BHARATFORGNSEQ1 FY23June 30, 2022

Bharat Forge Limited

6,408words
122turns
11analyst exchanges
2executives
Management on call
Amit Kalyani
DEPUTY MANAGING DIRECTOR,
Subodh Tandale
EXECUTIVE DIRECTOR,
Key numbers — 33 extracted
5%
or our Q1 analyst call. Overall, we’ve had a decent performance. We’ve had a quarter-on-quarter 5% growth. We’ve had a bottom EBITDA growth of about 7%, we’ve had one of our highest ever export nu
7%
performance. We’ve had a quarter-on-quarter 5% growth. We’ve had a bottom EBITDA growth of about 7%, we’ve had one of our highest ever export numbers. This has largely been driven by a couple of fa
200 crore
of passenger car components having grown very substantially to its highest ever number of almost 200 crores. And we are getting tremendous new traction in this area, from existing customers and also from
10%
to understand those markets and build some presence there. Aerospace now accounts for more than 10% of our industrial export revenue. This same number for last year was 2%. This is the result of ma
2%
w accounts for more than 10% of our industrial export revenue. This same number for last year was 2%. This is the result of many years of hard work and the start of ramp up of a couple of our custom
rs,
n to these programs that are active, two new programs that are ramp up and totally two new customers, in addition who have given us long term orders. So we will now have three distinct product segment
Rs.350 crore
I mentioned, we’ve also added two new customers during the quarter in aerospace, we have won over Rs.350 crores for the India business in the quarter across automotive and industrial applications. And in fact
490 crore
e quite a lot of growth opportunities. We have completed the acquisition of J.S. Auto at an EV of 490 crores. This is a good company, it was purchased on 1st of July, so it will be consolidated in Q2. And
8.5%
. I will talk more about the impact of that going forward. So in spite of that, we’ve had over 8, 8.5% EBITDA margin. Our new facility in the US has just commenced manufacturing operation in the Apr
400 crore
y have a well-balanced business between them, currently our business is, I would say between 300, 400 crores a year of spares and consumables. And our business on the capital side is currently largely vehi
250 crore
he capital side is currently largely vehicle lead. And we have a business of roughly about 200 to 250 crores a year currently, on the vehicle side, this can go up. And we’re looking at global opportunities
500 crore
ide. So if you look at today, our total business I would say it’s somewhere in the region of 400, 500 crores a year and a two, three year horizon or let’s say 25, 26 horizon is how do we take this to 1500
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Guidance — 20 items
Amit Kalyani
opening
“And then we will be happy to take your questions and answers.”
Amit Kalyani
opening
“This is a good company, it was purchased on 1st of July, so it will be consolidated in Q2.”
Amit Kalyani
opening
“And this company will be earning the creative from the first quarter itself.”
Amit Kalyani
opening
“I will talk more about the impact of that going forward.”
Amit Kalyani
opening
“But we expect this to come down as time goes by and we hope that by the end of the year, this should be above the red numbers.”
Amit Kalyani
opening
“And I’m extremely proud and happy to report that our artillery gun which is co-developed with DRDO will be showcased in the 15th August Amrit Mahotsav of Independence Day at Red Ford as a part of the 21 gun salute.”
Amit Kalyani
opening
“So this is a matter of great pride for us that it will be shown to the whole nation live over television and something we look forward to.”
Amit Kalyani
opening
“New plant for this company is under final installation, and from November they will be starting production in new plant which will increase the capacity almost 10.”
Amit Kalyani
opening
“And we’d also like to showcase some new products that we’re launching in the next month or two and post our Q2 results we would like to organize an analyst day where we are able to show you a lot of the new products and talk through what is happening in the business and what we hope to do in much more granular detail.”
Subodh Tandale
qa
“So, in the US, the commercial vehicle segment class seven and eight that we operate at this point, the orders with OEMs are secured until end of next year almost and the rate of cancellations is not that high, the production of the OEMs is stable, there is a lot of talk about some recessionary conditions in the US and so on so forth.”
Risks & concerns — 12 flagged
I believe that in extremely volatile times that we are living in now.
— Amit Kalyani
The end markets have got weak for multiple reasons.
— Amit Kalyani
I will talk more about the impact of that going forward.
— Amit Kalyani
But at this point, at least as far as what we see on an operating ongoing business, it seems quite stable, we are not seeing any difficult conditions as of now, as far as the car segment is concerned, again similar comments there are some disruptions because of supply chain and those aspects moving, that continues.
— Subodh Tandale
As far as the industrial verticals go in the US, I would say they are operating at a stable level, there is not so much of a growth in it, but there is not so much of a decline either.
