The Annual Report containing the Directors' Report and the audited accounts for the year ended 31st March 2005 has been with you for some time and, I am sure, you have had the opportunity to peruse them.

What is attracting the world to India? India is the fastest growing free market democracy in the world. We posted GDP growth of 8.5% in 2003-04 and followed that with a 6.9% growth last year. According to the A. T. Kearney FDI Confidence Index Annual Survey of October 2004, India nudged the US to become the second most attractive FDI location for manufacturing. China and India have been mentioned as the most attractive FDI destinations in the short term, that is the next 3 years, and are rated ahead of Brazil, Mexico and Poland in the medium term.

Manufacturing sector recorded an impressive growth of 9.2% in 2004-05 and this was to a significant extent driven by exports. I am confident that with continued support from the Government, Indian manufacturing can become the next big Indian success story and could even outperform the services industry.

India is fast gaining eminence as a "knowledge capital" of the world. We are being perceived as an emerging global R & D hub for a range of industries. 100 of the Fortune 500 companies besides other global corporations have set up engineering, design and R & D centers in India. On the consumer front, India ranks as the most optimistic market in Asia. 50% of our population was born after 1982 and this constitutes a large, young, English speaking, highly skilled and active workforce - an advantage that no other country, including China, can match. Add to that the amazing innovative spirit of Indian entrepreneurs and you have a country that is ready to take on the world!

Your company is proud to be actively participating in our country’s evolution as a leading economic power of the 21st Century. With six world class manufacturing locations spread across India, Germany, and the US, we have created a global footprint that has a local presence in each of the three major markets of Asia, Europe, and North America. Today Bharat Forge’s success is widely regarded as the benchmark for Indian manufacturing industry. We will continue to work hard and contribute to our country achieving a position of global eminence in manufacturing.

Growth in the domestic market is also supporting higher demand for auto components. Last year production of passenger cars and utility vehicles crossed the 1 million mark for the first time. India is close to finding a place in the world’s Top 10 automobile producing countries. Several major automotive manufacturers have announced major investments in creating new capacities. Auto component exports will be driven through a combination of direct exports to OEM’s and Tier 1 suppliers and by the presence of global players who have set up production facilities in India.

Several American, European and Japanese vehicle manufacturers have initiated large sourcing programmes from India. General Motors the largest automobile manufacturer in the world for example, would be sourcing components worth about US$ 1 billion from Indian companies in the next 3-4 years from the current level of US$ 120 million. These developments are resulting in:

• Large investments by companies – according to ACMA, investments in the Indian auto component industry in the current year alone would be to the tune of US$ 1 billion.
• Consistent growth in exports – exports in 2004-05 were estimated to be at US$ 1.4 billion. If embedded components in CBU exports are included, actual export of components would be about US$ 2.5 billion.

Exports have been growing at about 35% per annum and despite the slow down in the global economy, we expect long-term growth to continue. I believe that there is a real opportunity for India's exports of automotive components to grow to US $ 20-25 billion by 2015 which would propel us to "Top 2" position among Low Cost Countries in this industry.

Your company is at the forefront in contributing to make “Made in India” a global brand in the automotive industry. We have been country’s largest exporter of automotive components for the past four consecutive years. We are suppliers to virtually every global automotive OEM and to most Tier 1 suppliers to the industry. Almost every vehicle that is manufactured in the world carries a “Made by Bharat Forge” component. We are now the second largest forging company in the world that is aspiring for global leadership in the next 1-2 years. When that happens we will be the first company in India Inc. to have scaled such a high pinnacle. For my colleagues and me, the journey of the past few years has been exhilarating and I would like to affirm to Members our determination and commitment to achieve our goal.

2004-05 was an action packed year for Bharat Forge in which we turned in a stellar performance. Various strategic initiatives that included raising of resources, capacity expansions, establishing a global footprint through acquisitions etc. contributed in making the year a highly eventful one for us.

Our Annual Report has been with Members for some time and I am sure that you would have perused it. With your permission therefore, I will only highlight the key aspects of our financial performance.

• Total revenue increased by 44.1% - from Rs. 851.1 crores in 2003-04 to Rs. 1226.5 crores in 2004-05.
• Exports increased by 53.3% - from Rs. 333.1 crores in 2003-04 to Rs. 510.5 crores in 2004-05.
• Profit before depreciation, interest and tax (PBDIT) increased by 29.2% - from Rs. 259.3 crores in 2003-04 to Rs. 334.9 crores in 2004-05.
• Profit after tax (PAT) increased by 29.4% - from Rs. 124.9 crores in 2003-04 to Rs. 161.6 crores in 2004-05.
• Earning per share (EPS) increased from Rs. 32.02 in 2003-04 to Rs. 39.64 in 2004-05 even with the addition of 18,82,914 additional shares through the Rights Issue.

Members would observe that this performance is a significant improvement over our performance in 2003-04 on every parameter.

