Q1 2027 Bharat Forge Ltd Earnings Call
Speaker #1: Thank you. I know what you said.
Speaker #2: Good afternoon, ladies and gentlemen, and thank you for participating in our analyst call. I have with me Kedar Dixit, Raj Gopal, Subodh Tandale, and Amitabh, and Chinmoy.
Speaker #2: So we're here to answer your questions and I'll first request Kedar to take you through the commentary of the quarter, and then we can move to Q&A.
Speaker #3: Good afternoon, everyone. I'll just take you through the highlights for the quarter. In quarter one, the standalone revenues were at 2,347 crore, which was up by 11.5%.
Speaker #3: EBITDA stood at 614 crore, which was up 4.5% loyer-wise. Resulting in EBITDA margin of 26.2%. This 26.2% was the impact of escalation in energy prices and other input costs and logistics.
Speaker #3: The overall cost impact of these costs was about 160 basis points on our EBITDA margin, and we continue to work on the recovery of this indirect cost increases with our customers.
Speaker #3: Normalized for this 8th, our EBITDA margin would have been stood at almost 28% in quarter one. Q1 standalone also included exceptional item of 24 crores, towards consultancy charges for the BF CDP restructuring exercise, which we have initiated.
Speaker #3: The wirewire performance saw an all-around improvement in exports and strong execution in defense. Q1 FY27 was the second straight quarter of recovery in export revenue, and this momentum continues.
Speaker #3: Q1 27 consolidated revenues stood at 4,640 crores, which was up 18.7% on the wirewire basis, EBITDA was at 752 crore, 10.3% up with our last year same quarter, with EBITDA margins of 16.2%.
Speaker #3: Our Indian subsidiaries posted a strong performance during this quarter. Kalyani Strategic Systems, which is our defense arm, recorded a strong operating performance driven by higher realization and better product mix.
Speaker #3: JS Auto Cars, which is our casting outfit, has also had a good quarter with revenue and EBITDA growing 20% and 30%, respectively, on the wirewire basis.
Speaker #3: Consolidated balance sheet remains strong with net debt to equity ratio of 0.45. During the quarter, company has secured new orders across business with forging business recording new orders of 522 crores, defense 681 crores, and Ferrous Casting of around 150 crores during the quarter.
Speaker #3: The outstanding order book in defense now stands at 11,196 crores, as of end of the quarter. Talking about overseas business, despite difficult quarter, the European business recorded positive EBITDA.
Speaker #3: It saw revenue of 1,074 crores and EBITDA of 30 crores, resulting in a margin of around 3%. US revenues were at 461 crores, with EBITDA loss of 4 crores.
Speaker #3: This was impacted mainly because of the breakdown of a couple of prices in our steel operations, now though it has been fixed and recovery is expected in this quarter.
Speaker #3: This is Q2. On the restructuring process of Bharat Forge CDP, which is a steel business in Germany, is on track, and we estimate to complete the restructuring by end of calendar 27.
Speaker #3: We have taken impact of about 30 million towards the state restructuring, this is not a cash outflow. The cash outflow will happen post 12 months only, and we are on track as far as our restructuring exercise is concerned.
Speaker #3: Now I will hand over to Amit sir for his comments.
Speaker #2: So ladies and gentlemen, on the whole, I would say Q1 was a reasonable quarter. Given the operating environment we were in, there were a lot of challenges especially the most unexpected and difficult challenge was the one on manpower.
Speaker #2: Which once the Iran war started and the LPG crisis hit, a lot of the contract and you know let's say migrant labor all you know traveled back to their home locations and this is not so much of an direct impact on us but a lot of steel companies and other sub-suppliers etc faced a lot of issues because of this.
Speaker #2: I think despite this and the challenges even on energy our teams managed the production schedules quite well. We've had a strong business sentiment in North America driven by higher corporate capex which is boosting demand for construction, mining and data center and power systems businesses.
Speaker #2: This morning the US government and the president announced a massive plan to restart the mining economy in the US. Starting right from setting up programs for training people for these kinds of businesses in community colleges and universities.
Speaker #2: So this should be something that gives a sustained boom to the US if it continues. On the defense side, you know I would say that we have been present on land systems and on aerial systems and now we have made a big breakthrough on the marine systems.
Speaker #2: We won a large new order for marine gas turbine generators for the Kolkata class ships with the Ministry of Defense and the naval shipyards.
Speaker #2: This is the largest order we have won to date on naval systems and as our product range in turbines grows and especially on the complementary naval system side we expect the navy to become a very large customer for us especially with the announcement of the 140 new ships that are going to be built.
