Ladies and gentlemen, good day, and welcome to Bharat Forge Limited Q2 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Kalyani. Thank you, and over to you, sir. Good afternoon, ladies and gentlemen, and thank you for joining us at our half-yearly analyst call. This is Amit Kalyani, and I have with me our finance, sales, investor relations, and operations teams. I'll take you through some quick highlights, and then I'll open up for Q&A. The highlight for quarter two was our revenue little over INR 1,600 crores or sixteen billion rupees, which is both higher, almost double of last year, same quarter, and significantly higher by 17% by the previous quarter. In terms of EBITDA, our EBITDA margin at 28.3% and total EBITDA of INR 455 crores was significantly higher again by about 18% than the last quarter and much, much higher than the last year. Profit after tax at 317, 311 crores also was about 86% higher than the previous quarter. In terms of our overseas subsidiaries, we had a half year revenue of INR 1,663 crore and an EBITDA of 11.3%, which is basically a result of the intense cost optimization and product mix improvement and operational improvement that we have made. If you look at our standalone business, the demand was robust in Q2 across sectors and geographies. Domestic revenues grew by 40%, while exports grew by 4.4%. Other operating income includes INR 110 million of RoDTEP benefit, which is accrued from January 1, 2021 to June 30, 2021. Despite the continuing input and logistic cost pressures, EBITDA margins came in at a healthy 28.3%, which was similar to the previous quarter. We have seen some improvement in our return ratios due to the improvement in capacity utilization. Our ROC today stands at about 17.8% and RONW at about 14.8%. In terms of cash flow, we have invested INR 234 crores in payment of CapEx in H1 of 2022 and INR 270 crores in our subsidiaries, which include Sanghvi Forge acquisition, the North American aluminum plant and Kalyani Powertrain Limited. I'm happy to report that Sanghvi Forge acquisition has been PBT positive in the first quarter after our acquisition. In terms of end markets, our domestic markets continue to do well across both PV and commercial vehicles. Export market end demand, consumer demand is very robust, including the lead time and wait times for delivery of vehicles. Unfortunately, there is an issue with production and delivery due to the chip shortage and other logistics-related issues, which is impeding the ability of OEMs to build vehicles at the rate at which they need to. We expect that as the chip shortage eases out, this pent-up demand to result in higher production. The industrial segment continues to do well across all segments and geographies. One new product developed by Bharat Forge in a very short time was the aluminum forged cylinders for medical grade oxygen. Here we have had an order of about 100,000 cylinders, which will be completed between Q2 and Q3. We are now looking at creating a long-term business opportunity for this. Our center for lightweighting and mobility, e-mobility, is starting to gain traction with order wins from both automotive and industrial customers. We expect this, I mean, to see the results of this from FY 2023 onwards. On the OEM, e-mobility front, we are continuing developing our product and technology strategy and localization and with some near launch events coming up on the horizon with customers for their new products and launches. In terms of outlook, we expect the standalone business to continue witnessing growth on the domestic front and the export industrial front, while the export automotive business will be under some pressure because this will be the quarter where the chip shortage is going to have the most impact. The overseas subsidiaries we expect to end the entire year with double-digit EBITDA margins in spite of the adverse impact of the chip shortage, which will be visible in their second half numbers, which will be slightly lower than first half, but still will be a double-digit EBITDA for the whole year, which in terms of overall, let's say, market related scenarios is a pretty good performance, and will continue to grow and become even stronger as our aluminum business grows and ramps up in U.S. and Europe. In Europe, our capacity is already set up and plant is running. It's only a matter of programs ramping up, which will start from December, January of this year. I think that's really all I wanted to talk about. Most of the other information is in our update. I thought that we could spend a little more time in Q&A. I'll be happy to take your questions and try and answer your questions now. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Got you. