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Ladies and gentlemen, good day, and welcome to the Q3 & Nine Months FY '25 Earnings Conference Call, hosted by Bharat Forge Limited.
As a reminder, all participants’ lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*”, then “0” on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Amit Kalyani – Vice Chairman and Joint Managing Director, Bharat Forge Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen, and thank you for attending our Q3 Conference Call.
This is Amit Kalyani. I have with me members of our Finance Team, Investor Relations.
I will now hand over to Kedar Dixit – our CFO, to take you through the numbers and then I will make a few comments and then we will do a Q&A.
Good afternoon, ladies and gentlemen.
Quarter 3, the performance was soft, given the demand conditions in our underlying markets.
The top line was lower by about 7% at Rs. 2,096 crores, while the margins were stable at about 28.1%. Europe continued to struggle with “anemic demand” impacting both CV as well as PV exports. Defense vertical also recorded lower revenues as the lumpy nature of the business continued to impact the performance.
The domestic passenger vehicles recorded a sharp rebound in performance driven by better penetration with our customers. Return ratios continued to hold steady with ROCE net of cash coming to about 19%. The standalone business won orders worth about Rs. 723 crores in this quarter.
A combination of weak demand in Europe and some customer-specific weakness impacted performance of our overseas business. In Quarter 3, the European operations posted EBITDA of about Rs. 10 crores while US operations reduced their EBITDA losses to Rs. 6 crores in this quarter.
Page 3 of 13 JSA continued to register strong performance. In Quarter 3, it had grown revenue by 20% to reach Rs. 166 crores and margins have improved by 50 basis points to scale up to almost 14%.
With significant customer and product diversification achieved over the last two years, JSA has been able to significantly de-risk its revenue stream. Euro Plus One theme and JSA's strong competence are likely to see the business scale up to Rs. 1,000 crores top-line over the next two years.
The group's defense business posted a revenue of around Rs. 337 crores in Quarter 3. As of nine months this year, the revenue was Rs. 1,488 crores, translating in a Y-o-Y growth of 49%. With order wins of about Rs. 100 crores in Quarter 3, the executable order book now stands as of December 31 is Rs. 5,700 crores. This order book does not include any potential order from domestic or export markets. We would like to reiterate that the translation of order books to revenues is governed by contractual timelines and thus may create some lumpiness in performance when viewed from a quarter-over-quarter standpoint. However, from a two to three- year perspective, the business remains on a solid footing with capabilities across artillery guns, vehicles, and consumables.
On a Y-o-Y basis, consolidated revenues were 2% lower at Rs. 11,270 crores, while the EBITDA grew by 9.1% to reach at Rs. 2,087 crores and PBT increased by 50% to Rs. 1,224 crores. There has been an increase in EBITDA margin by 190 basis points Y-o-Y to reach to 18.5% for the first nine months, with bulk of improvement driven by Indian entities.
The consolidated balance sheet continues to remain robust with ROCE of 16.5% as of December '24. More importantly, leverage has gone down as QIP funds were deployed to pay down the debt. The resultant gearing position has improved with net debt to equity improving to 0.36x as of 31 December, '24.
The Company has secured new business worth Rs. 2,616 crores in April to December period across defense, aluminum, and ferrous castings, and core forging business. And balance sheet continues to remain strong with ROCE and RoNW improving amongst strong liquidity positions.
Now I will hand over to Mr. Amit Kalyani for further comments.
Ladies and gentlemen, I thought we will adopt a slightly different approach to our con call this time.
Let's break out the performance into what was great, what was good, and what was not so good.
I think the new business vertical that is casting, and aerospace are doing well, and are expected to continue doing so. For aerospace, we have now approved a new investment of machining for landing gear components and a ring mill to manufacture high-precision forgings for the growing demands of the jet engine components globally. This will help increase our business in the aerospace sector quite substantially with business that has been tied up. So, this will be a new accelerant for our aerospace business.
We continue to witness excellent customer traction. Subject to demand holding up, we should be able to hit an annualized run rate of Rs. 1,000 crores, we are hoping within the next six to eight quarters. I am fairly confident within the six to eight quarters. Additionally, we expect to see the margins increase by at least 250 basis points to 300 basis points from where we are in the next two years. So, that will give us an excellent return on capital employed, asset turnover, and also help us grow the business through internal accruals, and generate returns and free cash flow for the Company.
I think the standalone and defense business have displayed resilient performance in the quarter.
