AIFI Association of Indian Forging Industry Page 1 of 6

The Indian Forging Industry has emerged as a major contributor to the manufacturing sector of the Indian Economy.

The salient features in which the Indian forging industry functions is summarized in the ensuing paragraphs:

Briefly, the composition of the Indian forging industry can be categorized into four sectors - large, medium, small and
tiny. As is the case world over, a major portion of this industry is made up of small and medium units/enterprises
(SMEs).

Only about 5% is made up by the large enterprises in terms of number. Out of the 330 odd units the large sector
consists of about 9-10 units, the medium and small sectors consists of about 100 units and under the tiny sector, the
units functioning are far too many and the number is difficult to estimate.

The industry was previously more labour intensive (it is estimated that this industry provides direct employment to
about 38000 people),but now with increasing globalization it is becoming more capital intensive. The total investment
in the large and medium sectors is estimated to be around US$600 million. The small scale units too are increasing
their capital investment to keep pace with the increasing demand especially in the global markets as also to broaden
the areas of demand for forgings. Many of them are now suppliers to Original Equipment Manufacturers (OEMs) in the
automobile sector also, which speaks volumes about efforts at technology and quality upgradation.

DOMESTIC AND EXPORT PERFORMANCE OF THE INDIAN FORGING INDUSTRY DURING THE YEAR 2006-07

The year 2006-07(April-March) was a good year for the Forging industry.The revival which started in October 2002
picked up momentum since last few years. Overall production of forgings increased to reach about 9,83,000 tonnes in
the year. Capacity utilization also improved considerably from 40-50 percent in earlier years to 65 per cent of the
additonal capacity added during the last two years (1.5 Million approx)inclusive of overseas acquisitions. This was
largely due to the revival in demand from the automotive sector and particularly the passenger car segment which
recorded an excellent performance in both in the domestic market and exports.

While the automotive industry is the main customer for forgings, the industry’s continuous efforts in upgrading
technologies and diversifying product range have enabled it to expand its base of customers to foreign markets. The
Indian forging industry is increasingly addressing opportunities arising out of the growing trend among global
automotive OEMs to outsource components from manufacturers in low-cost countries. As a result, Indian forging
industry has been making significant contributions to country’s growing exports.

The industry’s exports recorded a growth of almost 20% in 2006-07 and have reached a level of US$ 360 million.
Technological developments have also contributed to export growth. The industry’s major markets are USA, Europe
and China. However, only about 30-35 manufacturing units are currently directly engaged in exports. Efforts of AIFI
are to attract more manufacturing units to export. This is being done through increased facilitation by way of
organizing Training Sessions, Workshops, Trade Fairs I Exhibitions, Buyer-Seller Meets etc. The technology gap is
therefore, being sought to be bridged so that companies are prepared to face challenges of global markets.

Inorganic growth is another strategy being used by Indian companies to expand their global footprint and establish a
global presence in some of the world’s largest markets. In the past few years companies like Bharat Forge (India’s
Number 1 forging company,Sundaram Fasteners Ltd.(SFL), Amtek Group, EL Forge Ltd acquired Forging Companies
in Europe, USA, China etc. It is expected that Indian companies will continue to aggressively pursue inorganic growth
opportunities in future.

On the domestic front too many Indian forging companies (most of whom are AIFI members) have posted excellent
results in 2006-07.

Many large and medium forging companies also took important initiatives in capacity expansion modernization, cost
rationalization etc. Notwithstanding this, the industry had also to contend with its share of problems. It had to bear
the brunt of steep and frequent increases in the cost of major inputs like power and fuel, forging quality steel etc. For
a major part of the year, the industry has grappled with this issue and managed to keep floating under this adverse
circumstances.

User industries are also reluctant to increase prices across the board.The industry is not fully compensated for
increase in conversion cost on account of steep increases in power, fuel etc.

In addition, increasing cost of other inputs like petroleum products, power ,implementation of stringent environment
pollution norms etc., are challenges that the industry had to face.

