Bharat Forge Limited (BHARATFORG) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Bharat Forge Limited Q3 and 9 months F526 earnings conference call. As a reminder, all participant lines should be in the listen only more, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Kalyani, Vice Chairman and Joint Managing Director, Bharat Forge Limited. Thank you, and over to you, Mr. Kalyani.

Thank you. Good afternoon, ladies and gentlemen, and thank you for your time and interest in joining our earnings call for the third quarter FY26. I trust that you've seen the numbers and gone through what we've put out. Before that, I'll introduce you to the team that I have with us. I have my colleague from the board, Subodh. I have our group CFO. I have our CFO Kedar. Our head of investor relations, Raj, and his colleague, Chinmay. And we are happy to take you through our water and answer whatever questions you have. So over to Kedar, and he'll take you through our synopsis.

Good afternoon, everyone. I will take you to the standalone business highlights for quarter, three and nine months ended for FY26. The standalone revenues were up 7% sequentially to about 2084 crores and EBITDA at 569 crores, which shows a growth of 4.6% quarter or quarter, with an EBITDA margin of 27.3%. This includes a tariff cost impact of Rs.31 crore. The performance was aided by strong growth in domestic automotive business and execution of defense order book. Continued de-stocking in North America truck market had an adverse impact on export revenues in quarter three. While the auto sector was down 13%, the industrial witnessed sharp 11% growth. This was mainly on account of improved business in oil and gas, aerospace business. To put things in perspective, North American truck market revenues are down 51% as compared to quarter three of last year. We had an one-time impact of $487 million on account of changes in labor code. This is mainly to do with the gratitude provision for the past services. Stand-alone revenues for nine months was 6135 crores with EBITDA margin at 27.7%. Balance sheet continues to remain strong with debt-to-equity net of cash of only 0.15. At the end of this year, we'll have a long-term debt of only 600 crores on our balance sheet. Quarter 3, consolidated revenues came in at 4,343 crores and EBITDA margin at 17.3%. Stable performance in overseas subsidiaries and improving execution in defense helped the overall performance. For 9 months, consolidated revenue was 12,284 crores with EBITDA margin of 17.5%. Indian subsidiaries continue to perform well. JSA, which is our casting business, saw their top line and EBITDA growth by strong 22% and 39% respectively. K-Drive, which is our recent acquisition, saw muted top line, but good jump in EBITDA from 3% to about 5% in this quarter. Quarter 3, in last quarter, the company had secured new business worth 2,388 crores across all key businesses, which includes the component business of 378 crores, defense of 1878 crores, casting 78 crores, and K-Drive 55 crores. Talking about the overseas subsidiaries, the European operations were stable amidst patchy demand due to holiday season. Utilization levels in quarter 3 were about 60 to 65%. During the quarter, EU operations recorded an EBITDA of 39 crores. U.S. aluminium had a stable quarter given the sentiment in North American passenger car market. The U.S. operations recorded EBITDA of about 10 crores for quarter three. The tariff on aluminum into U.S. is impacting the profitability and demand in this business. Current utilization level of aluminum business in the U.S. is about 65%. For nine months' performance, we continue to work on the improvement in our over-face business. So, for nine months, the U.S. losses were down almost 50%, and we are seeing lower losses at EU level, and while we continue to improve our operations, we also continue to evaluate restructuring operations for our European steel business, and we will update the progress by end of this fiscal. Now, I will hand over to Amit, sir, for his comments.

Just please go ahead.