Speaker #2: We expect the defense business to expand its breadth and depth across many more products with many more applications rolling out. Our new defense jewelry facility will enter serial production this year and it will play a major role in the deliveries of ATAGs and the CQB carbine to the Indian armed forces.
Speaker #2: On the aerospace side, our business saw a record wins in 26. I was our team was at the Farnborough Air Show where we had a lot of positive engagement and I think once our ring mill in Bharamati starts in Q4 it will lead to a further step jump in increase in production similarly when our new forging facility in Bharamati comes online it will also give a big boost to production for our customers in the high OSPAR engine and power generation sector.
Speaker #2: Companies that produce know 500 to 5,000 horsepower or so and this is when this is a very important sector for us and it's a sector where we're paying a lot of attention.
Speaker #2: And making large investments to grow this business. And this is a business that is growing because of A migration of manufacturing to India from Europe and other locations and dramatic increase in demand for infrastructure based assets.
Speaker #2: In the build out and rollout of infrastructure in India. Talking about our castings business our Ferrous Casting business continues to perform well. I think we're on track to triple the revenue of the business since the time we bought it.
Speaker #2: You know the run rate should hit that by the end of this year and I think besides the size of the revenue it's also the quality of the revenue.
Speaker #2: We've added a lot more value addition. We've added a lot of new high volume products as well and doing a lot more machining so I think this business is also growing very nicely and is going to really add a lot to what we can offer to our customers for example the stake that we acquired in in the company in company called Fortuna is also going to allow us to service more of the large engine customers because they make Conrads for them.
Speaker #2: So it allows us to service them with more customer with more products and meet their needs locally through a single point of cover. You may have seen an announcement about a fundraise I want to explain that this is a fundraise for growth capex in our hardcore manufacturing areas in sectors that we already are present in plus in some new sectors.
Speaker #2: So the sectors that we're targeting from this are the large engine sector the power gen market the semiconductor components market and aerospace and and a few other such as including an investment in an energetics plant in Andhra Pradesh where we will be able to do filling of shells and other propellants and energetics used in defense applications.
Speaker #2: I think so this this capex is going to be this will complete over the next 18 months and it will give us a high capital output ratio as well as good margins and will allow us to accelerate our growth going forward.
Speaker #2: And the fund fundraise of 2,500 up to 2,500 crores is basically for growth capex. And the instrument etc will be finalized in due course.
Speaker #2: In terms of outlook I think you know the outlook remains very strong. There are some temporary blips including cost escalations taking place in energy and logistics which are going to be you know which will be negotiated and you know redeemed from our customers where we have paid them.
Speaker #2: And you know with the resumption of our plant in the US I think the margins should also come back to better levels. Many of our businesses are now starting to hit their stride.
Speaker #2: If you look at the aerospace business it is now beginning to make a meaningful impact to our overall business and as our new manufacturing facilities come online this business will dramatically increase in size the same will be said for the semiconductor business where we have already won you know double digit million of business and we need some new facilities to come online before that can then further go up especially on the machining side.
Speaker #2: So I think barring any major new geopolitical upheavals or supply chain shocks we expect 27 to be a very good year with the second half being driven more robustly with some of these interruptions behind us and both across exports and the commencement of deliveries for the domestic defense orders of ATAGs and carbines.
Speaker #2: That's really all I had to say and now we'll be happy to take your questions and answers and. Sorry hold on one second please.
Speaker #2: One of the things is that you know we are going back to building capacity slightly ahead of demand but you know the demand is coming so fast that we need to accelerate our capacity build up as well and that's really why we're increasing our capex to build up this capacity in our traditional business as well.
Speaker #2: Thank you.
Speaker #1: Thank you. 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 their touchstone telephone.
Speaker #1: If you wish to remove yourself from the question queue you may press star and two. Participants are requested to use their handsets while asking a question.
Speaker #1: Participants are also requested to restrict themselves to two questions per participant should you have more questions you may rejoin the queue. We take the first question from the line of couples thing from Nomura.
Speaker #1: Please go ahead.
Speaker #2: Yeah good evening sir. My first question is on the fundraise that we have announced if you could just let us know you know what kind of asset terms margins or return on capital will be there for these new businesses since these are new businesses any color on this will help and what is the overall capex plan for on the consolidated basis for FY27 or 28 if you have any thoughts.
Speaker #2: Yeah hi Kapil. The overall capex will be in the 1,800 or crore range this is the organic capex that we will do in India.
Speaker #2: And this is spread across forging machining heat treatment and you know related quality control and other related assets in the forging and machining space.