MAJOR CHALLENGES / KEY ISSUES

Major challenges on domestic and export fronts that the forging industry is facing are as follows.

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011
AIFI Association of Indian Forging Industry Page 2 of 6

Domestic:
Volatile international and domestic prices of forging quality steel
Inefficient economies of scale.
Compliance with stringent environment norms.
Inadequate backward/forward linkages.
Difficulties associated with consolidation of capacities.
Availability of trained man power at shope floor and managerial level.
High attrition rate, especially at the senior management level.

Exports:
Impact of rising rupee on export realisation.
Reluctance of the overseas buyers to compensate for the increased in put cost in India which
were around1 to 1.5 times more than international prices.
Inadequate investment in technology upgradation.
inadequate R&D and training for coping with the demands of the export market.
Inadequate testing and validation facilities for smaller forging companies.
Inadequate overseas marketing support facilities.
Cost competitiveness adversely affected due to constant cost escalation.

FUTURE OUTLOOK :

The future however looks encouraging for the forging industry in terms of the expected surge in global demand. As a
result of liberalisation, more MNCs have entered the domestic automobile market. This has opened up more business
opportunities for the forging industry.

The following table would give a fair idea of the future estimated demand(both domestic and global)for the auto
component industry(of which the forging industry is an important segment) TABLE-A. ESTIMATED DEMAND FOR THE
FORGING INDUSTRY BY 2015.

Particulars :
1.Size of Global Auto Component Industry : US$ 1.2 trillion.
2.Current global purchases of components by international vehicle manufacturers: US$ 45 billion
3.Estimated export of Auto components from low cost countries (including India) in the next 10 years : US$ 225
billion
4.Estimated share of exports from the indian auto component industry out of(3)above : 10%.
5.Targetted exports of auto component industry industry in absolute terms by 2015 : US$25 billion
6.Current exports of Indian auto component industry : US$ 1.8 billion
7. Current Estimated exports of Indian forging industry : US$ 360 million
8. Projected exports of Forging industry by 2015 (15% of auto component exports) : US$ 3.75 billion

Today, the passenger car segment has emerged as an important customer for the Indian forging industry. The flow of
orders is only a fraction of the industry’s investment in this specific area. It is expected that the future and well-being
will depend mainly on the the steady growth of the automotive industry. The current year is showing signs of an
economic recovery in many other sectors of the economy. The recovery, particularly in the automobile industry (user
industry for the forging industry) has been stronger than expected, but in the next year it is felt it may not grow to a
great extent.

FUTURE CHALLENGES

Major thrust on global business

Accessing new global markets and showing aggressiveness in creating/projecting "BRAND INDIA"
iii)For (i) and (ii) above there is a pressing need to improve infrastructure- i.e. Ports, Roads etc. on the part of Govt.
The general mindset for achieving the above has to be-

Appreciation of what globalisation can do to improve quality, delivery costs, supply chain, R & D, productivity, and
business processes. One has to venture to go out and learn the best in each of the aforesaid areas.

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011
AIFI Association of Indian Forging Industry Page 3 of 6

Realizing that while fully meeting domestic demand is a MUST, one has to grow beyond the domestic market.That is
to say, we NEED to be in the global market through operational excellence and world class technology.

Recognising the fact that different geographies follow separate business cycles. Hence, it is necessary to reduce one's
over dependence on a single market and coupled with this take advantage of the varying differential growth
opportunities across different geographical regions/different parts of the globe.

Try to develop a strategy like the Japanese way of working. To be more specific,in future, added emphasis would
have to be laid on -

1.Changing the work profile of the organisation by increasing the capacity of brain power rather than muscle power
(i.e less of blue collar). Put this strategy in place and effect the necessary changes in the organisation.This
leverage of brain power would give factored improvement in productivity.

2.Build large capacity brain power, assess,scale it up five times.Brain power in India has the capacity to deliver.

3.Upgradation of technology. Providing for a fairly large outlay on IT, CAD/CAM, and other forms of Computer based
technology in manufacture.

4.Restructuring strategies — consolidation of capacities, backward /forward integration.

