Ladies and gentlemen, good day and welcome to Bharat Forge Limited Q4 and FY 2023 Results Analyst Conference Call. 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Kalyani, Deputy Managing Director, Bharat Forge Limited. Thank you. Over to you, Mr. Kalyani.
Good afternoon, ladies and gentlemen. Michelle, thank you very much for the introduction. Good afternoon, ladies and gentlemen, and thank you very much for attending our Q4 and FY 2023 analyst and investor call. This is Amit Kalyani, and I have with me members of our finance and strategy business and operations team. I'll quickly take you through highlights across the board, and then open up for Q&A. If you look at our standalone business, we've had a record sales of almost INR 1,997 crore in Q4 2023 and INR 7,573 crore for FY 2023. This has been a growth of roughly about 21% on sales, and this includes the passthrough of raw material and other price increases that we have received.
In terms of tonnage, it was about 11% increase. Our exports were at $550+ million. EBITDA margin, that was for the year. EBITDA margin was 26.2%, which is a 100 basis points sequential improvement due to product mix. PBT is of course impacted by the finance cost and exchange loss. We see a normalized interest outflow of about INR 60 crore-INR 65 crore per quarter based on the current interest rates. Passenger vehicle revenues have grown about 53% to INR 1,307 crore for FY 2023 on the back of a 71% growth in exports. Aerospace has now accounted for 11% of industrial exports and more than doubled from last year.
We expect that this will again grow at a healthy double digit, 30%, 40%+ number this year as well, possibly even more. In terms of new order wins in the standalone business, we have new order wins of about INR 1,500 crore across the component business and industrial verticals. We have successfully seen certain businesses now transition from incubation to harvest phase such as defense, which I will talk about much more. Aerospace also is now on a significant growth path, and we are confident that the goal we had set of getting to, you know, INR 500 crore-INR 600 crore on an annualized basis is now within reach in a few years with very profitable business. In terms of ESG, you know, we've made progress across the board on ESG.
Our ESG metrics have substantially improved. Our ratings have improved. We are now a part of the First Movers Coalition, the SDG Global Compact, and we have also been recognized by our European customers for ESG leadership. In terms of our overseas subsidiaries, we had our EBITDA loss of INR 49 crore in the Q4 versus INR 63 crore of last quarter. Utilization levels are beginning to increase as production stabilizes. Our aluminum forging facilities, in fact, are booked and overbooked, and we can move towards profitability with price increase and with the ramp up of our business. Based on the performance in the last four or five weeks, we expect Q1 to be significantly better than Q4.
In fact, I would say that the European business should be in the black in Q4, Q1, the U.S. business probably from Q3. We will see sequential improvement in all the businesses, including the aluminum business, every quarter. Coming to JSA, you know, we achieved a revenue of INR 438 crore in the first year. We have won orders in excess of INR 400 crore, we expect this business to ramp up very substantially over the next two years. We have got across the board interest from and orders from our existing customers of Bharat Forge and some new customers also because of our relationship and our backing of this business. Our acquisition of the new unit in Coimbatore called ISML will close in the next two weeks.
With this plus the CapEx that we're doing in Coimbatore in JSA and in ISML, we will more than double our capacity from about 40 -odd thousand tons to more than 120,000 tons in the next two years. Our revenues will also more than double from what it was in the first year in the next two years also. This will be a very profitable business for us and a very good acquisition and pave the way for us to create a new solid vertical which will allow us to grow and service our customers, both existing and get into new products and segments as well. Also in this business, we are focusing on green business model.
We are going to create a green foundry by which we have the least carbon footprint, the least emissions, most recycling, and be a supplier of choice to all our customers. Coming to the defense business, I think this is the biggest inflection point for our company, a business that has been nurtured by our management and developed over the last 12 years. All the IP for this is homegrown and developed in-house, has now converted itself from a incubation to a delivery business. We have an order book of export orders of over INR 2,000 crore, and we have already received the AoN for 300 guns of the ATAGS. That means that in this year, the order for the ATAGS will also be placed.