Speaker #2: Ring rolling space. And these are assets that are not for any one industry but can be used in a variety of industries. They will have a significantly you know let's say accretive capital output ratio and very good margins.
Speaker #2: So we have business tied up and that will you know give us enough ramp up and then we will also tie up more business.
Speaker #2: Additionally the energetics plant is a facility we are setting up to fill shells and to produce energetics and solid propellant etc in the future in a new facility coming up in Andhra Pradesh.
Speaker #3: Yeah thank you sir. And the second question is just on the outlook for some of the key segments if you could talk about CVs and PVs both for India and overseas and also the auto segment.
Speaker #3: And we note that you know the growth in CVs and PVs this quarter for the domestic business was below the industry growth. Were there any supply challenges if you could just give some color there also.
Speaker #3: Thank you.
Speaker #2: Thank you. Yeah you know honestly there were supply challenges towards the middle of the quarter when you know when the steel sector all had issues of labor and getting supplies and also an energy issue in when the Iran war had really hit a crescendo in the beginning.
Speaker #2: And it took us all some time to switch over from one kind of fuel to another and you know these are the challenges that you face but in spite of that I think we've done well and going ahead I think we will do even better.
Speaker #3: Sure sir. And on the outlook for the different segments.
Speaker #2: So I would say that all the segments have a strong outlook. India is fairly strong. US is very strong. Europe CV strong PV is not as strong.
Speaker #2: But I think it's not weak either. If you saw yesterday GM has raised their guidance again so clearly you know the economy in the United States is doing well.
Speaker #2: India is doing fairly well. So I think these two are the key markets for us.
Speaker #3: Okay thanks sir. I'll come back in the queue.
Speaker #2: Thanks.
Speaker #1: Thank you. We take the next question from the line of Binay Singh from Morgan Stanley. Please go ahead.
Speaker #3: Hi team. Thanks for the opportunity. So fair to assume.
Speaker #1: Binay I do apologize to interrupt you but your audio is not clear. Could you please use your handset?
Speaker #3: Hi team. Apologies for that. Just to be clear the entire capex of 1,800 crore is all non-auto right. And could you guide us a little bit about.
Speaker #1: I do apologize. One second to interrupt you. There's a lot of static coming in from your line.
Speaker #3: Okay I'll just come back in the queue.
Speaker #2: I'll answer the first question you asked. It is a combination of auto and non-auto. There is in the auto there is both forging and machining and non-auto there is forging ring rolling and machining.
Speaker #3: And thanks for that. What sort of asset turnover to assume on this number? Any any guidance?
Speaker #2: I think it will be above one and a half.
Speaker #3: And secondly you know when I look at the quarterly presentations if quarter to last quarter last quarter we talked about 25 percent growth in India linked businesses.
Speaker #3: This quarter we are saying 20 to 25 percent growth. So is there any sort of a delay in approvals for ATAG or something that we are building in to slightly create a range or am I reading too much?
Speaker #2: You know the ATAG approval once it comes then in two to three months we will start. There is still testing going on of both the both the suppliers.
Speaker #2: And you know I think we probably are looking at a few weeks of delay but that's nothing that we can do. It's a procedural issue.
Speaker #2: So I think you know the order is there. The product product is there. I think we just have to get the process completed and then the delivery started.
Speaker #1: Great. Great. Thanks for that. I'll come back in the queue. Thank you. We take the next question from the line of Amin Pirani from JP Morgan.
Speaker #1: Please go ahead.
Speaker #3: Yes hi. Thanks for the opportunity. Firstly just a clarification. This 1,800 crores of capex that you've mentioned the 2,500 crore fundraising that you're talking about you know future growth opportunities will that be will that investment be over and above this 1,800 or this is all part of the similar investment plans that you have?
Speaker #2: See this 2,500 is for this current capex and then it will also give us a strong base for any additional capex that we may need for further growth.
Speaker #3: Okay. Okay. So so then my second question is that you know given that your balance sheet is still quite strong and net debt to equity net debt to EBITDA is quite strong I mean just trying to understand you know why.
Speaker #2: Are you doing a fundraising?
Speaker #3: Yeah. Yeah.
Speaker #2: No because we are very conservative when it comes to our financials. We like to have cash on the balance sheet. You know at least 2,000 or gross of cash on the balance sheet.
Speaker #2: And you know it's good. It will help us accelerate our growth going forward.
Speaker #3: Okay. Great.
Speaker #2: Plus there is some you know M&A opportunities in India and we have found that the M&A opportunities that we have you know undertaken in India so far whether it is JSA or Kedar Raich are proving to be very fruitful and such opportunities you know are arising and it's a good time to look at them.