— Subodh Tandale
What would be the impact of if there are any recessionary conditions it remains to be seen, there is of course high inflation in the US like there is everywhere.
— Subodh Tandale
We are doing everything we can to grow our share in these segments, not just in the US but in all other segments in terms of trying to de risk as much as possible.
— Subodh Tandale
The same sectors in Europe, Europe is of course as we all know, a little more volatile than the US with particularly because of the impact of the war.
— Subodh Tandale
The first question is on our European business is the full impact of the inflationary pressures, gas prices and all that we are seeing in Europe visible in this quarter’s earnings?
— Binay Singh
It’s a very difficult question to answer you have to look at it from two different geographies, in the US the inflation is largely due to overall commodity price increases everywhere.
— Amit Kalyani
So, it is very difficult to be able to say that it will be all the same everywhere.
— Amit Kalyani
And just on the, we are seeing wage cost pressure is also increasing, like even in European countries.
— Sonal Gupta
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Q&A — 11 exchanges
Q
First question is on the outlook for each of the segments that we operate in, if you could share you mentioned some risks also. So, what is the outlook for these segments and in particular, in each of these segments, if there is something to highlight, what Bharat Forge is doing to win additional business and also on the defense business, outside the artillery gun if you could share some update in terms of what is the progress there, what are the current revenue number?
Amit Kalyani
My colleague, Subodh will answer the first part, second part I will answer. So, the outlook of the various sectors that we are involved in and if I can go geographically. So, in the US, the commercial vehicle segment class seven and eight that we operate at this point, the orders with OEMs are secured until end of next year almost and the rate of cancellations is not that high, the production of the OEMs is stable, there is a lot of talk about some recessionary conditions in the US and so on so forth. So, we have all to wait and watch. But at this point, at least as far as what we see on an op
Q
The first question is on our European business is the full impact of the inflationary pressures, gas prices and all that we are seeing in Europe visible in this quarter’s earnings?
Amit Kalyani
Yes, it is. Okay. And secondly, on the North Carolina forging facility. Earlier, we had talked about $80 to $85 billion revenues in phase one. So that should largely play out in FY24 right? Yes. So to an extent so FY23 is the year of breakeven, whereas FY24 you will start to generate sort of mid-single digit or higher margin in that? Yes, absolutely. We will have a positive margin for sure. And as I mentioned earlier, we now need to very quickly start the setup of the second phase because we have orders for almost 4 million pieces and our first line we have capacity of about 2.2. So we will be
Q
Sir, first question is on the export passenger vehicle business, like you just alluded it has seen a very secular growth. So, if you can help us understand, what work for us there, what kind of products have we added over the last few years, and was the trajectory like for the next two to three years?
Subodh Tandale
See, what worked for us is, we have been working on this very consistently for the last five, seven years, and in any passenger car business, particularly when it happens from offshore, there is a very high degree of credibility involved, because the volumes are high, the customers are very demanding and so on. So, let’s say over the last three, four, five years, we have been performing and doing our bit and now we have established a very strong track record of deliverability. And based on that, we are gaining traction to grow especially because, the same cannot be said about the supplier base
Q
This is with regard to industrial division, where you have added inorganic capacity and looks like very GDP forecasts are shaping up for the global markets that run up for exports or industrial can be cut short. So, how are you looking at the industrial division export opportunity, in case there is a weakness, or a refreshment type of environment based up in the global market one, or do you like to add up any more capabilities there is an opportunity going forward?
Amit Kalyani
So, as I have mentioned before, I see the industrial vertical as one of our biggest growth drivers. Today our industrial vertical is roughly a 1000 crores when we add J.S. Auto, it becomes about 1400 crores, and we need to grow this at a strong double digit rate CAGR over the next three to four years. And that is what we should get from it. We have plenty of opportunity, we have good facilities, good people, most importantly and very good customers who are all growing their business with us. So, we are going to grow this business quite substantially. You will be quite happy to see the way this
Q
What is the demand of class 8 truck in Europe and North America?
Amit Kalyani
Mr. Bajaj my colleague who looks after the sales and business development, will answer this question one second please. Demand scenario I am asking, are we getting new orders? Yes, we are getting new orders. Any numbers specific? You mean the market. The US truck market is supposed to be in the region of 300,000 trucks and Europe is similar. Last year in the US it was about 275, 280. So this year is expected to be close to 300 and Europe is more or less in the similar range. China is a major competition from export side or is it any other country? China is not a competitor on the export side t
Q
Sir, I was just wondering, what is the geographical revenue breakup for this quarter. And how much of the revenue loss because of the situation in Europe and America this quarter and what is the provision you have kept for the entire year on a worst case scenario basis?
