Case Anaryss 503 on CASE STUDY 2; INDIA'S CASTINGS AND FORGING INDUSTRY ss India Limited, Chennai, ISSUES AND PERSPECTIVES ions, Chen, Tamil Nadu’ nied, Chennai, Tamil Nad imited, Chennai, Tal Naci henna, Tamil Nadu Since many foundries abroad are closing down or being shifted out of developed countries, India has ‘Tamil Nadu 8 good opportunity to export despite facing: ‘many challenges. While this can be viewed as a boon, the hig Systems Pvt Ltd} | Indian casting industry is yet to fully exploit such an ‘opportunity as the technologies and processes it viNadu uses are outdated and traditional. The tion (India) Limited, Chena be monitored at every stage. Tn this case study, industry-related facts and information analysis framework to un ‘hennel, Tamil Nedu Limited, Chennai, Tail ‘rited, Chennai, Tamil nited, Kochi, Kerala” ‘terial India Ltd, Chega liquid. It is allowed to solidi EP ci HY as per the shape inside the mold, and then removed, p'cing a fabricated object, part, (oF casting, Casting is often used for creating one or more copiesCase Awatvezt 505 core process. The process, partic Generally, ting is shipped. Leading casting companies are now deploying computer-aided patterns, design, feeder design, solidificat cope aid moulded ion simulation, gating design, and mould filling simulation, mostly family owned units, OF these, 00 remaining units, 200 units in the “wage piping, mainly for che government sector Rie? Yodogowa—stcel rolls forthe steel indusxy fcals—valves for the petrochemical, Eis capacity utilization of players is ‘margins. The financial data for fertilizers, and power sectors eycic, dropping during a downturn and picking up during a i selected companies are given506 Srrarzore MaNacennnT Market Characteristics: : ‘The demand for castings is derived demand, dependent on the demand in the a segments, which is currently’ brisk. The curfent market for castings is arourid 6 ri i this over 93 per cit of the market is for ferrous castings, with iron castings accounting i 5 ~ cent of demand in ‘this category. Grey irdn castings account. for nearly 90 per cent of i sil approximations du tothe presice of alarge unorganie’ sector. The nor-ferou casting small and primarily caters tothe ato sto Although Indian foundrieshave extensive exptts the anto industry, they are sil unable to mice international ‘ato industry specifications, Ma segments for Indian castings’ ‘are the auto; ‘allways, and machine tools Sectors as. shown ii Tat "2 TABLE 14.1 End users of castings oa Renee Exports nea to be the key dive of grit in thi industry. However, Indias export as wil imports of cdstingsaré not significant. Exports n particular have not taken of, primarily becaat' the reportedly poot quality of castings font India, Currently, international demand is also increasing es cost economics and environmental ome in developed countries ensure that these nations look towards imports ofall their requirement castings. Approxitely 15 per cei of US demand for castings is imported. The bargaining power buyers is moderate-igh as there are only few busine casting’ play a major ole in mainainitig th production rate of § fatony a well maintained and cbitinaing vendor-buyer felationship is erica. ‘New product development in sich a casei nove a'co-operative initiative rather than an exploitative one that benefits only the buyer Such an approac wil ensure fective supplies and a good network of relations i. Changes i emission norms leading to'ained for quick replacement of vehicles 2. Strict enforcement on maximurh age of vehicles 3. Restrictions on overloading, leading to more vehicles on the roads Beer cropping Pal Fe gress/initiation H ikely to discont § fdiundries in dev foundries focusi Ein the long run. | Introductior BF The closed die extensively by! E forgingsare use uhereas expor Bharat Forg forging compaCase Amatysts 507 sed, especially that of multi-axle vehicles marketing channels leading to better incomes for the farming wy and hence more investment on farm equipment such as acs cropping patterns and land utilization boosting: demand from tractor segment ogres ination of infrastructure project zeae economic activity . ing composition of vehicles ‘ess Concerns, . of them are now discussed. concerns. Some irregular supplies and increasing Jndustry is not without its sat avalabilty of raw material and attendant problems such a eof pig iron and steel scrap need to be addressed. Second, the Low levels of capacity utilization in the sotyc addressed, This is more an aggregation isue as some unis abl whereas niany are not able to i there isa poor thrust on raedernization efforts and technology upgradation especially Set and medhrmsize players, adding tothe itue of incficiency. Bven id methods to save on capital costs, atthe expense of jndustry and the resulting cost diseconomies ¢ to work to economies of ficiency. Fourth, India faces increasing cdmpettion