Sanghvi Forging & Engineering Ltd Management Discussions.

Global Economic Overview

During CY 2017, the global economy strengthened and gained sight to improve long-term sustainability.There was a rebound in the economic activities in CY 2017 as the economy grew from 3.2% in 2016 to 3.8% in 2017. An unseen growth since 2011, it was primarily propelled by increase in economic activities, spike in global demand and positive financial markets. The inflation rate remained subdued in advanced economies while plummeted in the emerging economies and developing markets like Brazil and India. Most of the countries across the world experienced growth during the year expect some countries like Libya, where growth was offset by socio-political instability.

The rise in the growth of global economy could be more accredited to modest growth in the advanced economies than to the robust growth in the developing economies. The global economy grew in the backdrop of uncertain political environment, increasing the possibility of dispersion in the expected growth. The economy is expected to grow at the rate of 3.9% in CY 2018 and remain consistent in CY 2019. Additionally, the growth is expected to remain negatively skewed in the medium and long term especially for advanced economies, where the rising age of population sets in thereby decreasing the overall inefficiency of the economy at large.

(Source: IMF)





















Markets and
(Source: IMF)

Indian Economy

Due to the fading effects of demonetisation and introduction of new tax regime, Goods and Services Tax, the economy experienced a cyclical growth during FY 2017-18. The growth started off at the rate of 5.7% in the first quarter and eventually increased to 7.7% in the last quarter thereby summing up at average of 6.7% listing India again among the fastest growing economies of the world.

During the year, the economy recorded a rise in per capita income to Rs.1.3 lakh per annum from Rs.1.1 lakh indicating a rise in the standard of living. Additionally, the retail inflation declined to 3.3% and rupee gained strength against dollar for the first time in last seven years.

Several governmental initiatives such as ‘Make In India, ‘Digital India, ‘Skill India, and ease in FDI policy assisted the country in stepping up in World Banks Ease of Doing Business Rank by 30 positions.

The economy is expected to grow at 7.4% in FY 2018-19, owing to the rebound in the economic activities and positive affects of the reformations like Goods and Services Tax. Continuing on the growth trajectory, the countrys GDP is expected to touch the $5 trillion mark soon. Initiatives by the government would help the country in gaining grounds in the global market. India is expected to overtake Japan and be the 3rd largest economy by 2028. (Source: The Economic Times

Global Forging Industry

The global forging market is expected to expand at an an-nualised rate of 4.4% from 2017-25 and reach a valuation of $96,433.7 million by 2025.

Forged metals are majorly used in capital-intensive industries such as automotive, aerospace, factory automation and defence, owing to its high strength and reliability than any casting metal. The low cost factor of metal forging over other processes adds to its advantages.

There are three segments of global forging markets: closed die, open die and rolled rings. The excellent performance and finish of products obtained using closed die is resulting in a greater market share of the segment. Custom forging leads the market by capturing around 60% of the volume of the market in 2016. It relies mainly on closed die forging than on open die forging.

The automotive industry utilises more than 60% of the forged metals produced annually across the metal. Therefore, the development of automotive industry leads to development of forging industry.

In terms of geography, the global forging market is segmented into North America, Europe, Asia Pacific, Latin America, and the Middle East & Africa. As of 2016, the Asia Pacific led the market with more than 55% share. In the coming years, the region is expected to display the leading growth amongst other key regions.

The growth of the region is mainly propelled by the development of automotive and construction industries.

The emerging economies of Asia Pacific are the leading consumers of the forged metal owing to the rising urbanisation and industrialisation resulting in need of infrastructure and convenience. The international markets are dominated by well-entrenched players due to the capital intensive nature of the global forging markets. This poses a challenge for the small players who have to compete with large players in terms of quality, features and services.

Raw-material wise, the global forging market can be divided into the segments including aluminium, magnesium, copper/brass/ bronze, low-carbon & low-alloy steels, microallo/HSLA steel, special alloy steel, stainless steel, nickel-base superalloy titanium, refractory metal, beryllium, and zirconium.

