Corporate: Bharat Forge(s) a global niche

The company's investments in state-of-the-art manufacturing and
R&D could help catapult it into the international vendors' league.

Seven years ago, when Baba Kalyani, Chairman of the Pune-based Kalyani Group, okayed the move to import a state-of-the-art Weingarten line for the group's flagship, Bharat Forge, his critics laughed. Sure, the gargantuan 16,000-tonne line could churn out 30,000 tonnes of forgings per annum. Admittedly, the speed was impressive: it converted a lump of metal into a fully-finished front axle in just 52 seconds. But what the critics failed to understand was why a Rs 258-crore company would spend Rs 120 crore on a new line when the commercial vehicle market-its primary customer-was 75,385 units-small.

In March, 2000, the 51-year-old Kalyani commissioned another Weingarten line at a cost of Rs 145 crore. This time around, though, nobody is laughing. Since 1993, Bharat Forge has upped its turnover from Rs 258 crore to Rs 530 crore, more than a fifth of which comes from exports to global commercial vehicle-manufacturers like Mercedes-Benz and Volvo.

Bharat Forge is now the world's only company, apart from Gerlach Krupp of Germany, to have two Weingarten lines. Its capacity has gone up from 71,000 tpa to 102,000 tpa, taking it ahead of global players like Sumitomo Metal, United Engineering Forge, and Sifco Do, all having capacities ranging between 70,000 tpa and 80,000 tpa.

Bharat forge's global strategy

1) Focus on niche products (engine and axle components) such as crankshafts, steering knuckles, and arms
2) Make strategic investments in state-of-the-art equipment, both for forging as well as machining of components
3) Enlarge exports to include at least a dozen vehicle-manufacturers, and become a preferred supplier to half of them
4) Increase value-addition of products by supplying machined forgings rather than raw forgings
5) Automate design and development of dies to reduce new product development time from six weeks now to 48 hours

Is Bharat Forge going to be India's first auto components giant? Says Larry Yost, 61, CEO of Meritor, Bharat Forge's us-based customer and a heavy-truck axle assemblies supplier: ''It is already a leader in the global forgings industry and, in three years, I see it emerging as an auto components major.''

That's a big pat on the back coming from a key customer. And deservedly so. For, Kalyani is focusing on the value-added niche markets of engine and axle components. Already, Bharat Forge dominates the domestic market for these components, thanks to its world-class manufacturing capabilities. Kalyani wants to take the business global. ''We want to be specialists in these two areas worldwide,'' he says matter-of-factly.

With vehicle-makers merging capacities globally, there is pressure on the vendors to consolidate too. Modest rates of growth in North America, Europe, and Japan are forcing companies to make their cars and trucks not just technologically superior but also cheaper. In the vendor-heavy auto industry, pressure is mounting on suppliers to reduce costs year on year. Says Dinesh Munot, 51, CEO, ZF Steering: ''Some players like Bharat Forge have developed the capacity, quality, and cost requirements of global auto-manufacturers.''

But suppliers can expect tierisation to become sharper. Eventually, manufacturers will want to deal only with a handful of Tier-I vendors who supply fully built-up modules. In the race to consolidate, the average Indian vendor will fall by the wayside, unless he shores up capacity, technology, quality, and cost. The Weingarten lines, then, are Bharat Forge's passport to the industry's would-be Olympics. Says stock analyst Debashis Basu, 39, CEO of KenSource Information: ''Bharat Forge has the size, it has the scale, and it is well-positioned to exploit the global markets.''

Step one of the company's strategy is to become original equipment (OE) supplier to 15 vehicle manufacturers and global auto component majors like the $4.5-billion Meritor and the $4-billion Dana Corporation, both based in the US. It already supplies to seven auto component majors, including Volvo, Mercedes-Benz, Lister Petter, New Holland Ford, Caterpillar, Dirona, and Mitsubishi. And it is not low-tech items which the company exports. It supplies steering knuckles for Volvo's heavy trucks, camshafts for Mercedes-Benz's a-Class cars, and rocker levers for Caterpillar's Class-8 engines. Two more US-based companies, Cummins Engines and Perkins Engines, are expected to put Bharat Forge on their vendor list by September, 2000. Admits U.V. Patel, 59, CEO, Ahmednagar Forgings, the third-largest player: ''Bharat Forge is way ahead of any other company in India in technology and capacity.''

At the moment, export earnings are modest at Rs 115 crore. However, Kalyani is not discouraged. What he's looking at is a preferred supplier status with industry bigwigs. Typically, it takes five years of strong performance for a vendor to graduate to the preferred league.

Also, vehicle-manufacturers insist on trying out more than one component from the vendor to see if capabilities of quality, cost, and delivery are generic. ''Once you have five to six components in your basket, you can become a preferred supplier,'' notes Kalyani.

For the past year, Bharat Forge has been a preferred supplier to Meritor. This fiscal, it will be shipping Rs 100 crore worth of front-axle beams and steering knuckles to the company. Should Volvo and Mercedes give the company preferred supplier status, Bharat Forge's exports will grow, Kalyani says, by another Rs 320 crore, with Mercedes accounting for Rs 200 crore.

Since most new auto manufacturers in India are transnationals, the company is trying to leverage its local relationship with them to catapult itself on to their global suppliers' list. Apart from Tata Electric and Ashok Leyland, Bharat Forge also supplies to Tier-I vendor Tata Cummins. And Kalyani hopes to convince Tata Cummins' US-based parent, Cummins Engines, to source crankshafts and connecting rods from his company. In India, the Cummins joint venture buys around 60,000 of each per annum. ''It's only a matter of time before we start supplying to Cummins Engines,'' says a confident Kalyani.

Indeed, from his corner-room at the corporate office in Pune, Kalyani can, perhaps, already see a narrow dirt road forking out to Detroit.