There was a mention in the commentary that there was some INR 24 crores tariff charges. What is it related to and where is it accounted for? And is this the peak or should we expect that there will be a further impact because the tariff seems to have gone up?
[Kedar Dixit]: This is the tariff charges, the sharing of tariff, the US tariff, what we have for our US exports. This is in sales. [Amit Kalyani]: I think it's a very dynamic situation. It's difficult to comment with any amount of certainty. And, it's a little bit of competitive information issue. So, I don't think I want to talk about it very publicly.
On this tariff, this was only for a month or two, it was in Quarter 1, it was only INR 14 crores, but partial period, right? This is for the entire period. Is that the correct way to look at it? The entire quarter had a tariff implication?
This was for the quarter. I don't want to say anything more than that.
Going to the defense business, now with the new order, we will be roughly at INR 11,000 odd crores sort of order book. How would you think about the revenue or execution timeframe? What sort of growth do we bake in from the current level over next two years? And on the INR 10,000 crore order book, is 3 years a good timeframe to work with for execution?
We would definitely continue to have new wins and additions. But our execution will also start because I think ATAGs execution should start in maybe about 6 to 9 months. And then that will continue ramping up. So, that's a big order. And then other orders, what I mentioned on the carbines, once the order is signed, then the FOPM and then 9 to 12 months after that, it will start. No, it will take longer than that. See, realistically, in this business, from the time order is signed, you cannot expect revenues to start in less than 12 months, unless it's a revenue item, okay? If it's a revenue item, then it can start much sooner. But in capital items, it definitely will take time.
Can you provide some color on what kind of revenue opportunity we have in the server manufacturing business over the next 2-3 years? And what kind of margins can we expect here?
It's a very small, it's a business that we are trying to evaluate, because we see that as a very large new opportunity. We see the whole data center space as a big opportunity. Server manufacturing is, I don't know if it's the end in itself or a means to an end, because we want to understand the whole product level and the system level, architecture, complexity, and understand where opportunity for us lies. So, I don't think looking at server manufacturing as a very big opportunity right now, because we are only learning this business. Okay. So, I think in six months from now to nine months from now, we will have a better idea of this business. Clearly, that's the whole area that we are interested in. But it's too early to talk about what size and scale and margins.
On the tariff situation, today there is a PV component tariff which we have, then there is another CV component tariff. On top of it, there is metal tariff and then there is a reciprocal tariff. So, for the US business, can you bifurcate what percentage of business is linked to this kind of tariff?
So, we can't break our tariff down in that way. You have a outlook on our overall business. You know how much of our business goes to US, how much goes to Europe. So, I think we should just leave it at that. There is one thing actually I wanted to mention - yesterday our defense business won a order from the Navy. So, Kalyani Strategic Systems secured a business of more than 250 crores for the supply of underwater systems. This is for basically unmanned marine systems for the Navy. So, you may be aware that the underwater domain is a key focus area for us. With India's huge coastline and interesting neighborhood that we operate in, we have to protect and secure our Navy and coastal facilities. So, this is one of the orders that we have won, second order that we have won for this, but a bigger order. And this was just won yesterday, and this will be delivered from our facilities in Pune. This is within one year. All this has to be delivered within one year. Yes, it has to be delivered within one year of the signing.
Is there a scope to improve margins in the short term considering overheads? And any set rules you want to play over the next 3-4 years - first margins, then product mix? Any broader topline, bottomline, CAGR you would be looking at?
Yes, absolutely. We are very focused on that. We are going to play Horizon 1 and we have a separate team for Horizon 2. So, Horizon 1 team will focus on existing products, existing markets, and improvement in financials for those sectors. And then the new team will also focus on Horizon 2. Let's talk about it in six months, but clearly, we have an aggressive growth plan.
Any update you can provide on Europe restructuring? Have your customers approved your initiative?
Whatever we had to talk about, we have already mentioned in the update. And I already mentioned that before. I don't have any more comments.
The fund raise that you're doing would be used for inorganic as well as organic purposes? If we do an inorganic sort of a thing, would it be related to current lines of businesses or in a completely different area? Are we comfortable doing only some bolt-on sort of an acquisition or are we comfortable doing some large ticket acquisition as well?
Well, right now it's in areas that are very related to what we are doing and areas where we see opportunities for growth in India. Well, it really depends on the opportunity and the circumstance. But, I think we are trying to define the animal without knowing what it looks like.
When I look at defense revenues for next year, there should be a very sharp scale-up. Like ATAG scale-up has not started, the carbine order comes in and then this marine order. So, any revenue number you would sort of see for FY'27 defense revenues? And ATAG order over how many years?
So, it would be better than this year for sure. It will start execution from calendar year '26. At least it will take about three years.
Can you give me a scope of business for our AMCA project? And recently Bharat Forge had pact with UK based company for UAV. So, can you light on this one?
That's like Horizon-3. That's still far away. So, let me explain in a maybe in a very general way. India wants to be self-sufficient in many key areas. So, one of the areas is as much as possible in aviation, especially for defense. Right now, we have the capability of certain systems and components. We definitely have capabilities on the arms and ammunition that go into the aircraft. But on aircraft manufacturing at a component level, system level, subsystem level, India does not have any established large-scale players. Bharat Forge is already a supplier of rotating components to jet engines, high-temperature components, structural components, and landing gears. So, these are all the kind of capabilities that we will leverage to create an opportunity for ourselves in the AMCA program along with our partners. On UAV - Not at all in the public domain. See, UAVs are a very large opportunity. Okay. UAVs will go from, birds that cost a few thousand dollars to birds that cost tens of millions of dollars. So, we are looking at opportunities across the spectrum, because some of these opportunities and some of these products will also work with our existing products. So, that's where we see a lot of opportunities.