in the international market from Chinese foundries. A fw indian foundries that have maintained longstanding: relationships with companies abroad are able teexpott as the quality consistency of Indian castings = major concern area both for the domestic is well as the overseas market. h ; Fifth, the fragmented nature of the industry, and severe inf the industry and dilutes competitive positioning ghting has led to a poor depiction of Outlook Biged on the prospects of user industries, a growth of 8-9 per cent pet NNN ‘may be anticipated. However, a consolidation phase is foreseen for the industry a8 & whole as small foundries are “ely to discontinue operations. Export prospects wil be good for units focusing on quality, as foundries in developed countries are closing down due to environmental concerns. To sum UP, foundeies focusing on quality, cost controls, and a diverse customer mis 5° likely to be successful in the long rum. Introduction—Forging Industry "The elowed de, hot forging process is common tothe industry in India. Closed die forging is used ‘otensively by the auto industry where dimensional tolerance requirements are close, whereas open dic forgings reused for manufacture of capital equipment Imports 25° negligible, at ess than 5 per cent, “whereas exports are reasonably strong. ‘Bharat Forge Lid, a company thats moving towards becoming @ global leader as the second-largest exports nearly 40 per cent of its output forging company with international operations,508 Srrarzoroi/Manacmuent ‘The organized sector's insialled capacity was about 660,000 tpa, as of 2006, and capacity a around 65-70 per cent. If unorganised sector is taken into account, total capacity may be inthe of one million tpa < t Raw Materials and Technology ‘This industry is raw-material intensive with low value addition, Key inputs are carbon'and’é and these are locally available, Raw material cots accounts fr 60 percent of tal costs, P labour are the other key inputs, “i Forging, as explained carlicr, is the working of metal by plastic deformation. The procesd raising, rolling, swaging, and drawing are essentially forging operations which use special and tooling, Many metals are typically forged cold but iron and its alloys are almost always hot: This is for two reasons: firstly if hardening were:allowed to progress, materials such as iri steel would become extremely dificult to work with; secondly, mest ste! alloys can be hardendii ‘heat treatment rather than cold forging. Alloys that are amenable to precipitation hardening sui ‘most structural alloys of aluminum and titanium, can also-be forged hot, and then made strong!ai st they achieve their final shape. Other materials must be strengthened by the forging process itse Binwwindiantorene Forging is commonly done either using machine presses or with hammers powered by ste compressed air, These hammers are very large, having reciprocating weights in the thousand pounds; Smaller power harmniers (500 pounds or less reciprocating weight) and hydralic presse also used whetever relevant, In industry, a distinction is made between open and closed die fork In open die work the inetal is free toxmave except where it comes into contact with the hammer, a i ‘or other hand-held tooling, In closed die work, the material is placed in a die resembling a mould es which its forced to fll by the application of pressure. Many common objects such as wrenches‘ li), Amforge I crankshafts are produced by closed die forging, which is well suited to mass production. Operi da forging lends itself to very short runs and is appropriate for art smithing and custom work. (Closed die forging is more expensive for mass production than casting, but produces a much strc Part, ands thus used for producing work tools such as hammers and drilling machines, critical machine’ FAuto and auto cot Parts, and the like. One particular variant, drop forging, is often used to mass-produce flat wrenches: ‘pallways, industri and other household tools. q sit -gomponents for { Closed die operations are, widely prevalent in case of hot forgings, This entails lower investmentg markets. Typical with high end-product quality, Automation levels are low, barring large units that use robots in stat steering knuckle ofart manufacturing facilites. 