BHARATFORGNSEMarch 03, 2022

Bharat Forge Limited

2,955words
73turns
9analyst exchanges
1executives
Management on call
Amit Kalyani
DEPUTY MANAGING DIRECTOR
Key numbers — 10 extracted
rs,
t 7 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 preferre
Rs. 260 crore
rowth, and India becoming a strong player in that area. So, this Company had a revenue of about Rs. 260 crores in 2021. This is in spite of the impact of COVID. It’s had a 10-year CAGR of about 20%, 5-year o
20%
Rs. 260 crores in 2021. This is in spite of the impact of COVID. It’s had a 10-year CAGR of about 20%, 5-year of about 18%. It has a healthy ROCE and RONW of greater than 20% and we expect to close t
18%
1. This is in spite of the impact of COVID. It’s had a 10-year CAGR of about 20%, 5-year of about 18%. It has a healthy ROCE and RONW of greater than 20% and we expect to close this transaction in Q1
40%
ewable space and other segments? Amit Kalyani: Our industrial revenue, as you know, is close to 40% and that is broken up into three primary areas. One is energy, which is largely oil and gas. The
55%
5,000 tons. They are operating at about 25,000 to 26,000 tons. So, they are operating at about 50-55% Jinesh Gandhi: Got it, I’ll fall back in queue. Thanks. Moderator: Thank you. The next ques
2x
at the non- auto business growing. The non-auto, non-oil and gas business will grow like more than 2x in the next three years Pramod Amte: Second one is in terms of client profile and all. How do
45%
it Kalyani: We can certainly enhance it. The current exports are somewhere in the region of about 45%. Basudeb Banerjee: That's good enough, so it can further move up and second thing sir, what is
25%
st by debottlenecking and by some amount of minor investment, we could increase capacity by about 25% beyond our nameplate capacity and then of course you would have to make investments for additiona
3x
ed there is additional space, like we have scope at Sanghvi Forging to increase our capacity by 2-3x, is the similar scope present over here? Amit Kalyani: Yes, right and especially on the value-a
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Guidance — 13 items
Amit Kalyani
opening
“As you are 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.”
Amit Kalyani
opening
“It’s had a 10-year CAGR of about 20%, 5-year of about 18%.”
Amit Kalyani
opening
“It has a healthy ROCE and RONW of greater than 20% and we expect to close this transaction in Q1 of FY23.”
Amit Kalyani
qa
“So, there will be synergies on those sides as well.”
Amit Kalyani
qa
“Pramod, I wouldn’t look at mix because we also will grow our auto business, especially on the e-mobility and lightweighting side.”
Amit Kalyani
qa
“The non-auto, non-oil and gas business will grow like more than 2x in the next three years”
Amit Kalyani
qa
“Here, they have volume production and the volumes can range from few hundreds to few thousands, but obviously it's not a process such as forging where you have tremendous automation, but nonetheless, they do have some automation and there is scope for a lot more automation, which we will do going forward.”
Pramod Amte
qa
“Yes that’s why I was curious, and second when you say you will be a system supplier, would you be able to give some examples in the sense how and what you will supply to wind energy components now?”
Pramod Amte
qa
“Okay, and that will be a much bigger value addition capture?”
Amit Kalyani
qa
“Today that may be the situation, but tomorrow the customers may expect us to do it for them, so that’s doable.”
Risks & concerns — 1 flagged
This is in spite of the impact of COVID.
— Amit Kalyani
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Q&A — 9 exchanges
Q
Hi, congrats on entry into castings through this acquisition. I’ve a few questions. First with respect to, can you share what’s the kind of valuation you’ve paid for this Company?
Amit Kalyani
So, I just want to say this right up front. We will not share the valuation as of this time. I don’t want to answer any more questions on that, but all I’m saying is that it’s a good valuation, it’s a fair valuation for a good Company. What is your next question, Mr. Gandhi? Second question is with respect to the revenue breakup. So, you indicated it will increase our revenue from renewable space quite materially. Can you make a quote of revenues they get from renewable space and other segments? Our industrial revenue, as you know, is close to 40% and that is broken up into three primary areas
Q
Hi, Amit. I think this is the second acquisition in the non-auto space. So, if you have to look at three years down the line, for you with both this and the earlier acquisition if you take into account, what’s the mix you are trying to look at, non- auto vs auto, and how do we see your action on the ground?
