Despite an enviable growth rate, the small and medium sized units in the forging industry are facing

a tough time as rising input costs are squeezing their margins. Small and medium enterprises, which comprise about 50% of the highly fragmented forging industry, do not enjoy the pricing leverage of the steel industry bigwigs and automotive players. The growth rate in the sector is still very good, but margins are exceptionally poor, said Deven Doshi, president, Association of Indian Forging Industry (AIFI). He said the Indian forging industry grew at a compounded annual growth rate of 30% in the last three years and currently stands at 2.3 million tonnes per annum. It is expected to touch 3 million tonne capacity during this fiscal, with exports forecast to rise well beyond 20%. However despite the upsides, the industry is not only lacking pricing and negotiation power, but it is also now facing the heat of a rising crude oil prices, which has shot the price of furnace oil through the roof. Furnace oil is the major feedstock for energy-intensive forging operations and one of the few crude refining byproducts that do not enjoy government subsidy. The price of furnace oil has increased from Rs23.48 per litre in September 2010 to Rs35.60 per litre in March 2011, a sharp rise of 52%, he said, adding this has increased the input cost tremendously for the forging players. The profits of most of the companies have come down by almost 20% and the margins are now below 6-6.5%, said Doshi of AIFI. Forging is a manufacturing process where metal is pressed or squeezed under great pressure and temperatures into high strength parts known as forgings. The manufacturers source products from the steel industry and depending on the order, work on the metal to produce the required forgings to the demanding industry, most of which is automotive. Doshi said in India 70% of the forgings are used in the automotive sector, 15% in the oil & gas, 6% each in aerospace and energy and the rest 3% in other capital equipment applications. While input costs have risen to unsustainable levels, another impediment to the growth is shortage of manpower, said Pramod Nagare, director, Anish Forge Pvt Ltd. Nagare runs a 300 tonnes per month forging company in Aurangabad. We have been able to negotiate just one price rise last year. This is not all, in fact the cost of labour has also increased and it has become extremely difficult to get fresh hands, he said. He currently has a workforce of 75 people against a requirement of 100. While the forging industry saw price revision just once, the steel industry increased prices more than 6-7 times and the auto industry raised the prices almost every quarter in last fiscal, said an analyst with a leading domestic brokerage. While analysts have been upbeat about the auto component industry attributing higher growth rates and margins to demand from original equipment manufacturers (OEMs) and a booming export market, it is the smaller players which are facing the brunt due to lack of muscle. Doshi from AIFI said the association has already sent two representations to the government to provide the industry with a temporary subsidy or any other measure to provide a temporary relief, without which it will be very difficult to sustain them in the business for long.