You mentioned in the prior call that the tariff was different for industrial and autos. Is there any change to that with the recent 25% imposition? Does the industrial also get the same tariff now and you see 25% implication on that?
Currently, that is the scenario and that is under evaluation by the US government as well.
You did talk about second half being better than first half. Just trying to understand the reasoning behind that. And within the first half, how should one look at 2Q versus 1Q?
Honestly, look, the tariffs were announced three days ago. So, I think we have to wait to understand the overall situation and then come back to you. This is the basis what we are hearing from our customers. Second half assessment is based on what we are picking up from customers, basically.
On KSSL revenue - they have come off over the last four quarters. What is happening there? On annual basis is there going to be growth?
KSSL's revenue, don't look at it on a quarterly basis, look at it on an annual basis. Because there are a lot of, let's say lumpiness in this business. So, I would look at it on an annualized basis. And we will see a recovery in Q3 and Q4. Yes, that is what we are projecting.
Especially in construction, mining and aerospace, those areas witnessed weak performance. Is this a demand side issue or execution related and when can we expect recovery? And on KPTL E-Mobility subsidiary, when can we expect breakeven?
So, first of all, aerospace, we will have strong growth in the year. Again, you have to look at it on a YOY basis. We should see upwards of 20% growth, maybe even higher than that. Construction and mining, there has been a dip but hopefully that will also improve in the second half. What we are seeing is a growth in construction and mining in India as the whole infrastructure development in India is taking off. KPTL - we have reduced our costs and we have reduced our losses. But for the profit, I think it depends on getting a couple of big contracts going, which we are working on. Right now, there are challenges in EV for everyone because of the whole, no magnets available and things like that.
On AAM - we will start consolidating from Q2. Last three years have shown healthy growth in that target company. What is driving that and what is our play going forward? Can we participate in MHCV or restricted to LCV and CV?
We see a large opportunity in India in a variety of sectors, not only on highway, but also off highway and in new sectors to get into. So, we will continue to pursue growth opportunities in India and grow our business and grow our profitability. That is what we are after. So, we are an axle manufacturer. So, we will make axles.
On tariffs - who bears the tariffs? Is it distributed across the entire chain of customers, OEMs, and suppliers? Does Bharat Forge need to bear more?
Right now, irrespective of who pays the tariff, whether we pay the tariff or the customer pays the tariff, at the end of the day, it is compensated in price. And usually what happens is customers work with us to find such solutions because obviously these are extraordinary circumstances. And given the fact that we provide critical products, all customers are working with us to find suitable solutions because that is the need of the hour right now.
This Rs. 14 crores impact that we borne, was that for the full quarter or part period? And were tariffs applicable for full quarter?
No. That was for full quarter. Yes, tariffs were applicable for full quarter.
With the tariffs currently at 25%, how is the competitiveness of Indian exports? And which are the geographies from which we are facing competition for products like crankshafts and front axles?
So, let me just, I will answer this in a very simple way. All the countries that produce these parts have the same tariffs. I mean, either we are the lowest or we are equal to what anybody else is. Nobody is lower than India. The other two geographies are China plus another one, both of which are at higher levels.
Is there a case that you need to think about setting up manufacturing for some of these products in US? And if the tariff uncertainty is affecting any order inflow from the customers as well?
We are not looking at setting up any other facilities right now, anywhere outside India. On order inflows - At this point, there is no impact on order inflows because typically, for the products that we are engaged with, it takes anywhere between 2 to 4, 3 years to complete the whole approval and validation cycle, even if we have to move it anywhere, ourselves. So, it's a very complex process. So, currently, there is no impact on the order flow because of this reason.
On the 14 crore tariff - the tariff is applicable only when the shipment reaches US. Is it fair to assume that we will see more impact of tariff going into the second quarter?
Even for this tariff that is applicable now, the effective date of implementation will be 7th of October or something like that. So, we will have some time for whatever is being shipped post 7th August.
On the defense bit - you mentioned strong visibility on the pipeline. Can you talk a little around it? What is it we are seeing? Is it on exports?
