Risk Management

Economic Risk

Slowdown in the macroeconomic environment or industry may impact our business and revenues.

Mitigation Strategy

Over the years, we have strategically diversified operations both geographically and across industries to reduce dependence on any single location or industry. In terms of geography, we have extended our presence in North America and the European markets through our subsidiaries. However, the geopolitical tensions caused by Russia-Ukraine crisis and the high inflationary environment pose risks to international operations. Our efforts to consolidate aluminum forgings operations with new capacity creation in these locations in line with auto OEMs focus on lightweighting components are progressing well and likely to stabilize in FY 2024.

Further, we have a widespread presence across Automotive, Defence, Oil & Gas, Mining and Construction, Power including Renewable Energy, Aerospace & Defence, and E-mobility segments. The Defence business is gaining immense traction driven by the government’s increased focus on indigenization. The E-mobility, after building competencies, has established a go-to-market strategy and invested in manufacturing units which will soon commence commercialization. We continue to explore newer geographies and newer customers to further boost our market share and growth.

Foreign Exchange Risk

As 59% of our revenue is generated from exports, we are exposed to the risk of fluctuations in foreign currency. Even though we prudently hedge our exposure, any unfavorable movement in the exchange rates may impact our profitability.

Mitigation Strategy

We undertake adequate hedging and enter into simple forward contracts on a rolling basis to insulate ourselves from exchange rate fluctuations. Further, we ensure a natural hedge by maintaining foreign currency borrowing less than exports at any given time.

Raw Material Risk

Failure to procure key raw materials at competitive rates may impact business operations and profitability.

Mitigation Strategy

Steel is the primary raw material which is procured through a group company, approved by the customer and executed on an arms length basis, thereby ensuring its steady availability at competitive prices. In recent years, Bharat Forge has also expanded to aluminum forgings and castings and also has competencies in titanium which diversifies its raw material requirements. We ensure efficient use of materials through our patented in-house manufacturing which ensures zero scrappage. Besides, we enter orders with a price pass-through clause to mitigate the risks of high input costs.

In the current environment, we face heightened raw material risks given the supply chain disruption and volatility in prices due to Russia-Ukraine war and restricted activities in China. Despite the challenges, Bharat Forge maintains sustained production and observes the evolving situation.

Talent Risk

Skilled manpower and its retention are paramount for the Company’s sustainable growth. Failure to attract and retain competent teams may affect our operations.

Mitigation Strategy

We have conducive people-centric policies and promote meritocracy across all hierarchies. Regular programs are conducted to ensure health and safety, employee engagement, and skill development. Trainings are also provided on future-ready skills including in Industry 4.0, sensor, robotics and manufacturing engineering. Further, we promote new talent acquisition and reward excellent employee performance.

Cybersecurity Risk

Bharat Forge deals with huge sensitive and confidential information. With increasing digitization, the Company is exposed to the risks of cyberattacks. Inability to beef up security measures and protect data may lead to litigation issues and reputational damage.

Mitigation Strategy

We have significantly enhanced cybersecurity measures amid the growing threat of cyberattacks. We are certified for information security management system ISO 27001:2013 and ensure stringent adherence to the controls stated in it. The Company’s layered security approach supported by new-generation tools ensures realtime threat prevention. Additionally, we regularly conduct Voluntary Product Accessibility Template (VAPT) and independent third-party validations which help in identifying actions for enhancing IT infrastructure. Further, awareness sessions and trainings are conducted for employees to strengthen security measures.

Technology Risk

We operate in a highly competitive, regulated, and cyclical industry. The automobile industry is the midst of a technology transformation in the form of CASE (Connected, Autonomous, Shared and E-mobility) that poses a risk of products becoming irrelevant. Failure to stay abreast with the evolving technological developments may damage our global competitive position.

Mitigation Strategy

Bharat Forge has always been at the forefront of leading technological changes. Even as technologies like E-mobility and lightweighting are beginning to gain traction, we are building competencies and capabilities with several products developed in these areas. In Defence business, we are amongst the very few companies to have completely in-house developed competencies. In Aerospace business also we have established global reputation for expertise in critical components manufacturing. We have further made substantial investments in state-of-the-art technologies like Industrial Internet of Things (IIoT) and Industry 4.0, that are driving greater productivity and making operations more reliable. Rapid adoption of SAP ERP, robotic process automation, digital thread, and data analytics, etc. has enabled us to strengthen competitiveness.

Funding Risk

Our operations entail sustained investments in capacity, technology, and extensive R&D. This necessitates availability of funds at competitive rates which has become crucial in the current operating environment with the war, high inflation, and supply chain issues. Failure to obtain funds at competitive rates and at the right time may impact profitability.

Mitigation Strategy

We have a strong balance sheet at a standalone level with robust cash and cash equivalent position at ₹22,067 million as on March 31, 2023. Our prudent working capital management and capex allocation have enabled us to reduce debt. As on March 31, 2023, Bharat Forge maintained a healthy net debt/equity at 0.29 and a net debt/EBITDA of 1.14 despite having committed a capex of ₹3,006 million in FY 2023. This provides ample headroom to source external funds, if required.