What is the expected margin trajectory, especially as the product mix shifts towards defense and industrial verticals?
It's very difficult to give that because the product mix within defense also is not fixed. So, I think our goal is going to be to balance return on capital employed, cash flow, topline, bottomline, on an overall basis.
Going back to Q2 commentary where we talked about Q2 being the toughest quarter in the year. Would you still maintain that the full impact of tariffs, slowdown, especially on export side is already built in, the destocking is done, or do you expect that to trickle into Q3 as well?
I would say Q2 and Q3 should be similar. And hopefully by Q4, we should see an uptick.
On the export of non-auto, we have seen a nice jump sequentially. Could you talk a little bit about what drove that? Aerospace number seems largely flat quarter over quarter. So, what are the other segments that drove that?
It's multiple sectors. It includes power gen, it includes construction, mining and aerospace. [Sustainable]: Yes.
On gross margins, very impressive gross margins. I think it's one of the highest that we have done in recent times. Could you help us break down into factors that are driving it and how sustainable is this?
We have done a lot of cost reduction work. When the quarter started and it looked really bleak, we took a lot of block shutdowns, etc. And we are trying to do more value addition in-house, improve our product mix. So, it's a combination of all these factors.
On the defense order book, just wanted to clarify, there was a carbine order as well. What is the size of that order and what would be the execution timeline?
No, carbine order is not included in this. It's about INR 1,400 crores. First, we have to sign the order, then FOPM. So, from the time the order gets signed, I would say about 9 months to 12 months. Not the entire order in 9-12 months - that's just start. It's executed over a 4-year period because it's 2 lakh order weapons.
On aerospace, you do talk about a lot of wins. Can you also give us some perspective on how to think about the revenue stream there? What is it right now? How does that scale up basis the visibility you have over the next couple of years?
So, aerospace for last year, for the full year was in the ballpark of about INR 250 odd crores. Okay, I think this year should be in excess of INR 350 crores. So, we are growing at that kind of rate or higher. That rate hopefully should continue for the next 3-4 years at least.
Last quarter, the management had guided that Q2 will mostly be the bottom of this down cycle for the overall business. Now, given the geopolitical situation between India and US is still not resolved, do we still stand with that commentary or we see some more pain going forward?
Well, clearly, when we spoke last time, we were more hopeful of a quicker resolution to the issue. And if you see the statements coming out of the US, it seems like there's a solution, which is very close to finalization. So, I think we would have hoped for it to have happened a little earlier. But I would expect that, hopefully, in this quarter, it should happen. And I would say Q3 will be on a similar line as Q2. As of now.
In the presentation, you have highlighted that the defence assets have been transferred to KSSL. So, was there any impact on the standalone revenues on account of this or the revenue booking remain the same? And ATAGs and any future carbine order would be part of standalone or subsidiary?
[Kedar Dixit]: Yes, so the revenue bookings remains the same. It's only the business what we have transferred from Bharat Forge to Kalyani Strategic Systems. And so the more of the assets which have moved and all the new orders, what we will get, those would be on Kalyani Strategic Systems. ATAGs - currently they are on Bharat Forge Limited. Carbine order - that would be still Bharat Forge. [Amit Kalyani]: The order that we have, RFPs that we have responded to prior to this, in Bharat Forge will always be executed in Bharat Forge. But KSSL is a 100% subsidiary of Bharat Forge. So, it really doesn't matter.
With the defense subsidiary, there is some improvement in margins to a double digit. Is it more of a product mix? How sustainable is it?
So, look, it's a product mix issue and it will keep improving as our mainline products come on stream and revenue ramp up.
With regard to American Axle, we are through with a couple of quarters on this acquisition. In terms of broader strategy, how do you see where are the easier foods to come through? And what's the medium term plan in terms of product profile expansion and costs? Are there any non-compete clauses for exports?
So, building your own LCV and ICV business is a big opportunity in India, as is the SUV sector when it comes to the on-highway market. And then you also have a large off-highway and specialty axles business. So, we will focus on these two areas and grow our business. There are geographies like in North America that are non-compete, but everything is only for a period of five years. [Kedar Dixit]: This was the first quarter of consolidation - for American Axle India business.
Post the GST cuts, how do you see the India MHCV production outlook? And on Pass-Cars?
Well, as you have seen, the sales of Pass-Cars and all that have been strong, but also due to the festive season. So, now that the festive season is over, we will need to monitor it for another month or two. Hopefully, the momentum should continue is what we think. MHCV, the broader expectation is it should remain flat. Not a very significant growth or degrowth.
On BFISL (JS Autocast), there has been a growth. There is also margin expansion to 14%. How do you see the growth ahead in terms of order book?
JS Autocast, we are already seeing improvement in margins. And we are quite bullish that we will continue to improve our margins, improve our topline and product mix as well.
Regarding the defense order book, you said earlier that it will take longer than three years for that to materialize into revenue. So, how long will it take for that order book to convert? What is the conversion time frame to recognize it as revenue? What would be the key challenges or dependencies in converting the defense pipeline into deliveries?
No, I didn't say it will take three years. I said ATAG order will get executed in three years from the time the delivery start. As I mentioned, there is a process called FOPM that has to take place, after which within 6 to 9 months, we will start deliveries. First year, we will deliver maybe about 15 or so guns, after which we should increase our rate of delivery. And in all, we have to deliver 187 guns. So, I think we should deliver 187 in something like four years. None. There should be monetary allocation, that's all.