BHARATFORGNSEQ4 FY22May 17, 2022

Bharat Forge Limited

6,123words

196turns

14analyst exchanges

2executives

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Management on call

Amit Kalyani

DEPUTY MANAGING DIRECTOR, BHARAT FORGE

Subodh Tandale

EXECUTIVE DIRECTOR, BHARAT FORGE

Key numbers — 40 extracted

71%

p the year, I think there is strong finish to the year. At a standalone level, we witnessed about 71% growth in revenues, more than doubling of the EBITDA and a 3x jump in PBT. EBITDA margins was at

andalone level, we witnessed about 71% growth in revenues, more than doubling of the EBITDA and a 3x jump in PBT. EBITDA margins was at 27% despite the inflationary pressure across all cost elements

27%

growth in revenues, more than doubling of the EBITDA and a 3x jump in PBT. EBITDA margins was at 27% despite the inflationary pressure across all cost elements. We have a strong balance sheet with a

Rs. 1,000 crore

l cost elements. We have a strong balance sheet with a net-debt equity of 0.2. We’ve won over a Rs. 1,000 crore of new orders for Bharat Forge India. This is both for Indian and domestic and export markets. We

150 million

arat Forge India. This is both for Indian and domestic and export markets. We have also won over $150 million of orders for steel and aluminum forgings for U.S. operations, which will be made and supplied in

20%

our EV division and also high-pressure aluminum die cast parts from prestigious OEMs. We've had a 20% EBITDA margin at a consolidated level. We've crossed about Rs. 010,000 crore revenue. And our art

Rs. 010,000 crore

from prestigious OEMs. We've had a 20% EBITDA margin at a consolidated level. We've crossed about Rs. 010,000 crore revenue. And our artillery gun has completed all trials by the user and passed with flying colors

28%

colors. Just to look at the 3 months of the ear, we ended again by growing our top line by about 28% to Rs. 1,675 crore, driven by a pickup in both domestic and export market. EBITDA margin at 25.

Rs. 1,675 crore

Just to look at the 3 months of the ear, we ended again by growing our top line by about 28% to Rs. 1,675 crore, driven by a pickup in both domestic and export market. EBITDA margin at 25.7% are optically depr

25.7%

28% to Rs. 1,675 crore, driven by a pickup in both domestic and export market. EBITDA margin at 25.7% are optically depressed due to the pass-through effect of the steel price increase. If that was n

Rs. 352 crore

e steel price increase. If that was not there, this would be about 27%. PBT for the quarter was Rs. 352 crore, a growth of 40% over quarter 4 of '21. So, just to say, at a consolidated level, we expect 2022

40%

that was not there, this would be about 27%. PBT for the quarter was Rs. 352 crore, a growth of 40% over quarter 4 of '21. So, just to say, at a consolidated level, we expect 2022 to be a stronger

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Guidance — 20 items

Amit Kalyani

opening

“operations, which will be made and supplied in the U.S.”

Amit Kalyani

opening

“So, just to say, at a consolidated level, we expect 2022 to be a stronger year, driven both by top line growth and strong cash flow, ramping up of our U.S.”

Binay Singh

“1,000 crore, what will be at EV order book now?”

Binay Singh

“1,000 crore number that we've given, what will be at EV sort of a percentage for the order book?”

Amit Kalyani

“So, this will ramp up this year and it will be running at full volume.”

Amit Kalyani

“These orders will be running at full volume in '24, '25.”

Amit Kalyani

“But by then, we anticipate significant more orders.”

Kapil Singh

“1,500 crore will be for the Indian operations, right?”

Management

“and European commercial vehicle market, we see them at least as of now, fairly robust for this year and next year.”

Kapil Singh

“Or current level is what that you should expect to see?”

Risks & concerns — 7 flagged

EBITDA margins was at 27% despite the inflationary pressure across all cost elements.

