On FY27 target growth - could you give some color and break it down between different segments - defense, US exports for CVs, non-auto and domestic? Also outlook for domestic and global CV?
I'm not going to break it up into that much detail. The higher growth will come from aerospace business, then defense business and the automotive (components) business which includes both automotive and industrial. Outlook for CV - U.S. is very strong and so is India.
On aerospace - you mentioned INR400 crores full year and 26% of exports in quarter 4, which means an exit run rate of almost INR300 crores. So can it be INR1,200 crores next year? And similarly defense - 30%/40% sort of growth?
Industrial exports for Q4, aerospace was about 26% of the overall export from industries. If you look at INR400 crores as the business for the whole year, we will see a strong double-digit growth higher than the overall growth we are anticipating as a company - significantly higher. The highest growth will be aerospace, then defense and then the components business. In components, I include all the components that we make.
On data centers - what are we doing there? And on CV business, both Class 8 as well as in India - how confident are we of growth outlook given energy prices have moved up in the US?
I don't want to talk about data centers, but suffice to say they have a large amount of manufactured input that goes into them in the auxiliaries, in every element of managing, powering and supporting data centers. Those are all areas where we supply products. Subodh: Energy prices going up is a common problem everywhere. But there is an aging fleet in the US with a certain replacement calculation, so demand is expected to remain strong for the rest of the year. There is also an emission change coming early next year. India has an increase in energy but overall economic activity is also up - energy shock will get absorbed by passing along the value chain. We expect reasonably stable demand.
On the 25% growth target for India operations - would it be possible to share how much would be in standalone business and how much in Indian subsidiaries? Also on orders - INR4,800 crores across defense INR2,800 crores, what would be the typical gestation period before revenue starts accruing? Any comment on commodity costs?
I'm not going to break it down into all that - that gives too much information. Let's just limit to say that it's going to be at an overall India level, manufactured in India - combined standalone and Indian subsidiaries. On orders - ATAGS will start revenue in the next half of the year, same with the carbine. Some of the data center orders will also start slowly from towards the third quarter, fourth quarter and then really ramp up next year. On cost - biggest issue is energy cost which has gone up substantially; for elements that depend heavily on energy, those have gone up - but we are negotiating with customers to get compensation.
Continuing on cost - do you see the worst is behind us or is it still a very volatile environment? Similarly on supply chain challenges, how are you seeing it?
You want to take it a day at a time because we are living in a time where what's happening in the world depends on which news channel you watch. So it's not really the old rules of the game anymore. Every hour, every minute, things are changing, but we're doing the best we can as a country and as an organization also. So I don't know if I can say the worst is behind us.
On 155mm artillery shells - what is the current capacity? Also, are you going into explosives or testing guidance or just empty shells?
I'm not going to discuss that. Let's just say that we have adequate capacity and we are producing a large number of them. We are definitely going to get into explosives - I've already answered this just before.
On the Orissa project - when is the environmental clearance expected for the project? When do you expect to break ground?
We're waiting still. So I don't know, maybe another 2, 3, 4 months.
What kind of capital expenditure are we looking at for the next 3 years? And since defense is becoming bigger - any plans to hive off this business or list it separately?
What we have ongoing between last year this year and -- between last year and this year will be about INR800 crores. On defense - we've already spun it off into KSSL. In terms of creating value for investors - I hope we are creating value. On listing - that we will look at separately.
Given importance of drones in modern warfare (Operation Sindoor and others), what kind of presence do we have in drone manufacturing? And what percentage of our defense business?
We are already making drones for land, sea, and air. Under-sea and the sea part we are very strong in, the air part we are getting stronger, the land we need to do more work. We've already won orders in both the air and the sea domain. On percentage - no, not right now.
On the Fortuna acquisition - could you give color in terms of revenues? Where does it stand? And what is the potential here? And is the growth target inclusive of inorganic?
We have acquired 30% for INR 130 crores. The company has a revenue of about INR380 crores, and they have a net cash position of about INR20-odd crores. They are on a path to increase multiple x by setting up new machining lines and we will open doors to them for our customers. Large connecting rods is a big opportunity to supply globally. We don't currently have any other inorganic ongoing, but we will look at opportunities within India that make sense in automotive and aerospace.
You mentioned that electrification has taken a different path from what we were originally anticipating - could you elaborate?
About 5 years ago there was a very strong focus on electrification across the Board including commercial vehicles. However, it is definitely not seeing the same kind of trajectory as anticipated. Even the large European OEMs are not successful in passenger cars on electrification - Porsche, Ford have had massive write-offs because they have not been able to build a platform as competitive as the Chinese offer. So there has been a recalibration of everybody's EV strategy globally except the Chinese.
On restructuring - you highlighted it will conclude by end of CY '27. In the intermittent phase (this year and next), will the losses be at similar level? This year you had almost INR300 crores loss on Europe and U.S. operations.
The restructuring of CDP has started. This is a 15 to 18-month process where we have to meet customer requirements and also do a solvent liquidation of the company. We anticipate the losses will reduce because the CDP losses are not going to be there. Whatever is there will be part of the restructuring. So hopefully, for the year that goes by, we will have a better performance from our overseas subsidiaries.
On aerospace - what exactly was the number for FY '26? And on defense - last call talked about 30% to 40% revenue guidance; what are the key milestones to watch out for, including order backlog/incremental order book?
