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Bharat Forge Ltd
| Q4 & FY26 Earnings Conference Call
Summary : Bharat Forge reports strong FY26 performance driven by new orders in defense and aerospace, with positive growth outlook for India business and strategic acquisitions.
Management Perspective positive : Our team rose up to the challenges and really performed exceptionally well. We have weathered the storm well and ended on a stronger note with very good momentum going into the new year. I'm very happy to report [aerospace] is now a meaningful part of our industrial exports.
Concall Report Analysis & Insights
Business Overview
- Consolidated revenue for FY26 reached INR 16,812 crores, an 11% growth.
- EBITDA for FY26 was INR 2,921 crores, growing 6% year-over-year.
- Secured new businesses worth INR 4,814 crores, including INR 2,816 crores in Defense.
- Standalone revenue was INR 8,396 crores, down 5% YoY, with an EBITDA margin of 27.5%.
- Q4 standalone revenue improved by 8.5% quarter-over-quarter, driven by exports and domestic automotive.
Future Growth Prospects
- Aerospace business is a meaningful part of industrial exports, now the second largest contributor.
- Defense order book is close to INR 11,000 crores, ensuring stable revenue for 3-4 years.
- India business is projected to grow by close to 25%, barring geopolitical crises.
- Ongoing capex programs across forging, casting, and products will be INR 800-850 crores.
- Evaluating M&A opportunities in high-growth sectors in India, complementary to existing business.
Management Insights
- The team performed exceptionally well in 2026 despite challenges and uncertainties.
- The company has weathered the storm well, ending on a stronger note with good momentum.
- Bharat Forge is now an engineering conglomerate entrenched across processes and segments.
- The balance sheet remains robust with a strong net cash position at a standalone level.
- Decided to write off e-mobility investments lacking immediate revenue and business ramp-up.
Risk Factors
- Regulatory uncertainties in North America impacted standalone business performance.
- Demand challenges in the U.S. Commercial Vehicle (CV) market affected performance.
- Tariffs continue to persist, creating uncertainty in markets.
- Energy prices have gone up substantially, impacting costs.
- Global electric vehicle adoption has taken a different trajectory than originally envisaged.
Good To Know
- Acquired a 30% stake in Fortuna Engineering for INR 130 crores, a synergistic machining company.
- Restructuring of the German steel business (CDP Bharat Forge) is underway, expected to conclude by end of CY '27.
- The company supplies manufactured inputs for auxiliaries, power, and support in data centers.
- Planning to set up an explosives facility in Andhra Pradesh, with ground-breaking this month.
- Making drones for land, sea, and air, with strong orders in sea and air domains.
Key Drivers
- Strong defense order book.
- Rapid aerospace business expansion.
- India business 25% growth.
- Strategic acquisitions for synergy.
Key Analyst Discussions
Competitive Environment
- Acquisition of Fortuna Engineering is synergistic, addressing new segments and driving growth.
Market Trends & Consumer Behavior
- Outlook for domestic and global CV markets is strong, particularly in the US and India.
- EV electrification trajectory is different than anticipated, with European OEMs facing challenges.
- Energy prices are volatile, but demand is expected to remain stable in the US CV market.
- US passenger car demand is stable, while Europe's outlook depends on geopolitical stability.
Financial Highlights
- Management expects highest growth in aerospace, defense, and automotive components for FY27.
- Fortuna Engineering has INR 380 crores revenue and a path to significant growth.
- JSA capital raise aims to make it an independent business and accelerate growth.
- Energy cost increases are being negotiated with customers for compensation.
- FY26 defense revenue was INR 1,562 crores, with ongoing capex of INR 800 crores.
Product Composition
- Aerospace business generated INR 400 crores in FY26, targeting INR 1,000 crores.
- Key defense milestones include ATAGS FOPM, ATAGS production, and CQB carbine production.
- The company supplies manufactured inputs for data center auxiliaries, power, and support.
- Developing and fielding new products across various defense platforms, including naval and drone systems.
- K-mobility business growth will be driven by specialty axles and LCV/SUV axles for both ICE and EV.
Strategic Considerations
- Growth targets do not currently include inorganic opportunities, but M&A is being evaluated in India.
- Losses from German subsidiary restructuring are expected to reduce as it winds up.
- The defense business has already been spun off into KSSL.
- Manned jet engine development will take 5-10 years; unmanned systems are faster.
- K-mobility business has scalability for 2x growth in 3-4 years, targeting mid-teens margins.