Forge Auto International Limited
Company
| Website 🔗 |  |
| Business Activity | Manufacture |
| Division | Forged and Machined Components |
| Sub-class | Automotive and Non-Automotive Parts |
| Location | Ludhiana, Punjab |
| Establishment Year | 2001 |
Management
| Managing Director | Rajan Mittal |
| Educational Qualifications | Bachelor of Science from Guru Nanak Dev University (1988) |
| Experience | Over 32 years of experience in the forging industry, specializing in business development and financial management. |
| Annual Salary | ₹ 60 Lakhs |
| Total Number of Employees | 366 |
About
Forge Auto International Limited is a leading manufacturer of complex and safety-critical forged and precision-machined components. With a decade-long experience in the forging industry, the company caters to diverse sectors, including automotive, agriculture, railways, and more.
Products and Services:
The company offers a wide range of forged and machined components, categorized into:
- Automotive Parts: Components for tractors, light vehicles, and heavy commercial vehicles.
- Non-Automotive Parts: Parts for agricultural equipment, railways, and industrial applications.
Specific examples of products include:
Big Ring and Small Ring:
Used in railway bogies for suspension systems.
Big Ball Stud and Small Ball Stud:
Utilized in the suspension of LHB bogies.
Gear Blank with Broach and Gear Blank without Broach:
Used in tractor parts and various other applications.
Stub Axle Assembly and Double Steering Arm:
Essential components for tractor steering systems.
Flange Yoke 325HS and Short Fork 325HS:
Used in the propeller shaft assembly of commercial vehicles.
Long Fork and Brake Drum:
They are utilized in light commercial vehicles’ propeller shafts and rear brake drums.
Sledge Hammer Head:
A heavy-duty tool used for demolition and construction.
Finger: An integral part of agricultural equipment for crop handling.
Locking Bar, Wearing Ring & Lock Jaw:
Utilized in 5th wheel coupling assembly for heavy commercial vehicles.
Clients:
Forge Auto International Limited serves a diverse clientele, including domestic and global original equipment manufacturers (OEMs) in various sectors, such as:
- Automotive
- Agriculture
- Railways
- Construction
- Defence
- Heavy commercial vehicles
- Striking tools
- Castor wheel parts
The company also exports its products to countries like France, Germany, Poland, Brazil, Austria, Turkey, and the United States of America.
Manufacturing Process:
Raw Material Receipt:
Procurement of carbon steel or alloy steel based on customer requirements.
Quality Inspection:
Inspection of raw materials for chemical composition and mechanical properties.
Material Cutting:
Cutting of steel bars into smaller billets as per product specifications.
Forging & Trimming:
Heating and pressing of billets into the required shapes using forging presses or hammers.
Hardening / Normalizing:
Heat treatment of forged components to achieve desired specifications.
Shot Blast:
Surface treatment to clean and prepare components for finishing operations.
Machining:
Transformation of raw forgings into finished components with precise dimensions.
MPI (Crack detection):
Non-destructive testing to detect surface and subsurface flaws.
Dispatch:
Packaging and delivery of finished products to customers.
Raw Materials:
The primary raw material used by Forge Auto International Limited is steel, which is procured from various suppliers based on purchase orders.
Suppliers:
As of March 31, 2024, the top 5 suppliers accounted for 59.37% of the company’s total purchases. The company does not have any firm commitments or long-term agreements with its suppliers
Other Key Aspects:
Certifications:
- ISO 9001:2015 for quality management systems.
- ISO 14001:2015 for environmental management systems.
- ISO 45001:2018 for occupational health and safety management systems.
- IATF 16949:2016 for doing business with OEMs manufacturing Components in the Automotive Industry.
- ZED GOLD by the Government of India for sustainability with Zero Effect and Zero Defect.
Business Process Flowchart
Revenue – Category
Revenue – Region
Audit and Legal
Auditor’s Remarks:
The auditors have not raised any material issues or concerns requiring adjustments or modifications to the company’s financial statements.
Non-Compliances and Other Issues:
Clerical Errors and Delays in Forms filed with the Registrar of Companies (RoC):
These include forms like CHG-1, BEN-2, and MGT-6.
Delays in Filing Statutory Returns:
Forge Auto International Limited has experienced delays in filing GST, EPF, and ESIC returns due to reconciliation and operational issues.
Contingent Liabilities:
As of March 31, 2024, Forge Auto International Limited has contingent liabilities of ₹ 2953.10 Lakhs, primarily due to corporate guarantees provided to HDFC Bank on behalf of Forge Mach Auto Pvt. Ltd. (Group Company).
Legal Cases:
As of the date of the Red Herring Prospectus, there are no outstanding legal cases, legal notices, or tax notices against Forge Auto International Limited.
