Besides design and manufacturing, the artillery gun required special steel and intricate knowledge of metallurgy. The barrel and breech developed by the Kalyani group is also being used for other industry partners.
Defence is one of the key segments for the group. A new defence holding company, Kalyani Strategic Systems, is its vehicle for defence manufacturing and tie-ups with international players. It has collaborations with Israel’s Elbit Systems and Swedish defence conglomerate SAAB.
Although the Kalyani group is focusing on artillery systems, armoured fighting vehicles, precision ammunition, military vehicles and defence electronics as its areas of operation, there is some time to go before orders from the government fructify and revenue generation picks up. Its defence revenue for the quarter ended December 31 stood at Rs 45 crore.
The Kalyani group and others, including Larsen & Toubro, Punj Lloyd and Reliance Infrastructure, are going big on defence because of the government push for manufacturing in this segment. Contractual offset obligation alone will create Rs29,500-crore business in India, which will enhance domestic capabilities.
The other reason Kalyani is focusing on defence is that military hardware requires forgings as a base and this makes it a natural fit for the group. Its flagship, Bharat Forge, is among the topmost forging and engineering players in the country with a strong presence overseas. Half of its business comes from components meant for commercial vehicles, 10 per cent from passenger vehicles and 40 per cent from industries which includes power.
The current strategy involves sweating its existing assets to generate more revenue rather than go for huge capital expenditure, says a spokesperson. “All our facilities are fungible for the products we manufacture. So our focus now is more on setting up machining facilities which will help us move up the value chain,” he says.
This has put the company in a rather unique position. Unlike other Indian companies, Bharat Forge expects to be debt-free soon. Its gross debt is Rs 1,840 crore and net debt is about Rs 560-570 crore.
Nevertheless, Amit Kalyani, executive director, Bharat Forge, says business growth over the medium term will be driven by innovation and new product development. This will help the company increase the number of internally manufactured components that go in a single unit of a product, and enhance penetration in new sectors such as rail, aerospace and others.
In the automobile segment, for instance, the company sees content per unit going up two to three times. It currently supplies engine and chassis components like crank shaft, steering knuckles and front axle beams.
The company is building two small press line to manufacture smaller sophisticated products for passenger car segment. “The performance of the company in the automobile sector has been better than the underlying market. Besides, we are seeing good traction in the power space across all sources, that is wind, thermal and hydro,” says Amit Kalyani.
The company’s acquisition of Tennessee-based Walker Forge is complete. It will now help the company in making a presence in the US and cater to demand from automobile companies that may arise on a short-term basis in North America. Twenty eight per cent of Bharat Forge’s standalone revenue, amounting to Rs 2,766 crore, came from the US in the quarter ended December.
The group entered the overseas market primarily through acquisitions. Amit Kalyani says operations there have started doing well on the back of measures focused on productivity and cost controls. “The focus now is on increasing the utilisation and performance of our recently acquired business in the US. The overseas operations will play a major role in focusing on light weight forgings and solutions for new technologies.”
Setting new goals
Over the next few years, the group will be increasing presence and penetration in transportation vertical, comprising aerospace and railways, which contributes only around Rs 50 crore today. “We expect this vertical to become close to $100 million in the medium term, benefiting from ramp-up in orders in aerospace and increasing content (supplied by the group) per locomotive,” he says.
Export revenues in the passenger vehicle segment is expected to double in the next few years, driven by order wins from domestic and global OEMs and increasing value addition. In commercial vehicles, it will be increasing content per vehicle and also address opportunity in India arising from the transition in emission standards from Bharat Stage IV to VI. The real growth in the passenger vehicle segment is expected in 2017-18 when the company sees new machine products coming on line, giving it a mix of forging and machining.
Amit Kalyani says the key challenge will be to ensure the development of its human resources internally and retention of the same, given the huge and diverse opportunities the group is pursuing. Besides, rapid transformational shift in the automotive landscape towards new energy vehicles—hybrid and electric—will require a tweaking of product range.
With 750,000 tonne annual capacity and presence in five countries, the group’s larger effort is to have a more diversified revenue mix which will provide resilience when the cycle turns.