Bharat Forge Limited — Q3 FY25 earnings call

Call held 12 Feb 2025

Management summary

Bharat Forge reported a mixed Q3 FY25, with strong performance from its Indian entities, particularly JSA and resilient standalone operations, driving consolidated EBITDA and PBT growth for the nine months. However, overseas operations faced significant headwinds from weak demand and utilization, leading to disappointing results. The company is strategically investing in new growth verticals like aerospace and ferrous castings, while navigating global uncertainties and a potential slowdown in Indian industrial CAPEX.

Highlights

  • New business verticals (casting, aerospace) performing well and expected to continue growth.

  • Ferrous casting space shows excellent customer traction, targeting Rs. 1,000 crores annualized run rate within 6-8 quarters with margin expansion of 250-300 bps.

  • Standalone and defense businesses displayed resilient performance, with standalone operational profitability holding up at 28.1% range.

  • JSA (Indian subsidiary) registered strong performance with 20% revenue growth to Rs. 166 crores and 50 bps margin improvement to almost 14% in Q3.

  • Consolidated balance sheet remains robust with ROCE of 16.5% and net debt to equity improving to 0.36x due to QIP funds deployment.

Concerns

  • Overseas operations (Europe and US) were disappointing due to weak demand and utilization, with European operations posting only Rs. 10 crores EBITDA and US operations reducing losses to Rs. 6 crores in Q3.

  • Uncertainty regarding global policy, geopolitical issues, new government policies, and a 'rethink on the full electrification bandwagon' impacting the automotive sector.

  • Defense business performance can be lumpy due to contractual timelines, despite a strong order book.

  • Indian CAPEX momentum slowing down in infrastructure and industrial sectors could impact industrial business in the near-term.

Key financials

2 periods

Headline

  • Standalone Revenue
    ₹2,096 Cr
    YoY -7%
  • Standalone Operating Margin
    28.1%
  • Net Debt to Equity
    0.36

9M

  • Consolidated Revenue
    ₹11,270 Cr
    YoY -2%
  • Consolidated EBITDA
    ₹2,087 Cr
    YoY +9.1%
  • Consolidated PBT
    ₹1,224 Cr
    YoY +50%
  • Consolidated EBITDA Margin
    18.5%
  • Consolidated ROCE
    16.5%

What they filed

Q1 FY27: revenue up 18.7%, net profit down 131.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,689 3,476 3,853 3,909 4,032 +9%4,343 +25%4,528 +18%4,640 +19%
EBITDA647 623 679 670 724 +12%746 +20%777 +14%698 +4%
Net profit243 213 283 284 299 +23%273 +28%233 −18%-90 −132%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • JSA (Indian Subsidiary)
    ₹166 Cr Revenue14% Margins
  • Defense Business
    ₹337 Cr Q3 Revenue₹1,488 Cr 9M Revenue
  • European Operations
    ₹10 Cr EBITDA
  • US Operations
    ₹6 Cr EBITDA Loss

Order book

high confidence

Total value

₹5,700 Cr

as of 2024-12-31 quantified

Inflow this quarter

₹100 Cr

Execution

governed by contractual timelines, leading to lumpiness; for ATAGS series deliveries, 15-18 months from now

Composition

  • New Business Wins (April-Dec) (other) ₹2,616 Cr
Order book does not include any potential orders from domestic or export markets; execution is lumpy due to contractual timelines.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹300 Cr
    • New facility for aerospace (machining for landing gear components and ring mill for high-precision forgings)
    For aerospace, we have now approved a new investment of machining for landing gear components and a ring mill to manufacture high-precision forgings for the growing demands of the jet engine components globally. ... No, I would say about Rs. 300 odd crores. ... Only investments in subsidiaries will be in India, nowhere else. And I do not think that will exceed maybe Rs. 200 crores, Rs. 250 crores at the most.
  • Debt Debt disclosed
    More importantly, leverage has gone down as QIP funds were deployed to pay down the debt. The resultant gearing position has improved with net debt to equity improving to 0.36x as of 31 December, '24.
  • Liquidity Liquidity disclosed Balance sheet continues to remain strong with ROCE and RoNW improving amongst strong liquidity positions.
    And balance sheet continues to remain strong with ROCE and RoNW improving amongst strong liquidity positions.

Guidance & targets

Volume

  • Ferrous Casting Annualized Run Rate Volume · within 6-8 quarters · High confidence Rs. 1,000 crores
    Subject to demand holding up, we should be able to hit an annualized run rate of Rs. 1,000 crores, we are hoping within the next six to eight quarters.

    — Amit Kalyani

  • India CV Outlook Q4 FY25 Volume · Q4 FY25 · Medium confidence slightly better than Q3
    On the India CV outlook, we expect Q4 to be slightly better than Q3.

    — Amit Kalyani

  • India CV Outlook FY26 Volume · FY26 · Medium confidence more or less flat
    FY '26 will be more or less flat.

    — Amit Kalyani

  • North American CV Market Growth Volume · second half of the year · Medium confidence 10% growth
    As of now, the North American CV market is expected to be buoyant with a 10% growth, but in the second half of the year.

