Ladies and gentlemen, good day and welcome to the Q2 and H1 FY 2027 earnings conference call hosted by Bharat Forge 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 your touch-tone phone. 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 joining our Q2 and half-yearly analyst call. I have with me our teams from operations, BD and sales, finance, and investor relations. I have my fellow board members, Subodh Tandale. I have our CFO, Kedar Dixit, our Head of Investor Relations, Raj, and Chinmay, his colleague, and Samir from finance. I will have them take you through a summary of our business, and then we will open it up for Q&A.
Good afternoon, ladies and gentlemen. First of all, wish everyone a happy and prosperous Diwali. Talking about the highlights for the quarter and six months, happy to note that this was the highest sale. We had achieved highest sales across export and domestic on a quarterly basis. Q2 FY 2027 standalone revenues were at INR 2,526 crore, which was up by almost 30% YoY. EBITDA stood at INR 655 crore, up 20% YoY, resulting in EBITDA margin of 25.9%. The profitability bore the impact of escalating freight, energy cost, and other input costs, which we are recovering from our customers, but there is always a lag. Also, there is an impact due to inflation, which has an optical impact of almost 0.4% on the margins, which is more of an optical rather than actual.
Q2 standalone also included an exceptional item of around INR 20 crore towards the consultancy charges for our legal and consultancy legal and consultancy charges for our restructuring of steel business in Europe, CDP, which is on track as per plan, and it will get concluded by mid of next year. The YoY performance also saw an all-round improvement in exports, especially on the automotive side. The export CV business recorded its highest revenue driven by volume growth and some market share gains and ramp-up of new businesses. Consolidated revenue for the quarter stood at INR 4,870 crore, which was up 21%. EBITDA was at INR 778 crore, which was up by about 9% vis-à-vis last year, translating EBITDA margin of around 16%. Talking about India manufacturing business, our recent acquisitions continue to post strong performance.
JS Autocast, which is a casting business, saw a revenue growth of 16% to reach INR 220 crore, and EBITDA grew by 35%, translating into EBITDA margins of 14.2%. This has been JSA's highest quarterly revenue and EBITDA till date. The K-Drive business also continues to do well. The consol balance sheet remains strong with net debt-to-equity ratio at 0.45x. Consol cash stands at around INR 4,158 crore post QIP fundraise. We have also received new orders worth INR 2,100 crore during first half of this year across our India manufacturing businesses. Forgings receives order worth of INR 1,000 crore in that. The outstanding unexecuted order book for defense stands now at INR 10,950 crore as of September. Talking about the overseas business, despite lower utilization due to holidays and difficult operating environment in Europe, the overseas business managed overall positive EBITDA.
Europe saw revenue of INR 931 crore and EBITDA of INR 29 crore, resulting in a margin of around 3.1%. U.S. revenues were at INR 476 crore, and EBITDA was about INR -6.7 crore for the quarter. Our restructuring business for CDP is on track, and as I mentioned, we will estimate to conclude the same by middle of next year. I will hand over to Amit sir.
So ladies and gentlemen, I'll start first with talking about some of our subsidiaries. If you look at JSA and K-Drive, together, we are now at a place where our revenues are well in excess of, between the both of them should be in the excess of INR 2,200, INR 2,300 crore for the year. When we bought, that is about a run rate of about close to INR 600 crore a year, a quarter, sorry. When we bought JSA, it had a total business of about INR 400 crore, which is about INR 100 crore, and K-Drive was about INR 1,220, INR 1,230 crore. That is about INR 300 odd crore. So, we have grown from about INR 400 odd crore to about INR 600 odd crore on a quarterly basis, which is a 50% growth in the period that we bought these two companies.
And we expect that this will again continue growing to close to double of this amount, and as well as get higher margins. So, the business that we have acquired through these castings and K-Drive will not only allow us to grow our revenues and our profitability, but also get us into sectors such as the pass car and the utility vehicle and pickup truck market that we were not existing in a big way. And that will increase our share of revenue in this sector very substantially going forward. And as India grows, the automotive market is growing more on the SUV and pickup, SUV and multi-utility vehicle, et cetera, rather than the small car. So that is a very good sign for our business. On the defense side, we have received the Bulk Production Clearance for ATAGS. This has been delayed, but it is finally been done.
We had increase in cost because of anticipation of this happening and getting prepared for this, plus some R&D expenditure for some of the new products that we are developing. We anticipate a very strong accretion to our order book in the second half based on whatever business and, let's say, programs that we have won, and that needs to get converted into contracts and placed on us. In terms of our Aerospace business, we have won new business both on the engine side and the landing gear side. A very significant new business, double-digit million dollar per year over a long period of time. So that's like a $100+ million business over life cycle, $100, $120 million. So, these are the kind of now new big businesses that we're getting.