5.Specialisation to end product (component)

6.Overseas marketing support.

7.Cost competitiveness / Cost-cutting

8.Strict adherence to Environment Pollution norms.

9.Developing through training the necessary marketing skills, key account management, creation of an efficient
delivery system etc.-- for the global market.

AIFI'S ROLE IN PROMOTION OF THE FORGING INDUSTRY

In this new industrial scenario, the development of forging industry, as a critical feeder to a number of core industries
is very important and AIFI is gearing itself to play the role expected of it in this changed scenario, very effectively.

The AIFI family at present consists of about hundred and fifty members,who command a large market share of about
75% of the total production of the Indian forging industry. This membership is growing continuously and the
membership is targeted increase by at least 30% this year i.e in 2007- 08.

Towards this, office bearers and the AIFI office in Pune travel widely to understand members needs through regional
meetings at various places all over India and initiate steps to fulfill their needs. The AIFI take up several important
issues esp. budget and Exim Policy issues on behalf of our members in the forging industry, at the highest levels in
the Govt. of India.

It has begun actively engaging itself in strengthening the database / information base of its members through
dissemination of Trade & Other Information on a wide scale on business opportunities,technological and other
developments in the industry, prices of critical inputs etc. through different media to enable them to conduct their
businesses through "INFORMED COMPETITION". AIFI also has strong linkages with counterpart forging associations in
the world e.g.in USA, Europe, Japan, China and other countries. These facilitate the members in the forging industry
in establishing new business relationships.

Recently the AIFI with the support of Govt. of India is in the process of set up a world class Research & Development
Center
along with product testing and validation facilities for the forging industry at Chakan near Pune. Thus the AIFI is
constantly
endeavoring to look at new areas through which it will be able to continuously improve the quality of service to the
members and establish a dialogue / interaction between the Indian forging industry with its counter parts (both at
home and abroad) as also the various other user and vendor segments. As a result the AIFI has afforded its members
of the Indian Forging Industry an opportunity to gain a broader understanding about the contemporary forging
technology and future development.

Expert speak : The Forging Industry

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011
AIFI Association of Indian Forging Industry Page 4 of 6

[“The forging industry has made a spacious place for itself among the industries that are steering the unprecedented
India growth story. This industry has a tremendous bright future” Fortunes of the forging industry are on the rise – it
has consistently recorded a notable increase in production, capacity utilization and exports.] – Baba Kalyani, CMD,
Bharat Forge Ltd.

Nature & Present Scenario in India.

Forging industry is a basic industry and such industries tend to grow in a country in relation to the rate of growth of
its GDP. In simple terms, forging refers to the process of moulding metal as per the required shape and size. As far
as India is concerned, we expect our GDP to continue to grow and therefore, I think, all the basic industries will grow
and so will the forging industry. Since it is largely dependent on the automotive sector, the forging industry will also
continue to grow and do well. Thanks to outsourcing, opportunities for exports are huge. An increasing number of
companies from all over the world are coming to India to procure components and products. And I think many
companies are working hard to capitalise on this. So I am very optimistic that you’ll see this industry continuing to
grow. So there are two growth drivers-one is the domestic growth in the automotive sector, and the other one is
outsourcing. It’s an industry that is generally technocrat driven because it has large technology content. Here, you
will find that it’s usually run by technocrat entrepreneurs. Its a niche business and so the size of this industry around
the world is relatively small, and same is the case with India. Here, we have more than 300 forging companies, in the
small, medium and large sectors. In other industries, small players usually find it difficult to compete with the big
players; but here, its the other way round. What happens in this business unlike any other business is that, its the
smaller companies which gain higher and higher level of competence and therefore start competing with some
segments of products that the bigger players deal in. Hence, bigger players are forced to vacate that space and move
on to higher value added products. We have vacated so many products in the last 20 years and have moved on.
Whatever we have vacated is taken by the next level. And thus, this process goes on and on. There is therefore scope
for everyone to play a fairly active role in this business - small, medium and large enterprises as well as very large
enterprises. I think the smaller businesses will grow faster than the larger businesses in this industry because the
opportunities are quite a lot and smaller businesses generally have much nimbler and more agile organisations -
driven by the owner who usually is a technocrat entrepreneur and when there are business opportunities, he can
access them faster than the larger business.