Besides this, we have significant orders on protective vehicles, return systems and components and consumables across the board, both in India and outside. This business will also now hopefully cross, you know, $100 million in this year and move to significantly higher annual numbers going forward with very solid profitability and return ratios. A business that, you know, we all were looking forward to, I think the light is, we've reached the end of the tunnel, and there seems to be a lot of light and a lot of opportunity.
In eMobility, highlights are that on the Tork side, we've sold over 1,000 bikes, more than 2.5 million kilometers, and we have zero recall, zero safety incidents, and no issues with any of the regulatory side or the incentive side. We are receiving incentives because every part of our vehicle is made in India except for the batteries which are imported and meets all the local sourcing norms and requirements as per the Government of India. We continue to look at expanding our business, ramp up. Our new plant was just announced, start of production six weeks ago.
We will steadily ramp up production and, you know, get to the capacity utilization of about, 1,500 to 1,800 bikes, soon and then get to 2,000 and then beyond that. Our focus continues to be to build competency, deploy the product in the market, learn from it, you know, and build a scalable supply model for components, systems, and aggregates in areas where we are not even present today. This is a completely new area, the two-wheeler and three-wheeler area, where we want to supply components, subsystems and powertrains and be a solution provider. In terms of outlook, I think 2024 is gonna be a seminal year for the company as we pivot from just components to products or from tonnage to technology.
As this transformation and momentum gains, over the next two, three years, the positive impact on providing both growth and stability to the top line will be evident. There will be many more legs for our business to stand on and more growth drivers for its overall opportunity and growth. As we look ahead to 2024, we expect strong growth across revenues, profitability and return ratios driven by a core forging business both in India and abroad, and amply supported by other platform businesses such as defense, industrial and eMobility. We believe that many of the troubles ailing the overseas aluminum business is behind us, and we expect them to contribute to improvement in ratios for the consolidated entity.
For the standalone business, the FY 2024 looks to be another good year, driven by growth in the end markets globally, ramp up of new orders won over the last two, three years, increase in market share across the board. Thank you very much. I think we can take your Q&A now.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then 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. We have the first question from the line of Amyn Pirani from JPMorgan. Please go ahead.
Yes. Hi. Thanks for the opportunity, and thank you for the opening, you know, remarks on the newer areas and new revenue streams. I just had a question, you know, on the legacy business, especially on the standalone. The domestic truck business, quarter-on-quarter growth, you know, seems to be a bit behind what we saw in terms of the sales, and it looks like there has been a lot of pre-buy. What is the outlook for that in the next few quarters? Are we at the end of the cycle, or do you think there is more left in this upcycle?
I think Subodh will answer that.
Yeah. Yeah, hi. Can you hear me?
Yes. Yes.
You are right. We saw some pre-buy in the last quarter and, you know, we were able to cross the 400,000 as far as GIV is concerned. At this point, you know, at least as we see in Q1 and the projections for the next one or two quarters, we see a reasonably strong demand continuing. Based on what we see and what we hear and what we experience, there could be two factors. One is there are no inventories in the system. I think the retail sales have also been strong because of the pre-buy. There is an expectation that there will be some rebuild of inventories in the system.
The demand seems to be reasonable as well, given the, you know, all the infra push and all of that. For the next, three, four months, there is a strong projection from everybody. In fact, we are seeing demand higher than Q4 as well at this point. Of course, we are monitoring this carefully, but for now, this is what we see. We are not seeing any letdown from a demand point of view as we speak right now.
That's good to know, sir. Similarly, if you can give a comment on, you know, the trends in the global truck business. You've hit a INR 500 crore plus revenue in this quarter. How are the production trends going forward and, you know, your business in the next few quarters?
As far as global business is concerned, if I look at the U.S. in particular, then, you know, the demand is still holding on. The production levels have not changed. Over the They've been pretty constant over the last, you know, 18-20 months, and that continues right now. I think, in previous calls, we have also explained that, the backlogs are still reasonably healthy, and as a result, truck builds continue. There are some challenges that the market is facing relative to, you know, supply chain. It's not just semiconductors, it's a couple of other things as well. There is a certain up and down from that point of view. Somehow we are seeing production steady, and as a result, we are also seeing, you know, our, demand steady.
