Good day, and welcome to Bharat Forge conference call to discuss acquisition of JS Auto Cast. As a reminder, all participant lines will be in 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. Thank you, and over to you, sir.
Thank you. Ladies and gentlemen, good morning. Good evening, sorry for the extremely late hour in the day. Unfortunately, I happen to be in the U.S., it's quite early over here. I'm happy to announce that Bharat Forge has entered into an agreement for the acquisition of JS Auto Cast, which has facilities located in Coimbatore. This is a privately owned company, entrepreneur set up and run, which is primarily present in the industrial space of castings. They make critical and complex machine castings for a variety of industries, the largest being the renewable energy industry, meaning wind. They also cater to hydraulic sector, off-highway, and some amount of specialty automotive segments. They manufacture castings from about seven kilos to about half a ton.
They have a very strong position in the market with marquee customers, many of whom are existing customers of Bharat Forge and the Kalyani Group, and they are a preferred customer, preferred supplier to quite a few of our customers as well. They have a strong operating team, very good operations, profitable and with lot of headroom to grow in terms of capacity as well as in terms of space. As you're aware, in the near past, we also acquired another industrial company, and we intend to grow our industrial vertical very substantially because we see tremendous opportunities in the industrial space, whether it is industrial off-highway, whether it is industrial renewable or other specialty industrial.
We believe this acquisition will allow us to broaden our product portfolio and grow our revenues, bring in more new customers, and make us a much more critical and, let's say, a strategic supplier to many of our customers and move up the value chain, as well as being, you know, EPS accretive from day one. This will also substantially increase our revenues from the clean tech sector, which is an area which we are focusing on because it's good for the environment. It's also an area of good growth and India becoming a strong player in this area. This company had a revenue of about INR 260 crore in 2021. This is, you know, in spite of the impact of COVID.
It's had a ten-year CAGR of about 20%, ROCE of about 18%. It has a healthy ROC and RONW of greater than 20%. We expect to close this transaction in Q1 of FY 2023. I think what we're trying to say basically is that, you know, this is our entry into casting sector. As you already know, we have an entry in the aluminum. I mean, we are already present in the aluminum casting sector for lightweighting. This is now our second presence in the casting sector, more from an industrial point of view. This will allow us to address a larger range of products, increase our you know, supply content per customer, and increase our industrial revenue quite substantially. That's really all I wanted to say, and I think we can now go to Q&A.
Thank you very much, sir. We'll 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. A reminder to participants, please limit your questions to one per participant. Should you have any follow-up, may we request you to rejoin the queue. The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi. Congrats on entry into castings through this acquisition. I have few questions with respect to. Can you share what kind of valuation you are keeping for this company?
I just want to say this right up front. We will not share the valuation as of this time. I don't want to, you know, any more questions on that. All I'm saying is that I think it's a good valuation, it's a fair valuation for a good company.
Okay. Sure.
What is your next question, Mr. Gandhi?
Yes. Second question is with respect to the revenue breakup. You indicated it will increase our revenue from renewable space quite materially. Can you indicate what kind of revenues they get from renewable space and other segments?
Our industrial revenue, as you know, is close to 40%. That is broken up into three primary areas. One is energy, which is largely oil and gas. The second is construction and mining, and the third is renewable energy, where we supply a lot of products into wind energy related components. Our current revenues for renewable energy I don't have exactly, but let's just put it this way. This will move us in the direction of creating, you know, somewhere in the region of two-digit value for, you know, roadmap for getting into two-digit billion dollar renewable energy business in the near future. This will not make that happen, but this will take us along that path.
Because it'll allow us to expand our product portfolio and then grow this business as well.
Okay. The synergy would be largely front end, right? Just keep the common customers. On back end, do you see any material synergies and help to improve margin for this company?
Look, there should be some synergies. There are definitely gonna be synergies on procurement because a lot of the stuff that they procure, you know, is foundry-related, grades of pig iron, scrap, et cetera, which we also procure for our steel plant. There should be some synergy. There will be synergies on those sides as well.
Okay. Can you share-
Of course, you know, the whole cost optimization on financial, you know, financial costs, et cetera.
Okay. Can you share the capacity at Coimbatore? What's the capacity and what's the utilization at Coimbatore?
There I think installed capacity is about 45,000 tons. We are operating at about 25,000-26,000 tons.
