BHARATFORGNSEQ4 FY23May 08, 2023

Bharat Forge Limited

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2executives

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Management on call

Amit Kalyani

DEPUTY MANAGING DIRECTOR, BHARAT FORGE LIMITED

Subodh Tandale

EXECUTIVE DIRECTOR, BHARAT FORGE LIMITED

Key numbers — 34 extracted

1997 crore

en open up for Q&A. So, if you look at our standalone business we have had record sales of almost 1997 crores in Q4 23 and 7,573 crores for FY23. T his has been a growth of roughly about 21% on sales and th

7,573 crore

f you look at our standalone business we have had record sales of almost 1997 crores in Q4 23 and 7,573 crores for FY23. T his has been a growth of roughly about 21% on sales and this includes the pass throu

21%

f almost 1997 crores in Q4 23 and 7,573 crores for FY23. T his has been a growth of roughly about 21% on sales and this includes the pass through of raw material and other price increases that we hav

11%

raw material and other price increases that we have received. In terms of tonnage: It was about 11% increase. Our exports were at $550 plus million for the year while EBIT DA margin was 26.2%, whic

26.2%

s about 11% increase. Our exports were at $550 plus million for the year while EBIT DA margin was 26.2%, which is 100 basis points sequent ial improvement due to product mix, PBT is of course impacted

100 basis point

ease. Our exports were at $550 plus million for the year while EBIT DA margin was 26.2%, which is 100 basis points sequent ial improvement due to product mix, PBT is of course impacted by the finance cost and ex

60 crore

ourse impacted by the finance cost and exchange loss. We see a normalized interest outgo of about 60 crores to 65 crores per quarter based on the current interest rates. Passenger vehicle revenues have gr

65 crore

d by the finance cost and exchange loss. We see a normalized interest outgo of about 60 crores to 65 crores per quarter based on the current interest rates. Passenger vehicle revenues have grown about 53%

53%

ores per quarter based on the current interest rates. Passenger vehicle revenues have grown about 53% to 1,307 crores for FY23 on the back of a 71% growth in exports. Aerospace has now accounted for

1,307 crore

r quarter based on the current interest rates. Passenger vehicle revenues have grown about 53% to 1,307 crores for FY23 on the back of a 71% growth in exports. Aerospace has now accounted for 11% of industri

71%

rates. Passenger vehicle revenues have grown about 53% to 1,307 crores for FY23 on the back of a 71% growth in exports. Aerospace has now accounted for 11% of industrial exports and mo re than doubl

30 %

re than doubled from last year and we expect that this will again grow at a healthy double digit 30 %, 40% plus number this year as well possibly even more. In terms of new order wins in the standa

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Guidance — 20 items

In terms of tonnage

opening

“Aerospace has now accounted for 11% of industrial exports and mo re than doubled from last year and we expect that this will again grow at a healthy double digit 30 %, 40% plus number this year as well possibly even more.”

In terms of our overseas subsidiaries

opening

“Based on the performance in the last four or five weeks we expect Q1 to be significantly better than Q4.”

Coming to JSA

opening

“We have won orders in excess of 400 crores and we expect this business to ramp up very substantially over the next two years.”

Coming to JSA

opening

“T his will be a very profitable business for us and a very good acquisition and pave the way for us to create a new solid vertical which will allow us to grow and service our customers both existing and get into new products and segments as well.”

Coming to the Defense Business

opening

“Besides this, we have significant orders on protective vehicles, deterrence systems and components and consumables across the board both in India and outside and this business will also now hopefully cross $100 million in this year and move to significantly higher annual numbers going forward with the very solid profitability and return rat ios.”

Coming to the Defense Business

opening

“As this transformation and momentum gains over the next two years, three years the positive impact on providing both growth and stability to the top line will be evident.”

Coming to the Defense Business

opening

“T here will be many more legs for our business to stand on and more growth drivers for its overall opportunity and growth.”

Coming to the Defense Business

opening

“As we look ahead to FY24 we expect strong growth across revenues, profitability and return rat ios driven by our forging business both in India and abroad and amply supported by other platform businesses such as defense, industrial and E-mobility.”

Coming to the Defense Business

opening

“We believe t hat many of the troubles ailing the overseas aluminum businesses is behind us and we expect them to contribute to improvement in ratios for the consolidated entity.”

Subodh Tandale

“So, there is an expectation that there will be some rebuild of inventories in the system.”

Risks & concerns — 7 flagged

So, it seems that we are still in a supply tight situation and demand really is not so much of a concern at this moment?

— Amyn Pirani

And the second one is with related to some of the tie ups or the investments which you have made in the EV space, do you see a risk of mark -to-market downwards in case the funding scenario tightens for your international entities and how do you see through in the last three, four years of your investment experience in this business, is it more like a one off which comes back or how do you looking to or the technology absorption from the same is much bigger than the investments made?

— Pramod Amthe

See Pramod that is a very difficult question to answer because in CV if electrification of CV takes place and we get the kind of market share that we want and we believe t hat we have the potential to get we may have a very strong growth in that.