    — Amit Kalyani

Profitability

  • Ferrous Casting Margins Profitability · in the next two years · High confidence increase by at least 250-300 basis points
    Additionally, we expect to see the margins increase by at least 250 basis points to 300 basis points from where we are in the next two years.

    — Amit Kalyani

Revenue

  • Defense Business Annual Growth Revenue · annual basis · Medium confidence close to 40% growth Y-o-Y
    So, I would look at the defense on an annual basis rather than a quarterly basis. So, we had guided that we will see a close to 40% growth Y-o-Y and I think we should be fairly close to that.

    — Amit Kalyani

  • Aerospace Revenues Revenue · by next year · High confidence triple-digits per quarter
    So, like we said last year when we spoke, our aerospace revenues are currently running at somewhere in the region of Rs. 50 crores, Rs. 60 crores a quarter. We expect this to go to triple-digits by next year per quarter.

    — Amit Kalyani

  • Aerospace Business Potential Revenue · Medium confidence USD 100 million going towards USD 150 million, and. 200 million
    This becomes our path to crossing USD. 100 million going towards USD 150 million, and. 200 million of business.

    — Amit Kalyani

  • Nuclear Segment Annual Revenue Revenue · a year · High confidence Rs. 50-100 crores
    Yes, we generate anywhere between, I would say, Rs. 50 crore to Rs. 100 crores a year, depending on how much orders are there in the system.

    — Amit Kalyani

Capacity

  • Aerospace New Facility Operational Capacity · end of '27 · High confidence operational
    This will be operational at '27, towards the end of '27, it takes about 18 months.

    — Amit Kalyani

  • India Nuclear Power Installed Base Capacity · next 10 years · Medium confidence more than triple
    Now, India has a installed base of roughly, I think, about 10,000 megawatts or 11,000 megawatts of nuclear power. I think that is going to more than triple in the next 10 years with the projects that are announced and underway.

    — Amit Kalyani

Capex

  • Standalone CAPEX Capex · FY26 · High confidence Rs. 300 odd crores
    No, I would say about Rs. 300 odd crores.

    — Amit Kalyani

  • Subsidiaries CAPEX Capex · FY26 · High confidence Rs. 200-250 crores at the most
    Only investments in subsidiaries will be in India, nowhere else. And I do not think that will exceed maybe Rs. 200 crores, Rs. 250 crores at the most.

    — Amit Kalyani

What to watch in Q4 FY25

Overseas Subsidy Restructuring Plan

within 6 months
Current Under thorough review
Target Concrete way forward

Why it matters

Clarity on the future of loss-making overseas operations is crucial for overall profitability.

And within six months, we will have a concrete way forward.

Risks & concerns

  • Weak demand and utilization in overseas operations (Europe and US)

    high

    European operations posted only Rs. 10 crores EBITDA, US operations reduced losses to Rs. 6 crores in Q3 due to 'anemic demand' and customer-specific weakness.

    Management acknowledged

  • Uncertainty in global policy and geopolitical issues

    medium

    New governments making new policies and geopolitical issues create an unpredictable environment, requiring a 'wait and watch' approach.

    Management acknowledged

  • Rethink on full electrification bandwagon and EV transition

    medium

    OEMs are retooling for hybrid and full ICE platforms, indicating a shift from pure EV focus, though Bharat Forge's aluminum forging is agnostic to powertrain.

    Management acknowledged

  • CAPEX momentum slowing down in Indian industrial sectors

    medium

    Slowdown in infrastructure and new capital formation (power plants, water projects) could impact industrial business in the near-term.

    Management acknowledged

  • Lumpy nature of defense business revenue recognition

    low

    Translation of order books to revenues is governed by contractual timelines, causing quarter-over-quarter lumpiness despite a strong order book.

    Management acknowledged

Q&A highlights

6 direct
Overseas subsidiaries performance and restructuring Partial
So, in a very simple way, let me answer. Right now, there is a lot of uncertainty about policy, about what is going to be the way forward, is it a global world, is it a regional world? So, like I said, we are undertaking a thorough review of our manufacturing footprint. And within six months, we will have a concrete way forward.

Analyst pressed on the challenging environment and potential restructuring of overseas subs, with management indicating a 6-month timeline for clarity.

Asked by Gunjan Prithyani

Defense ATAGS order timelines and revenue recognition Direct
So, there are three steps of the process. One is the contract signing, then you have FOPM, which is the First Off Production, and then you have series deliveries. So, I think for series deliveries to start, we are at least 15 to 18 months from now. ... But the contract will be signed in the next, I would say, three to four months, maybe even little sooner.

Clarified the multi-stage process for defense orders and the long lead time for revenue recognition, with contract signing expected soon.

Asked by Gunjan Prithyani

Impact of EV trend reversal on aluminum forging business Direct
No, no because aluminum forging and aluminum, in fact, is going to be common no matter whether it's EV or its gasoline. It's completely agnostic to them.

Management clarified that their aluminum forging business is resilient to the EV transition, as it's agnostic to powertrain type.

