Bharat Forge Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

3 Amit Kalyani (Vice Chairman and Joint Managing Director), Kedar Dixit (Chief Financial Officer), Subodh Tandale (Executive Director)

Analysts

14 Abhishek Jain (Individual Investor), Abhishek Shah (Fortitude Fund Management), Amin Pirani (JP Morgan), Arvind Sharma (Citigroup), Binay Singh (Morgan Stanley), Chandra Mauli Mudaya (Goldman Sachs), Gunjan Prithyani (Bank of America Securities), Kapil Singh (Nomura), Nitin Chain (Fair Value Equity Advisory), Pramod Amthe (InCred Capital), Promote Kumar (UBS Securities), Radha (Motilal Oswal), Rakesh Roy (Boring AMC), Ronak Singhvi (NAFA Capital Group)

Financials & KPIs

Geographic & Segment Commentary

• India (Standalone): Revenue of ₹2,347 crore (+11.5% YoY) with EBITDA margin of 26.2%, absorbing 160 bps of cost escalation. Export revenue recovered for the second straight quarter. CV/PV growth was below industry due to mid-quarter supply disruptions from labor shortages and fuel switching.
• North America: Revenue of ₹461 crore with an EBITDA loss of ₹4 crore, driven by a furnace breakdown in steel operations (no production for ~3 months). Now fixed with recovery expected in Q2. Strong business sentiment from corporate capex across construction, mining, data centers and power systems; US government announced a plan to restart the mining economy.
• Europe: Revenue of ₹1,074 crore with EBITDA of ₹30 crore (~3% margin) despite a difficult quarter. CV demand is strong, PV softer. CDP restructuring on track for completion by end of CY27, with remaining orders transferring to India.
• Defense (KSSL): Strong operating performance driven by higher realization and better product mix. Order book of ₹11,196 crore. Won largest naval order to date — marine gas turbine generators for Kolkata class ships — and tied up MRO for naval turbines. New Defense Jesury facility entering serial production this year for ATAGS and CQB carbine deliveries.
• Castings (JS AutoCast): Revenue grew 20% YoY and EBITDA 30% YoY. Ferrous castings business on track to triple revenue since acquisition, with higher value-addition and machining content.

Company-Specific & Strategic Commentary

• Growth Capex & Fundraise: Announced fundraise of up to ₹2,500 crore for growth capex across large engine, power generation, semiconductor components, aerospace, and an energetics plant in Andhra Pradesh. Organic India capex of ₹1,800 crore over FY27-28, with asset turnover guided above 1.5x.
• New Manufacturing Facilities: Baramati ring mill (starting Q4) and new forging facility to boost aerospace and large engine (500-5,000 HP) production; new K Drive plant in northern India for a key customer; naval systems facility being set up near a naval shipyard; Orissa mega project awaiting final approvals (target end of 2026) with first plant in ~2.5 years.
• Defense Expansion: Marine gas turbine generator order for Kolkata class ships marks entry into naval power generation; MRO contract for naval turbines secured. AP energetics plant will handle shell filling and propellant/explosives manufacturing (modular, expandable). Navy's planned 140 new ships present a large growth runway.
• Restructuring: BFCDP (German steel) restructuring on track for end CY27; ~₹30 million provision taken (non-cash initially, cash outflow post 12 months); remaining orders transferring to India at good margins.
• New Growth Platforms: Aerospace revenue ~₹400 crore, expected to double in two years; semiconductor business targeting ₹30-40 million organic revenue in two years, to double with new machining facilities; energy/data center business expected to double in four years with long-term contracts already in place.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Capex, Fundraise & Returns

• Question: What asset turns, margins and ROC for new businesses from the ₹2,500 crore fundraise? What is the overall consolidated capex plan for FY27-28? (Kapil Singh, Nomura; Binay Singh, Morgan Stanley)
• Answer: Organic India capex of ₹1,800 crore spread across forging, machining, heat treatment, ring rolling and quality control; assets usable across industries with asset turnover above 1.5x and very good margins. Fundraise of ₹2,500 crore covers current capex plus potential additional growth capex and M&A. Management conservative — likes to maintain ~₹2,000 crore cash on balance sheet. (Amit Kalyani)

Fundraise Rationale

• Question: Given strong balance sheet, why raise equity? (JP Morgan analyst)
• Answer: Growth capex in hardcore manufacturing sectors — large engines, power gen, semiconductor components, aerospace — plus AP energetics plant. Conservative financial approach; M&A opportunities in India emerging (JSA, K Drive have proven fruitful). (Amit Kalyani)

Segment Outlook & Supply Challenges

• Question: Outlook for CV/PV domestically and overseas; why below-industry growth? (Kapil Singh, Nomura)
• Answer: Supply challenges mid-quarter from steel industry labor issues and fuel switching during Iran war peak. India fairly strong, US very strong, Europe CV strong, PV not weak. GM raised guidance again, indicating US economy strength. (Amit Kalyani)