With our new facilities which we are investing in and coming up in Baramati, which is four forging facilities and a large machining facility, this will allow us to more than double our output in Baramati over the next two to three years, starting from the first quarter of next year. And grow business in a very profitable manner because it'll be a brownfield expansion at that location. That expansion currently is about INR 1,300-odd crore across forging and machining. This will start, it's already now in implementation phase. Production trials should start by January, February, March for the first two assets, and then towards the middle of the year for the third asset and end of the year for the last asset. So that's the kind of outlook we see. We're adding about 100,000 tons of forging capacity and a large machining capacity in Baramati.
In terms of outlook, I would expect second half to be stronger than first half. We expect to see recovery of our price increases and cost increases from our customers, and also ramp up of some of the new business that we have won in the semicon space, which is also very substantial. Again, large double-digit million dollar business per year over a long period of time. In this particular business, we'll not only be increasing the value, but we'll also be adding to and doing full machining of our products. So we'll be tripling our business over the next two years, and with the new capacities that we're setting up. Additionally, once our machining comes online, that will again add significant value add to that.
So, this all leads to higher value realization, higher value add, and complex and interesting products that then give you a base to ramp up these businesses as well. Once the new forging facilities in Baramati come online, it should give us a lot of headroom for growth in our non-automotive business, especially aerospace, semicon, industrials, because we have been running full, very close to full for the last few quarters. So with a strong balance sheet, lots of new orders, now execution will deliver a stronger return in the next six months and going forward. I think that's all really I want to say, and I wish you all a very happy Diwali to you and your family members, and we'll be happy to answer your questions.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touch-tone 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. First question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. Just to clarify the aerospace order that we talked about, is this the Pratt & Whitney contract that we got for mission-critical engine components?
I am not allowed to name customers, but we have received significant new business from multiple suppliers, multiple customers, sorry. Multiple products, multiple customers. In fact, we are setting up a new manufacturing facility that is entirely dedicated towards aerospace, and it is pretty much 60% sold out, and that will start from middle of next year.
Okay. And similarly, on the semicon side, like in this one you talked about $100 million annual opportunity. What kind of opportunity do you see initially on the semicon side?
See, we are already now at a run rate of double-digit million dollar per year. Now we have to grow that 2x, 3x. We are setting up a new forging facility to do that, and that facility will do aerospace, it will do semicon, and it will do industrial also. All high-value large parts that we weren't doing, we are doing, but not doing in a scale that we wanted to. Now that we have enough orders, we need facilities that can be semi-dedicated for doing this and do this very efficiently and at scale. So that equipment itself should be able to cater to these two, three sectors, at least for the next two, three years.
Just in your press release, you added that the ATAGS revenue recognition will start from next year, which means that this 20% to 25% revenue guidance. So sequentially, when you look at second half, what is the driver of this jump in revenues that we will see to meet this 20%-25% guidance?
It's across the board. It is our Aerospace business, it is our industrial exports, it is some of the Semicon business, it is the CV business, it is our pass car exports, all of these, marine, and then JSA and K-Drive, all of it. We have lots of new programs and projects which are moving into revenue.
Right. Great team. I'll come back in the queue.
Yep.
Thank you. Next question is from the line of Kapil Singh from Nomura. Please go ahead.
Yeah. Hi, good afternoon, sir. Wishing you and the team a very happy Diwali as well.
Thank you, Kapil.
Sir, firstly, on K-Drive Mobility, we saw very strong growth this quarter, and also margins have seen some improvement. Just if you could talk about what are the drivers here, and in the medium term, what kind of profitability can this business achieve? What is the potential here?
Yeah. Our goal is to take this towards double digit in the next two years, EBITDA. And keep growing our revenues by at least 20% a year, if not 25%, by getting into the pass car sector, which means SUVs, pickup trucks, and utility vehicles, and also working on hybrid and electric solutions for our customers.
Okay.
That's the two-pronged strategy.
Okay. And this will have relevance for exports as well?
Yes, it will have for certain sectors. We obviously have a non-compete with the company we bought from, but there are plenty of sectors that they didn't play in. We are also now supplying into off-highway, and that is the area where we have open game. We can export and play in that market anywhere in the world.
Okay. Sure, sir. The second question was just on the truck operation, both for India and particularly U.S. Class 8. We saw some weakness in the orders recently. So what is the outlook over there? If you could just update on both India and U.S.
I am going to request my colleagues Subodh to answer this question. He is right here.
Yeah. Hi. So, you are obviously referring to the latest announcement of the sales in October.
