Ladies and gentlemen, good day, and welcome to Bharat Forge conference call to discuss the acquisition of Axle business of AAM India Manufacturing Corporation Private Limited. As a reminder, all participant 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 star then zero on a 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.
One, two, eight. Good afternoon, ladies and gentlemen. This is Amit Kalyani, Vice Chairman and Joint Managing Director of Bharat Forge. Thank you for attending our conference call to announce a major new initiative. I'm very pleased to announce that today we signed a definitive agreement to acquire American Axle's manufacturing India operations. American Axle's India is a manufacturer of axle products for commercial vehicles. We acquired this at an enterprise value of INR 545 crores, subject to closing adjustments. The acquired entity is a leading manufacturer of axles for a variety of applications for trucks and buses in India. We will be acquiring the commercial vehicle axle business of the company with plants in India in Pune and Chennai, along with the engineering and development center.
This transaction is subject to approval from the CCI and will close only after receiving CCI approval and upon fulfillment of other customary closing conditions. The turnover of the company, which we are acquiring, was approximately INR 1,384 crores. Basically, we want to align our business strategy with the growth strategy of India. We see opportunities for getting into products and using the core and base technology to get into a diverse set of new products, and that is the rationale for us acquiring this business. This business will be EPS and ROC accretive from year one.
Given that there are significant confidentiality considerations and the fact that this still needs CCI approval, I don't think we are in a position to answer too many questions, but we're still happy to, you know, try and attempt to answer whatever you may have. I'll now be happy to take questions which I and our management team will be happy to answer. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead.
Yes, good evening, and thank you for the opportunity. My first question is on the components. I mean, how does this help in terms of synergy? Obviously, the forgings we can supply from Bharat Forge, but are there any other areas that you're looking at in terms of synergies or making the acquisition itself?
See, the synergies are on three fronts. One is on the market front. We will be able to offer a broader range of products. On the technology front, we'll be able to develop new products and technologies and which will allow us to grow. And the third is the supply chain side.
Right. Right. So, could you elaborate a bit more so in terms of new technologies, et cetera? So, are you saying that, because you will acquire this, there will be more products that, you know, that this entity can then develop and supply to its customers?
We will drive its trajectory using technology, okay? To create new products.
All right. All right, I get it. And, sorry, hello?
Yeah, go ahead.
Yeah. So when I look at the numbers, six out of the last nine years, the EBIT is negative. So again, I mean, just related to the first question, you know, what are the areas that you are looking to kind of change, and is there anything that you are looking at in terms of pushing it?
I don't... look, quite honestly, I think, you know, we have acquired this business with a view to the future, with a view to-
Right.
What we believe we can do with it. You know, I don't want to speak for what has happened in the past, but clearly, we have a strategy, we have a plan, and that's what we want to do.
Right. I get that. Just lastly, in terms of CapEx, are you envisaging the CapEx that you might have to do in this entity? Because I see that the gross block's probably doubled in the last decade. So, you know, is there a requirement of more CapEx that you'll have to do this?
No, let us do the closing. At present, we don't feel we need any CapEx right away.
Sure. Okay, okay.
But, you know, subject to the closing, and then what happens after that, we will decide.
No, all right. All right, thank you.
But I don't think it is going to be anything significant.
All right. Okay.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit yourselves to two questions per participant. The next question is from the line of Pramod Amthe from InCred Equities. Please go ahead.
Yeah, I have a couple of questions. One, does Bharat Forge already supply to this entity, and what proportion of requirement?
No, I don't. We supply very small amount, if at all.
Okay, so that's an immediate possibility for you guys if in case this happens, right, in terms of-
Yes.
-the forward integration?
Yes.
Second, globally, these axle business are controlled by very few majors. So in that context, how crucial is the technology and the sustenance of this technology, in the medium term? Does the American Axle will continue to supply you technology in the coming years, or you will be on your own as soon as you get it?
So, you know, we have signed an arrangement with them that we will continue to get support for existing products. Okay? For a defined period of time.