Speaker #3: Sure. Sure. And just secondly on your defense or the KSSL business you know I know that it tends to be very volatile on a quarterly basis.
Speaker #3: But the margin outcome in this quarter you know seems to be a very strong one. So anything that you can help us understand you know the how should we think about this margin and how should we think about the future you know.
Speaker #2: All results of that mix. But as we've mentioned you know the margins on a steady state annual basis we are targeting in the 22 to 23 percent or so range.
Speaker #1: I mean does that answer your question?
Speaker #3: Hello. Sorry. There was some disturbance. Sorry. I can't hear you.
Speaker #2: Can you hear me or no?
Speaker #3: I can hear you but there seems to be a lot of disturbance so maybe I don't know if it's a problem with my line or not.
Speaker #2: No I don't know. Is there any I don't know the moderator having disturbance or they can hear?
Speaker #1: No sir. Just audio is loud and clear.
Speaker #2: Okay.
Speaker #3: Okay. So maybe there's some issue on my line. Maybe I'll I'll try and come back you know in the queue.
Speaker #1: Thank you. We take the next question from the line of Gunjan from Bank of America. Please go ahead.
Speaker #3: Yeah. Thanks for taking my question. Just continuing with the margin guide that you mentioned this 22 to 23 percent is that you mentioned at the console level.
Speaker #3: Is that how we should read this guidance?
Speaker #2: No that is for the defense business.
Speaker #3: That was for the defense business. Is 22 to 23 percent. Okay. Okay. My first question is again you know on the similar lines the the newer you know opportunities that you call out aerospace data center semiconductor is there some sense that you can give you know in the next three to four years how do you see the build out of these businesses you know you know maybe a bit more color on on these three aerospace semiconductors and data centers where where the scale of operations right now.
Speaker #2: I can talk about the aerospace and semiconductors and my colleague Subodh can talk about the data center side. On aerospace we will double our business in the next two two years or so.
Speaker #2: In hello can you hear me? Okay. And then on the semiconductor side I think we are aiming you know for a something in the region of 30 40 million of business in the next two years.
Speaker #2: Organically. And then we also have to set up some machining facilities which will then allow us to grow that business almost double it. So that's the kind of business that we are looking at to doing in in the semiconductor space.
Speaker #2: I will let Subodh answer the question on the semiconductor and related sectors.
Speaker #3: Sorry. How big is aerospace at the moment? You said doubling. Where would that the revenues be right now?
Speaker #2: It's about 400 crores right now.
Speaker #3: Okay.
Speaker #2: On the on the data centers we actually call it energy business. We expect to double in the next four years. We we already have most of the contracts in place you know long term contracts in place so we are in the process of adding capacities and all of that.
Speaker #2: But we we have we have we have a very strong global position today on this.
Speaker #3: And what is the scale again of data centers right now in terms of revenues?
Speaker #2: It's definitely it's difficult to say because a lot of our products are going into multiple sectors including data. But when we say data center growth a lot of those growth in those sectors is coming because of data center.
Speaker #2: See and one more point I'd add here is we have already been supplying these products for the last 15 18 years. And you know these products take a lot of time to get validated and approved because they are very critical products.
Speaker #2: It typically gets three to five years just to get approved and get going. So in our case all that cycle is already happened. So now we are we are already supplying and there will be of course growth in what we are doing based on demand.
Speaker #3: Got it. And my second question is just you know a comment that I found very interesting in your annual report where you say that we are looking to grow India manufacturing operations at 15 percent CAGR for the next five years.
Speaker #3: I'm just trying to get a little bit more color on this. I mean how should we think about the auto and the non-auto piece?
Speaker #3: Is that how you internally assess? Because auto business is certainly a lot more cyclical right. So you know any color that you can give us in terms of what will be the salience of auto versus non-auto and the growth we are looking between the two businesses?
Speaker #2: You know both sectors will grow auto depends on you know new products because our current products are going to allow us only to grow at the rate of the market.
Speaker #2: But then the castings the K drive all that come in to provide more growth. In the non-auto side of course the sky is the limit because we are starting from a low base as a country itself.
Speaker #3: Got it. Okay. And last just quick if I can squeeze in on the margin but you mentioned 160 basis point impact taken in this quarter.
Speaker #3: Is it fair to assume that this reverses immediately or there this would take time basis the conversations like how do we think about the more normalized margin for the for the full fiscal year?
Speaker #2: So it would be better than quarter one but also you need to mention sorry you need to consider one specific point is as we start getting recoveries from the customer optically it has an impact on EBITDA because you know there are changes in you know denominator and numerator also.