Got it. I'll follow up. Thank you.
They're operating at about 60%-65%.
Thank you. The next question is from the line of Pramod Amthe from InCred Capital. Please go ahead.
Hi, Amit. I think you guys are just the second acquisition in the non-auto space. If you had to look at the three years down the line, for you with both these, this and the earlier one acquisition, if you had to take a call, what's the mix you are trying to look at non-auto versus auto, and how do we see your action on the ground to analyze?
I wouldn't, Pramod, look at mix because we also will grow our auto business, especially on the e-mobility and lightweighting side. What I would rather say is how will we look at the non-auto business growing. The non-auto, non-oil and gas business will, you know, grow, like I would say more than 2x in the next three years.
Okay. 2x in three years?
Yeah.
Okay. Second one is in terms of client profile and all, how are you able to leverage existing clients to build the capacity or do they bring in any additional clients that you never tapped? How are you looking at this?
No, it definitely brings in additional clients as well. More than additional clients, what it allows us to do is to address a larger share of our customers' wallets. In the future, hopefully also move up the value chain by doing more value-added work for our customers and move towards being like a system supplier kind of.
Okay. This is a step towards that system supplier in that both, having both the forging and casting together.
It will allow us to leverage our global customer relationships and grow our global business.
The last one is casting is relatively more, I would say, a craft than a mechanization. Has that changed or do you feel scalability coming through in the casting business that you're entering or what? How do you feel that and why are you getting into the casting in a full-fledged manner?
No, no. I don't think that is true. You know, that is true for the very large plant foundries where you're making, you know, one-offs and things like that. Here they have volume production, and the volumes can range from, you know, a few hundred to few thousand. Obviously, it's not, you know, a process such as forging where you have tremendous automation. Nonetheless, they do have some automation and there is scope for a lot more automation, which we will do going forward.
Okay. Sure. Thanks. Thanks, Amit.
There are some very clear reasons why we're doing this. You know, I think we are very conscious that this will allow us to grow our customer base, grow our revenues, grow our exports. That's our focus for doing this.
Okay. Thanks, Amit. Clear on this.
Thanks.
Thank you.
You know, renewable is a mega trend. Renewable is linked to the whole green and clean energy cycle, and this is definitely a mega trend. We believe that we are well poised to take advantage of this coming.
Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Hi, Amit. Amit, can you share some details in terms of the names of the casting customers and what are the key products where JS Auto Cast is kind of focusing within these non-auto segments? Some more details on that.
Yeah, I really don't see any need. I don't see any need to share any names of customers in detail. You know, I think this is a bad practice because it's not really competitive information as well. I think we need to stop doing that. All I will say is that we have a lot of similar customers, and this will also bring a few new customers to us.
Got it. Amit, is it possible to share some of the key specific products which these guys have been strong?
As I mentioned, I will talk about the segments and, you know, the segments are renewable energy, hydraulics and automotive.
Okay, thank you so much.
Thank you.
The next question is from the line of Rustam Tambay from Evalueserve. Please go ahead.
Hi, my question has already been answered. Thank you.
Thank you.
Thank you. A reminder to participants, anyone who wishes to ask a question, press star and one. The next question is from the line of Abhisek Banerjee from ICICI Securities. Please go ahead.
Yes, thank you. Two questions. One, as you said, the utilization levels are up zero percentage, so scope to improve utilization. What is the next book mix of this as of now, or can you enhance exports from-
We can dramatically enhance the export business somewhere. The current exports are somewhere in the region of about 45%.
That's good enough. It can sometimes more. Second thing, sir, what is the debt on its books?
Debt is very small and, you know, we've assumed that in our enterprise value.
Nothing.
No, nothing meaningful.
Sure. Okay, thanks.
Thank you. A reminder to participants, anyone who wishes to ask a question, press star and one at this time. The next question is a follow-up from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Yeah. Amit, my question is on the capacity you talked about. There is a scope to increase utilization and add capacity. Any sense on what kind of capacity addition can we do from the current infrastructure there?
We could easily add, you know, just by debottlenecking and by some amount of minor investment, we could increase the capacity by about 25% beyond our nameplate capacity. Then, of course, you would have to make investments for additional capacity. Potential to grow quite substantially.
Okay. You indicated there is additional space. Like, we have scoped at Sanghvi Forging to increase our capacity up to three times. Is the similar scope present over here or something different?
