Bharat Forge Limited analyst Q&A

Thank you, sir. W e will now begin the question-and-answer session. The first question is from the line of Mr. Kapil Singh from Nomura. Please go ahead, sir.

Good evening, sir. Indeed, a tough quarter, but I would sa y a good performance considering the circumstances. Just wanted to ask you regarding the tariffs. Firstly, a more fundamental question. Who bears the tariffs? Is it distributed across the entire chain of customers, OEMs, and suppliers? Does Bharat Forge need to bear more? Just your perspective on this thing. Subodh Tandale: So, you are asking essentially how is the tariff compensated?

Yes. Subodh Tandale: Right now, irrespective of who pays the tariff, whether we pay the tariff or the customer pays the tariff, at the end of the day, it is compensated in price. And usually what happens is customers work with us to find such solutions because obviously these are extraordinary circumstances. And given the fact that we provide critical products, all customers are working with us to find suitable solutions because that is the need of the hour right now.

Okay. And, sir, this Rs. 14 crores impact that we borne, was that for the full quarter or was that for part period? Subodh Tandale: No. That was for full quarter.

Okay. So, were tariffs applicable for full quarter? Subodh Tandale: Yes.

Okay. The second question is, with the tariffs currently at 25%, how is the competitiveness of Indian exports? And which are the geographies from which we are facing competition for products like crankshafts and front axles?

So, let me just, I will answer this in a very simple way. All the countries that produce these parts have the same tariffs. I mean, either we are the lowest or we are equal to what anybody else is. Nobody is lower than India. The other two geographies are China plus another one, both of which are at higher levels.

Okay. And is there a case that you need to think about setting up manufac turing for some of these products in US? And if the tariff uncertainty is affecting any order inflow from the customers as well, that could be the last question for me.

We are not looking at setting up any other facilities right now, anywhere outside India. On order inflows, I think I will let Subodh answer that. Subodh Tandale: At this point, there is no impact on order inflows because typically, for the products that we are engaged with, it takes anywhere between 2 to 4 , 3 years to complete the whole approval and validation cycle, even if we have to move it anywhere, ourselves. So, it's a very complex process. So, currently, there is no impact on the order flow because of this reason.

Okay. Thank you, sir.

Thank you. The next question is from the line of Gunjan from Bank of America. Please go ahead.

Yes, hi. Thanks for taking my questions. Just one quick follow-up on tariff and then get to the rest of the business. You mentioned in the prior call that the tarif f was different for industrial and autos, right? Is there any change to that with the recent 25% imposition? Does the industrial also get, you know, has the same tariff now that that CV part of the business also gets impacted and you see 25% implication on that? Subodh Tandale: Currently, that is the scenario and that is under evaluation by the US government as well.

And this 14 crore, again, you know, what Kapil was asking, the tariff is applicable only when the shipment reaches US, in which case, the tariff would have been applicable only maybe, towards June or something. So, is it fair to assume that we will see more impact of tariff going into the second quarter? Subodh Tandale: Even for this tariff that is applicable now, the effective date of implementation will be 7th of October or something like that. So, we will have some time for whatever is being shipped post 7th August.

Okay, got it. Let me move on to some other parts. I think maybe, it will be good to hear from you on the defense bit. You do mention that there is a pipeline, you refer red to some pipeline and strong visibility on that. Can you talk a little bit around it? What is it we are seeing? Is it on exports? And is it still, you know…?

Look, as you know, we have an nounced that we had a pipeline of Rs. 9,000 crores. After which we have one more tender which has to get converted into a signed order. Once that happens, that will add another Rs. 1,400 odd crores to our order book.

And that is domestic?

That is a combination. This last order that I am talking about is domestic.

Thank you. The next question is from the line of Mr. Pramod Kumar from UBS. Please go ahead, sir.

Thanks a lot for the opportunity. Amit, I just wanted to understand, you said every country which is exporting into US is either paying tariff as low as India or higher.

I said for the countries which are producing the same parts.

Yes. So, but is there no onshore US plant for forging by ThyssenKrupp or anyone?

There are forging plants, but not for machining.

Not machining. So, on the forging side, there could be some competition or cannibalization with the…?

Not really. I don't think there's any capacity.

Oh, they don't have capacity?

No additional capacity as far as we understand.

Fair enough, sir. And you did talk about second half being better than first half. Just trying to understand the reasoning behind that. And also, within the first half, how should then one look at 2Q versus 1Q, sir, if you can just help us. It will help us navigate this uncertainty in a much better way.

