The recent slowdown in the automobile industry has hit the Indian forging industry, which mainly depends on the automobile sector. The industry’s turnover is expected to drop by $ 1 billion (Rs. 5000 crore) and 50000 people are expected to lose their jobs in 2008-09. The industry has also put a break on expansion plans, which would have attracted Rs. 2000 crore.

The domestic forging industry consists of around 1250 units with a annual combined capacity of around 1.5 million tonnes and employing around 2.5 lack people. Nearly 70% of the production is for the automotive industry and the balance is sold to the makers of valves, power sector equipment, mining oilfield equipment and engineering, among others.

Speaking to Business Standard, Vidyashankar Krishnan, President, Association of Indian Forging Industry and Managing Director, MM Forgings, said, “In 2007-08, the industry’s turnover was $ 3 billion (Rs. 15000 crore). This was expected to drop by 30-40% in 2008-09, since the auto majors have slowed down their procurement and are sitting on huge inventories.”

Surveillance of the forging industry, which was witnessing 20% CAGR growth for the last 4 years, has become a question now. 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 20000 people have lost their jobs by the end of the current fiscal and another 30000 people are likely to lose their jobs as more units now have to shut their operations.

For instance, the western region which is largely dependent on companies like Tata Motors, Bajaj Auto, Mahindra Group and Force Motors the demand during the downturn varies between 30-40%. However with the Tire I supplier, the drop in requirement is as high as 95%, as they also source the parts on behalf of their parent companies locally. The reduction of off take for the forging units is hence in the vicinity of 65%.

Krishnan added that the industry players which had planned investment to the tune of Rs. 2000 crore have now called it off due to the slowdown in orders. There are many companies which borrowed to meet the funding requirements for capacity enhancement and for upgradation. Since the banks are not willing to lend money, they are now finding it difficult to meet EMI’s and repayment schedules which result in large number of defaults.

He said that loan repayment period should be increased by 3 years and the repayment schedule should be revised. It would also therefore help if RBI relaxes the NPA norms to cushion companies from being categorized as NPAs in a depressed market from 90 days to 180 days.

Published in Business Standard dt. 16.12.2008