— Amit Kalyani

I'm happy to note and report that we have won our first order for power electronics for automotive application from our EV division and also high-pressure aluminum die cast parts from prestigious OEMs.

— Amit Kalyani

That problem is that one can’t comment on what is the cost pressure, et cetera, right now.

— Amit Kalyani

There has been a few months of slowdown because of some of our customers being impacted by Ukraine, et cetera.

— Amit Kalyani

But we are also being cautious in over committing on timeframe, et cetera, because we want to be sure that our products all go through the required test, and we are 100% sure that they are going to meet the safety requirements because the vehicle safety depends on all the system safety.

— Amit Kalyani

And talking about the European operations, did we see a material impact of energy cost inflation in fourth quarter?

— Jinesh Gandhi

Class 8 trucks now, clearly, the orders have been seeing significant decline, and that I understand is because of the slots being closed.

— Gunjan Prithyani

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Q&A — 14 exchanges

My first question is on the order book. In the December quarter, we had called out that the EV order book is around $50 million. So, this order that we're talking about on the power electronics side is over and above that. So, this is something you've got in the March quarter. Is that correct understanding? And if so, what is the EV order book now out of this?

Amit Kalyani

This is an increase because this is something which we had done a product development and supplied it to the customer for testing and trial, and this has now been approved, and it will go into finished product. So, within the Rs. 1,000 crore, what will be at EV order book now? Sorry. Within the Rs. 1,000 crore number that we've given, what will be at EV sort of a percentage for the order book? I would say probably about 50%, 50% out of this are for India. Out of the orders in the U.S. for aluminum, 80% are for EV and hybrid. Those are I gather casting parts that are going into EV cars? No, tho

Firstly, I wanted to check what is the total order book that we have? I really think Rs. 1,000 crore is per annum kind of order that we have done, right?

Amit Kalyani

When it fully ramps up, it will be Rs. 1,000 crore, yes. Rs. 1,000 crore per annum, right? Yes. Because you will have orders from last year or maybe period before that also which are yet to go into production, right? So, I just wanted to check what is the order book, which is yet to go into production? I would say more than Rs. 1000 crore for sure. It would be closer to about Rs. 1,400 crore, Rs. 1,500 crore. So, roughly around Rs. 1,500 crore will be for the Indian operations, right? Yes. And that is only on automotive side. And for the overseas operation? Overseas, as we’ve mentioned right n

My question is, if you are seeing any increased workflow or new orders coming on account of opportunities that, that may have risen from the lack of supply chain in China? Or any extra movement that you are seeing in terms of additional export opportunities for your industrial products?

Amit Kalyani

So, for Industrial, I think this is early days. But we are definitely seeing, let's say, new supply chain demand from India across sectors, and that is our entire foray into castings, forgings, heavier forgings with the acquisition of the Baroda unit and then as we complete the acquisition of J.S. Auto will allow us to cater to a much larger segment of the market and increase those companies' revenues manifold and grow our industrial business as well. Can you talk about specific industrial products which are being asked? No, I'm not going to talk about any specific industry because this is com

On the industrial business, I think you already answered partly that question. So, which are the areas you mentioned, which have 100% dependency on imports? Is it possible for you to highlight some like broad areas where we can have a medium-term opportunity because of the –

Amit Kalyani

Roughly all in capital goods and replace certain imports. So, it's across sectors. It goes across many, many sectors, but it's largely all in capital goods. And on the oil and gas side, you mentioned that you expect stable revenues going forward. So, right now, you are still below the peak that we used to have like 4, 5 years ago? Yes. We're at, I would say, 2/3 of the peak. Despite high oil prices, you are not seeing incremental investments going into that area basically? No, there is incremental investment. But what has also happened is asset utilization. Asset life cycle has gone up substan

First question on the India CV demand, how do you see the demand for current year, especially given the inventory in the system is pretty low? So, how do you see this?