If the performance of CDP-BF our fully owned subsidiary in Germany is also considered, the performance highlights of the combined consolidated entity are even more notable.

• Total Revenue (net of excise) – Rs. 2001.4 crores.
• PBDIT – Rs. 431.9 crores


• Operating Margin – 21.6%.
• PAT – Rs. 201.1 crores.


• Net profit margin – 10%.
• EPS – Rs. 49.79.
  

Sales outside India now constitute 64% of your company’s total revenues and these will continue to rise as we take further steps to increase exports and implement our inorganic growth strategy. Members may like to view this against the perspective of a global company like General Electric, 90% of whose total turnover of $ 72 billion came from global operations in 2004.

Our performance in 2004-05 ranks Bharat Forge among the best performing companies in Indian industry. I am confident that with this strong platform, we can look forward to consistently higher performance in the current fiscal and beyond. The spectre of rising oil prices and a slowing of the global economy are admittedly causes of concern but I am optimistic that these will not impact our long-term strategies, working and performance.

During 2004-05 your company made two rounds of capital infusion in order to implement its growth strategy. These included:

• A Rights Issue of shares through which we raised Rs. 105.4 crores, the proceeds of which are being utilized to fund our capacity expansion programme at Mundhwa, Pune.
• A GDR Issue of US$ 100 million and issue of Foreign Currency Convertible Bonds in two tranches of US$ 60 million each. The combined proceeds aggregating to US$ 220 million, that is Rs. 960.3 crores, will be utilized :

  a. to further expand our manufacturing operations;

  b. to establish global technology front ends to meet design, engineering and development needs of global     customers; and

  c. to make global acquisitions and investments in forging and auto component companies.
  

I would like to make special mention of the fact that all these issues received enthusiastic response from investors in India and abroad which reflects their confidence in your company and our business. I would also like to complement the diligent efforts of our Finance team for the success of our various fund raising programmes.

In the forging area, we are more than doubling our capacity from 103,000 TPA to 240,000 TPA. This is through addition of state-of-the-art forging press lines of various capacities that will enable us to manufacture products for all market segments.

Our capacity to manufacture finish machined crankshafts is being stepped up from 413,000 nos. p.a. to 650,000 nos. p.a.


Capacity for front axle components is being expanded from 374,000 nos. p.a. to 1 million nos. p.a.

The entire expansion programme requires investments of about Rs. 500 crores, the bulk of which is being funded by a combination of the proceeds of our Rights Issue with attached warrants and External Commercial Borrowings. All the expanded capacities will be fully on stream by the last quarter of the current fiscal. Enhanced machining capacities will enable us to supply customers with higher value added products, move up their value chain and closely integrate with global sourcing networks.

Members may kindly recall that your company had acquired Carl Dan Peddinghaus (CDP), the second largest forging company in Germany in January 2004. The company was renamed CDP Bharat Forge. I am glad to report that under our management we have succeeded in turning around the business of this company, which is now generating satisfactory profit. The financial performance of CDP Bharat Forge is included in your company’s Annual Report.

In October 2004 we acquired another German company, CDP Aluminiumtechnik, a manufacturer of forged aluminium components for hi-end customers like BMW, Audi, Volkswagen, Ford and others. The company is now renamed as Bharat Forge – AT. Aluminium is progressively becoming the preferred material for specialized automotive applications due to its significantly lighter weight that translates into better fuel efficiency. While Bharat Forge already had a strong market presence in steel forgings for commercial vehicles and passenger cars, the new acquisition will contribute in widening our product offering and enable us to provide our customers with a larger bouquet of steel and aluminium components from a single source. This is a unique feature of competitiveness that distinguishes us from all our international competitors.

To further consolidate our global manufacturing footprint, last month we acquired Federal Forge a leading US-based forging company located at Lansing, Michigan, approximately 90 miles west of Detroit. Federal Forge is a technology leader in the design and manufacture of complex hot, forged micro-alloy steel components. The company’s customer base includes leading automotive companies such as General Motors, Goodyear, ZF Lemforder etc. This acquisition enabled Bharat Forge to acquire a strategically important manufacturing presence in the US, the largest automotive market in the world.

Our strategy is to fully leverage our “Multi Shore” manufacturing facilities comprising a mix of large scale, modern and technologically advanced facilities in India and complementary facilities in USA and Germany to provide unassailable value to customers. We are exploring several other opportunities in other countries to strengthen our “Multi Shore” business model and I will be happy to share information with Members at appropriate times in future.

With the acquisition of CDP-Bharat Forge in January 2004 and as Bharat Forge- Aluminiumtechnik in December 2004 we took our first steps towards executing our global strategy. CDP-Bharat Forge and Bharat Forge-AT not only give us business of high value, marquee customers in Europe, but also allow us to have a more varied and comprehensive product mix. In addition to this they give us two world class manufacturing location in the middle of one of our biggest markets, Europe. Our acquisition in the US, now renamed Bharat Forge America gave us a strategic presence in the automotive capital of the world. We can now make more flexible manufacturing choices depending on the comparative advantage of each manufacturing location. Moreover, we can leverage the designing, technical and engineering skills available at our German and US facilities to enhance customer penetration & outsource business to our Indian operations through Dual – shore manufacturing model.