— Amit Kalyani

Just one question from my side so like if we see a slowdown in CV segment in the US in 2024 calendar year, how do you see your aluminum forging operations getting affected due to this?

— Aman Agrawal

And they are like to our US CV export like if you see a slowdown in 2024 calendar year like any indication we are having with the OEMs about order for 2024 sir?

— Aman Agrawal

See 2024 at this point it is not supposed to decline.

— Subodh Tandale

So, we will see how it goes, but at this point they are not predicting any significant decline at all.

— Subodh Tandale

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Q&A — 10 exchanges

I just had a question on the legacy business especially on the standalone, the domestic truck business quarter-on-quarter growth seems to be a bit behind what we saw in terms of the sales and it looks like t here has been a lot of pre buy, so what is the outlook for that in the next few quarters, are we at the end of the cycle or do you think there is more left in this up cycle?

Subodh Tandale

So, you are right we saw some pre buy in the last quarter and we were able to cross the 400,000 as well as the GIV is concerned, but at this point in at least as we seen Q1 and the projections for the next one or two quarters we see a reasonably strong demand continuing and based on what we see and what we hear and what we experience there could be a couple of factors. One is there are no inventories in the system. I think the retail sales have also been strong because of the pre-buy. So, there is an expectation that there will be some rebuild of inventories in the system. T he demand seems to

My first question is on this overseas subs losses. Now if I recall last quarter you had laid out that the utilization in the new plants in USA is about 20%, 25%, can you give us a little bit more colour on where we are in terms of utilization rates and what is really ailing the business, is it the operating leverage being low or is it just the cost have elevated so much that it needs renegotiations with the customer base a little bit of color as to how we should see that? Bharat Forge Limited May 05,2023

Amit Kalyani

It is very simple. T here are two issues. One is we have to ramp up production and we have to increase prices. T he prices have on average gone up by anywhere between 25 % to 30% in some cases even 40%. So, we need to get that price pass through and the second is we need to grow our top line those are the two issues. And where are we on the utilization versus where we can get? We are at close to 50% now. So, that is not really a bad level? No, the issue is the price please understand when your production increases and your cost is not recovered you have a bigger problem, but we are now got cos

Just a follow up on defense this $100 million that we are talking about this include artillery guns as well, right?

Amit Kalyani

So, this is our total revenue will be over $100 million. T his will include everything t hat we do in defense including artillery guns yes for this year. And can you also let us know how the defense orders, the guns orders will roll in going ahead? Is there every year there is AoN issued? Right now, Kapil there is a AoN for 307 AT AGS guns that is out, the RFQ will come out very soon and then the whole order process will go through, but the guns are approved. T hey finished all their trials and they are ready for induction based on the process being completed. And sir this 307 guns will be ove

Sir, can you just share some outlook for the construction equipment for the overseas market sir?

Amit Kalyani

I do not have the construction equipment outlook. I know that we are a supplier to their sector across various different components and fields and our business is growing quite dramatically. I do not have details of which company is growing in which geography maybe Subodh has that maybe he can add something to that. You know Amit, you are right. T here is no such specific benchmark, but we deal with pretty much everybody in that segment in the construction and mining globally and currently we are seeing very strong demand which again is a factor of the strength of the market to a certain exten

Amit, this is with regard to the EV component any update on two of the plants you are supposed to start and also incremental customer orders in the similar space?

Amit Kalyani

So, one plant has started which is the two-wheeler contract manufacturing plant. The first month was the month of April. T he other plant will start in the middle of June and in terms of our power and control electronics we have supplied samples for testing to four OEMs in the country and we should see feedback probably by June once the testing is complete. So, we have delivered. T hese are not prototypes, these are beta samples. So, they are 20 to 50 number these are significant volume for fleet testing. Is it relatively behind schedule and any reason for the same from customers or from your

My most of questions have been answered just one query sir what kind of growth you expect in Indian truck market for this financial year?

Subodh Tandale

I will just give you a longer answer for this. T ill Q3 last year the market was supposed to operate somewhere in the region of about 375,000 T IV and suddenly Q4 was pretty good over the last 4 months were pretty good and then we ended up with 405 which was originally the projection supposed to be for this year. So, our expectation right now is it will be within single digit growth is what we expect from this level, but this is also considering the significant growth chain in the last I would say three, four months, but overall, the demand for the next two years or three years generally we ex

Just one question from my side so like if we see a slowdown in CV segment in the US in 2024 calendar year, how do you see your aluminum forging operations getting affected due to this?

Amit Kalyani

Is that a US PV? US CV commercial vehicles? We do not have any aluminum exposure to commercial vehicles it is only to passenger cars. And they are like to our US CV export like if you see a slowdown in 2024 calendar year like any indication we are having with the OEMs about order for 2024 sir? See 2024 at this point it is not supposed to decline. We are actually seeing projections of a small growth if not it will remain steady so that is the forecast, but again nowadays with the volatility you have to monitor this every month or every quarter. So, we will see how it goes, but at this point the

My question is can you highlight the domestic business for FY23 especially domestic industrial business like how is your mining doing for FY23 like a tractor or aerospace?