We are also seeing some growth, in fact, like in India as well, because we are seeing improvement in market share across the board, and that is also a factor as far as Bharat Forge is concerned. We see a similar condition in Europe, where the demand is holding reasonably strong. Of course, in Europe also there are some supply chain factors that are affecting, you know, build. By and large, the OEMs are still managing to build one way or the other. The expectation is the rest of this year also will be reasonably strong, like in the U.S., and there is a strong optimism for next year as well to remain at similar levels. Although now we have to monitor this literally month by month. As far as, we also play in South America.
We are seeing some small declines in South America. You know, in our case, we are going from a relatively small base to a higher base. For us, we see this as an increment in our business really. Overall, this is the view that we see of the world.
Great. Great. Thank you.
This is as far as the commercial vehicle is concerned.
Yes. No, thanks for the detailed answer. It seems that we are still in a supply type situation and demand really, you know, is not so much of a concern at this moment.
Yeah, I would say demand is stable and, you know, we are, yes, we are catering to a stable demand, but we are also seeing growth because of market share factors.
Great. Great. Thanks a lot. I'll come back in the queue.
Thanks.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah. Hi. Thanks for taking my question. My first question is on this overseas subs losses. If I recall, you know, last quarter you had laid out that the utilization in the new plants in U.S. is about 20%-25%. Can you give us a little bit more color on where we are in terms of utilization rates, and what's really ailing the business? Is it the operating leverage being low, or is it just the cost have elevated so much that it needs renegotiations with the customer base? A little bit of color as to how we should see that.
Very simple. There are two issues. One is we have to ramp up production and we have to increase prices. Okay. The prices have on average gone up by anywhere between 25%-30%, in some cases even 40%. We need to get that price pass-through. The second is we need to grow our top line. Those are the two issues.
Where are we on the utilization? Like where... you know, versus where we can get-
Close to 50% now.
That's not really a bad level, so.
No, the issue is the price. You know, please understand, when your production increases and your cost is not recovered, you have a bigger problem. We are now got, you know, cost recovery from several customers. Few are pending, and that will all get closed out by about another month and a half or so.
Okay. By the second half of this fiscal, we should see this business.
Overall, we should see black numbers in this next quarter. U.S., I'm very hopeful the quarter after that.
How about the medium-term target, that is the low -teen EBITDA margin? I mean, is there?
Yeah, that still remains. That still remains. mid-teen EBITDA margin still remains.
That's something that we should be looking at for next year.
Yeah.
Once the full ramp-up is done.
Next year, yeah. Maybe towards the second half of next year. Yes.
Okay, got it. My second question is on defense. Clearly, you know, this is one business which is surprising positively in terms of the way the order book is building out. Can you just share as to how we think about the revenue scale-up, you know, you know, where we are right now in F Y 2023 and, you know, do you see this going to INR 1,000 crore, INR 2,000 crore? Some guidance around the revenue scale-up.
I think we should be above $100 million this year. That is our goal. Obviously next year we want to grow that quite substantially because this year till December, we will have, you know, production happening in our existing facilities, and our new mega plant will be ready by January, February of next year, I mean, January, February of 2024. By March, April of 2024, that facility will be ready for production, and that will be a quantum jump in our capacity. We will have almost 3x as much capacity as we have today.
In terms of profitability, it's fair to assume that it won't be dilutive at the, I mean, at the console level, when the revenue starts scaling up?
No, no. I think it will be positively surprising for everyone. See, the difference is these are our products. These are, you know, not something that we are contract manufacturing or someone else's IP that we're doing.
Okay.
We control the IP, we control the entire value chain, so I think we will have a good control over the numbers as well.
Okay, got it. Just last one from me. You know, this whole inorganic and acquisition is something which is totally... You know, we've made small acquisitions, but it seems like, you know, there's also a, you know, talk of making large acquisitions on the defense side. You know, any thought process around how will we approach inorganic opportunities, which streams it would be? You know, it'll help us think through, because, I mean, that's something that clearly came as a surprise to us.