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Kapil Singh from Nomura. Please go ahead. Hi. Good afternoon, sir. Firstly, I wanted to check on this, EV products that we are working on related to e-mobility and also the EV startup. If you could talk about what are the products where you think Bharat Forge would be building order book or competencies, and how do you see the EV startup investment evolving over the next one or two years? Okay. Let's talk about first components. In terms of components, we have two categories of components we are focusing on. One is lightweighting components, which are metallurgical products, either forged or cast, which we are supplying to a variety of OEMs across the world, and that business is ramping up quite aggressively. Just in terms of forging, we have enough capacity today to take our aluminum forging business from approximately currently $70 million to about $250 million, with the capacities on hand and order book on hand. Secondly, this does not include the casting side. That business will also ramp up over the next 2-3 years, and we expect that this will also grow at a double-digit pace. More interestingly and exciting for us is our entire e-mobility, components and systems business where we are supplying power electronics, control electronics, components, systems and subsystems for EVs, both all the way from 48 volt to 800 volt. Here we have embedded systems based products like DC-DC controllers, AC-DC controllers, inverters, battery controllers and all kinds of products. Here we expect revenues to start from next year and ramp up substantially by 2023, 2024 to a triple digit million dollar kind of figures. Then we have other components which we are now exploring getting into. I think once we have you know finalized everything, we will have a EV communication strategy with the shareholders and analysts. Suffice to say that EV is going to be one of the main growth drivers of our company, you know, in the 2024-2026 period and then beyond. You asked me about startups. I believe that there is a great opportunity for startups in the, commercial vehicle space, that is the last mile delivery space and the personal mobility space. The last mile delivery space opportunity is the largest in, North America and Europe. The personal mobility space opportunity is on the two-wheeler and three-wheeler, which is very big in India. I believe that electrification of these two sectors and these two markets or three markets will happen very rapidly. We are fairly well positioned, both from a metallurgical products point of view and from an electronics and electrical products point of view to, you know, cater to companies in this sector, and we have a roadmap and a game plan to do that. Right. Thanks, sir. I also had a follow-up on the same. When we talk about power electronics, for which category of products have we seen traction? I mean, is it two-wheelers, four-wheelers, EVs there? Where are we already seeing traction in terms of order book wins? We have also talked about this aluminum forged cylinders. So what are the potential opportunities from these kind of products which you would target? Our current revenue from the e-mobility power electronics, control electronics is approximately, our company's revenues are about EUR 12 million-EUR 15 million. This will grow over time, and we are here supplying largely high voltage to 650-800 V applications, which are high voltage applications for, you know, let's say, applications which are in the 250-350 kW range. Both on highway and off highway, but largely off highway, which are industrial use. On the automotive side, we have applications from 48-80 V, which are for two-wheeler and three-wheeler, which we are already supplying. We now have orders for about 1,000 vehicles to supply these. This is in a ramp-up phase, but it will definitely grow. On the cylinder side, as I mentioned, you know, we currently have one order which we are in the process of executing, and that will get finished by Q3. But we see an opportunity for a continuing business in this market or in this sector in varied applications globally on a steady-state basis. We're creating a marketing organization to take care of that. Okay, sir. Thank you very much. I'll come back in the queue. Thank you. Thank you. The next question is from the line of Bhalchandra Shinde from Kotak Life. Please go ahead. Hello, sir. Good afternoon. Sir, on exports, if you can elaborate on how we see the future, please. Sorry, Mr. Shinde, I couldn't hear you. It's breaking. Hello. Sir, we can hear you, but your voice is breaking. Your voice is breaking. Can you please go to a better reception area, please? Hello. Yeah, go ahead. About exports, I would like to know that as you mentioned in the media also that EV might see a. Overall, industrial prospects are also improving. Looking at all the traction, how we see the export growth over next one, two years? Next 1-2 years. Are you saying quarters or years? Your voice is breaking. I'm not able to hear you. Next 