The automotive industry utilises more than

60 %

of the forged metals produced annually

Indian Forging Industry

India is the third-largest manufacturer of forging globally, after China and the European Union. During the year under review, the turnover of domestic forging industry has been estimated to grow by 12% at around Rs.35000 crore as compared to Rs.31200 crore in the previous year. The total production increased from 23.98 lakh tonnes in FY 2016-17 to 25.24 lakh tonnes in 2017-18.

During FY18, the industry opened on a robust growth. Opposite to the usual trend of low production during April-May, the industry experienced a higher demand in the first quarter, owing to rise in the sales of automobiles.

For a short term, the forging industry was facing issues pertaining to input tax credit and documentation, increasing working capital and vagueness in processing returns. The Association of Indian Forging Industry (AIFI) expects some action on the subject from the government. It stated that no action on the part of government could lead to challenges for the industry in the long run.

The inadequate supply of steel and its rising prices limit the growth of domestic players in the global markets. The price of steel is estimated to grow by 26% to Rs.47740/ tonne within a period of one year. Although the prices of steel went up across the globe, the surge in India was steeper thereby weakening the export competitiveness of the domestic players in the global markets.

The industry faces the challenge of out dated technology especially in the small and medium enterprises. Such enterprises are need of government assistance for technological upgradation and interest subvention.

The domestic forging industry is expected to grow at the rate of 10% in FY 2018-19 and rise in due course of time. The rising demand for automobile would directly result in growth of the domestic forging industry.

India is the

3rd largest manufacturer of forging globally, after China and the European Union.


India has a colossal defence industrial base with 41 Ordnance Factories (OFs), 9 Defence Public Sector Undertaking (DSPUs) and more than 100 private companies. Indias premier defence research organisation, Defence Research and Development Organisation (DRDO) has over 50 laboratories under its authority. Indias has the third largest armed forces in the world. The country is one of the major importers of weapons with around 14% share in total global imports of arms made until 2016.

The rise in the defence budget since past two decades has been astounding. During 2000-10, the defence budget allocation increased by three-fold from Rs.58587 crores to Rs.141781 crores while in 2015, the allocation rose to Rs.222370 crores. In 2017, the country stood at 4th position among the largest defence spending countries across the globe.

For the coming year 2018-19, Out of a total outlay of Rs.24,42,213 crore, around 12.10% has been allotted by the government as the defence budget .Indias defence budget has been increased by 7.81% to Rs.2.95 lakh crore as compared to the budget allocation of Rs.2.74 lakh crore and revised estimates of Rs.2.79 lakh crore in 2017-18. The budget allotted would unlikely meet the operational need and capability development programmes for the defence services.

Out of Rs 2.95 lakh crore, Rs 1,95,947.55 crore has been allocated for revenue expenditure and the rest, Rs 99,563.86 crore for capital expenditure for defence services and other departments under Ministry of Defence. The capex also includes the expenses to be incurred in upgradation of existing technology. An amount of Rs.1,83,853.30 crore has been additionally provided for incurring expenses on defence pension.

(Source: Nishith Desai Associates, Economic Times)

Indias has the During 2000-10, the defence budget allocation has tripled 3 from rd largest armed forces in H58587crores to the world.


Oil and Gas

India is the third largest consumer of petroleum products following US and China and the second largest refiner in Asia. Oil and Gas sector is one of the six core industries in India, playing a critical role in driving the growth of the economy. The country has also been inclined towards importing Oil and Natural Gas (“O&NG”) to satisfy the existing demand.

Lately, the industry has been noticing cyclical growth in consumption owing to the rising economy and population of the country.

(Source: Oil and Gas financial journal, Make in India)

The total crude oil production stood at 35684.34 TMT, slumping by 0.9% as compared to the production in the previous year. However, during the same period, the production of natural gas rose by 2.36% to 32649.30 MMSCM. The demand for oil has plummeted to 0.6 barrels per day owing to the shifting trend towards consumption of natural gas than oil.

(Source: Ministry of petroleum & Natural Gas)

The demand for fuel and its products grew at the rate of 5.3% from 195 MT in FY 2016-17 to 205 MT in FY 2017-18 while the demand of petrol grew by 10.14% to 26.17 MT. There has also been rise in the diesel consumption by 6.63% to 81 MT as compared to the previous year.