For the standalone business, given where we are in the cycle, with the weakness in Europe, etc., the operational profitability has held up pretty well in the 28% range.
On defense, we will see accretion to the order book before March end as the domestic ATAGS orders and other new orders get tied up. And we are working on significant new opportunities, including participation in the IDEX in Abu Dhabi next week, where we hope to increase our visibility and our market access.
Quite frankly, disappointing has been the overseas operations. A combination of weak utilization because of demand reduction in Europe, and also in the US saw a demand slowdown. There is a huge transition taking place between this EV to ICE again. You may have seen announcements by two European OEMs in this week, that they will each spend upwards of €1 billion to retool their planned new ICE platforms for hybrid and also full ICE platforms going forward.
So, clearly, there is some amount of, let's say, rethink on the full electrification bandwagon. But yes, this is a temporary issue. The fact is cars will be made and I think that in six months we will have a concrete answer on the way forward. As we have mentioned, we are going to focus on returns, we are going to focus on cash flows, and businesses have to be profitable and stand on their own feet going forward.
Overall, at a Company level, I think I am optimistic about how the businesses are progressing, except for the overseas subsidiaries. I think that the US business will see a fairly good progression in the next six months. And in the European business, as I said, give us six months to give you a concrete answer.
We are in unpredictable times, we are in times where in addition to all the geopolitical issues, we also have new governments making new policies, so we have to wait and watch and see what that means. But as you have seen Bharat Forge in the past, we have gone through inflection points and come out stronger. So, hopefully, the same thing will happen this time as well.
I think I will just make a few more comments. On the India CV outlook, we expect Q4 to be slightly better than Q3. FY '26 will be more or less flat. As of now, the North American CV market is expected to be buoyant with a 10% growth, but in the second half of the year. So, that's the outlook. Europe is flat, too unpredictable. We do not have much of an answer there yet because there are lots of governments where elections and changes are taking place, including Germany, but I think we have to wait and watch.
So, I think I will be happy to take your questions and comments, and me and our team will attempt to answer your points. Thank you.
Thank you very much. We will now begin the question-and-answer session. Our first question comes from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yes, hi, thanks team for taking my questions. My first question is on the overseas subs, which you pointed out is quite a challenging environment. You do also talk about rethinking your manufacturing presence in overseas business. Could you share more around this? Because it certainly seems that Europe will take a lot longer to turn around than what we were guiding initially. So, how should we think about the losses coming down there, or how should we think about the business restructuring that you talk about in the presentation?
Yes. Hi, Gunjan. So, in a very simple way, let me answer. Right now, there is a lot of uncertainty about policy, about what is going to be the way forward, is it a global world, is it a regional world? So, like I said, we are undertaking a thorough review of our manufacturing footprint.
And within six months, we will have a concrete way forward.
Okay. And is it fair to assume that the losses that we're seeing roughly about Rs. 90 crores PBT loss in the European business, that sort of stay will remain at elevated levels for another two or three quarters till we find a more lasting solution to this?
Yes. I think they'll be in the ballpark. Obviously our attempts will be to try and reduce them. But like I said, we need two quarters more, by which time we will have full clarity on our decision. Okay, got it.
Page 6 of 13 Everything is based on the current demand in the market. But we are going to take a decision based on a number of factors, and we need about six months for that.
Okay. Got it. And the second question was on the defense ATAGS order. What are the refreshed timelines there? When do we see that adding up in the order book? Anything that you can share on order book?
So, there are three steps of the process. One is the contract signing, then you have FOPM, which is the First Off Production, and then you have series deliveries. So, I think for series deliveries to start, we are at least 15 to 18 months from now.
And if I understand that correct, that means revenue approval to start is at least 15, 18 months, right? 15 months to 18 months is for the series deliveries to start. But the contract will be signed in the next, I would say, three to four months, maybe even little sooner.
Okay, got it. And last question. If there's a lot of uncertainty on this whole tariff noise. Is there anything that you are sort of hearing from your customer base because Class-8 truck does have a pretty dominant presence, right? So, how should we think about this?
Gunjan, there is no clarity on this yet. So, if you've seen the verbiage coming from the White House, they first talked about commodities. Then next week they're going to talk about passenger cars. Then they will talk about other things. So, I think we have to wait and watch.
And then EPA emission also sort of goes on a back burner for some time because you do not know how the emission regulation evolves under the under the current regime. Is that the way we should think about it, a lot of uncertainty. So, if you are talking about the US? Yes.