Speaker #2: So optically you know you might still look at a little better margins but it will not be fully reflective of back to 28 percent because you know it will add to top line also and it will add to cost also.
Speaker #2: But it will compensate the full margin per piece. Yes. Of products sold. Also per tonne. Yes.
Speaker #3: Got it. That is useful. Thank you so much.
Speaker #1: Thank you. We take the next question from the line of Pramod Amthe from Incred Capital. Please go ahead.
Speaker #4: Yeah thanks for this opportunity. Amit I just want to get your details on this marine gas turbine generator wind. How do you see this?
Speaker #4: This is going to be auxiliary equipment but at the same time pretty challenging in terms of technology. So what is the capability you have in-house to develop it?
Speaker #4: Do you need to have a joint venture? How is going to progress and.
Speaker #2: Oh we've already developed this product and it is now going into testing. We have a very strong relationship in delivering this product and a range of turbines for naval applications.
Speaker #2: Ranging from 1.25 to above 25 megawatts.
Speaker #4: Okay. And will it be predominantly for defense itself or it can get into commercial?
Speaker #2: No it can get into commercial also it can even go into power chain it can go into a lot of sectors. And it's multi-use.
Speaker #4: Yeah sorry go ahead.
Speaker #2: It is multi-fuel.
Speaker #4: Okay. And within this if you look at the content per se how much group can itself supply versus what you need to source in terms of.
Speaker #2: No I think in the beginning the generator will be sourced from outside. But the that's the electrical generator. But the entire turbine will be made by us.
Speaker #4: Okay. And does it require further investments or the existing machinery can support?
Speaker #2: It requires some small investments not not large investments.
Speaker #4: Okay. And the second question is with regard to the AP plant. Which you are opening up for the substantial investments. Is it going to be predominantly for new areas or how are you looking at.
Speaker #2: No AP is going to be a propellant and explosives facility. For filling ammunition and for making explosives.
Speaker #4: Whereas this naval one will continue to be at the KSSL Pune site.
Speaker #2: Naval one will be actually at a new location where we are already working. It's close to a naval shipyard. It's actually almost like a part of the naval shipyard.
Speaker #4: But can it open up the naval one open up a completely new stream for you both in.
Speaker #2: Absolutely. It's a huge new opportunity. See in the naval side we were originally only on the you know on the shafting and propellers. Now we'll be on the power gen also.
Speaker #2: And then we will also get into the fight side. So we will be on the entire value stream of the naval side.
Speaker #4: Sure.
Speaker #2: So the content per ship will go up dramatically. And you know 140 new ships coming is a lot.
Speaker #4: Right. Right. Right. And any rule of thumb in terms of.
Speaker #2: Also also I wanted to tell you that we have already tied up the MRO for turbines. With the navy. For their existing as well as for the future.
Speaker #4: Oh for the existing also. Okay. So that is going to be a much more sustainable.
Speaker #2: Exactly.
Speaker #4: Rather than just the orders.
Speaker #2: Exactly.
Speaker #4: Sure. Thanks. Thanks for detailed explanation. All right.
Speaker #1: Thank you. We take the next question from the line of Arvind Sharma from City. Please go ahead.
Speaker #5: Hello. Thank you for taking my question. Just to abuse on the CDP Bharat Forge restructuring. Post the restructuring is done. What would be the form of this entity?
Speaker #5: Will orders be shifted away? Will margins improve? How should we see CDP Bharat Forge post the restructuring?
Speaker #2: So post the end of the restructuring that entity will not will not survive. It will not exist. And part of their orders are going to be transferred to us.
Speaker #2: And that will be provided shipped out from India. At a good margin. So that's really what's going to happen.
Speaker #5: Right. So all the current orders would be would be intact. It would be shifted to India or other entities.
Speaker #2: Not all because they also have certain orders that are getting phased out. Or products that are getting phased out. So the remainder of the orders will move here.
Speaker #2: But it's a sizable amount.
Speaker #5: Got it sir. And sir one thing which you have kind of alluded to as well. The ATAC order. Is there any timeline that you would want to share or is that.
Speaker #2: If you want the day we get the FOPM approval we can start the clock. Till then I can't tell you anything.
Speaker #5: Got it sir. Thank you so much sir. That's all from my side. Thanks so much.
Speaker #2: Because there are two suppliers and both have to be ready.
Speaker #5: Got it sir. Thank you so much.
Speaker #1: Thank you. We take the next question from the line of Abhishek Shah from Fortitude Fund Management. Please go ahead.