1-2 years. Not a quarter. In next 1-2 years, how we see. Next two years, we see very strong export prospects and growth. But, uh- We have long-term contracts in place, so I think we are in a good position there. Currently, our oil and gas is showing a strong success significantly on Yes, oil and gas is strong and getting stronger, and I think, you know, winter is coming, and overall, because of decarbonization, the use of gas is gonna go up. You know, shale fracking for gas is a very competitive option, especially for the U.S. That is going to be a strong market going forward. In near term, because of the chip shortage, how do you see the impact in near term? Will it affect our overall export sales or because it is I think only 10% of the total sales, right? PV related sales. Most of the other sales is related to CV. Do we see impact in CVs also because of this chip shortage? Both in CVs and PVs because of the chip shortage. In Q3, there will be an impact in Q3. Okay. Yeah. Basically, the demand is getting deferred. If you go to the U.S. and you wanna buy a new car, you have to wait 6-9 months today. Same thing for a truck. Okay. Basically that kind of impact for next. I mean, it's not going to go to zero. There's gonna be a, you know, percentage impact. It's not drastic. Will industrial able to compensate what decline we will see in CV because of the chip shortages or see a relatively subdued near term? I think overall Q3. You know, it remains to be seen because there are a lot of factors driving this. Overall, we will still have a good performance in Q3, but not as good as it would have been if there was no chip shortage. There will be a dip over Q2 and Q3, but not very large. Okay. Great. Thanks very much. Thank you. The next question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead. Yeah, sir. You mentioned this forged aluminum cylinders will still be there in third quarter. This quarter we've done INR 59 crores. Will it be around similar levels in next quarter as well? A little bit up. Okay. In the domestic industrial, how you're seeing the trend and where you see a good growth over next, say, one or two years? We've created a strategy to grow our domestic industrial business quite aggressively. There are a number of sectors where we see opportunity, and we believe that we can easily double, if not more than double, grow our domestic industrial business over the next three years or so. When you're talking about doubling, is it like, say, on the basis of this year or Hello? Yeah. You're talking about what would be basis of this doubling of revenue? Like this year revenue you're talking about on this, that basis you can double? Yeah, more than. Which sectors, particularly, that you are probably more bullish upon or you're seeing that Yeah. I Yeah. I don't wanna talk about that in too much detail because, you know, a lot of other people get ideas from that. Let's just leave it at that. You know, we made an acquisition of a company, Sanghvi Forging, which has- Yeah. A facility very similar to ours. You know, each of those facilities can do easily somewhere in the region of 50,000-60,000 tons of forging. That itself is about $100 million of business. That's that kind of opportunity. That facility is today operating at less than INR 100 crore in sales. We have huge growth opportunities. In the export industrial, what was the revenue from the oil and gas segment in this quarter? About 200. INR 200 crores? Yeah. Okay. I think major ramp up has come from there only in this quarter. Yeah, I mean, little bit. Last quarter was about 170. Lastly, in passenger vehicle side, in domestic market, I think revenue has gone up recently quarter-over-quarter. Is it like new orders or what was driving this growth? We have won a lot of business from some of the new entrants and from some of the new products launched by some of the international car companies in India. Those products which we have got orders for are very successful and therefore we're getting substantial traction there. Okay. Okay. Got it. Thank you. Okay, thanks a lot. Request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Mukesh from Emkay Global. Please go ahead. Thank you so much for the opportunity. I want to understand how do you see the impact of the U.S. infra bill on the demand for class eight and construction equipment segments? Look, the point is, the U.S. has decided to spend, you know, $500+ billion on infrastructure. This is going to go in areas like roads, bridges, water, rail, electricity and basic infrastructure. When you have basic infrastructure, this kind of infrastructure spending has a tremendous cascading impact throughout the whole ecosystem. This will boost truck production. This will boost demand for trucks, demand for construction equipment, demand for, you know- High horsepower engines. High horsepower engines, for diesel gensets, for