Ladies and gentlemen, thank you. Just want to tell you that, you know, we entered into all this uncertainty very suddenly, and by God's grace, and, you know, the government and everybody doing their job, we've also come out of this mess in a very sudden manner. I hope that the positivity translates into real action, and I see early signs of that. So we have a good amount of confidence that the worst is behind us and that I think we have strengthened our position, we have further developed new products, and you will see that evidence in the next few years how we are building new segments for our company, which have growth potential and are the kind of products and technologies that will give us a very good future. I think on the domestic front, the GST reforms have given a boost to the automotive industry and also take the industry players by surprise. In fact, the growth was almost unmanageable by them. The recent announcement with the trade deal... It has also been positive, and coupled with the CV market in the U.S. bottoming out and beginning to show higher order intake will also give us a lot of momentum. It's a deja vu of 2019, where every period of ours was witnessing a strong growth. I am also very happy to report that our acquisition of JSA a little over two years ago The call has worked out very well for us. We have now brought in a very high quality investor in the form of Premji Invest, which has invested to take a meaningful stake in the company, and is 23% at a valuation of 4,300 crores. So that values our investment at a multiple, you know, three and a half to four times of what we had bought it for. So, you know, our team has done a good job, and I think that the overall collaboration between our automotive business, the casting business, and our customers has worked very well and will give us plenty of growth going forward. The CV sector for Q4, India looks very strong and may continue into the first half of next year. Exports seem to have bottomed out and we should see a gradual improvement from here. On defense, we see a strong uptick driven by commencement of the ATAC order and the beginning of CQB production. We should look at 30-40% plus growth in our defense business next year. Aerospace segment, also we see a very strong growth next year. Also year after next, because next year we have some new programs and some new capacities coming online, but significantly larger coming online year after next. And we believe that we are on track to, you know, really meaningfully grow this business in the next three-odd years, and make it a business that is sizable and will generate very tidy returns and addition to our top and bottom line. On the M&A side, you know, we are looking at some very interesting opportunities and, you know, We will take it as it comes. In terms of capacity addition, we have new orders that we want, which are very long term, in very strategic sectors, and we are setting up some new facilities to take care of that. So, I think on the whole, that's the picture where it stands. So, I think we are now ready to take your questions. So, thank you very much.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Kunjan, the Bank of America. Please go ahead.

Hi, thanks for taking my question. My first question is on the defense business. There have been quite wide-ranging wins in the last quarter, right? Small guns, fire buying, then unmanned systems, drones, and then even the marine one came through in the last couple of months. So, clearly, the product capabilities and... It's far wider than the guns and the portfolio is expanding, right? So, I mean, I'm just looking to get some sense from you as to how do we think about the scale-up of this business in the next two, three years. Of course, there's one way that we look at order book and execution of order book, but it does seem like, you know, some of the newer opportunities are adding in. So, you know, some thoughts on how do we think about this business from a two, three-year perspective.

Yeah, sure, Gunjan. I think you have to look at our defense business. The way you look at our overall company, we will de-risk defense from any one vertical. We will have multiple verticals, we will have verticals that will have continuous business, we will have verticals that will have lumpy business, and we will look at global opportunities for all the products that we make. It's very clear that unmanned systems and drones are a very big opportunity. These are definitely both complementary and supplementary to MANT systems. So we have to have a play there, and we are there both in the water domain, that is underwater, and in aerial domain. And we are building the capability not just for the product, but also for the payload. So that is one way to look at it. And these are products that can be ranging from, you know, Few crore rupees to many, many million dollars. So, there is a wide range of products within that also. So, we believe that once you become a defense player, and especially in a network-centric battle environment or defense environment, you need to have all the network products that become a force multiplier for any of your products.

Got it. If I were to, like, just sort of think that defense is, you know, roughly about, you know, 10, 12 percent or even less, 10 percent odd of your revenues right now. With these new opportunities, order book conversion, I mean, you know, just directionally, how do you think this, how significant can this be? I'm just trying to get the scale of this business maybe three years down the line, maybe five years down the line, the way you internally sort of look at the evolution of this.

See, realistically, defense has the opportunity to become as big as our business today is, overall business is today, if you look at global opportunities. You know, if you look at the budget of Europe, European defense budget is going from 350 billion to 800 billion. India's defense budget is growing by 21% this year. So, overall, there is a huge growth taking place in these sectors. So, it depends on what we play in, what role we play in, what we win. But clearly, 10%, 11% will, you know, definitely be more like closer to 18-20% if things go right. Could be even more than that.

Got it. 18-20% in 2-3 years. Is that how should it be?

Let's look at 2030.

Okay. Got it. Now, second question is on this tariff, you know, clearly you guys navigated it really well, you know, with pretty modest hits. I'm just trying to get a color of what does the deal do beyond the easing of margin pressures. Is there fundamentally something you see has shifted and which can put us in a better place as a supplier ecosystem from India? You know, some qualitative thoughts around that.

Yeah, so look, obviously it puts us in a better position than certain other countries which have a higher tariff than us. So that's one thing. Okay. Second is, you know, the tariff deal being done and the punitive 25% being removed means that, you know, we're in a differentiated position than others. Plus, the new product development will start again with all our customers. Not that it had stopped. But there is more confidence now to go full steam ahead.

