which are below average in terms of profitability. This has been a key reason in the lower operating margin in H1. The company has done this keeping most loyal customers top of mind, since they have also helped in tough times in the past. Going forward the strategy will be on cost cutting for these products while also improving the order board composition in terms of profitability.
The overall installed capacity stands at about 25000 tons out of which current operational capacity will be about 14000 tons. So there is a lot of headroom for improving utilization which is company's priority in H2 FY'15.
The company has some additional forging presses which are coming on line this year and should reduce the capital-work-in-progress which currently stands at around Rs 15 crore. The management strategically timed the commissioning to match the ramp up in volumes and new business of the customers. There is some capex for process modernization and automation also. Without any additional capex the company can generate 1.5 to 2 times current revenue with small investments in process improvements or equipment rationalization which can lower operating costs further.
Currently the company is well positioned with capacities and capabilities and will be expanding the reach and will cater to several new customers in the coming quarters. The company is in continuous discussion with new customers for export opportunities. The company has introduced a couple of new product lines in engine and transmission applications, especially for international customers in past couple of years. This should definitely ramp up volumes in the coming quarters and spur organic growth.
The company is open for inorganic growth with a good acquisition opportunity in international markets, which will happen in due course.
The management has clarified that there are no plans for merging with Bharat Forge currently. Both companies fundamentally excel in different range of offerings. That was the strategic intent of the founder Dr. Neelkanth Kalyani when he established the group companies in 60's, 70's and 80's.
Kalyani Forge has been conservative on investments so far, but the company is a lot more bullish now about growth in the coming years and for several decades to come. There is a huge and growing market for forged and machined components particularly suited to the company's areas of expertise. With many prominent countries endorsing the idea of make in India, the hopes are very high. More and more countries are endorsing this. Certainly, the Indian industry would get a boost in the time to come.
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