Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bharat Forge Ltd (BOM:500493, Financial) reported a 17% year-over-year revenue growth for Q4, reaching INR2,329 crores.
- Standalone EBITDA for the quarter increased by 25% to INR654 crores, with a margin of 28.1%.
- The company achieved record annual revenue of INR8,969 crores for FY24, with an EBITDA margin of 27.5%, a 200 basis points expansion.
- The defense business has shown significant growth, with 80% of its revenue coming from exports.
- The balance sheet remains robust, with surplus funds net of long-term loans at about INR800 crores and ROC net of cash at 20%.
Negative Points
- US operations posted a loss of INR34 crores in Q4 due to one-off costs, impacting overall performance.
- The European aluminum business, although stabilizing, is still working on securing price increases from customers.
- CapEx for FY24 was substantial, with INR800 crores for India operations and $60 million for overseas subsidiaries, indicating high capital expenditure.
- The oil and gas segment of the industrial business is experiencing specific weaknesses, affecting overall performance.
- The transition of the defense business to the 100% owned subsidiary KSSL may impact standalone earnings during the transition period.
Q & A Highlights
Highlights of Bharat Forge Ltd (BOM:500493) Q4 and FY24 Earnings Call
Q: Amit, my questions are on the defense side. You kind of highlighted in your opening remark that 80% of the order book is now on exports. Is that number right? And that's for the outstanding INR5,200 crore backlog?
A: Yes, at this time, this does not include the state tax programs in India, which are yet to be concluded, which should happen shortly after the election process.
Q: If you could just help us understand how and what is working in your favor on the export side and also probably somewhat of a color of the breakdown of the product categories within the defense, broader defense pool and how should one look at the domestic export?
A: Globally, people have realized that defense spending is going to increase. We have products that are world-class and extremely competitive. We see tremendous opportunities for our products across the world, especially in the artillery segment, protected vehicles, spares, and consumables. We are creating a capability to build initially over 100 guns per year and 550 vehicles a month, which can scale up significantly.
Q: In terms of the US operations, I did understand from you that we are looking at further CapEx in the US. What is the outlook in terms of FY25 profitability?
A: We have customer orders and commitments that require us to set up two phases in the US. Currently, our US capacity utilization is not yet at 100%, but by next quarter or latest by the quarter after that, we will be at 100% of Phase 1. We should see the US operations with a positive EBITDA in quarter four of FY25.
Q: On the defense profitability, given that export is shaping up much better than what we probably thought, what does it do to the longer-term profitability and return metrics on the defense business?
A: The returns on this business will be comparable to a manufacturing business. ROCE is going to be extremely good and it will also be a stabilizing factor because it will become a meaningful size of our business going forward.
Q: On the European aluminum business, how should we think about the US and European business as a whole, including aluminum, as we look into next year?
A: The European aluminum business will be profitable in '25 at both the EBITDA and PBT levels. This will be a big change from this year.
Q: Could you share the CapEx number for India for FY25?
A: It would be about INR500 crores.
Q: On the defense side, revenue to increase from INR1,500 crore to INR2,500 crore. How do you see that INR1,500 crore revenue growing over the next couple of years, given the visibility of the order book?
A: Based on the business that we have, we have given the numbers in our QBR at 5,200 odd crores in between three to four years. Other big India orders have not yet been included in this.
Q: On the domestic sales base, how do you see the outlook for the current year?
A: We are expecting it to be flat as compared to last year.
Q: Once you move to the new facility for KSSL, how does it change the capability or the speed of execution of these orders?
A: We will have single piece flow lines and a complete line-based manufacturing setup. We can do significantly higher quantities with less cost, less variation, and fewer setup changes than what we do today.
Q: Will the two military subsidiaries turn positive in FY25, '26 at PAT level?
A: Yes, Europe will be positive for the whole year and the US will turn positive in the second half of next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