compressors, for all kinds of equipment. You know, even airports are being now looked at for upgradation because a lot of U.S. infrastructure, which was built in the 1940s and 1950s, was last upgraded in the 1970s and 1980s. You know, 40 years is a long time and you can see the impact of the degradation in the U.S. infrastructure every winter when you have storms and power outages. I think this is a very good step. It will definitely improve the quality of infrastructure and quality of life in the U.S., but also provide a massive boost to the U.S. economy and global supply chains. Thank you. How was the price increase impact this quarter on the revenue? Steel impact? Yes. About INR 50 crore. What was the logistics cost increase, maybe sequential year-on-year? I'm not gonna share that. The USD INR relations this quarter? Seventy-four. Just the last question, sir, you have any update on the ATAGS, sir? Yeah. You know, our final trials are done. Now some user introduction trials are going on. I think very soon we should hear something. Thank you so much. Thank you. Thank you. I request all the participants please restrict to two questions per participant. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead. Hi, sir. First couple of clarification. One is, the RONW beneficially indicated was INR 11 crore, 110 million. Is that right? Yeah. Rupees, yes. This was for from first gen till now. January to June. January to June. Okay. What it would be for the current quarter? INR 7 crore. Secondly, with respect to CapEx, how should we look at the CapEx considering that at consolidated level we have already invested about INR 506 crore on CapEx. What should be the full year expectation both on standalone and consolidated basis? See, as we have told you, we will be spending about $75 million on our plant in the U.S. That is funded by equity and some amount of debt. We have no CapEx in India right now. Our CapEx in India will be under INR 100 crores. The only CapEx that will remain is whatever CapEx we need to do for in the U.S. Today in the U.S., we are seeing a lot of demand for our U.S. older forging plant also. We are doing some CapEx there basically to put robotics and automation and some maintenance to clean up some you know, cycle time issues, etc., to make it more productive. That will be on the order of maybe you know, between $7 million-$8 million over the next year and a half, but that's about it. Okay. The first half standalone CapEx itself was close to INR 250 crores. You're saying incremental INR 100 crores over and above that? That was payments for previously sanctioned and, you know, implemented CapEx, including the movement of our Ammunition from Pune to Baramati and so on and so forth. Right. Over and above that INR 100 crore for the remaining period? Yeah. I think that should be all for the next half. Right. Secondly, in the passenger vehicle exports, we have seen a QOQ decline. Was that primarily because of chip shortage impact or there's something else to it? Basically the chip shortage. Right. Got it. Right. Got it. See, what has happened with chip shortage is that as the OEMs have fewer chips, they have to decide on which vehicles they put them in. Typically, they're putting them on the highest margin vehicles. They are putting them on, you know, the Cadillac Escalades and the Navigators of the world which produce, you know, the highest margin per vehicle for the manufacturer. Although the number of vehicles manufactured are going down, the profits of some of the OEMs are remaining fairly robust. Right. Got it. Great. Thanks. I will come back in queue. Yeah. Thank you. The next question is from the line of Amyn Pirani from JPMorgan Chase. Please go ahead. Yes. Hi, thanks for the opportunity. My first question was, you know, on the e-mobility components that you talked about. So you said that you're also started to supply in the 48-80 volts, which is for two-wheeler and three-wheeler. This is entirely India, right? Or is there some- This is currently entirely in India. Okay. The 48 volts and in that range, these components could also be used for hybrid cars, right? If I'm not wrong. Is that an opportunity that you have? No. Our product is Our product is not designed for a hybrid car because we see hybrid as a stepping stone to full electric. Okay. Okay? Okay. We are focusing on the full electric solution. Our aluminum forged and cast components are going into hybrid and EV, but eventually it will all switch into EV. Okay. You also talked about in domestic passenger vehicle segment, you won some new orders. What kind of components are these? Are these engine components or are these some other kind of components that you're doing now? This is a combination of engine, transmission and chassis components in lightweighting. Okay. Great. That, that's helpful. I'll come back in the queue. Thanks. