Ladies and gentlemen, good day, and welcome to Q3 FY 2022 earnings conference call of Bharat Forge. As a reminder, all participants' lines will be in 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 telephone. 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. Thank you, and good afternoon, ladies and gentlemen, and welcome to our quarter three analyst conference call. I'd like to welcome all of you, and thank you for taking your time. As usual, I have with me our teams from sales and business development, finance, investor relations. Give you a brief update and then open up for Q and A. In quarter three the performance was as expected. In the last quarter, we had mentioned that we expect quarter three to be slower than quarter two, and therefore, total sales were flat compared to previous quarter. Exports were about 10% lower, while domestic grew by about 16%. The drop in export revenue was primarily due to the production cuts because of semiconductor related shortages in Class 8 trucks. Our EBITDA margin at 25.2% against 28.3% is basically due to certain one-offs in Q2 and Q3. There is a detail of this in slide 10 of the update. Normalized EBITDA in Q3 would be about 26.4. It's a decline of 120 basis points sequentially. We have an exceptional item which includes a gain on the fair value of our investments in Tevva Motors and an exceptional expenditure of INR 99 million towards VRS. If you remember, at the beginning of the in 2020, we had taken a write down in our valuation of our investment in Tevva because of the slowdown that had happened due to COVID and other issues. Tevva has successfully managed to weather the storm and raise substantial funds over the last 8-12 months and has been valued quite well by the markets, and they are now well on the path to you know taking their products to market. Therefore, these investments have been revalued as is required by the accounting standards. One highlight, however, is that the nine months I will say that I have never seen so much pressure and volatility in the markets. Huge demand on the passenger car side. Most of our global passenger car customers are sold out at least for next year and some even for year after next for many of their popular models. At the same time, there is unprecedented cost increases on raw materials, on transportation and freight, on energy and constraints on raw material and labor shortages due to COVID in Western geographies. You have to take all these cost increases, inefficiencies into account and look at our margins and profitability against that lens. If we compare these numbers with, you know, previous numbers of, say, FY 2019, nine-month FY 2019, our EBITDA was 28.7% and for the nine months as against 27.7% for nine months of 2022, despite volumes being 20% lower. After the exceptional item of gain, the PAT for the quarter was INR 337.4 million for this quarter. We've had a number of order wins recently, about just over $100 million, which includes about $50 million for EV platforms across passenger and commercial vehicles. These are small, but I think this is the beginning of much bigger opportunities. Our overseas operations have also registered a fairly decent performance with a revenue of almost INR 23.5 billion and an EBITDA of about 10.6%. The CapEx for aluminum forging facility in North Carolina has been completed, and the commercial production will start in the middle of the year. We expect this facility to ramp up over this year and next year start having meaningful revenues. Between the two new aluminum facilities in Germany and in the U.S., we expect that this revenue will more than double over the next 2-3 years. Our balance sheet is in a very strong position as usual, with a net debt to equity of 0.07. This is post our investments of about INR 300 crore in the first nine months in EV, in U.S. aluminum project and in the acquisition of a company from NCLT in Baroda. Standalone business is doing fairly well operationally. We do have supply chain issues which persist in the global automotive industry, which is affecting the ability for many of our customers to produce and ship out vehicles. Although the end demand from the market remains robust, we expect both the domestic and export markets to witness positive sales development in the second quarter of FY 2022 across all major sectors, barring the agri equipment sector. In the international business also we see strong demand, but there are severe and unprecedented inflationary cost pressures across most variable cost elements such as raw material, logistics and energy, which will take a toll on the profitability of the companies in the initial quarter till we get the recovery of these cost increases for which we are actively engaged with our customers. I would now like our head of sales and business development to talk about some of the key markets globally. Over to Subodh. Thanks, Amit. In continuation with the comments from Amit, we do see a overall robust market from a demand point of view. To illustrate that, from a commercial vehicle point of view, we see the U.S. market and the European market