Especially on the value-added side, there's a lot of scope to add, you know, almost double the capacity.
Okay. Currently on the machining side.
Yeah.
Got it. Okay. Thanks.
Thank you. The next question is a follow-up from the line of Pramod Amthe from InCred Capital. Please go ahead.
Considering that it's a pretty impressive company, looks like on the ROCE and all that, any reasons why the existing promoters are exiting?
There was a succession issue.
Okay.
You know, the owner wanted to, you know, hand it over when it was doing well. While he'd been having issues, immediately he wanted to find a good home for it.
Okay. Thanks. Second, would you-
He's done a very good job of running the business.
That's serious news. Second, when you say you'll be a system supplier, would you be able to give some examples in the sense how what you supply to, wind energy components now? How you can-
Not yet.
Okay.
That is what we will aim to do. You know, I'm not gonna make the entire system. You know, see, everybody when they are expanding capacities, they don't build everything in-house. There will be more outsourcing. They will move from buying components to buying small assemblies to buying machined assemblies and so on and so forth. There is opportunity to grow.
That will be a much bigger value addition capture than just selling the components.
That's a second horizon kind of opportunity. It's not something that's gonna happen tomorrow.
Okay. Sure. Thanks.
It's going to be complementary to our existing customers.
Okay. The design and manufacturing capabilities will lie with the customer in that sense.
You know, today that may be the situation, but you know, tomorrow the customers may expect us to do it for them. So that's, you know, that is doable.
Does the industry still work like, part suppliers and tier one, tier two there also in the industrial components?
Yeah, exactly. Yes.
With these set of systems you would get closer and move up the tier line or how does it?
Look, we just got this company. I think we need six months to get our arms around it and decide what to, you know, what to prioritize and how to go about it. We clearly see, you know, significant opportunities.
It also has a small part, if I heard right, in terms of off-highway. Does it also give you excitement to get into the automobile castings, or it's completely no-go?
We do make some specialty automotive castings. Low-ish volume, low to medium volume, but very critical parts.
Okay. It is still EV-centric tech in that sense, and that gives you more opportunity going forward. Is it conflicted by the ICE versus EV combination, and does it excite you to expand much bigger?
It does allow us to expand, obviously. You know, I think our focus is purely going to be on the bigger components and not the smaller components necessarily.
Okay.
I mean, obviously, look, if we see more traction, you know, for supplying machine components on a smaller side, we will pursue that.
I was asking more, you guys have been very strong in forging. This opens a door for casting, and hence would you like to look for more automobile castings or anything of that sort?
Our automotive casting focus is going to be more on the aluminum and magnesium side.
Okay.
That's where the world is moving. This kind of casting, which is, you know, on the rarer side, is going to be more industrial.
Okay. Got it. Thanks a lot.
Okay. Thank you.
The next question is a caller from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Sorry for another question. Just wanted to understand how do we I mean in last 12 months now we have done an acquisition in the industrial space. Does it give you enough additional capabilities to target this particular segment? Would we be done with the M&A on the industrial side, or M&A in general, going forward?
I think that it would be very, you know, foolish of me to say give you an answer for that because, look, it's really about getting into a field, getting deeper into a field. You know, from being a peripheral business, we're now to be making this one of our new mainstream businesses. As we grow our relationships with our customers and we expand our product portfolios and things like that, you know, then we will get guided by what opportunity we see, what is the traction we get from our customers, what opportunity we see in the market. I don't, you know, want to say yes, we are done or no, we're not done because I don't think we know enough today about this to be able to answer that question.
Okay. Thank you.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one on their phone. As there are no further questions, I now hand the conference over to Mr. Amit Kalyani for his closing comments. Over to you, sir.
Thank you. Thank you ladies and gentlemen for your interest in our company and for your questions. You know, we look forward to being able to share more with you about this business once we complete the acquisition and start the integration process. You know, we will also have an opportunity for inviting some of you to visit the facilities if you would like and, you know, continue our engagement at a high level, at a close level in order to, you know, keep you updated with what we are doing and how that will impact our business going forward. Thank you very much and have a lovely evening. We look forward to remaining in touch. Thank you.
Thank you. Ladies and gentlemen, on behalf of Bharat Forge, this concludes this conference. We thank you all for joining us, and you may now disconnect your lines.