Sanghvi Forging & Engineering Ltd Management Discussions.

Indian economy

India is well positioned to withstand near-term headwinds and volatility in global financial markets due to reduced external vulnerabilities, a strengthening domestic business cycle, and a supportive policy environment. With reforms gaining momentum in terms of execution, the growth is expected to strengthen to 7.9% in FY 2017-18. Progress on infrastructure improvements and government efforts to boost investment are expected to offset the impact of any tightening of borrowing conditions resulting from tighter U.S. monetary policy. Such investment will also lift potential growth over the medium term. Low international energy prices and domestic energy reforms will ease energy costs for Indian firms that tend to be energy intensive

Global Forging Industry

Global forging market to exhibit a healthy CAGR of around 8% during the forecast period. Forging is an appropriate substitution to the casting methodology as it ensures greater efficiency, reliability, and precision. Custom forging accounts for the largest segment. In North America, this segment achieves sales figures worth $6 billion annually.

Some of the major end-users of the forging industry include automotive, aerospace and defense, agriculture, construction, mining, general industrial equipment, and material handling equipment.

It is expected that the aerospace and aviation industry is one of the top end-users in the forging market, as forged components are featured heavily to create commercial and Defence aircrafts. In the coming years, there will be an increase in the demand for materials with high-level strength-to-weight ratios. Most of the forged components used by the industry now are for bulkheads, wheels, beams, brake carriers, and hinges.

Although not as highly affected as other industrial sectors, the forging market has seen changes as a result of the instability regarding the price of oil and gas. Despite the oversupply in many OPEC nations, rehabilitation of gas treatment plants and power plants still are very much continuing, especially in the Middle East. Experts predict that the global crude prices will improve by mid-year.

Indian forging sector

The forging sector continues to be an integral component of the country’s manufacturing sector. With most of the capital intensive and manufacturing sector requiring forging components, the sector continues to ensure sustained growth in coming years. The size of the domestic forging industry stands at 37.7 lakh tonnes per annum, with several recognised players. Forging Production in India is likely to grow at CAGR 9.5 percent for the period of 2015-18 and to reach to 29.7 Lakh MT in 2017-18 as against 22.5 Lakh MT during year 2014-15. Over Medium and long term growth in the forging industry will be higher than the automotive industry growth and make in India initiative will lead to have positive impact on industry producing equipment for defense, aerospace and railway sectors.

Government of India emphasis on defence, aerospace equipment as a part of ‘Make in India’ campaign to encourage manufacturing and attract foreign investment has led many companies to seek licence to make defence & aerospace equipment locally. This will open more business opportunity for the domestic forging Industry. The industry continues to address the growing demand from global countries, as India continues to be the preferred destination for global companies. High quality, Engineering Expertise and competitive prices have resulted in several companies outsourcing their forging needs to

India, resulting in significant exports in recent times.

Consumption market

The lions share of the forging industry is by the automotive sector, accounting currently for 61% of the industry revenue, while remaining is by the non-automotive sector. With upgradation of technology, the industry players are now diversifying their market reach to sectors like aerospace, energy, oil & gas, heavy engine parts, defence construction equipment, power generation, power transmission, transmission & distribution among others.

Make in India initiative

The initiative has certainly given a boost to the country’s manufacturing sector, with positive business sentiments.

A strategic marketing effort and initiate of Government, has put the country on global map. India’s manufacturing sector has evolved through several phases - from the initial industrialization and the license raj to liberalization and the current phase of global competitiveness. With the expected reforms, the country is expected to emerge as third-largest economy in the time to come.

Company Overview

Sanghvi Forging and Engineering Limited is among the leading players in heavy Forging and engineering products. Headquartered in Vadodra, we are among the few players to manufacture a wide-range of forging products.

Sectoral presence

• Power Defence

• Oil & Gas

• Ship Building

• Machine Building

Business strategy

With our expanded capacity, we are at a capacity of 18,600 MTPA, we are one of the leading forging companies in the country. Our operational excellence extends towards producing products from a minimum of 1 Kg. to a maximum of 40 MT - a range which gives us a unique competitive advantage. Our expanded capacity backed by state-of-the-art technology gives us a two-fold advantage; One, the ability to produce products of most complex nature with higher margins; Two, provides access to new clients across new business the world, ensuring diversification sectors. Your company is catering domestic as well as international markets such as such as Indonesia, Italy, Malaysia, South Korea, Canada, Germany, France, the Netherlands, Kuwait, UAE, UK, Australia, USA etc.

The Company is having strong business relationship with clients like Nuclear Power Corporation, BHEL, Godrej & Boyce, L&T, Indira Gandhi Centre for Atomic Research and Defence Research Development Organisation, PDIL etc. and internationally, National Oilwell Varco, General Electric, Voith, Andritz, Quality international, WEG etc. The Company is expecting potential increase in demand of its products from existing Clients.This will turn in to increase its capacity utilization.