Speaker #4: So hi sir. Thank you for the opportunity. This is I think in line with the CAPEX. Just what did some clarity on sometime in 2024 say maybe around February I think there was there were a few news articles and we were talking about you know adding a mega project in Orissa.
Speaker #4: So maybe if you can give us any update on that maybe you know I think environmental clearance is still not received. It's been about two and a half years.
Speaker #4: So if you can give us some idea on the exact status by when do we expect?
Speaker #2: You know I think on that we will we are looking at that as our third new mega site. So that that is something where I hope that by the end of the year we'll get all our approvals.
Speaker #2: And after that we will look at you know building a large new complex which will do things that are not made in India. So large aerospace components etc.
Speaker #2: It'll be a multi-modal facility. Doing multiple things. For variety of sectors. So we are still awaiting you know it's it's all in the process.
Speaker #2: Hopefully by the end of this year we should be you know in the we should have that.
Speaker #4: If you can tell us a little more why the delay I mean the environmental clearance.
Speaker #2: Just take time. You know because that's the way it works. You know you have local environmental clearance then you have central and forest clearance.
Speaker #2: And in our case there was some you know unique circumstances which were not there on paper which were happened to be there you know which we found out later on.
Speaker #2: So with some infrastructure that needed to be moved and stuff. High tension lines etc. So those take time.
Speaker #4: Got it. But we are on track. I mean now I think you can see visibility. Is that how.
Speaker #2: I hope so. Yeah. Yeah. We are working on it.
Speaker #4: Got it sir. And tentative timeline once we get these approvals how the when can we.
Speaker #2: I think once we get all the approvals you know we can have our first plant running in about two and a half years.
Speaker #4: Got it sir. And is this the last leg of approval requirement or are we expecting I mean will there be additional another?
Speaker #2: No I think this is the only approval that is now needed.
Speaker #4: Got it. Got it. And sir some part of the fundraising also will be used for this I'm presuming.
Speaker #2: Yes. Yes. Yes. Yes.
Speaker #4: Okay. All right sir. Thank you so much.
Speaker #2: Thank you.
Speaker #4: Thanks.
Speaker #1: Thank you. We take the next question from the line of Pramod Kumar from UBS Securities. Please go ahead.
Speaker #3: Yeah. Absolutely. So I think two questions are. One was on the outlook 2027 given all the things what we're doing and the kind of front loading of CAPEX what is if you can just help us understand that even 28 can.
Speaker #2: Couldn't hear you very well.
Speaker #3: Sorry. Is it any. Is it better on.
Speaker #2: I know it. Your voice is coming and going.
Speaker #3: Just just.
Speaker #2: Was it.
Speaker #3: Now?
Speaker #2: Yeah. Now it's better.
Speaker #3: Now it's better. Thank you. Now I was asking given the kind of CAPEX what we're doing towards new areas and existing business as well.
Speaker #3: And the the nature of the business in terms of the order wins and the execution. Is it fair to assume that FY28 also could be a remarkably strong year from you?
Speaker #3: We are not trying to I'm not trying to get any quantitative estimate here. But generally the way you from your vantage point do you see the momentum what you've seen in the last couple of years in 27 tend to continuing into even 28 when you look at all the segments all the geographies?
Speaker #2: I would say so yes. I would say based on what we see now I think 28 should also be a strong year.
Speaker #3: Yeah. Okay. Thanks for that. And the second question is and sorry before that with that kind of a strong growth the levers on margin should also kick in reasonably right in terms of operating of course the mix will be what it will be.
Speaker #2: Absolutely. You're absolutely right.
Speaker #3: Yeah. And so second question is on the defense side given how India is very quickly becoming a defense hub even for exports you kind of said the template with the ATACs being the lowest cost producer globally.
Speaker #3: So how do you see this as an opportunity where you can get become the go-to partner for a lot of these global defense organizations who are trying to reduce their cost and also accelerate their time to market.
Speaker #3: So in that scenario how how is that bit of conversation going or how are the inbound inquiries at your end if you can just help us and get get some qualitative color and what could be the opportunities that you have.
Speaker #2: Yeah. You're you're absolutely right that defense is also a very large export opportunity. But you know in the defense exports you need a lot of handholding support from the government.
Speaker #2: You know a lot of countries which have been successful at doing this have their government playing a very key role in enabling this. You know one classic example is South Korea.
Speaker #2: Their government provides soft loans provides exim financing etc. And that really helps many countries in in doing this. The Indian government is also done in the past exim financing for infrastructure projects in Africa and other places.
Speaker #2: So I think this is a an industry which has geopolitical ramifications. So I think one has to you know as a country also look at it that way.
