BHARAT FORGE SOME CASE STUDIES

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BHARAT FORGE SOME CASE STUDIES

• P K MAHESHWARI
• February 2007

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Bharat Forge five years ago

• Forging and machining of steel components
• Mainly for automotive applications
• Focus on commercial vehicle segment
• Largely Indian player
• Exports mainly to North America
• Turnover of USD 100 mn
• Profit after tax of about USD 10 mn
• Market Cap of about USD 70 mn

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Acquisition Philosophy

• Should be in the core or related area of our
  business
• Complimentary Products, Customers or Markets
• Strategic rather than opportunistic
• Clear understanding of the business model
• A roadmap to be created in advance of the
  acquisition
• Acquisition Cost not to be excessive
• Proper structuring/leveraging of the transaction

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Case Study I - CDP

• 160 years old company
• Engaged in Car Chassis Components
• Technology leader
• Supplier to all major German customers
• Went into liquidation due to exposure to its US
  subsidiary and high manpower cost
• BFL presented a plan which made the company
  viable with restructuring of manpower
• Was awarded to BFL despite not being the highest
  bidder

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CDP contd

• Structured as below
• Term debt from existing banks 18 mn
• Deferred payment to administrator 5 mn
• Equity 6 mn
• Total 29 mn
• As on Dec 2006
• Term Debt from banks 9 mn

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Case Study II Federal Forge

• A small company in USA
• Concentrated on one customer and few products
• Went into liquidation due to
• inability to pass steel price increases to
  customer, and
• high cost of pension, healthcare and wage cost
• Not known for its technology, but had some good
  human resource and a large unutilized capacity
• Could easily provide a manufacturing presence to
  BFL in North American market, which was
  strategically important

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Federal Forge contd

• Hard Negotiations
• With the customer to get a contract with
  reasonable prices, long term contract and steel
  price pass through
• With the trade union to get wage cuts and no
  pension plans/healthcare costs with unlimited
  liability
• The above put the company back on rails from the
  beginning
• Additional efforts to bring in new customers and
  products with BFLs existing customers and
  technology

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Bharat Forge - Today

• A global player with revenues well distributed
  between North America, Europe and Asia
• Equally big in commercial vehicle as well as
  passenger car segments
• Significant volume from non-automotive sector
• Not only in steel but also aluminium components
• Turnover of about USD 1000 mn (ten times)
• Profit after tax of about USD 70 mn (seven times)
• Market Cap of about USD 1700 mn (gt 20 times)

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Thank You