Amit Kalyani

Quarter 1 is looking like is back at peak volumes of 1,670. Very close. Quarter 1 is at about 97,000 number. And how do you see this sustaining, let's say, over the full year? Right now everybody is bullish. Right now, people are bullish for Q2 also. But I think we have to go quarter-on-quarter at a time. But outlook is strong because the CV market has been depressed for a very long time. And we also were gaining, we had new content supply starting in the BS VI regime. So, should we see the full impact or full benefit of that as well? Or our revenue growth will be largely linked to the product

A couple of things. One, sir, if I look at your cash flows for last 4 years, you have done a consolidated level in excess of Rs. 1,000 crore CAPEX and only FY20 was a free cash flow year. So, you have added U.S. capability in the low capability in between revenues back to FY19 levels. So, what is the outlook for consol CAPEX for the coming 2 years?

Amit Kalyani

We repaid lots of loans. So, you are saying we haven't had free cash flow? Out of last 4 years, sir, we could see free cash flow only in FY20 and revenue is back to Rs. 10,000 crore plus. So, how do you see free cash flow generation in coming years? And what should be the consol CAPEX? I don’t agree with you because we have had free cash flow generation even this year. If you look at our debt repayment, we have repaid almost Rs. 250 crore of debt. Our loan has gone down. So, yes, net of debt, free cash flow is not there. But we have the opportunity to raise more debt and finance our CAPEX. So,

Two questions. One is with regard to the international aluminum forging. What has been the experience in terms of ramp-up? I think this quarter in the financials you indicate some revenues being booked. Second, are there any advancement of CAPEX for aluminum forging on the international side?

Amit Kalyani

So, our aluminum forging ramp-up is going as planned. There has been a few months of slowdown because of some of our customers being impacted by Ukraine, et cetera. So, we're using that time to do more product development for future growth. And we have now more business than we have capacity. So, we will have to look at setting up additional capacity to take care of that demand. And when you plan to look into it and announce? We will announce that probably in the next quarter. And second one is with regard to EV components. You have indicated in the presentation some win in the EV component sp

The first question is on ATAGS. As you said, the Army trials have been successful. So, media reports indicate that the RFQ is expected in June for over Rs. 3,000 crore worth of orders. Can you talk about your expectations, opportunity size and capacity for this business?

Amit Kalyani

I'll tell you that we expect that this whole ordering process should pick up steam and hopefully get completed in this financial year. In terms of capacity, I think in our first year, we will have a capacity of about 100 guns. And after that, we will have an increase in our capacity to 200 a year. What has been the investment, sir? Investment so far has been about Rs. 250 crore. But please remember, this is only the investment for the gun making; the machining, forging, heat treatment, all that was already in place. Steel making, all that was already in place. So, we're leveraging the group ca

Amit, my first question is related to exports. You did talk about some order wins and the fact that even now, some of the segments are 2/3 of the peak and even on the export industrial side. If you can just share outlook, given the fact that there is increasing concerns about recession fears in the developed markets. So, if you can just provide some context on where do we stand in terms of our order book, what's been the kind of share gain what we are seeing and the incremental auto win opportunity. So, just to put things in perspective from a 2-year perspective, whether exports can we expect

Amit Kalyani

Yes. So, I'm going to have my colleague, Subodh answer that question. He’s far more active in the market. So, to answer your question, yes, we are expecting growth. Whether it is double digits or more or less, that time will tell. But we are definitely working for growth. But if you can just provide some color as to what are the areas where you're seeing some traction because there are some areas which are not coming back on the expected lines in terms of, say, oil and gas and how is renewable doing? If you can provide some more color. We are targeting growth in all the segments we operate in,

Amit, I just want to clarify on this export order of $150 million. You mentioned wherein the steel forging would be made in U.S.?

Amit Kalyani

This is not export order. These are orders received by our subsidiary in the U.S. for steel, aluminum forging, which will be made in the U.S. and supplied. So, would we need to put up steel forgings capacity there also? No, we have to put up forging capacity, we are going to do automation of our forging lines and some amount of maintenance CAPEX, which will allow us to debottleneck our facilities and make them more productive. Second question pertains to the European aluminum forging business. So, can you talk about what was the utilization for the 30,000-ton capacity which we have in Europe i

Just on the PV segment, what kind of outperformance you expected over the industry growth based on the orders, sir?