Yes, sir. Order inflow.
Yeah, order inflow, yes. The order inflow has varied quite substantially through the year, but particularly for the last seven to eight months, the level of production has been constant at a reasonably high level. And the indication that we have from all our customers is that production level will in fact continue to be very stable and in fact be a little stronger than what it is today. So, from our point of view right now, all our customers are talking to us for actually blocking capacity for the next, I would say, 18 to 20 months in a row, and that's at high level. So, we are expecting a reasonably strong outlook based on what we hear today.
Sure, sir. And for India?
Same.
Okay. Thank you so much. Thanks. That's it from me.
Thank you. Next question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. First question is just around profitability and the outlook going forward. We have seen first half top-line growth closer to 20%, but gross profit and EBITDA absolute growth is slightly lower because of all of these understandable factors around inflation and raw materials, and you had pre-operating costs on some of your plants, one-off costs, and so on. As we move to the back half, just wanted to understand if you could help us understand the drivers of how possibly EBITDA growth and gross profit growth can converge maybe closer to the good revenue growth that we are doing as a company.
Yeah. I think for the second half, if you take away the inflationary impact of the top line, which could be 2%-3%, without that, the EBITDA numbers will be, or EBITDA growth will be in sync with top line, maybe even little better than that.
Got it. Makes sense. Second question is just around trying to understand the steel pass-through agreements a little better on the India manufacturing business. I understand we manufacture in India and export to a lot of our customers. Just on the metal cost that you incur there, is this metal mostly purchased in India at Indian safeguard duty inflated rates? And then your cust—
You are talking about metal that is produced, I mean, the components that are manufactured in India or those which are manufactured abroad?
Manufactured in India and exported abroad.
Whatever is manufactured in India is bought in India, this steel. Okay? And that follows global price trends.
Got it. So the safeguard duty that typically, I think, local automotive companies are paying on the steel that they buy in India, that is not something which your customers have to pay you for because those are contracted at global rates?
No, those are local, I mean, those are Indian costs. They are not global costs.
Got it. Makes sense. Last question is just around, you've indicated in the presentation and the comments that for the next 12 to 18 months, you should be able to start production on some of the non-automotive businesses that you're investing towards. Just wanted to understand if there are sort of any early customer commitments or nature of components that you want to sort of share on this growth aspect of the business.
I don't want to share what we are doing, but let's just say they are unique, high value, and highly value-added components for a variety of industries from aerospace, landing gears, structural components, semicon, industrial, even aerospace, even the space side of things. So in a variety of different sectors and a variety of materials, from high-temperature alloys to titanium to aluminum. So a variety of different materials and products and customers.
Got it. That's helpful. Thank you very much and all the best.
Thanks.
Thank you. Next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah. Hi. Thanks for taking my question. Just two follow-ups. One on the defense revenues. With the deferment of the ATAGS order to next year, could you give us some sense on, is there any new order that sort of converts into revenue in second half of FY 2027? Just some idea.
I just want to correct you. There is no deferment of the order.
I mean, I meant revenue recognition.
Order has not been deferred. The production approval didn't get deferred, it got delayed. We were waiting for the production approval, which has now come through, and that should start shipment from Q1 of 2027, 2028.
Perfect. No, that's what I meant. I think from the revenue accrual perspective, is there anything that, how should we think about revenues for FY 2027?
We do have some business that we had won during the last 6- 12 months, including some EP contracts, which should all materialize in the second half, which will give us a boost on our top line and bottom line for the second half of the year for defence.
Got it. And there were these two contracts which were large size. One was ATAGS and the other was the CQB, the small gun contract which was there. Could you give us now the timelines, like how long ATAGS takes to convert into revenues when it starts from Q1 of 2028—
ATAGS will start converting into revenue from quarter one of 2028.
How many quarters is the delivery?
It depends. We have to supply 184 guns. In the first year, it will be a ramp-up. Second year will be more steady. Third year will be steady. So in four years, I think we should be able to deliver this.
Got it. Same as with the CQB contract also, that it starts next year and—
CQB, we have not got the Bulk Production Clearance yet. Okay? Once that happens, in four to six months, we should be able to start delivery.
Got it. My second question is—
Please remember that we have an ability to build, I would say, at least one gun, I would say 120 to 150 guns a year. Now, it depends on for the big artillery gun. That is across a variety of platforms, both mounted guns, wheeled guns, towed guns, et cetera. But it depends on the uptake rate that the customer has, how many battalions, where they want to place them, the training and induction schedule. We are flexible, and we are ready and available to deliver.