Got it. And last question, just on Europe restructuring, again, you know, trying to get your thoughts on, you mentioned that you'll give an update by the end of the year, but any color and how, what is it that we are looking to do? Is it looking to wind down the business? Is it looking to shift it to India? I mean, what sort of restructuring?

I can't say anything more than what we've already said.

Okay, got it.

But, you know, like I said, we have to make a profit. Or, you know, we have to take some decisions. We have to see what to do.

Okay. All right. I'll join back with you. Thank you so much.

Thank you. Next question comes from the line of Amin Pirani with JP Morgan. Please go ahead.

Yes, hi. Time for the opportunity. Actually, my first question was on the announcement of the PNG investment in JF Auto. So my question was that, you know, given that you are probably the experts on the manufacturing business that it is, and given that, you know, balance sheet is not really a constraint for you, what is the value that, you know, this investor is bringing in, and how does this change the scale of operations, which maybe you couldn't have done on your own?

No, there is nothing that we couldn't have done on our own. I just think that sometimes having, you know, A few more. It's a very different perspective. And having more... And they also have a lot of connect. We want this business to grow fast. We want it to grow both organically and inorganically. And now we don't have to worry about putting any more money in here.

Okay, understood. Secondly, just following up on the Jorap question, so interestingly, you know, in the last two, three quarters, it looks like the numbers have already started to move up. So, you know, just trying to understand, are there already some things that you're doing in the business, or we still have to think about, you know, a kind of big restructuring which you had indicated, like, you know, around two quarters back.

So, we're trying to do a lot of things. We're reducing a lot of cost. But, you know, it's not easy. Every day there's something new happening in Europe. You know, so we're trying to do the best we can. We are putting a lot of improvement measures. We just have to see how effective they are, whether one is internal, the second is external. We also need to see whether whatever we are doing, the external landscape and the market is big enough and is there to take advantage of. So, it's not just one way. You know, Europe, I think, is in a secular problem, and we don't know where it's heading. So, we have to see.

Fair enough. Thanks for that and come back.

Thank you. Next question comes from the line of Kapil Singh with Nomura. Please go ahead.

Yeah, good afternoon, sir. I wanted to check firstly your thoughts on the defense business profitability. Would it be comparable to the auto business over time? How do we think about it?

I would expect it to be, you know, profitable, equivalent on an EBITDA basis, generally speaking, and, you know, I think the... Thank you.

Okay.

Also, it will have a long tail because there will be constant MRO and support income coming from everything that you said.

Okay. And, sir, this order book that we have, what period should we look at for the execution? Also, we had a small arms contract order.

I think the small arms is five years. The rest should be between mostly four years.

Okay, okay. And sir, also on the outlook for particularly the global truck business, has it already bottomed out as you mentioned, but when do we start to see the upcycle? Are there any signs visible? What is the outlook for next one year?

I have my colleagues to both answer that question.

Have you seen the incoming orders in the... It's not going to be steady, it's going to be steady, but on the positive side,

And sir, can you comment on the passenger vehicle exports as well?

So we continue growing our passage and our exports. Again, we are engaged with all the major players in the world. All of them are being affected.

Okay. Thank you. Thanks a lot. Thank you. Next question comes from the line of Abhishek Shah with Valkor Capital. Please go ahead.

Hi, sir. Thank you.

Mr. Shah, sorry for interrupting. Your voice is breaking. Can you come in the range and talk?

Yeah, hi. Is it better now? Hello. Yes, please go ahead. Yeah, sir, this is regarding a news article and somewhere we've been reading online that Kalyani Group as such has been, you know, granted by Orista government. You know, we were planning to set up a project of 17,000 odd crores. Just wanted some more clarity on this. I mean, the project, what our understanding was it will be implemented by three companies of our group, Bharat Force, Kalyani Steel, and Sardoha. So maybe if you can give us some more understanding on, you know, what will be the split, who's spending how much, and what is this project about, and maybe tentative timelines for the same.