4 to 950 kg It is it ‘Foreign tie-ups have been necessitated due to the lack of sufficient research efforts. For example, | routed through Bharat Forge Ltd hai an alliance with Metalart Corporation, Japan on small forgings, Lange units f availability of ¢ © the global mark {Price competit Taiwan, and B «Japan, Canada Tnternational (' ‘Small units creat Industry Structiire “The forging industry is highly Sagmented, The organized sector as a 58 per cont share of output. ‘There are about 400 units with an estimated investment of $700 million as of 2010. The industry provides 200,000 jobs both direct and indirect. Capacity is estimated at 1.5 million tpa. The statistical profile is given in Table 14.2.Case Anaysts 509 ante 14.2 Statistical data on the forging industry in Indi Producto export on) ‘along copve and ty ns cosy estinstad ure wewindanfringcomieaen < yond ame ssc ons vee 209 Sunall units create ihe mae for individual products sing open de process. Typieally such units are Jocated in close vicinity to their customers, mainly auto original ‘equipment manv! (OEMS. There are ato sever forging unis concensrated in ther ma}oF industrial belt of wester™ Jndia. Some auto majors also hhave inhouse captive forging Unis The aj payers inthis industry are BRATS Forge Lid and Kalyani Forge lad (Kalyani Group, Pane), Amforge Industries Ltd para Ma Rog Lad (Cenna) Pace TENE & Auto Parts Manufacturers Ltd (Pune) and Bl Forge ‘Lad (Chennai) Market Characteristics Ayto and auto components make up wo" sods ofthe market for forging General engineering, defence, reddways, ndustial machinery and vmpaine tools account forthe rest. LATE units offer closed die ‘components forthe auto industry small and tny unis oer forged compancns {for the replacement core Typical forging components fm the 20 cadstry are fasteners, crankshaft flanges axles, tering knuckles, and front axle aBEreS® “The weight of forging components F=NESS from 100g wo 660 lig tis important for forging ols? develop relationships with OEMs since all supplies are routed through them. Large units focus on exports esports around 40 per cent of 6 turnover). TRE vaiability of cheap and skied Iabour coenpesive advantage for Indian compantt® in the global market. The cosare of wits sa the US and Burope has widened s0PS {for Indian exports Poe competitiveness, consistent sli and branding are major selling factors China, Mexico, “Taiwan, and Brazil are i tors Global demand comes primarily For the US, Japan, Canada, and Europe. Malet fon include Renault (rance) Lister Pesce (UK), Rockwell Serie atonal (JS)-Dana Corporation (OS) ‘alvo (Swede), and Mercedes Bent (Germany).510 Sreateéie Maxacemant Business Concerns The cyclical nature of the global auto, industry affects playfers.in Indid, Recession in user it particularly auto, could impact adversely the fiiancial performance of the units, The high b: power of OEMs leads to a constant pressure to reduce prices. On the other hand, the indus also face the rising cost of inputs particularly steel and electrical power. Another concern ig the demand for new produets—especially from foreign OEMs—is not matched by economic quantities. The industry also faces an adverse impact fiom the ust of lightweight synthetic ma forging (aluminunt/plastic) in newer lightweight car models, and the tightening of pollution co Ail ftorms in India, The processes require high working capital and steel suppliers typically exten credit. On the other hand, OEM customers demand that castings be supplied on credit as peri procurement norias, 7 f ‘Some of the successfull companies have a combination of the'following characteristies—in-hi dic making, designing skills that match exacting global standards, manufacturing capabilities consistently meet volumes demanded by major customers, smooth relationship with OEMs, operat efficiency in terms of in raw materials, scrap, manpower and financial aspect, the ability to prod ‘ero defect quality products, competitive prices, focus on new product development to cater to emergil new markets, and adherence to delivery schedules. Outlook . As the industry is heavily dependent on the auto sector, its estimated that it may grow around 10 er cent per annum, cy 7 i‘ Large players should take advantage of scale economies and ook a glebal exports, lng ai medium-sized ones should be cost-driven niche players. The tny onés are likely to face sev competition and survival would be challenging. There is alot of scope for consolidation inthe indus. Questions 2 1, Using Porter’ five forces model, do an analysis for the'castings and forging industry. 2. Using the available financial information given in this case dategorize the playérs into two groups, namely large and tedium ze players. You may limit yourself to about five in each group. Using ‘open-source information, ‘analyse the perforinaince of the selected companies for the last three ” financial years. Ideitfy key siitcesé factors for'each of the groups. E t Using the information provided here, identify the key opportunities and threats of this industry. Choose a company that is currently operating in this industry and relate its stretigth arid weaknesé as seen from publicly available informatioi: iednagar For F KIC Metalks ‘woriwennorefoundties.com, last accessed on 26 December wwwisteelworld.com/focpot pdf, last accessed on 26 a BH anak 2010 December 2010 PF ‘wervimoneycontro.con, last accessed of 26 December wwrwforgingorg/facts/fagS.cfn, last accessed on 28-8 | Mahindra Fora 2010 m4 December 2010 q {Hinduja Foundri