Look, as you know, we have announced that we had a pipeline of Rs. 9,000 crores. After which we have one more tender which has to get converted into a signed order. Once that happens, that will add another Rs. 1,400 odd crores to our order book. The last order that I am talking about is domestic; the broader pipeline is a combination.
You said every country which is exporting into US is either paying tariff as low as India or higher. But is there no onshore US plant for forging by ThyssenKrupp or anyone? Could there be competition or cannibalization on the forging side?
I said for the countries which are producing the same parts. There are forging plants, but not for machining. Not really - I don't think there's any capacity. No additional capacity as far as we understand.
On defense - recent action is moving towards air-based system, drones, missiles, anti-drones. What is the group strategy because you have very deep roots on the land side?
We have a presence in every sector. As you are aware, we signed an agreement with a company called Turgis Gaillard for MALE drones. We have a solution right from MALE to Super Light drones. So, we have an entire range of airborne unmanned aircraft. We have for land-based unmanned products and for water-based unmanned products.
Out of the defense backlog, including the Rs. 1,400 crores, how much is the component of non-land systems? And on carbines - how big could that opportunity be?
Land, when you say, it includes specialty vehicles, it includes artillery systems, it includes a lot of things. So, artillery itself is about 4,000 drones. So, it's less than half. Carbines is not yet included in that. We are L1, but the contract is not yet signed - that is 1,400 crores. The market is huge - that's only 200,000.
On the U.S. aluminum profitability - does this business get any benefit because the U.S. has imposed tariffs on a lot of things? What is causing the profitability improvement here?
Well, one factor is that our operating metrics in terms of volume capacity utilization have improved. So that's really fueling this improvement. And, I am hoping that having a comparative source make in the U.S. will help other U.S. OEMs maintain their MCA requirements. So managing MCA requirements is an important factor. So that should help us with securing new business.
Till last quarter, you were also mentioning that there was some delay in getting the price increases from the customer on the aluminum business. Is that now behind us?
No, it's not yet done.
Considering the tariff overhang has been there for some time, is there any pre-buying by the clients which has happened in the last couple of months?
No. Nothing of that sort.
On the US Aluminum Forging - what is the plan with regard to the second line of capacity? Are you advancing that? And have capacities been booked?
No, that's already under implementation. Under installation and trial. I mean, it's under installation. Little bit, not all of it. We have some empty capacity. We have deliberately kept some capacity empty because we thought that, if there is some positive development on the demand in the US and made in the US, that will give us some leverage in the future.
On defense - considering the recent conflict, how are you looking at addressing or adding up more addressable segments to your defense target for next three to five years?
So, we are working on right from, as I mentioned earlier, drones, right from air, land and sea, to air defense, to naval guns, to lots of other advanced systems. And within all these systems, we will have high domestic content. So, that's our goal to have a broad based business.
What percentage of these revenues, what percentage of the supplies go from domestic for KSSL? And what about the ATAGS - where will that be accounted for?
Sorry, everything is from here. See, the thing is that old orders that have been taken in Bharat Forge will continue to be completed from Bharat Forge. New orders will all come, will be from KSSL. It doesn't make a difference because KSSL is a 100% subsidiary of BFL as well. ATAGS will be BFL.
Servers and SMT lines are new ventures - what kind of business opportunities are we having in coming years? How does this align with the government incentives?
On SMT, we have electronics as a part of our business in defense and in EV and other electronics businesses. So, we see an opportunity to make electronics components, systems and also some end products as an opportunity for the Indian market and also as a backward integration for our defense and EV business. So, that is why we have set that up and we are already generating revenue from this and we have applied for the PLI for this and hopefully that should come soon.
There was some partnership with Compal Electronics to manufacture servers in India. Could you highlight how large these opportunities could be in the next few years?
Yes. So, there are three sectors of servers that we are targeting in India. There is one sector where servers have to be made in India. There is a second sector where you have AI-based servers and the third is just data servers. So, we are targeting all three. And I believe that there is a large market for servers, something in the order of 20,000 a year going up to 75,000 a year. And these are large servers. These are not the small servers. So, this is a big market and we want to see how we can be a competitive player in this market and a local player. So, right now, we are starting small, but we will build the capability to do much more development and much more value addition in our servers for our customer base over here, especially the niche and specialty customer base.