SWOT Analysis
Strengths
| Integrated Manufacturing Operations: Forge Auto International Limited has a well-equipped manufacturing facility with a capacity of 20,000 MT for forging and 2.5 million units for machining. |
| Diversified Product Portfolio: The company offers a wide range of products catering to various sectors, mitigating risks associated with dependence on a single product or market. |
| Quality Assurance: Forge Auto International Limited is committed to quality and has obtained various certifications, including ISO 9001:2015, ISO 14001:2015, ISO 45001:2018, IATF 16949:2016, and ZED GOLD. |
Weaknesses
| Limited Operating History as a Company: Forge Auto International Limited has a limited operating history as a company, having recently converted from a partnership firm, which may make it difficult to evaluate its prospects. |
| Working Capital Requirements: The company has significant working capital needs, which could put pressure on its cash flow. |
Opportunities
| Expansion in the Forging Market: Forge Auto International Limited can further expand its market share by increasing its product offerings and geographical reach. |
| Focus on Advanced Products: The company can leverage its design and engineering capabilities to develop high-value, technology-driven components. |
| Capacity Expansion: Forge Auto International Limited can enhance its production capacity to cater to growing demand and expand into new markets. |
Threats
| Competition: The forging and machining industry is highly competitive, with both domestic and international players vying for market share. |
| Raw Material Prices: Fluctuations in raw material prices, especially steel, could impact Forge Auto International Limited’s profitability. |
| Economic Conditions: A slowdown in economic growth in India or globally could adversely affect the company’s business. |
Porter’s Five Forces1
| Threat of New Entrants | MODERATE |
| The forging and machining industry requires significant capital investment and technical expertise, creating barriers to entry. However, the industry is fragmented, and smaller players could enter niche markets. |
| Bargaining Power of Suppliers | LOW |
| The company relies on a few suppliers for steel, but the availability of alternative suppliers limits their bargaining power. |
| Bargaining Power of Buyers | HIGH |
| The company depends on a few large customers, giving buyers significant bargaining power to demand lower prices and favourable terms. |
| Threat of Substitute Products or Services | LOW |
| Forged and machined components are essential for various industries, and there are limited substitutes for these components. |
| Rivalry Among Existing Competitors | HIGH |
| The industry is highly competitive, with both domestic and international players vying for market share. Competition is based on factors like price, quality, and delivery time. |
Peer Comparison
The company’s performance on various financial and operational metrics compared to its peers for FY 2024 is as follows:
| KPI | Forge Auto International Limited | Balu Forge Industries Ltd | MM Forging Limited | Samrat Forgings Ltd | Happy Forging Limited |
| Revenue from operations (₹ in Crores) | 180 | 560 | 1563 | 162 | 1358 |
| EBITDA Margin (%) | 7.62% | 21.27% | 18.82% | 7.62% | 28.53% |
| PAT Margin (%) | 3.71% | 16.73% | 8.64% | 1.84% | 17.89% |
| RoE (%) | 35.76% | 24.96% | 18.47% | 9.90% | 18.69% |
| RoCE (%) | 17.60% | 19.45% | 12.91% | 7.80% | 18.06% |
| Debt to Equity Ratio | 1.94 | 0.09 | 1.13 | 2.48 | 0.09 |
Green Box
Integrated Manufacturing Operations:
The company boasts a well-equipped manufacturing facility with a substantial production capacity. This allows for efficient production and the ability to handle large orders, potentially giving them an edge over smaller competitors.
Expanding into heavy forging and machining:
The company plans to venture into the heavy forging and machining segments, requiring larger and more specialized equipment. This will enable the company to cater to new markets and industries, such as defence, oil and gas, and aluminium forging.
Commissioning new machines:
The company plans to commission new machines to increase production capacity by the end of September 2024. This will enable the company to meet the anticipated demand for its products and services.
Prototype Development:
The company may develop and supply concept prototypes to potential customers for testing and evaluation. This allows customers to assess the product’s suitability before placing firm orders.
Participation in Seminars and Exhibitions:
The company participates in various industry events and exhibitions to showcase its products and capabilities to a wider audience. This helps increase brand visibility and generate new business leads.
IPO Funds:
Funding Working Capital Requirements:
The company plans to utilize a significant portion of the net proceeds (₹1900.00 lakhs) to meet its working capital needs. This includes financing the purchase of raw materials, managing credit to customers, and maintaining inventory levels.
Repayment of Borrowings:
The company intends to use ₹500.00 lakhs from the net proceeds to repay certain outstanding borrowings. This will help reduce the company’s debt burden and associated interest costs.
Positive Operating Cash Flow:
Forge Auto International Limited has maintained a positive operating cash flow over the past few years.
Industry Outlook:
Export Growth:
Exports of auto components grew by 5.2% to reach ₹1.61 lakh crore (US$19.49 billion) in 2022-23. Forecasts predict further growth, with exports expected to reach US$30 billion by 2026.
Domestic Market Growth:
The domestic market for auto components is also expanding, driven by factors such as a growing working population, an expanding middle class, and increasing demand for electric vehicles.
Government Support:
The Indian government’s policies and initiatives, such as the Production Linked Incentive (PLI) schemes, are further propelling the industry’s growth.
Amber Box
High Working Capital Requirements:
The company’s need for substantial working capital to finance operations can strain its financial resources and potentially limit its ability to invest in growth and expansion.
Limited operating history as a company:
The company has a limited operating history as a company, having recently converted from a partnership firm. This lack of a track record may make it difficult to assess its long-term performance and stability.
Capacity Utilization:
Forging Section:
Installed Capacity: 20,000 MT
Utilized Capacity: 15,279.59 MT
Utilization (%): 76.40%
Machining Section:
Installed Capacity: 25 lakh units
Utilized Capacity: 21.52 lakh units
Utilization (%): 86.08%
Red Box
Customer and Supplier Concentration:
For FY 2024 top 5 customers contributed 69.70% of total revenue from operations and the top 5 suppliers contributed 59.37% of total purchases.
Economic Conditions:
A slowdown in economic growth could impact the demand for the company’s products and services.
Raw Material Prices:
Volatility in raw material prices, especially steel, could affect the company’s profitability and financial performance.
Images
- The force value of “LOW” is considered good Click Porter’s Five Forces article for more information. ↩︎
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