I don't know what you're talking about, but we are not looking at any large opportunities. We will only look at opportunities which are platform opportunities like JSA, which provided us a complementary business area where we could, A, enter some new segments and also provide products and services to our existing customers. One of the things that we will do is look at bolt-ons to JSA like we have with ISML and many others, so that we are able to grow our capacities there, leverage the strong management and technology that we have in increasing our revenue and profitability fast. There is no plan at all of, you know, buying any, you know, anything else complicated or anything else for sure. I'm definitely not gonna buy anything outside of India.
I think India is the best place for manufacturing, and the whole world is coming to India. This is where we will look at acquisitions and growth going forward.
Got it. Thank you so much. That's good to hear.
Thank you. The next question is from the line of Kapil Singh from Nomura Group. Please go ahead.
Yeah, good afternoon, sir. Just to follow up on defense, this $100 million that we are talking about, this includes artillery guns as well, right?
This is our total revenue in rupee term will be over $ 100 million.
Okay.
This will include everything that we do in defense, including artillery guns, yes. For this year.
Okay. Can you also let us know how the defense orders, the guns orders will roll in going ahead? Is there every year there is a AoN issued or how does it work?
Right now there is, Kapil, there is a AoN for 307 ATAGS guns that is out. The RFQ will come out very soon, and then the whole order process will go through. The guns are approved. They finished all their trials, and they are ready for induction based on the process being completed.
These 307 guns will be over what period?
That is over a four-year period from the first year of supply.
Okay. rolling basis then every three or four years, updates would come on this, right?
The total requirement is huge, okay? This is only a initial order.
Understood. Second, can you share update on the industrial business both in India and overseas, also the oil and gas business, what is the outlook there?
Oil and gas business outlook is steady. It is better than last year. Industrial business is growing. You know, thanks to a lot of boost of the renewable energy sector and the Make in India and, you know, China Plus One, a lot of those companies are moving into India. Plus the fact that India is the only country where infrastructure development is taking place at such a pace. I think India is the place to be for industrial sector, and this is where a lot of growth is going to happen. We expect to continue a double-digit growth in the industrial sector as an overall, including both forging and casting.
Okay. Thanks a lot, sir.
Thank you.
Wish you all the best.
Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi. Please go ahead.
Thank you so much for the opportunity, sir. Sir, can you just share some outlook for the construction equipment for the overseas market, sir?
I don't have the construction equipment outlook. I know that, you know, we are a supplier to that sector across various different components and fields, and, you know, our business is growing quite dramatically. I don't have details of which company is growing in which geography. Maybe Subodh has that. Maybe he can add something to that.
You know, Amit, you're right in, there is no such specific benchmark, but, you know, we deal with pretty much everybody in that segment, in the construction and mining segment globally. Currently, we are seeing very strong demand, which again is a factor of, you know, the strength of the market to a certain extent, and also for us, growth in, let's say, either our market share or acquisition of new business. It's a combination factor, but that segment for us is growing quite well.
One more thing that will start happening in the near future is you will start seeing capacities being created in India to service India and to export from India.
Right, sir. Sir, this quarter PV revenue was lower sequentially in both domestic and exports market. Any reason for that, sir?
Sorry. Can you say that again?
The PV revenues were lower sequentially this quarter in both domestic and exports, sir.
Subodh?
There is no structural issue here. It is, you know, as I mentioned earlier, there are some challenges that the OEMs are facing in supply. And again, it's not just semiconductors, it is a combination of various different things. It is a combination of tires, it is a combination of other parts and so on. There are some demand adjustments going on, but there is nothing which is a structural problem right now. They are still expecting, for example, the U.S. to grow up from this year. Europe is gonna be steady, and we are seeing growth in India as well. We should be able to make it up. That is not an issue.
Right, sir. thank you so much for the opportunity, sir.
Thank you. The next question is from the line of Pramod Amthe from InCred Capital. Please go ahead.
Yeah, thanks. Amit, this is with regard to the EV component. Any update on two of the plants you were supposed to start and also incremental customer orders in the similar space?
One plant has started, which is the two-wheeler contract manufacturing plant. First month was the month of April. The other plant will start in middle of June. In terms of our power and control electronics, we have supplied samples for testing to four OEMs in the country, and we should see feedback probably by June once the testing is complete. We have delivered. These are not prototypes. These are beta samples, so they are, you know, 20 to 15 number. These are significant volume for fleet testing.