Honestly, look, the tariffs were announced three day s ago. Okay. So, I think we have to wait to understand the overall situation and then come back to you. This is the basis what we are hearing from our customers.

Okay. Second half assessment is based on what you are picking up from customers, basically.

Yes.

Fair enough, sir. And on the defense side, last one, we've seen that recent orders, the entire situation is what we had in India, even the Israel Iran, increasing war theatre, the action is moving towards air- based system, drones, missiles, anti -drones. So, what is the group strategy b ecause you have very deep roots on the land side?

We have a presence in every sector. As you are aware, we signed an agreement with a company called Turgis Gaillard for MALE drones. We have a solution right from MALE to Super Light drones. So, we have an entire range of airborne unmanned aircraft. We have for land -based unmanned products and for water-based unmanned products.

And if you can just help us understand out of the defense, out of backlog, including the Rs. 1,400 crores what you are talking about, how much will be the component of non -land systems because it acts as normally what everyone associates Bharat Forge with and even the carbines. S o, if you can just help us understand that.

Land, when you say, it includes specialty vehicles, it includes artillery systems, it includes a lot of things. So, artillery itself is about 4,000 drones.

Artillery alone?

Yes. So, it's less than half.

And carbines and other stuff? I mean, carbines is a recent order, right?

It's not yet included in that.

It's not included in that ? Because if I am not wrong, media reports suggest that you are L1 already on that.

Yes, we are L1, but the contract is not yet signed.

And how big that could that opportunity be, sir? Because that's part of a large one.

I already discussed that. That is 1,400 crores.

Okay, that's 1,400 crores. And is the market much larger for such carbines? Because I believe there are procurement of the…

It's huge.

It's huge. State government level…

That's only 200,000.

Yes, sounds good. Thanks a lot, sir. Wish you all the best. Thank you.

Thank you.

Thank you. The next question is from the line of Amyn Pirani from JP Morgan. Please go ahead, sir.

Yes, hi. Thanks for the opportunity. Two questions. First of all, on the U.S. aluminum profitability, does this business get any benefit because the U.S. has imposed tariffs on a lot of things? So that if you can give some bit o n the profitability side, or if you can highlight what is causing the staff improvement and profitability here?

Well, one factor is that our operating metrics in terms of volume capacity utilization have improved. So that's really fueling this improvement. And, I am hoping that having a comparative source make in the U.S. will help other U.S. OEMs maintain their MCA requirements. So managing MCA requirements is an important factor. So that should help us with securing new business.

Understood. I think till last quarter, you were also mentioning that there was some delay in getting the price increases from the customer on the aluminum business. Is now that behind us now? Subodh Tandale: No, it's not yet done.

Okay. Thanks. I will come back in the queue.

Yes, thanks.

Thank you. The next question is from the line of Mr. Pramod Amthe from InCred Capital. Please go ahead.

Yes. Thanks for the opportunity. So, Amit, considering that this static overhang has been there for some time in the system, is there any pre-buying by the clients which has happened in the last couple of months?

No.

Nothing of that sort, which you are seeing?

No.

Okay. Thanks. And se cond, with regard to the US Aluminum Forging, what is the plan now with regard to the second line of capacity? Are you advancing that? Looking at the constant…

No, that's already under implementation. Under installation and trial. I mean, it's under installation.

Okay. And there also capacities have been booked or how is the scenario?

Little bit, not all of it. We have some empty capacity. We have deliberately kept some capacity empty because we thought that, if the re is some positive development on the demand in the US and made in the US, that will give us some, leverage in the future.

Sure. And the last one is with regard to defense. Considering the recent conflict, how are you looking at addressing or adding up more addressable segments to your defense target for next three to five years?

So, we are working on. We are working on right from, as I mentioned earlier, drones, right from air, land and sea, to air defense, to naval guns, to lo ts of other advanced systems. And within all these systems, we will have high domestic content. So, that's our, that's our goal to have a broad based business.

Sure. Thanks in advance.

Thank you.

Thank you. The next question is from the line of Mr. Kapil Singh from Nomura. Please go ahead, sir.

Yes, sir. Thanks. Just one follow up on KSSL revenue. They have come off over the last four quarters. Just some, understanding as to what is happening over there?

KSSL's revenue, don't look at it on a quarterly basis, look at it on an annual basis. Because there are a lot of, let's say lumpiness in this business. So, I would loo k at it on an annualized basis. And we will see a recovery in Q3 and Q4.

Okay. So, on an annual basis, there should be growth in the revenue?

Yes, that is what we, that is what we are projecting.