Asked by Jinesh Gandhi

Export industrial business growth drivers Direct
Oil and gas has grown significantly. Aerospace has grown by almost 25%. Oil and gas and aerospace have grown.

Identified specific segments (Oil & Gas, Aerospace) driving growth in the export industrial business, providing color beyond overall numbers.

Asked by Kapil Singh

CAPEX slowdown impact on Indian industrial business Direct
CAPEX slowdown is basically in two areas. One is on infrastructure and the second is on new capital formation in industrial sectors. So, power plants, water projects, there's no big CAPEX that is taking place. ... The next set of these mega projects are now yet to start.

Provided specific areas (power plants, water projects) where CAPEX slowdown is observed, indicating potential headwinds for industrial business.

Asked by Kapil Singh

New MOU with L3Harris and its opportunity Direct
Yes, that is a sector called C4I. L3Harris is one of the largest companies in the whole imaging and electronics that are used in defense. And this is a very large Company, L3Harris. And these are new sectors that we are getting into related to defense, electronics and systems for India.

Highlighted entry into new defense sectors (C4I, imaging, electronics) through a significant partnership, indicating future growth avenues.

Asked by Mumuksh Manlesha

Longevity of business given US regime change and competitive pressures Partial
Arjun, I think it's too early to comment on that level of detail, because we do not know. I mean, generally, if you were to ask me, I think the longevity has gone up. But if you want me to specify, I do not think I am able to. Because on one side longevity has gone up, on the second side you have talk of tariffs and other things. So, it's very difficult to be able to, what do you call it, to bridge both and to come up with a total picture of where we stand.

Analyst questioned the long-term business outlook amidst policy uncertainty, and management acknowledged complexity without a clear answer, indicating ongoing strategic evaluation.

Asked by Arjun Khanna

Domestic passenger vehicles revenue growth despite slowdown Direct
So, we have new customers and new products. That is what is helping us. ... yes, we expect the trend to continue because most of our customers who we have got in the last few years are increasing their mobilization, and that is where we are now supplying a lot of new components, both engine, transmission, chassis, especially transmission components etc. So, that is a big growth area.

Management attributed continued growth in domestic PV to new customers and products, and increasing mobilization from existing clients, indicating organic market share gains.

Asked by Pramod Amte

2 min read 5 chapters

Detailed narrative

Q3 FY25 Performance Overview

Bharat Forge reported a soft Q3 FY25 standalone performance with revenue at Rs. 2,096 crores, a 7% decline year-on-year, primarily due to challenging demand conditions in underlying markets. Despite the revenue dip, standalone margins remained stable at approximately 28.1%. For the nine months ended December 31, 2024, consolidated revenues were Rs. 11,270 crores, a 2% decrease year-on-year, while consolidated EBITDA grew 9.1% to Rs. 2,087 crores, and PBT increased by 50% to Rs. 1,224 crores, driven largely by Indian entities.

Overseas Operations Challenges

The company's overseas operations were a point of disappointment, particularly in Europe and the US. European operations recorded a modest EBITDA of Rs. 10 crores in Q3, impacted by 'anemic demand' in both Commercial Vehicles (CV) and Passenger Vehicles (PV) exports. US operations managed to reduce their EBITDA losses to Rs. 6 crores for the quarter. Management indicated a thorough review of its manufacturing footprint and expects to provide a concrete way forward for these operations within six months, acknowledging the current uncertainty in global policies and demand.

Growth Drivers: Ferrous Casting, Aerospace, and Defense

New business verticals are showing strong traction. The ferrous casting space is expected to achieve an annualized run rate of Rs. 1,000 crores within 6-8 quarters, with margins projected to increase by 250-300 basis points in the next two years. Aerospace revenues, currently at Rs. 50-60 crores per quarter, are anticipated to reach triple-digits per quarter by next year, with new investments approved for machining landing gear components and ring mill manufacturing. The defense business posted Rs. 337 crores in Q3 revenue, with an executable order book of Rs. 5,700 crores as of December 31, 2024, and is expected to grow close to 40% year-on-year on an annual basis.

Capital Allocation and Balance Sheet Strength

The consolidated balance sheet remains robust, with ROCE at 16.5% as of December 2024. Leverage has decreased, and net debt to equity improved to 0.36x, primarily due to the deployment of QIP funds to pay down debt. For FY26, standalone CAPEX is projected to be around Rs. 300 crores, with an additional Rs. 200-250 crores for Indian subsidiaries, totaling approximately Rs. 500-550 crores for consolidated CAPEX. These investments are directed towards new aerospace facilities and other growth initiatives.

Market Outlook and Regulatory Environment

The company expects Q4 FY25 for India CV to be slightly better than Q3, with FY26 projected to be more or less flat. The North American CV market is anticipated to see 10% growth in the second half of FY26. Management noted a 'rethink on the full electrification bandwagon' by OEMs, with a shift towards hybrid and ICE platforms, though Bharat Forge's aluminum forging business remains agnostic to powertrain types. Concerns were raised about slowing CAPEX momentum in Indian infrastructure and industrial sectors, potentially impacting near-term industrial business.

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