Amit Kalyani
Pramod, I wouldn’t look at mix because we also will grow our auto business, especially on the e-mobility and lightweighting side. So, 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 grow like more than 2x in the next three years Second one is in terms of client profile and all. How does this Company, are you able to leverage existing clients to build the capacity or do they bring in any additional clients for you whom you never tapped, how are you looking at this? No, it definitely brings in additional clients as well,
Q
Hi Amit, can you share some details in terms of the names of the key customers and what are the key products where JS Autocast is kind of focusing within these non-auto segments? Some more details on that.
Amit Kalyani
I don't see any need to share any names of customers in detail. I think this is a bad practice because it’s competitive information as well. So, 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 with these guys? As I mentioned, I will talk about the segments and the segments are renewable energy, hydraulics and off-highway. Okay. Thank you so much.
Q
Hi. My question has already been answered.
Management
Q
Thanks. A couple of questions. One, as you said, utilization levels are at 60 odd percentage, so scope to improve utilization. What’s the export mix for this entity as of now or can you enhance exports?
Amit Kalyani
We can certainly enhance it. The current exports are somewhere in the region of about 45%. That's good enough, so it can further move up and second thing sir, what is the debt on it’s books? Debt is very-very small and we have assumed that in our enterprise value. So nothing meaningful? No. Nothing meaningful. Okay. Thanks.
Q
Amit, my question is on the capacity you talked about, there is a scope to increase utilization and add capacity. So, any sense on what kind of capacity addition can we do from the current infrastructure there?
Amit Kalyani
Just by debottlenecking and by some amount of minor investment, we could increase capacity by about 25% beyond our nameplate capacity and then of course you would have to make investments for additional capacity, but this has potential to grow quite substantially. Okay, but you indicated there is additional space, like we have scope at Sanghvi Forging to increase our capacity by 2-3x, is the similar scope present over here? Yes, right and especially on the value-added side, there is a lot of scope to add almost double the capacity. Okay. Primarily on the machine side? Yes. Okay. Got it. Thanks
Q
Yes Amit, considering that it’s a pretty impressive Company, looks like on the ROCE and no debt, any reasons why the existing promoters are exiting?
Amit Kalyani
There was a succession issue. The owner wanted to hand it over when it was doing well and while it didn’t have any issues immediately, but he wanted to find a good home for it. They have done a very good job of running the business. Yes that’s why I was curious, and second when you say you will be a system supplier, would you be able to give some examples in the sense how and what you will supply to wind energy components now? Not yet. That is what we will aim to do. I am not going to make the entire system, but everybody when they are expanding capacity, are not going to do everything in-hous
Q
Sorry for another question. Just quickly wanted to understand in the last 12 months now we have done the second acquisition in the industrial space, does it give you enough additional capabilities to target the renewable segment and would we be done with the M&A on the industrial side or in general going forward?
Amit Kalyani
It would be very foolish of me to say give an answer for that because it’s really about getting deeper into a field. From being a peripheral business, we are now making this one of our new mainstream businesses. So, as we grow our relationship with our customers, as we expand our product portfolios and things like that, then we will get guided by one opportunity we see, what is the traction we get from our customers and what are the opportunities we see in the market. So, I don’t want to say yes we are done or no we are not done because I don't think we know enough today about this to be able
Q
Thank you ladies and gentleman for your interest in our Company and for your questions. We look forward to being able to share more with you about this business once we complete the acquisition and start the integration process, and we will also have an opportunity for inviting some of you to visit the facility if you would like and continue our engagement in a close level in order to keep you updated with what we're doing and how that will impact our business going forward. So, thank you very much and have a lovely evening and we look forward to remaining in touch. Thank you, bye.
Management
Speaking time
Amit Kalyani
28
Pramod Amte
15
Moderator
11
Jinesh Gandhi
11
Basudeb Banerjee
4
Nishit Jalan
3
Rustum Tambe
1
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Opening remarks
Amit Kalyani
Thank you. Ladies and gentlemen, good evening. I am sorry for the extremely late hour in the day. Unfortunately, I happen to be in the U.S. So, it’s quite early over here. I’m happy to announce that Bharat Forge has entered into an agreement for the acquisition of JS Autocast, which has facilities located in Coimbatore. This is a privately owned Company, entrepreneur setup 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 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 7 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 supplier to quite a few of our customers as well. They have a strong operating t
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