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead. Yeah. Hi, good afternoon, and thanks for taking my question. Just on the India industrial bit, I mean, you'd won some orders on Kalyani M-Four, et cetera. Have those started kicking in? No, the deliveries for that will start in Q3. Actually, really, realistically, the delivery will happen in Q4. That order will be executed over what period? Between Q4 and Q1 of next year. Okay. Because of the COVID situation in April and May, we had a delay in about 2 months. Okay. I mean, like, so even if the cylinder orders get completed in Q3, then we should not see a negative or a decline in Q4 on the industrial side, right? No. I mean, the defense business will start kicking in in Q4. Got it. Just on, I mean, like, the inventory situation with your customers now? Are they, given the supply chain disruptions, running with a higher inventory or, I mean, like, will that also lead to some sort of a destocking risk? No, because I don't think there's a significant increase in inventory. I would say maybe the increase in inventory is to the tune of maybe 10-15 days. Yeah, in that range. Yeah, in that range. I don't think it's more than that. Really the demand is very, very strong. At least that is what our customers tell us and what we hear from, you know, the companies that publish this information. Once the chip- There's also one more thing. You know, today the issue is that logistics chain, where in the old days we could forecast that between 31-33 days the material from our plant would reach the U.S., today that can vary, you know, anywhere between 50-70 days. We have to also provide some amount of cushion for that. I think overall we're okay. You know, our primary focus is to make sure that we don't create any customer stoppages. Sure. No, absolutely. Right. Okay. Just on, I mean, like, when, by when do we see the, I mean, like this, will we start seeing improvement on the Sanghvi Forge thing from next year onwards? I mean, how- No, already it's become profitable. Even at first quarter itself on a PBT level, we have become black. We will see, you know, quarter by quarter we'll see, you know, growth. Right. Any plan, I mean, like, will that be a subsidiary? Sorry, that's already included. Yeah, that's already a 100% subsidiary now. Right. No, I'm just asking you because in terms of the standalone numbers, will it get included in the standalone numbers? That's what I'm trying to understand. It comes in our subsidiaries and solely on subsidiaries. It's a small number right now. Right. You know, the first goal there was to fix the place. You know, fix the technical issues, fix the maintenance issues, you know, quality issues, cash flow issues, people issues. You know, take and execute new business. Yeah. Sorry, just last question. I mean, again, a clarification on the CapEx. Could you, on a cash flow basis, tell us what is the CapEx for this year, both standalone and international? See, what we have today spent roughly is about INR 500 crore for the first half between standalone and overseas. Standalone, we will probably spend about INR 100 crore more this year. Overseas, probably about close to INR 75 crore-INR 80 crore. Maybe a INR 100 crore better round number. You're talking about INR 700 crore. Where should this number be next year? How do you see that? See, next year we don't need to make any forging capacity investments over here, for sure. I would say overall CapEx should not be more than about INR 250 crore-INR 300 crore. Okay. Great. Thank you so much. Thank you. Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead. Hi. Just couple of clarifications. So you're making EUR 12-15 million of power electronics revenue. So is this entirely from our Refu or beyond that as well? It's entirely from Refu right now, plus what we are shipping from India to Refu. Okay. Secondly, where- 30% of that value-wise is being shipped from here. Sorry, you said 30%. 30% of that is being shipped from here currently. Okay. Secondly, with respect to overseas subsidiaries, overseas operations, you indicated double-digit margins for a full year. While first half was already close to 11%, do you expect that to improve from there on or 11%-12% is where it should stabilize? I think 11 will moderate a little bit because of the chip shortage creating overall reduction in demand. I think for the full year we will have a double-digit number, and then next year, as our aluminum plant ramps up, we will see a substantial increase. Got it. Great. Thanks and all the best. Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead. Sir, I have two questions. First one is on the e-mobility business. Mr. Jalan, we can't hear you. You know, you need to be called from another line. It's very, very broken, your voice. Hello. Is it better now, sir? Yeah, a little better. Sir, my first question was on the e-mobility business. Mr. Jalan, we can't hear you at all. I will put you back in the queue once again. Thank you. Participants, you may press star and one to ask the question. The next question is from the line of Pramod Kumar from UBS Securities. Please go ahead. Yeah. Thanks a lot for the opportunity. Amit, just a follow-up on the defense side. In addition to the artillery guns, is there anything else which you're seeing, which is kind of seeing some progress, in terms of the various stages of the tendering or the testing? I'm just trying to understand by when, which year or, if can be, which quarter do you expect some meaningful defense revenue cadence to come in? See, today we have three areas where we have, you know, let's say made significant progress. One is on the artillery guns, one is on the vehicles, and the third is on this mounted gun that we have made. We have made a light strike vehicle called the Garuda, and we have a MGS, which is a 155 39 mounted on a 4 by 4. These are the three areas. Today, we have orders for the vehicle side, for the lighter vehicle and for the heavy vehicle. On the gun side, we have, you know, one gun in testing, which is at just the final stage. On the mounted gun side, we are now going for testing. By when do you expect this to become a meaningful part of your business, in terms of the? how would you define as what? What do you define as meaningful? 5%, 10%, 15%? 5%-10% to begin with. Let's say if we are saying 10%, I would say it would take about two years or so. Two years or so. Thanks for that. Second question on the CV demand recovery, Amit. You've been a veteran of cycles. The company has seen so many cycles. How do you see the cycle playing out? Because there is massive increase in fuel prices on one end, there is a surplus tonnage capacity which got created few years back. Also there's some sort of incremental competition or a more organized railways in form of dedicated freight corridor and all that. Given your experience, have you seen the production schedules which have come from the OEM so far in line with what you expected or they're kind of lagging a bit? Right now we are seeing Q3 higher than Q2 and Q4 higher than Q3. Over a more longer term, I expect that you will see a shift on the truck manufacturing side, where you will have off-highway trucks which are for construction and mining growing, and then the ICV sector and the SCV sector growing. Because as you rightly said, the heavy commercial vehicle not only is it the railways which is affecting or taking away markets, but it's the highways and the GST which has improved the kilometers per day or ton kilometers per day that is carried, and therefore, the efficiency of transportation has increased. At the same time, because of e-commerce and other things, the demand for last mile delivery has substantially gone up, and that will see a big growth in the ICV for the hub to spoke and then the small commercial vehicle for the last mile delivery. If I can squeeze one question on electrification. Any updates on Tork, Amit, in terms of a product launch or? Because the space is clearly excited. The demand, what we are seeing in terms of bookings or interest and order backlog is quite huge even on two-wheeler. If you can just help us understand how do you see Tork kind of We have invested in Tork because we think that they have a good product and that we can get into their supply chain and learn, you know, the product technology and the supply side. In terms of the day-to-day operations of Tork, I'm not directly involved. I'm certain that they are in a, you know, in a position where in a few months they will make some announcements about, you know, their product launch, et cetera. Can you talk more about your existing supplies to any electric vehicle startup or traditional OEM? Is it you want to share at this point of time? I don't want to name names, but as I mentioned that we are already supplying even in India, our revenue to electric vehicles will be in excess of, I would say INR 10 crore-INR 15 crore this year and probably a healthy double-digit, I mean, almost heading to significant double-digit number next year, heading to triple digit year after next. Just, if I can push more on that. Is it more on the motor related bit or on the electronic side as in, It's also control and power electronics. Sounds great, Amit. Thanks a lot, and wish you all the best. Thank you. Thank you. Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. Ladies and gentlemen, thank you for your time and interest. You know, as usual, if anybody has any other questions, please feel free to reach out to our team. We'd be happy to take your questions. Thank you for your interest and support to our company, and have a pleasant, healthy and safe weekend. Thank you very much. Thank you very much. On behalf of Bharat Forge Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.