And then, you know, we will have to eventually. The idea is that we want to develop a lot of new products as well.
Okay. And also considering the fact that you guys did try the axles with one of the U.S. entities, and also that might be a possibility for MHCV. Is there a scope of getting that support from the technology partner, or you have to do it on your own? Or how are you insulated from the same?
Sorry, I didn't understand that.
No, to move-
We've got the IP transferred along with the business, so we have all the IP that we need to produce all these products currently. And again, new products, you know, we can produce based on our capability and competence, and using the assets and the people that we have in this company.
Okay, sure. And, looking at the technology, any newer areas you feel you can explore better and make the viability of the business much stronger next three years, five years, compared to the different?
Yeah, of course. That's, that's the reason we are taking this step. So, you know, I think post the... You know, let us, I think it's gonna take a few months, and then we will be able to, you know, the blueprint, you know, a little more definitive and make it public. Right now, all I will say is this is a strategic acquisition for our transformation of our business from further transformation from components to products.
Sure. Thanks, and all the best.
Thanks.
Thank you. The next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Hi, Amit. Congratulations on this acquisition. Quickly on the competitive positioning of this company in India, would it be possible for you to share what kind of market share they'll be having in India? And I'm guessing the other competition is Automotive Axle, so how do you see that landscape changing?
There are multiple competitors in India. There is, you know, there are at least seven or eight companies that make these products in India, besides the in-house manufacturing of many of the OEMs. Okay?
So if you take the entire, value of the overall market, which includes automotive, agriculture, off-highway, et cetera, et cetera, et cetera, the market is very large, and none of the companies have, I would say, more than a 5% - 10% market share of the overall market.
Okay. Okay, got it. Got it. And would we have right to export this product, given that American Axle generally would be catering to the global market on their own?
We have you know markets where which we can access right away, and there are markets that you know obviously are carved out for the sellers, but that all. You know I don't want to comment on that at this point. Right now the whole focus of this is India and our near let's say close by markets.
Okay, okay. Got it. Got it. And, do you see any synergies between the other group companies like, Automotive Axle and this? I mean, in the sense, not only Bharat Forge, but.
They're separate companies, so obviously, you know, whatever synergies will exist, will exist between this company and its parent company, which is Bharat Forge.
Got it. Great, great. Thanks and all the best.
Thank you.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Arjun from Kotak Mahindra Asset Management. Please go ahead.
Sorry, who? I can't hear you.
Sir, this is Arjun Khanna from Kotak Mutual Funds.
Yeah, hi. Hi, Arjun.
Hi. Sir, my first question is, in the press release we talk of a retained business, so you've given ratios for every year. So I see for FY 2024 are about INR 1,383 crores out of INR 1,585 crores. Could you help me understand what does this mean, sir?
This is the business that we are acquiring.
Right. So the remaining would be the passenger vehicles, which we are not acquiring?
The remaining was something that they were doing for their global business.
So the exports?
Could be components, et cetera, that they were doing for their global requirements.
Sure. Sir, secondly, in terms of the contracts for the domestic side, are we confident of retaining this business? Or do you expect this business to be put up for the bidding post the change in management?
You know, first of all, this is not an off-the-shelf product.
Right.
Okay? So it's a highly engineered system. So our hope is that the combination of our relationships with our customers and, you know, the capability of this company and its people, you know, will give us stickiness.
Sure. Fair enough. Lastly, just to understand, we have mentioned an EV of INR 544.53 crores. Essentially, would the resultant entity have a debt on balance sheet?
No.
Sure.
This is on a no-cash, cash-free, debt-free basis.
Perfect. Thank you for the same. Thank you.
Yeah.
Thank you. A reminder to all participants that you may press star and one to ask a question. As there are no further questions from the participants, I now hand the conference over to Mr. Amit Kalyani for closing comments.
Ladies and gentlemen, thank you very much for your time. You know, I think we're looking at this opportunity with a lot of hope. We're excited. We are getting a good company with good people, good capabilities, that I believe can be the foundation for a growth imperative, and initiative on our behalf. Thank you very much, 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.