Amit Kalyani

PV segment, we will have a definite outperformance because we have one loss of business globally. So, I think we should be able to grow our PV business even if there is no change in the underlying markets by at least 30% this year. And this is across domestic and overseas? No, I'm talking about for India. For Germany, also it will increase because of our aluminum forging business. On the second question, sir, on aerospace, what kind of revenues have you seen in FY22? And what is the outlook for FY23, sir? Aerospace, again, we are seeing, I would say, between 30% and 40% growth this year and po

I just had 2 follow-ups. So, just follow-ups on your India industrial business. Now if you can share some color on the various segments, a little bit of the mix. Where is it coming from Agri, aerospace construction, the way you spell it out for F '22? And when you're giving your comments clearly, there's a lot of confidence on the growth from this segment. So, which are the categories where you're seeing growth?

Amit Kalyani

I mentioned earlier, this is competitive information, and I don't want to share it anymore. Because there are lots of people who listen to what we say, and I don't want to create a competition for myself. So, let's just say that we're going to grow this business. We have a good strategy. We have a new person who is heading this business in our company, and we have a very good plan. Only on J.S. Autocast, now if you can just give the timeline for the closure? It will happen this quarter. It will happen? This quarter. And anything that you want to give us a sense that how that business should sc

Sir, would you be able to share the Sanghvi Forging’s EBITDA, please?

Amit Kalyani

What is the need? What to do will all the numbers, it's about Rs. 70 crore of top line, and an EBITDA of about of 15%, 16%. But this is the first year. The fact is we didn't lose any money. We made a PBT and an EBITDA profit. Frankly, the reason for asking the question was to just decipher between -- we understand Sanghvi Forging is a very profitable entity, but we still see losses in the India sub. So, just trying to understand. Sanghvi is working. The subs which we are losing money are in defense EV. When you go and do trial, there is a huge cost. What has had happened is we had taken Sanghv

So, for FY '22, of this 71% growth, what would be working, how much can be attributed to that RM cost pass-through and how much is organic?

Amit Kalyani

RM cost, I would suggest you talk to our finance team, they will come back to you on this. Secondly, we had seen in the fourth quarter particularly, there is substantial increase in other income and interest costs. So, is there any change in accounting which has happened which will continue? No, we had some disposal of assets. And on the interest cost? And it's actual cash we're seeing. And interest cost also has gone up quite materially to Rs. 40 crore. Portion of the exchange is part of exchange loss because of the rupee depreciation. Our interest cost is Rs. 20 crore per quarter. I think th

Speaking time

Amit Kalyani

Jinesh Gandhi

Moderator

Kapil Singh

Aniket Mhatre

Management

Gunjan Prithyani

Ronak Sarda

Pramod Kumar

Binay Singh

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Opening remarks

Amit Kalyani

Good afternoon, ladies, and gentlemen, and thank you for joining our Q4 and Full Year Analyst Call. As usual, I'll take you through a short commentary and then open up for Q&A. So, I have with us members of our finance, investor relations and management teams. So, just to sum up the year, I think there is strong finish to the year. At a standalone level, we witnessed about 71% growth in revenues, more than doubling of the EBITDA and a 3x jump in PBT. EBITDA margins was at 27% despite the inflationary pressure across all cost elements. We have a strong balance sheet with a net-debt equity of 0.2. We’ve won over a Rs. 1,000 crore of new orders for Bharat Forge India. This is both for Indian and domestic and export markets. We have also won over $150 million of orders for steel and aluminum forgings for U.S. operations, which will be made and supplied in the U.S. to U.S. customers. I'm happy to note and report that we have won our first order for power electronics for automotive applicati

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