New Growth Platforms — Aerospace, Semiconductor, Data Centers

• Question: Scale and build-out of aerospace, semiconductor and data center businesses over next 3-4 years? (Gunjan Prithyani, BofA)
• Answer: Aerospace will double in ~2 years from ₹400 crore base. Semiconductor targeting ₹30-40M organic in 2 years, then double with machining facilities. Energy/data center business expected to double in 4 years with long-term contracts in place; products already validated over 15-18 years. (Amit Kalyani, Subodh Tandale)

Defense Margins & ATAGS Timeline

• Question: Defense margin outlook and ATAGS delivery timing given revised 20-25% growth guidance range? (JP Morgan analyst; Binay Singh, Morgan Stanley)
• Answer: Defense steady-state annual EBITDA margin target is 22-23%. ATAGS FOPM approval delayed by a few weeks (procedural); order and product are ready, deliveries start 2-3 months post-approval. Two suppliers must both be ready. (Amit Kalyani)

Naval Systems Breakthrough

• Question: Details on marine gas turbine generator win — technology, capability, content, investments? (Pramod Amthe, InCred Capital)
• Answer: Product already developed and entering testing; turbine range of 1.25 MW to 25+ MW for naval applications. Entire turbine made in-house except electrical generator (sourced initially). Multi-fuel and usable for commercial/power sectors. Small incremental investments. MRO for naval turbines already tied up for existing and future ships. (Amit Kalyani)

CDP Restructuring & Order Transfer

• Question: What happens post-restructuring; will orders shift away and margins improve? (Arvind Sharma, Citigroup; Chandra Mauli Mudaya, Goldman Sachs)
• Answer: CDP entity will cease to exist; remaining orders (sizable, excluding phased-out products) transfer to India at good margins. Timeline for closure is Q2-Q3 CY27. (Amit Kalyani)

Margin Recovery Path

• Question: Will Q2 margin recovery be a one-time jump back to 28% or gradual? (Nitin Chain, Fair Value Equity Advisory; Gunjan Prithyani, BofA)
• Answer: Gradual improvement through the year. As customer recoveries flow, optically margins look different (denominator and numerator both rise); margin per ton returns to normal levels. Better than Q1, but not a full step-jump. (Kedar Dixit, Amit Kalyani)

US Operations & Tariff Overhang

• Question: When do US operations normalize and what margins can be expected? (Kapil Singh, Nomura)
• Answer: Steel margins ~12%, aluminum 15-16%, hopefully next year. Challenge: 50% tariff on raw aluminum from Canada (US has no smelters); components from certain countries can earn 10-15% margins. Tariff situation ridden out without cash losses. (Amit Kalyani)

EV Opportunity & K Drive

• Question: How is Bharat Forge tapping the EV opportunity? (Kapil Singh, Nomura)
• Answer: K Drive already making EV access axles for LCVs and LMCVs; new plant in northern India for a key customer will drive growth. Margins and scale expected to grow. Broader EV strategy may see commentary in 3-6 months. (Amit Kalyani)

AP Energetics Plant & Orissa Project

• Question: License status for AP plant and capacity vs. shell manufacturing; status of Odisha mega project. (Ronak Singhvi, NAFA; Abhishek Shah, Fortitude)
• Answer: AP license applied for, process ongoing; modular facility — lines can be added. Shell capacity already very large. Orissa: environmental and forest clearances still pending (delayed by unique site circumstances — infrastructure relocation, high-tension lines); only approval needed. Once received, first plant running in ~2.5 years. (Amit Kalyani, Subodh Tandale)

Key Takeaway

Bharat Forge delivered a resilient Q1 FY27, with standalone revenue of ₹2,347 crore (+11.5% YoY) and consolidated revenue of ₹4,640 crore (+18.7% YoY), absorbing a 160 bps cost escalation hit from energy, logistics and input costs while managing supply-chain disruptions from the Iran war (labor shortages, fuel switching). Standalone EBITDA margin came in at 26.2% (normalized 28%) with gradual recovery expected through Q2 as customer recoveries flow. The defense order book reached ₹11,196 crore with a landmark marine gas turbine order for Kolkata class ships, and management targets 22-23% steady-state defense EBITDA margins. The company announced a ₹2,500 crore fundraise for ₹1,800 crore growth capex across large engines, aerospace, semiconductors and an AP energetics plant, with asset turnover guided above 1.5x. Aerospace (₹400 crore) is set to double in two years, semiconductor business targets ₹30-40M in two years, and the energy/data center business aims to double in four years. US operations saw a ₹4 crore EBITDA loss from a steel furnace breakdown (fixed, recovery in Q2), while aluminum tariffs remain a watch item. Management expects FY27 to be very strong with H2 driven by ATAGS/carbine deliveries and export momentum, with FY28 also looking strong; key watch points include ATAGS approval timing, energy cost recovery pace, and US tariff resolution.