So, if you are talking about the US, generally speaking, there is uncertainty, however, states where the emission requirements or the emission laws are different from the whole country, for example, California. California has its own CAFE regulations, California air something, emission, whatever, air something. So, air regulation board or whatever it is. So, they have their own emission standards. So, those will go ahead no matter what. But that represents only a small percentage of the overall US automotive market. So, I think in general, there is going to be a rethink on the whole green push in the US, that is what we are hearing from the President.
Okay, thank you so much. I will join back the queue.
Page 7 of 13 Yes, thanks.
Thank you. Next question comes from Jinesh Gandhi from Ambit Capital. Please go ahead.
Yes, hi. I have a couple of questions from my side. One is, your comment on margin expansion of 250 to 300 basis points in next two to three years, that was for JS auto or at a consol level? That was for the castings business, yes.
For the casting business, okay. And this would be primarily driven by operating leverage? Or do you expect that Russian business to come back, which had impacted margin?
It was a combination of operating leverage, cost reduction, product mix.
Okay, got it. And secondly, with respect to your comment on what is happening in the US and Europe with respect to EV trend reversing, do we see any risk to our aluminum forging business in both US and Europe?
No, no because aluminum forging and aluminum, in fact, is going to be common no matter whether it's EV or its gasoline. It's completely agnostic to them.
Got it. And last question pertains to our CAPEX expectation for FY '26, given that we are also now investing on the aerospace side and also the ongoing doubling of capacity in the US for aluminum forging. So, what should we budget for CAPEX for standalone and consol?
The CAPEX for the US is done, okay. And in India, we mentioned that we are setting up some new facility for aerospace and that is already now tied up. We will announce that, I mean, that is now going to take place. And I would like to let you know that we have signed a long-term agreement with a European Company to collaborate to set up a manufacturing facility to manufacture cutting edge landing gear and other aerospace components for global OEM requirements. So, this is the first of its kind in India and will be a big boost to our overall aerospace capability and business and be unique for this part of the world.
Got it. So, overall FY '26 on a standalone basis would be investing close to about Rs. 400 crores, Rs. 500 crores or to be lower than that?
No, I would say about Rs. 300 odd crores.
Okay. And similar for subsidiaries, total CAPEX of Rs. 600 crores at consol level?
Only investments in subsidiaries will be in India, nowhere else. And I do not think that will exceed maybe Rs. 200 crores, Rs. 250 crores at the most.
Page 8 of 13 Got it. And just one clarification on the US operations. Now EBITDA losses have reduced to just about Rs. 6 crores on a quarterly basis. This would be at what level of utilization? Are we close to 80%, 85% there now? Utilization is currently at about 60%. 60% you said?
Yes. We have reduced costs a lot and we have improved efficiencies.
Got it, got it. Great. Thank you. And all the best. Yes. Thanks.
Thank you. Next question comes from the line of Kapil Singh from Nomura. Please go ahead.
Good evening, sir. My question is on export industrial revenues. We have seen a good growth over there. Could you give some color for that? And also aerospace, like any numbers you can give on what is the current revenue and what is the potential of these facilities that we are setting up?
So, like we said last year when we spoke, our aerospace revenues are currently running at somewhere in the region of Rs. 50 crores, Rs. 60 crores a quarter. We expect this to go to triple- digits by next year per quarter. And this new facility that we are adding can almost help us double that capacity. This becomes our path to crossing USD. 100 million going towards USD 150 million, and. 200 million of business.
Okay. Thanks. And on the industrial business, if you could give some color because we saw good growth over there.
On the industrial business, the only area where we have seen a degrowth is on the high horsepower engines. And that is temporary because of some amount of inventory in the system.
Otherwise, the business is doing quite well. Rail has seen a small dip as well. That's the only other thing.
Sir, I was asking about the export industrial business, which has gone from 360 to 400 Crore I am talking about export only. Export industrial has been more or less flat. I mean, it's been up by about 7%, 8% over last year.
Yes. So, which segments have grown, that's what I would ask, sir.
Oil and gas has grown significantly. Aerospace has grown by almost 25%. Oil and gas and aerospace have grown.
Page 9 of 13 Okay. And, sir, in India, you have mentioned that there is some CAPEX slowing down and that has potential to impact industrial business in the near-term. Which segments could be affected there?
I couldn't understand your question. Sorry.
Kapil sir, may we request you to use the handset, please?