Aerospace was about INR400 crores for FY26. On defense milestones - the first thing is that the ATAGS FOPM will happen, and then ATAGS production will start and ramp up. The second is the CQB carbine production. Those are the two big milestones that will move the needle starting this year and continue. We have won new orders in defense in naval and drone systems with lots of other new products being developed and fielded across platforms including Navy. Hopefully bids should open and we will know where we stand. New orders will start in the second half of this year.
Clarification on the German subsidiary - do the losses completely go away from the operating number because restructuring has begun?
It will go away as it gets wound up - that's basically end of next calendar year.
On the recent acquisition for the machining facility - you already have a machining facility in-house. Reason to do it? Make-versus-buy thinking? And what type of margins does the business operate in?
Subodh: The reason for acquiring this entity is - it is very synergistic to what we do today. We also cannot do everything at once. We need the bandwidth to be able to grow in a quantum manner. We will also be addressing many segments that we have not addressed in India so far, even outside India. We have already started getting positive interest from existing customers. The whole idea is growth related more than anything else. Management: It's not just growth - it is fast growth. Amit: Margins are in the mid-teens.
On the explosives - defense side: how are you thinking about this business because there is a lot of demand globally? When do we see capex happening and scale start becoming bigger? Is FY28 where we see pretty heavy capex?
We don't have explosives right now, but we are planning to set up a facility in Andhra Pradesh and we are going to do some ground-breaking this month. You need a hell of lot of approvals for setting up such a facility, and after setting up, we can start production. Our goal is to break ground this month and start preparatory work. Once we get approvals, start construction by end of this year. That should be ready in less than 15 months. And then another 6 to 8 months on then, we should be able to start pilot production. We are talking about roughly 24 months.
You've done a lot of acquisitions this year in India - K Drive, Fortuna. So why are we doing the capital raise in JSA? That's something we can internally fund as well.
That was a minor thing actually. We see a large opportunity in JSA. We wanted to make it an independent business and grow it because we see that the business could become a multi-thousand crore business per year. The biggest ingredients in that industry are energy and raw material, and both those factors are not available in required quantity or price in Europe. So we see a large opportunity to move that manufacturing into India. We want to expand that fast and do it with its own momentum. I also want to build a new model where companies that we buy become more focused on their own growth and become self-sufficient. We will support them on customer connect, but they need to drive their growth more aggressively and not get limited by just what we can provide.
On ATAGS - what's your capacity? Earlier you mentioned initial capacity is like five guns a month - is that what you're looking at?
We talked about this - in the second half of this year, we will see the testing getting completed and then hopefully production and supplies to start. Yes, five guns a month is what we can do.
On aerospace - if you could provide some outlook for the business, where do we see it in the next 3 years? What kind of margins - above company average or in line? And also revenue opportunity in server manufacturing in the next 3 years?
Margins are above company average. Over the last 3 years we had said the first goal is to get to INR 500, INR600 crores, INR 700 crores and then get to INR1,000 crores. We are on that trajectory. Getting to the first INR1,000 crores is hard. After that, you create lines of business to create product strategies, and then multiple products can become INR 400 crores, INR500 crores each, maybe even more. We are targeting INR1,000 crores in next 3 years, easily, even more than that. On servers - we are not looking at that business aggressively. We were trying to look at that business to understand the data center market. There are some specialty opportunities where critical clients want domestic-made servers, but those are not very large opportunities at this point - more strategic, an opportunity to get into the whole value chain of the data center. I wouldn't look at it as getting into electronics in a big way.
Can you give the full year defense revenue for FY26? Army recently issued an RFI for bulletproof troop carrier - are we bidding? On Vikram VT-21 launch with DRDO and Tata - how is the market size?
Full year defense revenue was INR1,562 crores. We are bidding for lots of new programs with the army. We launched our wheeled platform and also had our tracked platform there - replacing the old BMPs that the Indian Army has huge numbers of. Probably the market is in tens of thousands.
On manufacturing of jet engines - with recent private companies coming into foray, how long do you think to create our own localized jet engine? Also on the AMCA program - which companies would be able to get this order through?
For a manned platform, it will take quite some time - not less than 5 to 10 years. But unmanned can happen very, very fast. Already we are supplying small jet engines for number of drones, and we are now going to be making bigger ones also for unmanned systems. These are completely made in India in-house - designed, engineered, and manufactured. Range of 40 kilos to 150 kilos of thrust. For AMCA, the whole program is going to be a down-selection first of the consortium, and then first prototype in 2032. So it's still a long ways away and initially AMCA will be powered by imported engine.
On K-mobility business - how will growth be driven beyond normal CV industry growth? Will it be exports, new customers, hybrids? Can this take the business to 3X in medium term? And what are the peak margins? Also demand scenario in North America and Europe passenger car segment?
We are looking at the specialty axles business and the LCV and SUV axle business, including EV - both ICE and EV - so that's what's going to drive growth. 2X in the next 3 to 4 years is definitely possible. With a little more luck and specialty axles, it could be even better. It's too early to say on peak margins but our goal is to do mid-teens margin. Subodh: The demand in the U.S. is stable - last year market size was about 16 million vehicles to 16.1; more or less the same forecast for this year. Demand is reasonably okay. Europe will obviously face a little more challenges given how long the war is protracted - we have to watch what happens. But by and large, it is stable as compared to last year.