My first question is on the defense business. There have been quite wide-ranging wins in the last quarter — small guns, the carbine, unmanned systems or drones, and the marine one came through in the last couple of months. The product capabilities are far wider than guns and the portfolio is expanding. How do we think about the scale-up of this business in the next two-three years?
I think you have to look at our defense business the way you look at our overall company. We will de-risk defense from any one vertical. We will have multiple verticals. We will have verticals that will have continuous business. We'll have verticals that will have lumpy business. And we will look at global opportunities for all the products that we make. It's very clear that unmanned systems and drones are a very big opportunity. These are definitely both complementary and supplementary to manned systems. So we have to have a play there and we are there both in the water domain that is underwater and in aerial domain. And we are building the capability not just for the product, but also for the payload. These are products that can be ranging from few crore rupees to many, many million dollars. So there's a wide range of products within that also. We believe that once you become a defense player and especially in a network-centric battle environment or defense environment, you need to have all the network products that become a force multiplier for any of your products.
Last question on Europe restructuring. You mentioned you'll give an update by the end of the year, but any color on what we're looking to do? Is it looking to wind down the business? Is it looking to shift it to India? What sort of restructuring?
I can't say anything more than what we've already said. But like I said, we have to make a profit or, we have to take some decision. So we have to see what to do.
Following up on Europe. In the last two-three quarters the numbers have already started to move up. So just trying to understand if there are already some things you are doing in the business or we still have to think about a kind of big restructuring you indicated few quarters back.
So look, we're trying to do a lot of things. We're reducing a lot of cost, but it's not easy. It's every day there's something new happening in Europe. So we're trying to do the best we can. We are putting a lot of improvement measures, etcetera. We just have to see how effective they are. Whether one is internal, the second is external. We also need to see whether whatever we are doing, the external landscape and the market is big enough and is there to take advantage of. So it's not just one way. Europe, I think, is in a secular problem and we don't know where it's heading. So we have to see.
Can you talk a little bit about your defense order pipeline? Q-on-Q itself our order book has grown more than INR1,500 crores. So where do we expect to end this year and what kind of bid pipeline we have for fiscal '27?
So we have increased our order book by two things. One is the CQB Carbine and some of the EP orders that we got. Now we have a lot of other things that are in the pipeline. There are lot of new programs that we're working on, lot of new products that we're developing. I don't want to talk about any of that right now. Once we place -- once we make the bids, we can talk about them.
Do we expect any of these to materialize by fiscal '27 or they're still time to go?
See, as you know, the whole defense procurement process is being overhauled and being speeded up. The new DAP has come out which is very, comforting that it is focusing more on Indian development and design products and Make in India a lot more. So I think we are quite bullish on this whole sector growing for India. There's also a global opportunity to be a supplier both of systems and components into Europe and many other parts of the world. So overall, I think this is a market that's going to grow, this is a sector that's going to grow, and a business that's going to have a long-term strong future for us.
Recently one of the Indian forging companies was inducted into the NATO supply chain for high precision defense components. Do we share any similar credentials or are we vying for the same?
First of all, I would say please validate what you're saying because -- okay. And second, we already are supplying into -- we're already exporting into large quantities in this area.
Lastly, any development on the server business? Last we had heard from the company was that it tied up with a few global leaders. If you can make us aware of any product?
Its still in the development phase.
Has American Axle been gaining market share? Any way to quantify that?
Yes, it's been getting a lot of new business. Yes. [Any way to quantify that]: I think next quarter we'll talk about that.
Defense is roughly 10-12% or even less than 10% of revenues right now. With these new opportunities and order book conversion, how significant can this be? Trying to get the scale of this business maybe three years down the line, maybe five years down the line.
See realistically, defense has the opportunity to become as big as our business today is, overall business is today, if we look at global opportunities. If we look at the budget of Europe, European defense budget is going from EUR 350 billion to 800 billion. India's defense budget is growing by 21% this year. So overall, there is a huge growth taking place in these sectors. So it depends on what we play in, what role we play and what we win. But clearly, 10%, 11% will definitely be more like closer to 18-20% if things go right, could be even more than that. [On 18-20% in two to three years]: I think let's look at 20%, 30%.