Is it relatively behind schedule? Any reason for the same from customers or from your side?
You know, the customer is also developing products. It's going through its own product development and debugging cycle. You know, when you're developing EVs as related to IC components, the challenges are very different. All OEMs, when they've gotten into this sector, have faced these challenges.
Okay. The second one is with related to some of the tie-ups or the investments which you have made in the EV space. Do you see a risk of mark-to-market downwards in case the funding scenario tightens for your international entities? How do you see through in the last three, four years of your investment experience in this business? Is it more like a one-off which comes back or, you know, how do you look into or the technology absorption from the same is much bigger than the investments which you made?
Yeah, that's exactly the point. You know, we are not investing as a financial investor. In every case, we have got the, you know, let's say, the rights to access the technology and manufacture components, subsystems, systems, subject to obviously paying them some royalty where needed. You know, we are using this whole process to assimilate the technology and knowledge and develop a larger product profile or product network for ourselves for this sector. I believe that the EV sector is not a sprint, neither is it a marathon. I think it's a series of sprints. There's a reset taking place every 12 to 18 months in terms of technology, in terms of new technologies, regulations, new developments in the battery technology, in sensor technology, in motor technology.
One has to remain agile, invest in some base, foundation technologies, and then adapt to what is happening.
Sure. That's interesting. The last one is, as you talked about, these new business initiatives.
Pramod, five seconds. Pramod, even if you read, you know, what the CEO of the largest Japanese company said after he took over, I think it was very profound to learn, you know, the admission made by someone that You know, that strong and that powerful that, you know, making electric vehicles is not like making cars. In fact, it is anything unlike making cars. It is like making a computer or making a, you know, cell phone or something like that, because it's more about the electronics, the control systems, the software, the embedded systems. The vehicle is a box which all that goes in. It's that which is the unlearning that needs to be done in order to go forward.
you know, the challenges in this sector and the opportunities in this sector are two sides of the same coin. We are going to have to be agile, be nimble, but at the end of the day, EVs are going to be the future. I don't think 25 years from now there's gonna be more than 20%-25% of combustion engines.
Okay. Understood. Yeah, thanks for the detailed answer and the interesting perspective. One more question is considering that some of the verticals took some time to 55, like aerospace or even defense. If you have to look at three years or five years down the line, as we continue to get fearsome from your exposure to CV, where do you see CV as a proportion will be for you, might be three or five years down the line?
Pramod, that's a very difficult question to answer because in CV, if electrification of CV takes place and we get the kind of market share that we want and we believe that we have the potential to get, you know, we may have a very strong growth in that. If you remove EV, then it may be different. Although if you include EV, I think that we have a growth opportunity.
Okay. Sure.
A significant growth opportunity.
Sure. Got it. Thanks and all the best.
Thank you. The next question is from the line of Mahesh from LIC Mutual Fund. Please go ahead.
Hi, sir. Thank you for taking my question. My most of questions have been answered. Just one query. Sir, what kind of growth you expect in Indian truck market for this financial year?
Subodh.
See this, I'll just give you a longer answer for this. Till Q3, you know, the market was supposed to operate at last Q3 last year, the market was supposed to operate somewhere in the region of about 360,000, 370,000 let's say 375,000 TIV. Suddenly Q4 was pretty good, or the last four months were pretty good, and then we ended up with 405, which was originally the projection supposed to be for this year. Our expectation right now is it'll be within single-digit growth, we, is what we expect from this level. This is also considering the significant growth seen in the last, I would say three, four months.
overall, over demand for the next, you know, two, three, two years or three years, generally we expect it on a positive side. This is our view for now.
Sure, sir. Thank you so much, sir.
Thank you. The next question is from the line of Aman Agrawal from Carnelian Capital. Please go ahead.
Thank you for the opportunity, sir. Just one question from my side. Like, if we see a slowdown in CV segment, in the U.S. in 2024 calendar year, how do you see your aluminum forging operations getting affected due to this?