Got it. On the overseas subsidiaries, I mean, there is a restructuring that you did talk about on the European operations, but there also seems to be inferior profitability on the U.S. subs. How do we look at the more sustainable profitability on U.S. operations, and what is really depressing the margins in that business?
We had some one-times in the U.S. steel subsidiary because of breakdowns. On the aluminum side, we have a cost issue because of the raw material costs. Let's see, our goal is that in the next three to four months, by December, we should have a solution in place for the steel subsidiary. On the aluminum subsidiary, we're developing a lot of new products for non-automotive. So as those start coming online, it should give us a boost, say, in the next 6- 12 months to our profitability and take us above break-even.
Got it. Just last question, if I could squeeze in on the India manufacturing. I mean, your guidance is amply clear, 20% on India manufacturing. From a margin perspective, there are many things which are happening. You have mix changes, you have commodity impact. How do we look at the sustainable margin or a steady state margin for India manufacturing, given there is so many things which are getting added to this entire piece on aerospace, on defense? Is there a number that you would help us?
It's a very good question, Gunjan. Depending on the mix and where we are in the mix at that point in time, I would say our India manufacturing, which is today running at somewhere in the region of close to INR 3,000—
Crore.
—INR 3,000 crore, INR 3,400 crore per quarter, and a 22% margin. I would expect this to be well in excess of INR 5,000 crore of sales by the time we come to the end of next year. I would say an accretion in margin of at least 200 to 250 basis points.
Got it. That's really helpful. Thank you so much. I'll join back to you.
Thank you.
Thank you. Next question is from the line of Amyn Pirani from JP Morgan. Please go ahead.
Yes, hi. Thanks for the opportunity. Just some clarifications on the defense business. As you ramp up on the ATAGS production next year, how should we think about the margin profile of this defense entity vis-à-vis what the margins we can see right now? Is it going to change materially? Is it going to be similar? Any broad indication?
I would say that the defense business margins will vary between 20%-25%, depending on the product mix that we're supplying. So initially, it may be in the 20%-21% range. But as we start making more sophisticated products and as we start doing the fully filled ammunition, that should increase even further. Okay?
Okay.
So we will have one set of margins till we have the certain product profile, and as we have more value-added products and fully filled ammunition, the margin profile will increase by at least 200 basis points, 300 basis points, maybe even more.
Okay. And ATAGS is on this value addition kind of product mix, or is it more like a
No, it is a good 20%, 22% margin product, but it is also got a very high asset turnover.
Understood. And just some clarification on the order book. So the defence order book that you have reported as of the end of last quarter, does it
INR 10,600 crore.
INR 10,000 crore. Does it include the ATAGS and the CQB orders, or what does it have?
Yeah, it has everything that is in defense.
Okay. So everything which has not started, which is ATAGS, CQB, and other things, everything is part of the order book?
Yes, absolutely.
Okay. Thank you. I'll come back to you.
Thank you. Next question is from the line of Kamlesh, an individual investor. Please go ahead.
Yeah, go ahead, please.
Kamlesh, please go ahead with your question. Your line is unmuted. Kamlesh, may we request you to please unmute yourself and proceed ahead with your question. As there is no response from the participant, we will move to the next question, which is from the line of Arvind Sharma from Citigroup. Please go ahead.
Hi. Good afternoon, sir. Thank you for taking my question. Sir, on the ATAGS order, is it possible to share that how much of the revenue will be captured by KSSL and how much would be the standalone business?
See, the order was taken at a time when KSSL didn't exist. Okay? The order is taken by Bharat Forge. We will novate the order later, but right now, the deliveries will happen through Bharat Forge.
Got it, sir. So the entire thing would come into the standalone business as of now?
Yes.
Sir, is it possible to share any sort of a revenue and rate over the four years that you talked about?
We have got 184 guns. It will happen over four years. It will probably be 10%, then 15%, 20% similar amount, and then whatever is left.
Got it, sir. Thank you so much for taking my question. That is all from my side.
As I mentioned, please remember, it depends on the absorption rate of the customer because they have to train all their battalions on these new guns, and then they have to decide where to deploy them.
Got it, sir. Thank you so much.
Introduction of a major new platform is a serious process. Yeah, thanks.
Thank you, sir.
Maybe we can take a few more.
Thank you. Ladies and gentlemen, to ask a question, please press star and one. Anyone who wishes to ask a question may please press star and one now.
All right, since we don't seem to be having any questions, thank you very much for your time and interest. Our team is available for any clarification or further questions that you may have. Again, wish you all a very happy, healthy, safe Diwali, and we'll be in touch. Thank you so much. Bye-bye.
Thank you very much. Ladies and gentlemen, on behalf of Bharat Forge Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.