Amit Kalyani
It’s there on page 6, so full revenue break up by geography. Okay. And sir what’s the percentage of the steel price rises have we been able to pass on to customers? So, I am not going to share that level of detail with you. All I will say is that, as a company we have a policy of passing on price increases, which are out of our control. Whether it is raw materials, or other freight and things like that, but this is a dialogue. We want more they want to give less, it’s always never easy, but we have to find a good relationship and make it happen. But this will happen, our team is working on it
Q
Amit, if I look at the numbers the last couple of years, x of the standalone we have done a CAPEX of 600, 700 crores for the last two years. So just trying to understand.
Amit Kalyani
Not, 600, plus 700, a total. I mean annually, right. No, in standalone we have not done that much CAPEX. I was just looking from this Q4 cash flow statements. No, you are saying ex standalone, not including standalone, right? Correct. So, that correct. Basically look, we have built two new plants, we have built a plant for Aluminium forging in Germany, and we have built a plant in the US. Right. But, like you are saying that we are going to be making like a 10% to 11%, 12% EBITDA margin. So potentially single digit EBIT margins on these sorts of investments. So your return on capital is fairly
Q
I just wanted to ask one question on the business side, when you say that we’ve got these particular order wins. What is our preparedness for these order wins, and how does the contract work like from the day of signing when does it go into production and say, God forbid if there are some uncertainties do we have capacities that are fungible that we can use it some other.
Amit Kalyani
So, let me answer your second question first. First of all, all our facilities are fungible. Okay, we only have to change some tooling. Secondly, how long does it take after an order to get into production really depends on what the product is. If it’s a product that we make regularly, then the whole product knowledge, process knowledge, everything is ready, then it’s just a matter of developing dyes, tools, fixtures, and all that, and getting into production that could be as much as three to six months. And then of course, trials and testing and stuff like that. But if it’s a completely new p
Q
Just trying to understand on the Europe business, given the sharp variable cost increase in terms of energy prices. So how are the new order win, new orders, the new SKUs being priced, are we getting the entire cost increase?
Amit Kalyani
New orders that we are quoting will take new pricing into account. And obviously, with existing clients, as I mentioned about few times on this call, it’s a process of working with your customers and getting reimbursed for whatever is the delta. Got it. But the new orders there is a clear acceptance of the new prices, so there is no new issue in getting those. We wouldn’t quote our price which is not right. Got it, thanks for that. And lastly, the equation for J.S. Auto, has that amount been paid and will that be part of a subsidiary or that will be directly part of the standalone business? It
Q
What sort of benefit do you see for export due to the high manufacturing cost in Europe?
Management
There are multiple factors, one is obviously there will be a difference in cost right now, second is ability to continue manufacturing sustainably on a longer term and availability of energy. So, there are many factors, but please remember it may also affect some of our customers. So, there is right now a lot of shuffling taking place with large companies which are looking at, where else they can produce things they produce in Europe in order to reduce their overall cost. Okay. And sir this quarter consolidated EBITDA is lower than the stand alone on absolute basis because of the subsidy losse
Q
Good afternoon, ladies and gentlemen. And I really thank you and on behalf of our company and our team for your interest and questions and if you have any further questions or require any more clarification, you know who to call in our company. I look forward to your continued support and we will definitely keep you advice well in time of the analyst day that we will have in post Q2, I promise you it will be interesting and exciting, and you will see a lot of new things that we have done and it will give you a glimpse into what Bharat Forge is transforming into in the next few years. So, thank
Management
Speaking time
Amit Kalyani
51
Moderator
13
Binay Singh
10
Ronak Sarda
10
Sonal Gupta
9
Vinit Bajaj
6
Kapil Singh
5
Subodh Tandale
5
Pramod Amthe
5
Abhishek Kumar Jain
3
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Opening remarks
Amit Kalyani
Good afternoon, ladies and gentlemen and thank you for joining our call today. As usual, I’ll take you through a quick explanation and a talk through our results. And then we will be happy to take your questions and answers. So ladies and gentlemen, once again, thank you for our Q1 analyst call. Overall, we’ve had a decent performance. We’ve had a quarter-on-quarter 5% growth. We’ve had a bottom EBITDA growth of about 7%, we’ve had one of our highest ever export numbers. This has largely been driven by a couple of factors. One is our export of passenger car components having grown very substantially to its highest ever number of almost 200 crores. And we are getting tremendous new traction in this area, from existing customers and also from new customers both for existing products and new products. I’m also very happy to report that we are getting business from geographies that we’ve never been supplying to. So we also see other opportunities of non-automotive coming from those geograp
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