Okay. And what percentage of these revenues, what percentage of the supplies go from domestic for this?

Sorry, everything is from here.

So, from the standalone operations, like what is the overlap between the revenues?

See, the thing is that old orders that have been taken in Bharat Forge will continue to be, let's say, completed from Bharat Forge . New orders will all come, will be from KSS L. It doesn't make a difference because KSSL is a 100% subsidiary of BFL as well.

Okay. And what about the ATAGS done? Where will that be accounted for?

It will be BFL. Subodh Tandale: But as Amit sir has also mentioned, we should look at it on a consolidated basis because it's a 100% subsidiary of the company.

Yes, I understand that. Thank you.

Thank you. The next question is from the line of Mr. Balasubramanian from Arihant Capital. Please go ahead, sir.

Good evening, sir. Thank you so much for the opportunities. Sir, servers and SMT lines are new ventures and what kind of business opportunities we are having in coming years? How does this align with the government incentives?

On SMT, we have electronics as a part of our business in defense and in EV and other electronics businesses. So, we see an opportunity to make electronics components, sys tems and also some end products as an opportunity for the Indian market and also as a backward integration for our defense and EV business. So, that is why we have set that up and we are already generating revenue from this and we have applied for the PLI for this and hopefully that should come soon.

Okay, sir. Sir, especially in construction, mining and aerospace, those areas witnessed weak performance. Is this a demand side issue or execution related and when we can expect the recovery? And secondly, this KPTL E -Mobility subsidiary, when we can expect a breakeven, whether it is in H2 or beyond that?

So, first of all, aerospace, we will have strong growth in the year. Again, you have to look at it on a YOY basis. We should see upwards of 20% growth, maybe even higher than that. Construction and mining, there has been a dip but hopefully that will also improve in the second half. What we are seeing is a growth in construction and mining in India as the whole infrastructure devel opment in India is taking off. Any other questions?

Sir, KPTL?

KPTL, we have working on a few. Look, first of all, we have reduced our costs and we have reduced our losses. But for the profit, I think it depends on getting a couple of big contracts going, which we are working on. Let us see. Right now, there are challenges in EV for everyone because of the whole, no magnets available and things like that. So, let us see.

Thank you.

Thank you. The next question is from the line of Mr. Viraj from SiMPL. Please go ahead.

Yes, most of the questions have been answered. Just few questions on AAM, I think we will start consolidating from Q2. So, if you look at the past performance, last three years, we have seen a very good healthy growth in that target company. So, what is driving that? And what is our play going forward? Because I think we also go on stake in automotive access. So, is there any more compete or any color you can give? How are we approaching this going forward in our plans?

We see a large opportunity in India in a variety of sectors, not only on highway, but also off highway and in new sectors to get into. So, we will continue to pursue growth opportunities in India and grow our business and grow our profitability. That is what we are after.

And is there any more competitor with automotive axle? I mean, eventually, can we also participate in MHCV or we will be restricted to LCV and CV?

So, we are an axle manufacturer. So, we will make axles.

Okay. Thank you.

Thank you. The last question for this session is from Mr. Mithun Aswath from Kiva Advisors. Please go ahead.

There was some partnership with Compal Electronics to manufacture servers in India. Could you highlight in terms of how large these opportunities that you are getting into could be in the next few years?

Yes. So, there are three sectors of servers that we are targeting in India. T here is one sector where servers have to be made in India. There is a second sector where you have AI-based servers and the third is just data servers. So, we are targeting all three. And I believe that there is a large market for servers, something in the order of 20,000 a year going up to 75,000 a year. And these are large servers. These are not the small servers. So, this is a big market and we want to see how we can be a competitive player in this market and a local player. So, right now, we are starting small, but we will build the capability to do much more development and much more value addition in our servers for our customer base over here, especially the niche and specialty customer base.

Thank you.

Thank you. I would now like to hand the conference over to Mr. Amit Kalyani for closing comments. Please go ahead, sir.

Yes. So, thank you very much, ladies and gentlemen, for your comments and questions. As you know, we are facing unprecedented times, but this company has weathered a lot of downturns and a lot of uncertainty in the past and we've come out stronger because we've always looked at our capabilities and expanded into new areas and we've worked internally to make ourselves more competitive. And that's the same thing that we will do this time around also. And I am quite confident that we will come out stronger and better at the end of this. So, thank you very much for your time and interest and I wish you all a very happy evening. Thank you and good evening.

Thank you. On behalf of Bharat Forge, that concludes this conference. Thank you for joining us and you may now disconnect your lines.