The recent slowdown in the automobile sector has hit the Indian forging industry hard. The turnover of the forging industry, which is heavily dependent on the auto sector, is expected to drop by $1 billion (Rs 5,000 crore) in the ongoing financial year. Not just that, 50,000 people are also likely to lose their jobs during the period.
Owing to the slowdown, the forging industry, which employs around 250,000 people, has put brakes on its expansion plans. This industry consists of around 1,250 units with a combined annual capacity of around 1.5 million tones. Nearly 70 per cent of the industry’s production is meant for the automotive sector and the balance is sold to the makers of valves and power sector, mining, oilfield and engineering equipment.
Speaking to the Business Standard, Association of Indian Forging Industry president and M M Forgings’ Managing Director Vidyashankar Krishnan said, “In 2007-08, the industry’s turnover was $3 billion (Rs 15,000 crore). This is expected to drop by 30-40 per cent in 2008-09 since auto majors have slowed down their procurement and are sitting on huge inventories.”
Surveillance of the forging industry, which had been witnessing 20 per cent CAGR (compounded annual growth rate) growth for the last four years, has become a question now, Krishnan said.
He noted that in the traditional belts of Pune, Rajkot, Chennai, Coimbatore, Bangalore, Ludhiana, Jalandhar and Faridabad, over 50 forging units have pulled down their shutters in the last four to five months. Around 20,000 people have lost their jobs and by the end of the current financial year, another 30,000 people are likely to be laid off as more units are on the verge of closure.
The western region is largely dependent on companies like Tata Motors, Bajaj Auto, Mahindra Group & Force Motors. The demand during the downturn varies between 35 and 40 per cent. However, with tier-I suppliers, the drop in requirement is as high as 95 per cent as they also source the parts on behalf of their parent companies locally. The reduction in off-take for forging units is hence in the vicinity of 65 per cent.
Krishnan added that the industry players have called off their planned investment to the tune of Rs 2,000 crore due to the slowdown in orders. There are many companies that borrowed money to meet their fund requirements for capacity enhancement and upgrade. Since banks are not willing to lend money, they are now finding it difficult to pay EMIs and meet repayment schedules, leading to large number of defaults.
Krishnan said that loan repayment period should be increased by three years. It would also help if the Reserve Bank of India relaxed NPA norms to cushion companies, he said.
