Bharat Forge Says It May Miss Revenue Growth Target In FY21 Amid Virus Outbreak
India’s largest exporter of automotive parts said it might not meet its revenue growth target in the upcoming financial year as operations stalled in its overseas and domestic plants amid the new coronavirus pandemic.
With Indian operations shut down fully and most key clients in the U.S. and Europe also operating at minimal capacities, Covid-19-related disruption are expected to significantly impact performance in the financial year ending March 2021, Bharat Forge Ltd. said in a conference call. “Originally, the company had targeted 10-12 percent revenue growth in India and some growth in overseas in FY21, but this is not likely to play out now.”
Equity markets across the world witnessed the worst selloff since the 2008 crisis as the rapidly spreading virus—that infected more than 3 lakh people worldwide and killed over 14,000—threatened to push the global economy into a recession. Indian indices, too, have tracked the global peers before recovering in the past three days. The virus outbreak, along with a prolonged slowdown in sales of automakers in India and a crude price crash, led to a 41 percent slump in shares of Bharat Forge since the start of this year.
The axle maker, however, said this Covid-19 crisis was a five-six month setback to business, after which normal operations should resume.
Here are the key highlights from the conference call:
- All plants were shut down in India from March 23 and all international plants would be shut down from March 27.
- Most clients are expected to resume operations from mid-April.
- Bharat Forge continues to service key clients like Cummins and Caterpillar that are continuing production post-government approvals.
- Expect a deferment of growth plans by 10-12 months.
- 10-12 percent growth expected in India in FY21 and some growth in international markets
- Significant consignments are stuck at ports, which could negatively impact fourth quarter FY20 performance.
- Orders of U.S. Class 8 trucks likely to decline 10-15 percent next year, owing to the lockdown (earlier estimated U.S. Class 8 industry volumes at 240,000 units).
- Oil and gas segment accounts for only 5-6 percent of revenue and is thus not very relevant for the company now.
- Management continues to cut cost, particularly manpower-related.
- If there was no Covid-19 impact, overseas subsidiaries would have made a profit and positive cash flows.
Passenger cars, aerospace and lightweighting aluminum forging are the key focus areas.
- Passenger cars: Most original equipment makers do not want to invest in making mechanical parts, creating an opportunity.
- Aerospace: Beginning with just one customer, the company now has four. Entry in this segment generally takes time due to approvals and testing.
- Lightweight: This would be one of the fastest growing segments over the next five years as most segments will move to aluminum.