The Future Outlook :

The fortunes of the forging industry are on a rise - it has consistently recorded a notable increase in production.
capacity utilisation and exports. Among the various segments of the forging business, it is the auto, mobile-related
segment that is being talked about the most these days. The forging sectors fortunes are closely linked to that of the
automotive industry, which at the moment, is doing extremely well in the country. The other significant driver for this
sector is outsourcing and it is an indication that the industry’s potential is being recognised world over. Global
automotive giants are looking at India as a competent supply base and are shopping for their components here.
Moreover, the Indian forging bigwigs like Bharat Forge and Mahindra Forging have been making their mark globally.
What is also remarkable is that these companies have even been acquiring companies abroad. In addition to the big
players, the industry offers enough opportunities to small and medium size enterprises as well - they form a large
part of this industry.

The industry, clearly, is one of our best bets to garner a substantial market share in the manufacturing sector, which
as of now, is regarded as China’s stronghold. No economy that aspires to hold sway in the global arena can afford not
to lay emphasis on the manufacturing industry. Considering the confidence of foreign automotive majors, auto
component manufacturers and original equipment manufacturers, who are outsourcing their operations to India, it is
quite likely that the forging industry will be foremost among the segments that will steer manufacturing growth here.

While the current performance of the industry is indeed flattering, what is more gratifying is the fact that players in
the sector firmly believe it will scale greater heights in the coming years. The indications are all there - it’s just a
matter of time before the industry achieves its exceptional potential.

This industry has therefore a tremendously bright future. India is definitely emerging as a globally competitive supply
base and if companies upgrade their technology levels and modernise themselves, I think there is no limit to what
they can achieve in terms of growth.
Baba Kalyani
Ex-President, AIFI & CMD, Bharat Forge Ltd.

Indian Forging Industry

A Statistical Profile

NUMBER OF UNITS INVESTMENT EMPLOYMENT CAPACITY

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011
AIFI Association of Indian Forging Industry Page 5 of 6

330 US $700 million approx 38,000 1.5 Million M Tonnes / year*

Year PRODUCTION (in '000 tonnes) EXPORT (million US$)

1996 - 1997 446 50

1997 - 1998 465 55

1998 - 1999 441 61

1999 - 2000 497 80

2000 - 2001 435 90

2001 - 2002 382 110

2002 - 2003 440 145

2003 - 2004 600 178

2004 - 2005 732 250

2005 - 2006 878 310

2006 - 2007 983** 360**

*Excluding captive & tiny units.

**Closely Estimated

PRODUCTION RANGE EQUIPMENT'S INSTALLED

Close Die Forgings (upto 600 kg,) Close Die Hammers (upto 16 T)
Open Die Forgings (upto 13,000 kg. ) Presses (upto 16,000 T)
Upset Forgings (Upto 260 mm dia.) Upsetters (upto 20 cms)
Ring rolling (upto 3 mtr. ) Open Die Presses (upto 3000 T)
Disc & Tube Sheets (upto 3 T SP)

MATERIALS HANDLED CAPABILITY

Alloy Steel Closed Forging
Carbon Steel Open Forging
Stainless Steel Upset Forging
Special Steel Cold Forging
Aluminium Roll Forging
Non-ferrous Warm Forging
Titanium Ring Rolling
Super Alloy Machining
Shell Forging
Axial Close Die Forging
Heat Treatment

INDUSTRIES CATERED
Automobiles
Railways

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011
AIFI Association of Indian Forging Industry Page 6 of 6

Construction
Petro Chemicals
Power
Diesel Engines
Aviation
Defence
Agriculture
Mining
Oil & Gas
Industrial Machinery
Shipping
Process Industry
Space

http://www.indianforging.org/indian_forging_industry_iframe.asp 19/04/2011