Second question is on tariffs. You guys navigated it really well with pretty modest hits. What does the deal do beyond easing margin pressures? Is there fundamentally something you see has shifted that puts us in a better place as a supplier ecosystem from India?
Yes, so look, obviously, it puts us in a better position than certain other countries which have a higher tariff than us. So that's one thing. Second is, the tariff deal being done and the punitive 25% being removed means that, we're in a differentiated position than others plus the new product development will start again with all our customers, not that it had stopped, but there is more confidence now to go full steam ahead.
My first question is on the announcement of the Premji investment in JS Auto. Given that you are probably the experts on the manufacturing business, and given that balance sheet is not really a constraint for you, what is the value that this investor is bringing in and how does this change the scale of operations that you couldn't have done on your own?
No, there's nothing that we couldn't have done on our own. I just think that sometimes having, a few more, let's say a slightly different perspective is always good and having more, what do you call it, bandwidth to think about things and they also have a lot of connect globally. Plus, we want this business to grow fast. We want it to grow both organically and inorganically. And now we don't have to worry about putting any more money into it.
I wanted to check firstly your thoughts on the defense business profitability. Would it be comparable to the auto business over time? How should we think about that?
Yes, I would expect it to be, profitable equivalent on an EBITDA basis generally speaking. And I think the ROCE should be better because we don't have the same amount of capital employed. Also it will have a long tail because there will be constant MRO and support income coming from everything that you sell.
This order book that we have, what period should we look at for the execution? Also we had a small arms contract order for carbine.
I think the small arms is five years, the rest would be between mostly four years.
Also on the outlook for particularly the global truck business, has it already bottomed out as you mentioned, but when do we start to see the upcycle? Are there any signs visible? What is the outlook for next 1 year?
Well, you've seen the incoming orders in the US for class 7, 8 in the last 2 months, they've been on the upside. And generally, there's a sense of confidence just given that all the uncertainties of the last year, the things would be better. So we are hoping that things would be better than last year and hopefully things would be stable as well and growing. So that's what we are planning for. It's not going to be steady -- it's going to be steady, but on the positive side is what we expect.
Can you comment on the passenger vehicle exports as well?
So we continue growing our passenger car exports. Again, we are engaged with all the major players in the world. And Yes, I mean, we have lot of opportunities on the table. So all of them are being addressed.
This is regarding a news article that Kalyani Group has been granted by Odisha Government, planning to set up a project of INR17,000-odd crores. The project will be implemented by three companies — Bharat Forge, Kalyani Steel and Saarloha. What is the split, who's spending how much and what is this project about and tentative timelines?
So the first part of the project will be a specialty steel plant, which will be set up by Kalyani Steel. That will be coming up in -- I mean, once the EC and everything happens, they will break ground and start work. That will be about 700,000 tons of steel, specialty steel. Then the second part will be a super alloy plant which will be set up by Saarloha to make aerospace and other super alloy grades, including tool and die steel etc. And the third will be a forging, machining, potentially also casting facility by the relevant companies, including JSA if needed, if there is an opportunity to do a further expansion of our own existing products and certain new products using the raw material and the overall advantage that we'll get in that location.
What will be the tentative capex split between the three? Out of 17,000, how much is Bharat Forge going to spend, sir? Tentative timelines for when we start our capex?
See, each company will do its own capex, I don't want to it in a Bharat Forge call talk about other companies. So Bharat Forge, we have said up to INR3,000 crores. This will be the next growth phase after our existing expansions in Baramati, etc., over. [On nothing in immediate 1 or 2 years]: Not in the next 1 year.
How has the acquisition of American Axle been performing and what is our view on this segment?
The acquisition has performed well. Our margins have grown by almost 200 basis points. And I expect that this sector will do well. This is a high growth sector and we're already winning quite a lot of new business from Indian OEMs. So this has been a good acquisition for us and we expect this to turn out to be a very positive step for the company.
The group also has taken Automotive Axles. So how are we looking at these two companies in similar segments?
So I'm not personally involved with Automotive Axles individually because of the same reasons. As you know, Automotive Axles is a investment of the Group for a very long time. It has its own position in the heavy axle sector. And this is another player in the axle sector. So I think each will find its own niche and where needed they will also compete.