So the first part of the project will be a specialty steel plant, which will be set up by Palyani Steels. That will be coming up in, I mean, once the EC and everything happens, they will break ground and start work. That will be about 700,000 tons of steel, specialty steel. Then the second part will be a super alloy plant. Which will be set up by Sarloha to make aerospace and other super alloy grades including tool and die steel etc. And the third will be a forging, machining, potentially also casting facility by the relevant companies including JSA if needed if there is an opportunity

to do

You know, further expansion of our own existing products and certain new products using the raw material and the overall advantage that we'll get in that location.

So, what will be the tentative CAPEX split between the three?

See, each company will do its own CAPEX. So, I don't want to, in a Bharatpur call, talk about other companies.

No, no, in the sense, out of 17,000, how much are we going to spend? How much is Bharat Foj going to spend, sir?

So, Bharat Foj, we have said up to 3,000 crores.

Achha. Okay. Got it. And, sir, tentative timelines for when we start our CAPEX, I mean, I am talking from Bharat Foj's perspective, and how does it link to the group, basically?

This will be the next growth phase after our existing expansions in Baramati, etc.

So, nothing in the immediate one or two years?

I mean, not in the next one year.

Okay. Got it. Got it. That's all from my side. Thank you.

Thank you. A reminder to all the participants that you may press star and want to ask questions. Next question comes from the line of Nitin Jain with Fair Value Equity Advisor. Please hold on.

Yeah, congratulations on the excellent quarter. I have just two questions. If you can talk a little bit about your defense order pipeline. Now, I'm asking this because QOQ itself, our order book has grown more than 1,500 crores. So, where do we expect to end this year, and what kind of bid pipeline we have for fiscal 27th?

So, we have increased our order book by two things. One is the CQB carbine, and some of the EP orders that we got. Okay? Now, we have a lot of other things that are in the pipeline. There are a lot of new programs that we are working on, a lot of new products that we are developing. I don't want to talk about any of that right now. Once we make the bids, we can talk about that.

So, do we expect any of these to materialize by fiscal 27 or there is still time to go?

As you know, the whole defense procurement process is being overhauled and being speeded up. The new DAP has come out which is very comforting that it is focusing more on Indian development and design products. And make in India a lot more. So I think we are quite bullish on, you know, this whole sector growing for India. There's also a global opportunity to be a supplier both of systems and components into Europe and many other parts of the world. So overall, I think this is a market that's going to grow. This is a sector that's going to grow and a business that, you know, going to have a long-term strong future for us.

Also, recently, one of the Indian fortune companies, they were inducted into the NATO supply chain for high-precision defense components. So, like, this is considered positive for their business. So, I just wanted to know if we also share any similar credentials or we are vying for the same?

First of all, I would say, please validate what you are saying, because, okay, and second, we already are supplying... We are already exporting into large quantities in this area.

Great. And lastly, any development on the server business? Last we had heard from the company was that it tied up with a few global leaders. If you can make it aware of the process of it. Okay. Thank you.

Thank you. A reminder to all the participants that in my best star and one to ask a question. Next question comes from the line of Arkesh Jiberi with time and tight advisors. Please go back.

Good afternoon, sir, and thank you for the opportunity. My first question is, how has the acquisition of American Axel been performing and what is our view on the segment?

The acquisition has performed well. Our margins have grown by almost 200 basis points. And I expect that this sector will do well. This is a high growth sector and we are already winning quite a lot of new business from Indian OEMs. So this has been a good acquisition for us and we expect this to turn out to be a very positive step for the company.

Also, I have taken automotive access. So, how are we looking at these two companies in similar segments?

So, I am not personally involved with automotive access individually because of the same reasons. As you know, automotive access is an investment of the group for a very long time. It has its own position in the every access sector. And this is another player in this actual sector. So I think, you know, each will find its own niche, and, you know, where needed, they will also compete.

Sure. And my last question is, has American Axle been gaming market share?

Has been what?

Has been gaming market share?

Yes, it's been getting a lot of new business, yes.

Okay, any way to quantify that?

I think, you know, next quarter we'll talk about that.

Sure. Thank you so much.

Thank you. A reminder to all the participants that you make a star and want to ask a question. Once again, a reminder to all the participants that you may press star and want to ask a question. Ladies and gentlemen, as there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Amit Talyani for closing calls.

So, ladies and gentlemen, thank you very much for your time and interest and your questions. As always, it's a pleasure interacting with you. Thank you for your positive comments and feedback. And we look forward to remaining engaged as we continue the growth journey of our company over the next many years.

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