Auto slump: Forging cos looking for alternative markets

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Hit by demand slump from the auto sector, the domestic forging industry is gradually reducing its dependency on the sector by diversifying into other segments. (Reuters) Hit by demand slump from the auto sector, the domestic forging industry is gradually reducing its dependency on the sector by diversifying into other segments. (Reuters)
SummaryHit by demand slump from the auto sector, the domestic forging industry is gradually reducing its dependency on the sector by diversifying into other segments.

Hit by demand slump from the auto sector, the domestic forging industry is gradually reducing its dependency on the sector by diversifying into other segments.

"We are trying to diversify and bring down our dependency on the automotive industry so that we don't get affected by its (auto sector) periodical and cyclical ups and downs," Association of Indian Forging Industry (AIFI) president and managing director of GSB Forge M Babu Rao said.

The USD 2.8-billion industry is working towards this goal, he said, adding the domestic auto industry currently accounts for 60 per cent of the forging industry's output and the objective is to reduce this dependence to 50 percent or below even over the next two to three years, he said.

Amidst the slowdown in the auto sector, the order book from the segment shrunk 20-25 per cent in the last quarter, as against the corresponding quarter of the previous fiscal, he said.

The auto industry body Society of Indian Automobile Manufacturers' (SIAM) data suggest that the auto sector, which had grown 30 per cent for the past three years, is going through a slowdown, growing between 5 and 10 per cent in different segments.

Energy, oil and gas and engineering are the other segments which contribute in industry's revenues.

"Some of the major players have already diversified their portfolios to oil and gas and energy sectors to improve their bottomlines," Rao said.

The domestic forging industry, which clocked an 18 per cent growth last fiscal with its total output at 2.8 million tonne, could just manage 13 per cent in the last quarter and "now waiting for a turnaround to take place," Rao said.

"But that will happen only when the government seriously addresses problems of the industry, like costs, duty and tax structure as well as VAT," Rao said.

The sector is aiming to achieve 4 million tonne production annually by 2014.

The steadily-rising raw material prices, coupled with a massive hike in fuel prices in the past few years and a 60 per cent increase in power tariffs since April have had a direct bearing on the industry's growth with some of the small and macro units opting out of the business as they could not sustain the sagging bottomlines, Rao said.

The problems in coal supply have also impacted the industry, he added.

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