Yes. On Slide 4, we have mentioned that despite CAPEX momentum slowing down and its potential impact on industrial business -- CAPEX slowdown is basically in two areas. One is on infrastructure and the second is on new capital formation in industrial sectors. So, power plants, water projects, there's no big CAPEX that is taking place. Like in '15, '16, the big CAPEXs that were announced, or '14, '15, in these mega power projects, in these mega projects, those have now come to an end. The next set of these mega projects are now yet to start.
Understood. And sir, lastly, I just wanted to understand the exposure in case of exports. So, is there export going from Europe to the US for either Bharat Forge or from Bharat Forge customers? No, not much. Very small.
And the tariffs which have been put in US on steel and aluminum, is there any impact on the Company or will these be passed on to the customer?
So, we do not know that yet as I told you, we do not know what the tariffs are how they will be calculated. What is the base? What exactly are the HSM codes? We do not know that yet.
Okay, sir. Understood Thank you. Thanks and all the best.
Thank you The next question comes from the line of Mumuksh Manlesha from Anand Rathee Institutional Equities, please go ahead.
Yes. Thank you, sir, for the opportunity. And good to see the two more businesses going to touch Rs. 1,000 crores. Sir firstly, just on the previous question, can you help us what was the revenue for oil and gas for this quarter and for nine months, sir?
I will tell you the growth, the growth over last year is almost over 60% to 70%. In nine months the growth is about 30%.
And sir, recovery has been driven, I mean, any indication of going ahead how do you see the growth for this segment?
Page 10 of 13 See, the oil and gas sector in the US is limited by only one thing and that is the ability to get the gas out of where it is coming out of the ground to where it is consumed or where it is converted into some other product. The only place today where they can do that is Texas where within Texas the oil and gas that is pumped is being consumed, in various different industries in Texas.
But many of the other states where they are generating shale oil or shale gas, the pipelines are not in place. So, if you remember what President Trump said when he came to office is, I want to get the Keystone pipeline done so that the benefit of the gas for the economy in the form of cheap energy will start. I am sure you saw that. Yes.
So, that is going to lead to a big infrastructure boom in the US. And infrastructure boom in the US in such sectors will lead to a virtuous cycle where a lot of other sectors will get benefits. So, the construction sector, companies like Caterpillar, all these companies, companies that make power gen equipment, all of them will get benefit. So, we expect that very, very shortly once the shovel hits the dirt, you will start seeing the impacts of this.
Got it, sir. Sir, coming to different segments, just in near term sir next few quarters how do you see the run rate for the defense revenue, sir?
So, I would look at the defense on an annual basis rather than a quarterly basis. So, we had guided that we will see a close to 40% growth Y-o-Y and I think we should be fairly close to that. Maybe a little less than that because of some of the delays in the processes that we had thought will be fast. But once that happens I think it will catch up.
Got it, sir. Sir, recently there was a new MOU with the L3Harris, anything to indicate what kind of opportunity this business can bring, sir?
Yes, that is a sector called C4I. L3Harris is one of the largest companies in the whole imaging and electronics that are used in defense. And this is a very large Company, L3Harris. And these are new sectors that we are getting into related to defense, electronics and systems for India.
Got it, sir. Sir, lastly, you mentioned in the presentation about the nuclear segment, nuclear industry as opportunity. Can you indicate how we are shaping up for this segment?
Yes, so there are two facets to the nuclear sector. One is the conventional large nuclear power plants that are coming up, which are either NPCL technology or foreign technology. These are typically 700 megawatts to 1,000 megawatts, or 1,200 megawatts, 1,400 megawatts per unit.
And each location is multiple units, so it can be anywhere from four to six units. If you remember, Jaitapur was supposed to be 1,600 into six, which was 9,600 megawatts. So, those are the mega nuclear power plants.
Now, India has a installed base of roughly, I think, about 10,000 megawatts or 11,000 megawatts of nuclear power. I think that is going to more than triple in the next 10 years with the projects that are announced and underway. Plus, now globally there is a push for SMR, which is small modular reactors. Because of the huge energy requirements of data centers and also of EVs, and of a lot of other sectors which are going to consume non-fossil-based fuel energy, could be to generate hydrogen or whatever. So, these are going to be big opportunities. And even the Indian government has talked about allowing SMRs and private sector to get into this, so this is another opportunity.
Got it. Sir, any revenue currently sir from nuclear segment?
Yes, we generate anywhere between, I would say, Rs. 50 crore to Rs. 100 crores a year, depending on how much orders are there in the system. Every power plant in India has parts made by us. And any order book going ahead, sir?
