Car-Parts Billionaire Kalyani Seeks Growth in Aerospace

Bharat Forge Ltd. (BHFC), India’s second-biggest autoparts maker, is seeking approvals from agencies in Europe and North America to sell components for the aerospace industry as it looks to protect itself against cyclical slumps in the automobile sector.

The company, controlled by billionaire Baba Kalyani, has applied for technical permits, Chief Financial Officer Sanjeev Joglekar said. It expects to start manufacturing the parts “two to three years down the line,” he said.
“We are in the process of getting various accreditations which are required as a supplier,” Joglekar said in a telephone interview from his office in Pune near Mumbai, where Bharat Forge is based. “This is a substantially lengthy process.”
Bharat Forge, which supplies crankshafts, axles and steering knuckles to Daimler AG and Toyota Motor Corp., is seeking to make parts such as landing gear for Airbus Group NV and Boeing Co. after passenger vehicle sales in India fell for the first time in a decade. Signs of a recovery in vehicle demand in the U.S. and Europe have helped its shares more than double this year, making it the best performer among 83 global metal casting and fabricators in a Bloomberg index.

“The non-automotive sector takes you into defense and engineering which are strong performing sectors,” said Mitul Shah, an analyst at Karvy Stock Broking Ltd. in Mumbai, who recommends buying the stock. “The U.S. and Europe have been growing for the last one and a half quarters and we expect a recovery in domestic commercial vehicle sales next year.”

Photographer: Prashanth Vishwanathan/Bloomberg

Bharat Forge Ltd. is controlled by billionaire Baba Kalyani.

Non-Auto Opportunities

The company will focus more on exporting aerospace components, though it will also make some parts for the domestic industry, Joglekar said.
Among the key target sectors for Bharat Forge in the non-automotive segment are the aerospace and oil & gas industries, according to a research report published by Credit Suisse Group AG on July 7.
The company plans to generate $100 million each from energy, transportation and construction, and expects to more than double the revenue from these non-automotive segments to $500 million in four years, Credit Suisse analysts Jatin Chawla and Akshay Saxena wrote in the report.
“There are opportunities,” Joglekar said, referring to the projections in the report. “We are capable of generating it, but we can’t say it is our target.”

Demand Slump

Passenger vehicle sales in India climbed for a second month in June, signaling a pick up in demand in Asia’s third-biggest car market. Deliveries declined 6.1 percent to 2.5 million units in the year ended March 31, the biggest drop since 2002. Truck deliveries fell for a second straight year.
The auto sector accounted for about 60 percent of Bharat Forge’s revenue last fiscal year, while exports generated 65 percent, according to data compiled by Bloomberg.
Revenue from the non-auto segment is likely to surpass that from the auto industry in about three to four years, Rajinder Singh Bhatia, chief executive officer of the aerospace unit at Bharat Forge, said in an interview in Mumbai separately. The company is looking at partnerships with manufacturers such as Boeing, Safran SA and Rolls-Royce Holdings Plc, he said.
“It is always a tough journey to qualify, but once you are there, you are in it for a very long time,” he said.

Profit Doubles

Shares of the company have surged 119 percent this year to 720.05 rupees as of 10:28 a.m. in Mumbai, compared with a 22 percent advance in the benchmark S&P BSE Sensex (SENSEX) index. The market value of the company is about $2.8 billion, according to data compiled by Bloomberg.
Bharat Forge, incorporated in 1961, first began commercial production in 1966 and started exports to Europe in 1985. It later expanded its markets to Japan, the U.S. and the U.K. after India opened its economy to foreign investors in 1991, according to the company’s website.
The Kalyani Group is engaged in infrastructure development in India and has plans for a special economic zone in Pune, according to the group’s website.
Bharat Forge’s net income more than doubled in the three months ended March 31 to 1.2 billion rupees ($20 million), beating the 950 million-rupee median of 13 analysts’ estimates compiled by Bloomberg. The company may report a 1.2 billion rupee profit in the quarter ended June when it announces its results July 30. Of the 34 analysts tracking the company, 23 recommend buying the stock.
The company, which plans to invest 1.5 billion rupees in the year that began April 1, is currently utilizing about 70 percent of its capacity, Joglekar said.
“Since there’s still headroom, we don’t have major capex plans,” he said. “Depending on the overall demand we see, capacity utilization should improve.”