(Source: Economic Times)

The demand of oil is expected to surge at the rate of 3.6% to 458 MTOE by 2010. The demand for energy is expected to double by 2040 and is expected to be five during the same period of time. The demand for petroleum products and natural gas is expected to reach 244,960 MT and 606 MMSCMD respectively by 2021-2022. (Source: IBEF)

General Engineering Tool Steel

India is net Importer of Tool Steel used in Machine Building And Engineering Sector with our World class Polymer Quenching facilities. We have Focused and entered this market.

We have Indias biggest Polymer Quenching Facility with capacity to handle single piece of 40 Metric Tonne.

Going Forward We focus to replace the market with Domestic Products in Segment.

Company Overview

About the Company

Sanghvi Forging & Engineering Limited is one of the fastest growing forging company in India. Starting from 1989, the company is working hard to meet all the challenges for forged prod-times its current position ucts and has been successful in achieving several milestones. The company has established itself as a leader in supplying forged products for core sectors in various grades of steel. Recognised for its quality, the company has strived to deliver better products by using state of art technology over the years.


• Market Focus

Strong Management commitment to quality of products and services

• Wide range of product mix (Hollow Forging)

• Metallurgical Capabilities to handle challenging grades/ steels

State of the Art equipment


• Current Focus of Government on localization, Indigenization & Make in India campaign especially for defense sector.

• Reliability, Sustainability of equipment.

• Strengthening system of Learning from failures.

• Market potential in varied sectors

• Convert technical capabilities into customer delight.

Financial Performance

Profit and Loss Statement Analysis

(H in Lacs)






Revenue from




Employee Benefit




Finance Costs




Other Expenses












The turnover of the company decreased by 5.37% to Rs. 5663.30 lacs in FY 2017-18 as compared to Rs.6232.25 lacs in previous fiscal year. On the other hand, other income showed a signifi -cant increase to Rs. 102.08 lacs in FY 2017-18 from Rs. 13.50 lacs in FY 2016-17. Due to an increase in expenses including finance cost, employee benefit expenses and other expenses, the company suffered a Net loss of Rs. 2310.08 lacs during the year under review.

The Company faced liquidity constraints rendering its account as NPA in November 2016.

We are working closely with our Bankers for the Resolution for the same.

Human Resource Capital

The Companys innovative human resources management strategies supported business in a challenging economic environment. Strategic talent acquisition and performance management are key to ensure diverse and competency – driven workforce.

A working environment where performance is rewarded; employees are respected and opportunities are made available to release there potentials in creating a performance oriented culture. Several HR initiatives have been started to improve employee engagement and organisational performance.

To enhance employee engagement and to work towards employee satisfaction. In addition, stabilization and revision of various policies and process improved operational excellence. The Company recruited talented professionals (employee strength XXXX as on March 31, 2018) with an emphasis on training and development. Investments were made to upgrade the facilities available to employees. This has resulted in the maintenance of harmonious relations with its employees.

Risk and Concerns

The Company considers good Corporate Governance as pre-requisite for meeting the needs and aspiration of shareholders and other stakeholders in the Company. As part of the Companys efforts to strengthen Corporate Governance, the Board of Director has formulated Risk Management policy, which puts in place Risk Management structures with a clear definition of roles and responsibilities, as well as risk portfolio involving a continues process of Risk identification, - risk assess ment, control assessment and risk monitoring, review and communication. The Company aims to:

• Identify, assess and manage existing as well as new risks in a planned and coordinated manner.

Increase the effectiveness of the Companys internal and external reporting structure.

• Develop and foster a “risk” culture within the organisation that encourages all staff to identify risk and associated opportunities and respond to them with appropriate actions

Internal Control Systems and their Adequacy

The Company has appropriate internal control systems and procedures in place with regard to effective utilisation of resources, efficiency in operation, financial reporting and compliance with various rules and regulations.

The implementation of the SAP ECC 6.00 system in 2008 for better control and reliability of the various business and processes was supplemented by extensive audits conducted by the Statutory Auditors.

Key processes including production, planning and accounting are done routinely through the globally benchmarked SAP initiatives. Regular audits are conducted to review the adequacy and effectiveness of the internal controls and suggest improvement, if any, to strengthen the existing system.