BHARATFORG - Bharat Forge Ltd Share Price

Management Outlook and Key Points:

Positive Outlook:

1. New Business Verticals (Casting & Aerospace):

   • Aerospace: New investments approved for machining landing gear components and a ring mill for jet engine forgings. Expected to triple quarterly revenues to triple digits (Rs.100+ crores) by FY26, targeting $150-200 million business long-term.
   • Casting (Ferrous): Annualized run rate of Rs.1,000 crores anticipated in 6"“8 quarters with margin expansion of 250"“300 bps.

2. Defense Growth:

   • Executable order book at Rs.5,700 crores (excl. potential orders). Expects new domestic ATAGS orders by March 2025. Defense revenue grew 49% YoY (9M FY25).

3. Domestic Resilience:

   • Standalone margins stable at ~28%. Domestic PV segment rebounded sharply due to customer penetration.

Cautious/Challenging Areas:

1. Overseas Operations (Europe/US):

   • Europe: Weak demand (CV/PV) and policy uncertainty. EBITDA at Rs.10 crores (Q3). Manufacturing footprint under review; clarity expected in 6 months.
   • US: Reduced EBITDA loss to Rs.6 crores (Q3) at 60% utilization. Awaiting tariff/EPA clarity but expects H2 FY26 growth (10% in NA CV).

2. Market Uncertainties:

   • EV/ICE transition delays in Europe; policy shifts post-elections. Tariff risks in the US under review.

Sectoral Guidance:

• India CV: Q4 FY25 better than Q3; FY26 likely flat.
• Global Markets: North America CV to grow 10% in H2 FY26; Europe flat with short-term unpredictability.

Strategic Moves:

• Focus on profitability, cash flow, and returns in overseas subsidiaries.
• Defense and industrial segments (oil/gas, nuclear) to drive diversification. Nuclear revenue (~Rs.50"“100 crores/year) to grow with SMR opportunities.

Balance Sheet Strength:

• Net debt/equity at 0.36x (Dec '24). ROCE at 16.5% (consolidated). CAPEX focused on aerospace (Rs.300 crores standalone; Rs.200"“250 crores subsidiaries in FY26).

Question 1: "My first question is on the overseas subs, which you pointed out is quite a challenging environment. You do also talk about rethinking your manufacturing presence in overseas business. Could you share more around this? Because it certainly seems that Europe will take a lot longer to turn around than what we were guiding initially. So, how should we think about the losses coming down there, or how should we think about the business restructuring that you talk about in the presentation?"
Answer: Amit Kalyani highlighted uncertainty in global/regional policy and ongoing reviews of the manufacturing footprint. Losses in overseas subsidiaries (Europe and US) are expected to persist for ~2"“3 quarters. A concrete decision on restructuring (e.g., footprint optimization) will be finalized within six months.

Question 2: "And the second question was on the defense ATAGS order. What are the refreshed timelines there? When do we see that adding up in the order book? Anything that you can share on order book?"
Answer: The ATAGS contract is expected to be signed in 3"“4 months. Series deliveries (revenue recognition) will begin in 15"“18 months. The current executable defense order book stands at Rs.5,700 crores (as of Dec 2024), excluding potential domestic/export orders.

Question 3: "Your comment on margin expansion of 250 to 300 basis points in next two to three years, that was for JS auto or at a consol level?"
Answer: The 250"“300 bps margin expansion refers to the ferrous casting business (not consolidated). This will be driven by operating leverage, cost reduction, and product mix improvements, targeting an annualized run rate of Rs.1,000 crores in 6"“8 quarters.

Question 4: "Could you give some color [on export industrial revenues]? And also aerospace, like any numbers you can give on what is the current revenue and what is the potential of these facilities that we are setting up?"
Answer: Aerospace revenue is Rs.50"“60 crores/quarter, expected to reach triple digits (Rs.100+ crores/quarter) by FY26. A new facility for landing gear components and jet engine forgings will double capacity, targeting $150"“200 million revenue long-term. Export industrial growth (7"“8% YoY) was led by oil & gas (+60"“70% YoY) and aerospace (+25% YoY).

Question 5: "Sir, recently there was a new MOU with the L3Harris, anything to indicate what kind of opportunity this business can bring, sir?"
Answer: The L3Harris partnership focuses on defense electronics (C4I systems). While specific revenue potential wasn't disclosed, it expands Bharat Forge's defense portfolio, aligning with India's push for indigenization in advanced defense technologies.

Question 6: "Sir, lastly, you mentioned in the presentation about the nuclear segment, nuclear industry as opportunity. Can you indicate how we are shaping up for this segment?"
Answer: Nuclear segment revenue is Rs.50"“100 crores annually. Growth will come from India's nuclear capacity expansion (tripling in 10 years) and global small modular reactor (SMR) demand. Bharat Forge supplies critical components (5"“40 ton parts) for domestic and international nuclear projects.

Question 7: "And last question pertains to our CAPEX expectation for FY '26, given that we are also now investing on the aerospace side and also the ongoing doubling of capacity in the US for aluminum forging. So, what should we budget for CAPEX for standalone and consol?"
Answer: FY26 standalone CAPEX is ~Rs.300 crores, primarily for aerospace. Subsidiary CAPEX (India-focused) will be Rs.200"“250 crores. US aluminum forging CAPEX is completed; no major overseas subsidiary investments planned.

Question 8: "In light of what comments also you have made, and with change in the regime in the US, so effectively we had come up with this last man standing strategy in terms of continuity of business. So, in the current context, do you see that the longevity of our business has possibly increased?"
Answer: The US policy shift (pro-ICE/hybrid) may extend product lifecycles, but tariffs/geopolitical uncertainty limit visibility. Bharat Forge's flexibility in product diversification (EV/ICE-agnostic components like aluminum forgings) and asset utilization provides resilience.

Question 9: "In the domestic passenger vehicles you have been consistently improving the revenues in spite of the demand slowdown, what's going right here for you?"
Answer: Growth is driven by new customers and products (engine, transmission, chassis components). Rising content per vehicle and EV part wins (rotor shafts, aluminum components) will sustain momentum despite market slowdowns.