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.