I am happy to inform you that we have laid a lot of emphasis on the integration between Bharat Forge and its global operations. The objective was to bring people from across the world together and create a common understanding of the goals and objectives of our company, and help build strong working relationships to enable quick implementation of our strategic plans. This has improved the effectiveness of our dual shore supply capability quite substantially. Your Company is actively looking out for new acquisition opportunities in important geographies where it believes BFL must have a significant manufacturing presence. BFL will follow a similar integration strategy for these new ventures as well. WeI will, of course, inform you of such acquisitions when they are finalised.

In the next few years you ought to witness significant growth of your Company’s production, sales, breadth of product offerings and profits as Bharat Forge rapidly transforms itself to becoming a ‘full service supplier’ & development partner of power train and chassis components for the global auto market. This will involve Participation in the development initiatives of the customers for their future vehicle platforms.

This process of transformation will bring with it yet another challenge — that of building world-class human resources. Indeed, I believe that this will have to be one of the key priorities of your Company over the next few years. We have already embarked upon this journey. I will now spend some time in explaining our HR strategy.

In my last years speech I had spoken about the in-house product testing and validation facilities that were being set up. I am glad to report that these are now installed and have become fully operational. We can now test final products by simulating actual conditions in order to assess their durability and strength.

In response to global customers preference for suppliers to have technology centers close to their product development facilities, we are setting up a product design and engineering facility in Germany. This will enable us to leverage the high technology skills available at our German operations to deepen customer relationships and pursue our quest for global technology leadership. We will build up strong design and engineering capabilities at each of our global locations in order to provide our customers the highest level of service and support. The company will be deploying considerable resources in the next few years to make this happen.

I had informed Members last year that in my capacity as President of the Association of Indian Forging Industry, we had made a proposal to the Department of Heavy Industries and Public Enterprises, Government of India for setting up a world class R & D center along with product testing and validation facilities at Pune. I am now glad to inform you that our proposal has been approved and the first installment of Rs.11 crores, out of the total Rs. 22 crore grant for the project, have been released by the Department. Government of Maharashtra has provided 5 acres of land at nominal cost in MIDC’s Chakan Industrial Estate where this project will be located. The project is initially being promoted as “Automotive Research Association of India – Forging Industry Division” but within 18 months it will be entrusted to an autonomous institution, “Forging Industry Research Association of India”. The project would greatly benefit small and medium forging companies and support them in their efforts to globalize their business. I view this as Bharat Forge's contribution to our colleagues in the industry.

There is a significant increase in the expectations of a wide range of stakeholders – customers, employees, investors, communities and governments – in regard to a company’s commitment to socially responsible business practices. As a result, corporate social responsibility is becoming a progressively more important component of good business practice.

Bharat Forge is proud of being a socially committed organization and a responsible corporate citizen. We attach great importance to discharging our responsibilities to the community and society where we are located. Our major focus is on supporting pre-school and primary education with emphasis on children in the local community in the age group of 3-14 belonging to underprivileged sections of society.

For the past five years, Kalyani Group companies have been supporting Pratham Pune Education Foundation, an NGO that is engaged in this activity. I am glad to report that through Pratham we have so far touched the lives of over 50,000 children and have contributed in improving their prospects for a better future. While I personally initiated Pratham’s activities in Pune, our partners include a few of the city’s leading corporate houses, the Pune Municipal Corporation and GE Foundation, USA who are generously supporting this worthy cause.

Besides Pratham we also support other NGO’s that are engaged in various social activities targeted to benefit the community at large. For our employees and their families, we run a community center whose focus is to spread greater awareness and understanding about issues concerning children’s education, health, women's welfare and environmental concerns.

During the year, your company and our employees contributed to the Prime Minister’s National Relief Fund to help people affected by the Tsunami disaster.

I would like to re-iterate our strong commitment to good corporate governance. We are continuously striving to improve the quality of our disclosures. Members would have observed that the contents of our Annual Reports over the past few years contain more information about the company and its working.

During the year I have, on several occasions, interacted with groups of business analysts and the media. We have found these interactions useful in communicating effectively with the external environment and in helping them to gain a better understanding about our company's goals, priorities and working. All information about our company is available on our company's official website www.bharatforge.com. I would urge Members to access the website regularly so that you are fully aware about latest developments at Bharat Forge.

I take this opportunity to express my sincere thanks to the government of India, the government of Maharashtra, and the financial institutions and banks for their encouragement and support to our company. I would like to thank our collaborators for their help and assistance.

I sincerely appreciate the contributions of all our employees which has resulted in your company's excellent performance. I request them to carry on the good work and help us realise the common objectives and goals that we have set.