Amit Kalyani

See tractor industry was at all-time high in 23. 24 I think the projections are yet to be out, but obviously it was the highest ever production of tractors in India so everything is relative, even if the production is down 5% to 10% or 15% it is still a very high number. I am not saying that is what they are projecting, but on the other side on the construction and mining sector those sectors are booming in India, everybody is increasing capacity plus a lot of companies are moving production to India. So, I think India will become a major export hub for that equipment at least for countries li

So, there was a joint venture that we announced with T algo for manufact uring of speed trains in India, can you kindly put some colour on that and the future prospect to the same? Bharat Forge Limited May 05,2023

Amit Kalyani

So, we did not announce joint venture Mr. Fernandez. We have signed a MOU with them to explore the opportunit y of setting up a joint venture, to supply to the high-speed rail system in India. So, we are working through the necessary technicalities to understand the competitiveness, the production capability, transfer of technology etcetera and we should shortly have a conclusion on this.

T hank you ladies and gentlemen, for your interest and yo ur questions in our company. I look forward to your continued support and engagement with us and if anybody has to ask some other questions, please get in touch with our Investor Relations team and they will direct your questions to the right people and get you the required answers. T hank you very much and have a nice weekend. Bye-bye.

Management

Speaking time

Amit Kalyani

Moderator

Subodh Tandale

Gunjan Prithyani

Kapil Singh

Pramod Amthe

Rakesh Roy

Amyn Pirani

Aman Agrawal

Mumuksh Mandle

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Opening remarks

Amit Kalyani

Good afternoon ladies and gentlemen. Michelle thank you very much for the introduction. Good afternoon ladies and gentlemen and thank you very much for attending our Q4 and FY23 Analyst and Investor Call. T his is Amit Kalyani and I have with me members of our finance and strategy business and operations teams. So, I will quickly take you through highlights across the board and then open up for Q&A. So, if you look at our standalone business we have had record sales of almost 1997 crores in Q4 23 and 7,573 crores for FY23. T his has been a growth of roughly about 21% on sales and this includes the pass through of raw material and other price increases that we have received.

In terms of tonnage

It was about 11% increase. Our exports were at $550 plus million for the year while EBIT DA margin was 26.2%, which is 100 basis points sequent ial improvement due to product mix, PBT is of course impacted by the finance cost and exchange loss. We see a normalized interest outgo of about 60 crores to 65 crores per quarter based on the current interest rates. Passenger vehicle revenues have grown about 53% to 1,307 crores for FY23 on the back of a 71% growth in exports. Aerospace has now accounted for 11% of industrial exports and mo re than doubled from last year and we expect that this will again grow at a healthy double digit 30 %, 40% plus number this year as well possibly even more. In terms of new order wins in the standalone business: We have new order wins of about 1,500 crores across the component business and industrial verticals and we have successfully seen certain businesses now transition from incubation to harvest space such as defense which I will talk about much more an

In terms of ESG

Bharat Forge Limited May 05,2023 We have made progress across the board on ESG, ESG metrics have substantially improved or ratings have improved. We are now a part of the first movers coalition, the SDG global compact and we have also been recognized by European customers for ESG leadership.

In terms of our overseas subsidiaries

We had an EBIT DA loss of 49 crores in the Q4 versus 63 crores of last quarter, utilization levels are beginning to increase as production stabilizes. Our aluminum forging facilities in fact are booked and overbooked and we can move towards pro fitability with price increase and with ramp-up of our business. Based on the performance in the last four or five weeks we expect Q1 to be significantly better than Q4. In fact, I would say that the European business should be in the black in Q1 and the US business probably from Q3, but we will see sequential improvement in all the businesses including the aluminum business every quarter.

Coming to JSA

We achieved a revenue of 438 crores in t he first year. We have won orders in excess of 400 crores and we expect this business to ramp up very substantially over the next two years. We have got across the board interest from and orders from our existing customers of Bharat Forge and some new customers also because of our relationship and our backing of this business and our acquisition of the new unit in Coimbatore called ISML will close in the next two weeks. With this plus the CAPEX that we are doing in Coimbatore in JSA and in ISML, we will more than double our capacity from about 40.000 odd tons to more than 120,000 tons in the next two years and our revenues will also more than double from what it was in the first year in the next two years also. T his will be a very profitable business for us and a very good acquisition and pave the way for us to create a new solid vertical which will allow us to grow and service our customers both existing and get into new products and segments

Coming to the Defense Business

I think this is the biggest inflection point for our company, a business that has been nurtured by our management and developed over the last 12 years. All the IP for this is home grown and developed in-house and has now converted itself from an incubation to a delivery business. We have an order book of export orders of over 2000 crores and we have already received the AoN for 300 guns of the AT AGS so that means that this year the order for the AT AGS will also be placed. Besides this, we have significant orders on protective vehicles, deterrence systems and components and consumables across the board both in India and outside and this business will also now hopefully cross $100 million in this year and move to significantly higher annual numbers going forward with the very solid profitability and return rat ios. So, a business that we all were looking forward to I think we have reached the end of the tunnel and there seems to be a lot of light and of opportunity. Bharat Forge Limite

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