Speaker #2: And I think a country is beginning to look at it that way. It's very clear that they are serious about it. And you know once those steps are put in place I think it can be a further accelerant for our business.
Speaker #2: And clearly that should only be provided to absolutely strategic products and strategic partners.
Speaker #1: Thank you. We take the next question from the line of Nitin Jain from Fair Value Equity Advisory. Please go ahead.
Speaker #5: Yeah. Thank you for the opportunity. I've joined a little late so not sure if this is already answered. So just wanted to understand your commentary in the media interview in very detail.
Speaker #5: I believe there was a mention about Q2 being strong in the sense that we might take price hikes and there might be some reverse swing in margins in Q2.
Speaker #5: So if you could just provide some more color here.
Speaker #2: Yeah. So Q2 would be better than Q1 considering the the discussions with customers on on the on the indirect price increase. And and the volumes.
Speaker #5: And the one time impact that we have had in Q1. Right. So how will the margin trajectory be? Like will there be a one time jump in Q2 and we will be back to the 28% range or will it be gradual throughout the year?
Speaker #2: Yeah. It would be a gradual because earlier you know we explained that you know even though we get recovery from a arithmetic perspective you could see a little.
Speaker #5: See the numerator goes up and the denominator goes up. You understand?
Speaker #2: So it would be a gradual improvement in margins.
Speaker #5: But the say margin per ton will come back to its normal levels. Okay. Okay. That's very helpful. That's it from my side. Thank you.
Speaker #2: Yeah.
Speaker #1: Thank you. We take the next question from the line of Ronak Singhvi from NAFA Asset Managers. Please go ahead.
Speaker #6: Hello. So I want to know that like have you got license for your AP plan that is for exclusives and additionally the capacity would be same as to fill your existing empty shell manufacturing or it will be bigger than that so that you can buy empty shells from other place and fill that in your plan.
Speaker #5: So initially we are setting up a facility to manufacture and fill a certain amount of shells. But this is a module of facility. So you keep adding lines.
Speaker #5: You can add fill more and more shells. And we have we have we have not yet got the license. We have applied and the process is on.
Speaker #6: Okay. So like what is your current capacity for empty shell manufacturing?
Speaker #5: It's very large.
Speaker #6: Okay. Any number? Any numbers?
Speaker #5: It depends on product mix. So it's.
Speaker #6: Okay. Got it.
Speaker #5: It's very, very large.
Speaker #6: Okay. Thank you.
Speaker #1: Thank you. We take the next question from the line of Chandra Mowli Muthia from Goldman Sachs. Please go ahead.
Speaker #6: Hi. Good evening and thank you for taking my questions. First question is just around the European business. So I just want to understand what could be the time frame for shift of some of the business we look to shift manufacturing from CDB to India.
Speaker #6: And also just related on the other two subsidiaries Alum Technique and Kilstar. Under the new India Europe FTA proposals is there opportunity to shift some of that business as well to manufacturing on Indian shores?
Speaker #2: So let's first talk about CDB. Our timeline for the closure is between second to third week of third quarter of next year. Okay. So of 27th.
Speaker #2: Calendar quarters.
Speaker #6: Got it. Got it. That's helpful.
Speaker #2: Will business will perforce have to move at or before that time?
Speaker #6: Got it. That's helpful. Second question is just around the fuel and the manpower situation. So you did mention that going forward you will see an improvement in in in most of your ability to supply.
Speaker #6: So I just wanted to check on the manpower side. Are we sort of back to normalcy now? And also on the fuels which is almost not not fully
Speaker #2: I would say we're back to our 70 to 75% of normalcy. There are some amount of migrant labor or casual labor that has not come back.
Speaker #6: Got it. Got it. And on the fuel situation?
Speaker #2: So fuel situation is under control. Only problem is in Maharashtra there's energy price hike.
Speaker #1: Thank you. We take the next question from the line of Radha from Motila Lothal Financial Services Limited. Please go ahead.
Speaker #7: Hi. So thank you for the opportunity. Just one question. On the M&A opportunity in India could you give us some color on the key product areas or technologies where you see strong potential for collaboration?
Speaker #2: No. No. No. Sorry I can't. We are evaluating certain opportunities but I can't give you any any details at this point. We are under an NDA and you know I'm not once it reaches a certain level then we will talk about it.
Speaker #7: All right. Thanks and all the best.
Speaker #2: Thank you.
Speaker #1: Thank you. We take the next question from the line of Rakesh Roy from Boring AMC. Please go ahead.