In which sector, sorry?
Sorry, sir.
Which sector? U.S., CV?
U.S. CV, sir. Commercial vehicles.
No, we don't have any aluminum exposure to commercial vehicles. It's only to passenger cars.
Okay. like, to our U.S. CV exports, like if we see a slowdown in 2024 calendar year, like, any indication we are having with the OEMs, about order for 2024, sir?
Subodh.
Yeah. See, 2024, at this point is not considered to be, you know, it's not supposed to decline. We are seeing, we are actually seeing projections of a small growth, if not it will remain steady. That is the, that is the forecast. Again, nowadays with the volatility, you have to monitor this every month or every quarter. We'll see how it goes. At this point they are not predicting any significant decline, at all.
Okay. Thank you for the answer, sir. It was very helpful. Thank you.
Thank you. The next question is from the line of Rakesh Roy from Omkara Capital. Please go ahead.
Oh, hi, sir. My one question. Sir, can you highlight on the domestic industrial business side, sir? Like a mining sector, aerospace sector-
I'm sorry to interrupt, Mr. Roy, there is a slight disturbance which is coming along, I mean, with your voice from your background. Could you please go to a quieter place and take the call?
Yeah. Yeah. Hello. Yeah.
Thank you, sir.
Now it's clear? Yeah. My question is, can you highlight on the domestic business for FY 2023, especially domestic industrial business, like how is your mining did for FY 2023, like a tractor aerospace?
Tractor industry was at all-time high in 2023. 2024, I think the projections are yet to be out, obviously it was the highest ever production of tractors in India. You know, everything is relative. Even if the production is down 5%-10% or 15%, it's still a very high number. I'm not saying that is what they're projecting. On the other side, on the construction and mining sector, those sectors are booming in India. Everybody's increasing capacity, plus a lot of companies are moving production to India. I think India will become a major export for that equipment, at least for, you know, countries like Africa and for Australia and Southeast Asia, et cetera.
Sir, just one last question, sir. Is mining, sir, domestic mining is revenue contribution for in total industry is how much, sir?
I don't have that number, but probably about 10%.
Okay, sir. Right. Sir, last year, sir, if I'm right, sir, for FY 2022, it was about INR 400 crore, sir, for domestic business, for construction and mining.
I don't have the numbers with me. I'm sorry.
Okay. sir, in export side, same in industrial side, sir. You said oil and gas business is stable. This year number is on year-on basis is flat?
Subodh? Yeah, the same as last year.
Sir, it's gonna be steady. It is gonna be steady, yes.
Okay. Sir, can you highlight on, sir, especially for export market, industrial side for aerospace business, sir? How is doing and what is your for FY 2023?
Aerospace has done very well. Aerospace has grown more than 100%, and we expect that aerospace will continue to grow, and it will grow at more than 50%, 60%, you know, maybe 30%, 40%, 50% this year also.
Right, sir. Okay, sir. Thank you, sir.
Thank you. Ladies and gentlemen, this would be the last question for today, which is from the line of Godwin S. Fernandes, an individual investor. Please go ahead.
Hi. Thank you for taking my question. There was a joint venture that we announced with Talgo for manufacturing of speed trains in India. Can you kindly put some color on that and the future prospects on the same?
We did not announce a joint venture, Mr. Fernandes. We have signed a MOU with them to explore the opportunity of setting up a joint venture to supply to the high-speed rail system in India. We are working through the necessary, you know, technicalities to understand the competitiveness, the production capability, transfer of technology, et cetera, and, you know, we should shortly have a conclusion on this.
Thank you.
Thank you.
Thank you.
Uh, and-
As that-
Sorry.
Sorry, sir.
Go ahead, go ahead.
As that was the last question for today, I would now like to hand the conference over to Mr. Kalyani for closing comments. Over to you, sir.
Thank you, ladies and gentlemen, for your interest and your questions in our company. I look forward to your continued support and engagement with us. If anybody has to ask some other questions, please get in touch with our investor relations team, and they will direct your questions to the right people and get you the required answers. Thank you very much and have a nice weekend. Bye-bye.
Thank you, sir. On behalf of Bharat Forge Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.