Bharat Forge Q1 FY27 earnings call

Bharat Forge Limited reported consolidated revenues of INR4,640 crores for Q1 FY27, marking an 18.7% year-on-year growth. Consolidated EBITDA stood at INR752 crores, up 10.3% YoY, with an EBITDA margin of 16.2%. Standalone revenues were INR2,347 crores, an 11.5% YoY increase, and standalone EBITDA was INR614 crores, yielding a 26.2% margin. The standalone margin was impacted by 160 basis points due to escalating energy and input costs, and included an exceptional item^📎 of INR24 crores for restructuring consultancy.

Indian subsidiaries demonstrated strong performance, with Kalyani Strategic Systems, the defense arm, recording robust operating results driven by higher realization and a better product mix. JS Auto Cast, the casting outfit, also had a strong quarter, with its revenue growing 27% and EBITDA increasing 30% on a year-on-year basis. The company secured new orders totaling INR1,353 crores across its forging (INR522 crores), defense (INR681 crores), and ferrous casting (INR150 crores) businesses, bringing the outstanding defense order book to INR11,196 crores.

The European business recorded revenues of INR1,074 crores and an EBITDA of INR30 crores, resulting in a 3% margin. US operations faced challenges, reporting revenues of INR461 crores but an EBITDA loss of INR4 crores. This loss was primarily attributed to a major maintenance breakdown of presses in the steel forging business, causing almost three months of no production, and a 50% tariff on raw aluminum from Canada. The restructuring of Bharat Forge CDP, the German steel business, is on track for completion by the end of calendar 2027, with profitable orders to be transferred to India.

Bharat Forge is making significant investments in new growth verticals. The aerospace business is targeted to double in the next two years, supported by a new ring mill and forging facility in Baramati. The semiconductor components market is expected to generate INR30-40 million in organic revenue within two years. The data center/energy business is also projected to double in the next four years. Additionally, the company is establishing an energetics plant in Andhra Pradesh for filling shells and producing propellants for defense applications.

The company plans an overall organic capex of approximately INR1,800 crores in India, spread across forging, machining, heat treatment, and ring rolling. A fundraise of up to INR2,500 crores is earmarked for growth capex across large engine, power generation, semiconductor components, aerospace, and defense energetics. Management aims to maintain at least INR2,000 crores of cash on the balance sheet to support accelerated growth and potential M&A opportunities in India, while maintaining a strong balance sheet with a net debt to equity ratio of 0.45x.

Management expressed a strong outlook for all segments, particularly India and the US, and expects Q2 FY27 to be better than Q1. They anticipate a gradual improvement in margins as cost escalations are negotiated with customers and US operations recover. The defense business is targeted to achieve a steady-state annual margin of 22-23%. However, US margins, particularly for aluminum, face headwinds from tariffs, which need correction for full recovery to 15-16%.