We have a continuous order book in this sector, but it's not very large. Basically, every time they are building a new power plant they place orders for various different parts. So, we make both the material and the components that come out of this. These are typically big parts, anywhere in weight from 5 tons to 30 tons, 40 tons, single piece.
Understood, sir. Thank you so much for this opportunity.
Thank you. The next question comes from the line of Arjun from Kotak Mahindra Asset Management. Please go ahead.
Thank you for taking my question. Sir, the first one is, given in light of what comments also you have made, and with change in the regime in the US, so effectively we had come up with this last man standing strategy in terms of continuity of business. So, in the current context, do you see that the longevity of our business has possibly increased? And could you comment on how you see competitive pressures, etc. as a result of this?
Arjun, I think it's too early to comment on that level of detail, because we do not know. I mean, generally, if you were to ask me, I think the longevity has gone up. But if you want me to specify, I do not think I am able to. Because on one side longevity has gone up, on the second side you have talk of tariffs and other things. So, it's very difficult to be able to, what do you call it, to bridge both and to come up with a total picture of where we stand. I can only say this that we have a strategy where we are able to utilize our assets to do multiple things, and I think it just allows us a little more flexibility and a little more breathing room to make a longer runway with
Page 12 of 13 our existing products, especially because a lot of the OEMs have already started the process of deintegration, so it gives us some bigger, newer opportunities going forward.
Sure. Sir the next question I had on the defense piece. So, you did mention, say, for ATAGS, Howitzer, etc., series delivery may take 15 months. Is that for all such contracts? Because we are hearing there are possible contracts.
Export contracts can be much sooner, but domestic contracts there's a pretty lengthy process.
Okay. So, if we do get export contracts, that could possibly be done, revenues may hit the revenue line-item quickly?
Yes, you saw that in the past, we got export contracts, and it translated into revenue under six months, that’s for a product that we already make. As such, we have increased the number of products that are already in our ready to make category, this marketplace becomes bigger for us.
Perfect. Lastly, sir, there was a news report of us possibly entering the semiconductor space. Just wanted to understand what are we targeting? What products are we looking at for this space?
I think it's too early to talk about that in detail. So, I think we will talk about that at some later point in time.
Sure. Thank you and wishing you all the best.
The next question comes from the line of Nitin Jain from Fairview Investment Private Limited. Please go ahead.
Yes, thank you for the opportunity. And congratulations on the resilient quarter. So, most of my questions have been answered, but I just need a few clarifications. So, for the aerospace business, you have given the triple-digit quarterly revenue guidance. So, can we expect that from Q1 FY '26 or more like -- Not Q1, but in FY '26 we would expect that.
Right. And by when would the new facility be operational?
This will be operational at '27, towards the end of '27, it takes about 18 months.
Okay. And your comment that FY '26 would mainly be flat, so was that just for the CV business or consolidated?
Page 13 of 13 Right now, given the pluses and minuses, I would say it's overall. But that does not mean that on a profitability level it will be the same because we are hoping that we will reduce losses in our overseas subsidiaries. Okay, that's helpful. Thank you so much.
The next question comes from Pramod Amte from Incred Equities. Please go ahead.
Yes, hi. Thanks for the opportunity. First, I wanted to check, in the domestic passenger vehicles you have been consistently improving the revenues in spite of the demand slowdown, what's going right here for you?
So, we have new customers and new products. That is what is helping us.
Okay. And do you expect the trend to continue in spite of the slowdown? yes, we expect the trend to continue because most of our customers who we have got in the last few years are increasing their mobilization, and that is where we are now supplying a lot of new components, both engine, transmission, chassis, especially transmission components etc. So, that is a big growth area.
And looking at this auto expo where there have been series of EVs unveiled by the car makers, and considering your inclusive presence in cars, is there any components you are winning even in the EV space for domestic manufacturing?
Yes, we are making rotor shafts, we are making a lot of aluminum parts for electric car companies.
Yes. Thank you. This was helpful. Thank you.
Thank you. Ladies and gentlemen, we will take that as our last question for today.
Ladies and gentlemen, thank you very much for your participation and interest. It is always great to have a good dialogue with our investors and analysts. And we look forward to continuing this engagement and keeping you abreast of what is happening in our business. Thank you and have a nice day.
Thank you. On behalf of Bharat Forge, that concludes this conference. Thank you for joining us. You may now disconnect your lines.