Speaker #6: Yeah. Hi sir. My one question is sir regarding restructuring about business sir. So we have taken a provision of 330 CR. This is a one time expense or again you need some provision for Q3 or Q4?
Speaker #2: This is the cost for the manpower redundancy. But it is this cost has now been finalized it was not going to be paid out today but this will be paid out over the next you know 9 to 12 months or 6 to 12 months as the people get released.
Speaker #6: Okay. Okay. Thank you sir.
Speaker #2: This is finalized. Okay.
Speaker #6: Right. Right sir. Thanks sir.
Speaker #2: Thanks.
Speaker #1: Thank you. We take the next question from the line of Kapil Singh from Nomura. Please go ahead.
Speaker #3: Yeah sir. Thank you for taking my questions again. Just on the electric vehicle opportunity if you could just talk about you know how we are thinking about tapping that opportunity.
Speaker #2: Yeah. You know that's an area where honestly we haven't been very successful. But we have some ideas and you may hear some interesting commentary about that from us.
Speaker #2: Give us another three to six months.
Speaker #3: Okay. And sir on Kedar area so one area where we are already working on EVs is through Kedar which is already making EV axles for LCVs and LMCVs.
Speaker #3: Sure. I I was just about to ask just going to ask about that. So Kedar you know the margins seem to have come off.
Speaker #3: Any thought here like Kedar will grow both in scale and margins we are on track. Kedar is going to perform very well. We have a lot of new business coming.
Speaker #3: And I we are also going to build a new plant for Kedar in the northern part of India. For one of our most esteemed customers and that will provide us significant growth going forward.
Speaker #3: Thanks. And sir lastly on the US manufacturing operations when the operations normalize what kind of margins can be expect in this business?
Speaker #2: See the steel will be at about 12% and the aluminum EBITDA margins can be in the 15 16%.
Speaker #3: And sir by when can we get there?
Speaker #2: Hopefully next year.
Speaker #3: Okay. Great. Thank you so much.
Speaker #2: I mean hoping to get let's say we'll move directionally in that direction. And you know you want to get there sooner than later. But you know I want to explain one problem in the US.
Speaker #2: And that is the tariff on aluminum. On raw aluminum is 50% because it all comes from Canada. US does not have any smelters. But components can come from certain countries at even 10 to 15% margins.
Speaker #2: The problem is that today.
Speaker #3: So unless that correct it will be difficult to get.
Speaker #2: That is that happened because of this big spat with Carney you know the prime minister of Canada.
Speaker #3: Right. Right.
Speaker #2: So you must publicly sir.
Speaker #3: Yes. Yes. So that has to correct for for the margins to come to the targeted level.
Speaker #2: Well yeah. I mean that would be the ideal thing. Because that will also then help volumes and that will really give us a boost.
Speaker #2: So you know we're dealing with let's say unantis unanticipatable tariff situation. So you know you just have to ride it out without making cash losses.
Speaker #2: That's all. That is going to be our goal. Thank you.
Speaker #3: Thank you.
Speaker #1: We take the next question from the line of Abhishek Jain an individual investor. Please go ahead.
Speaker #7: Sir. I had a question about your losses in US operations. Can you tell me what is the reason although the revenue is up as compared to both the previous?
Speaker #2: Mr. Jain we're not able to hear you clearly. You said something about North American operations. But I couldn't hear clearly.
Speaker #7: The reason for the EBITDA loss.
Speaker #2: So the reason is that our steel forging business had a major maintenance breakdown and we had no production for almost three months.
Speaker #7: Okay sir. Can you tell me how much was the losses? Actually can you quantify if you can if it's possible?
Speaker #2: You know I'd suggest if you can it's already in the papers you can see it. It's in our update.
Speaker #7: Okay.
Speaker #2: Thank you.
Speaker #1: Thank you. Ladies and gentlemen with that we conclude the question and answer session. I now have the conference over to Mr. Amit Kalyani for his closing comments.
Speaker #2: Ladies and gentlemen thank you very much for your time and interest. You know it's always great interacting with you and getting your questions. It gives us a lot to think about.
Speaker #2: This quarter was a little challenging on account of certain internal and external uncertainties. But I think as a company we are strong enough to overcome these.
Speaker #2: And we see a lot of potential growth coming in our traditional business of engines and crankshafts and those areas. And in new areas where high precision parts are required including power gen including semiconductors aerospace large engines marine defense naval etcetera and I think the future is bright and you know we're very confident of being able to continue strong growth path for your company.
Speaker #2: Thank you very much.
Speaker #1: Thank you. On behalf of Bharat Forge Limited that concludes this conference call. Thank you for joining us and you may now disconnect your lines.