Growth in sectors i.e. Defense, Space, Oil and Gas, Power, Heavy Engineering, Ship Building, will continue to rise. The demands of our forging products both in domestic and international markets will continue to grow and this will in turn to aid to operate at high efficient level.

Opportunities & Threats

The Government of India has outlined a fine print with the ‘Make in India’ initiative, putting the focus back on the manufacturing excellence in the country. In addition, the proposed reforms have also provided the much needed impetus to boost the sector. The proposed investments in infrastructure, defence and energy sectors will further lead to demand for our products. Our wide product range strengthens our competency to address a diverse set of clients, in domestic and global circuit. While the optimism persists, there are certain threats which continue to pose challenges in our growth trajectory. Some of them being:

Currency volatility: Depreciating currency has been a challenge in our business operations in recent times. While it creates a comfort in exchange earnings with export difficulty of increased cost sales,italsoputsforwardthe pressure and rising input costs.

Market uncertainty: Lack of application of reforms does affect the future sustainability. However, with India registering the highest ever quarter growth and emerging as fastest growing nation in the world, there seems to picking up growth in various manufacturing industry.

Rising costs: With volatility in raw material prices, there are sustained challenges in regard to the rising inputs costs. In addition, the rising power costs and unutilised capacities add to the overall cost structure, impacting margins and profitability in the long-run.

Operational review

We remained focused on strengthening the core of our business through innovation, focusing on market development and improvement of our operational excellence. As the market conditions remained challenging, our books of accounts did have an effect of the same.

The subdued demand, led to unutilised capacities, and increased operational costs, which affected our margins and profitability.

Competitive advantages

Quality: Our plants and manufacturing sites are benchmarked with international quality and certifications.

This helps us to meet the demands of discerning global clients.

Product profile: We have the ability to produce a wide range of complex engineering and forging products, makes us a preferred vendor for some major domestic and global manufacturing companies.

Technology: We have invested more than H 150 crore in last five years in setting up and modernising our technology.

Presence: We generate around 30% of revenues from exports, reducing our dependence on the Indian geography. Today, we are presentin more than 20 countries across the globe.

Scale: We are one of the largest open die forging companies in India with a total capacity of 18,600 MTPA


We expect to leverage our core strengths and drive towards building a sustainable future. Expanded capacities, niche product profile and increasing market presence, our expected to push the Company to new scales of success.

Approvals Certifications
SGS ABS PED 97/23/EC TUV Rheinland

Risk & Mitigation

The Company considers good Corporate Governance as pre-requisite for meeting the needs and aspiration of shareholders and other stakeholders in the Company.

Aspart of the Company’s 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 continuous process of Risk identification, risk assessment, 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 Company’s 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 andprocedures 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 businessand 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.

Discussion on Financial Performance with respect to Operational Performance

Your company has reported total operational revenue of Rs. 6930.48 Lacs as compared to 8737.61 lacs in previous year. And profit after tax stood to Rs. (998.70) Lacs as against Rs. (794.70) Lacs in the previous year.

The result is due to the reason of overall slowdown in the economy and global recession specifically in the oil and gas sector from which greater portion of revenue of company generated. We believe that our company is well-equipped by required resources and backed by necessary expertise.

Being optimistic the resources and efforts will result in the performance.It will improve the capacity utilization and profitability.

Exports showing continue growth and it raised to Rs. 1992.91 lacs from Rs. 1541.21 Lacs in the previous year. We are also expanding our markets by entering into new countries.

Development During the year

During the year your Company added to its box few more approvals from leading Indian strategic and Defense sector organization i.e. DRDO, SAIL, HEMRL,NPCIL, HAPP, MDL etc. and also started forging of critical part and critical material like Nickel alloys and copper alloys. The Company has successfully executed orders requiring critical forging having strategic applications.

Financial Performance

( Rs in lacs)
2015-2016 2014-2015
Total Revenue 6930.48 8737.61
EBITDA 1466.69 1625.47
Profit After Tax -998.70 -794.70
EPS -7.10 -5.85
Revenue Break-up % (Operational)
Domestic 71 82
International 29 18
Revenue Break-up (Operational)
Domestic 4842.38 7172.02
International 1992.91 1541.21

Developments in Human Resources

The Company’s strategy for innovative human resources management is supporting business in a challenging economic environment. Hiring strategically a talent who fit to the company’s present condition and future goal is key to ensure diverse and competency – driven workforce. The company is having good working environment where performance is rewarded; employees are respected and opportunities are made available to release there potentials in creating a performance oriented culture. Number of initiatives by HR Department is carried out to engage the employees into different activity other than their routine job in the organization to create a family type atmosphere in the company. The Company has recruited talented professionals and under their guidance exposure is being provided to the young blood with an emphasis on training and development with an aim of building a dynamic team. An investment has been made to upgrade the facilities available to employees to harmonious relations with employees. There were 249 people employed in the company as on March 31, 2016.