quite strong. As you know, most of production slots at the OEMs for 2022 have been filled out at least till late November, mid to late November, and possibly into early December as well. In India also we are seeing better growth as compared to the previous years. We are still away from the peak, but we are moving up in the right direction. Passenger cars in the world, the market is supposed to do better than what it did last year. Hopefully, there is a view that the semiconductor crisis will start easing up in another six months or so. The overall expectation is there should be a stronger market as compared to last year, both in North America, Europe as well as in India. In the construction and mining side, just given the government stimulus in most markets, there is a strong demand seen, and I'm talking about both Europe, U.S. and of course, with the pragmatic budget, we expect the same in India as well. Oil and gas is doing better than what it was last year. You know, we play in the fracking business of the oil and gas side, and we see a significantly improved activity of the fracking side. I must caution that currently everybody is focused on using the assets they have, but there is demand that's coming in for the for spares for that asset. New builds in this area are still weak overall, but that will improve as the year passes, is the impression. Overall, we expect the oil and gas market to remain stable, which is also supported by oil prices which are expected to remain stable in the $80s, mid-$80s in particular. In the renewable side of business, which we are also engaged with, overall we see a stable demand given the focus on environment and allied factors. We expect to see I would say strong growth pretty much in all geographies of the world in the renewable segment, particularly wind. Okay. I think we've given you a brief overview, and I think we can now take your questions. Thank you. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. The first question comes from the line of Kapil Singh with Nomura. Please go ahead. Hi. Good afternoon, sir. Firstly, I wanted to check your outlook on both domestic and export business, particularly on the truck side, because while demand is strong from a chip shortage perspective, are you seeing that ease in significantly in the current quarter or later on? What is the production outlook, if you have any color there? Same thing for India. I'll come to the second question. Okay. Kapil, my colleague, Subodh, will answer this question. Kapil, comment for the next quarter and a few months thereafter, we see a reasonable level of demand from the customers in line with overall market projections for the year. This applies to both in India as well. There is definitely some ups and downs relative to supply chain issues for other parts. Nevertheless, given the high demand, OEMs are doing everything possible to maintain their build rate. That is the impression we have. We see a stable demand in these months. Okay. What about India? CV demand, is it looking up? Any outlook you would like to share there? At this point, as compared to what happened in Q3, Q4 is definitely looking better. If you look at the sales of, you know, the retail sales of all the big four truck players in January, then it seems like they are moving in the right direction for growth in Q4. Unless something very crazy happens, we expect them to have growth over Q3 in Q4. Okay. We've seen pretty good traction in the non-auto segment. How much is oil and gas out of this? In this quarter, the oil and gas segment business was about INR 175 crores. I just want to highlight one thing, that last quarter and this quarter, we have had the impact of the aluminum cylinder supply, which is now complete. Right. Lastly, we have talked about this new order wins of $100 million. Sorry, what is that? We previously talked about the new order wins we had. Yeah. In the nine months of about $100 million, right? Along with this, what is the outstanding order book that has to go into production as of today? When do these $100 million hit, you know, full production? Our order book that has to go into production is, I would say well in excess of, on a consolidated basis, on an annual consolidated basis, I would say close to $400 million is yet to go into production on an annualized basis. Oh, that's pretty large number. The capacities are already in place. Okay. By when could we expect to hit that full product- Full or half will ramp up by 2024, but it'll start from next year. Okay. Okay. Thank you. I'll come back in queue with you. Yeah. Thank you. The next question comes from the line of Jinesh Gandhi with Motilal Oswal. Please go ahead. Hi. My question is on the order book. I mean this $50 million of EV platforms. Can you throw light on what kind of components is this pure electric components or this also includes- These are for pure electric vehicles and these are, you know, electric powertrain components. Okay. Okay. We also have now started receiving orders on power electronics and control electronics for commercial vehicles. Okay. This would be through Repower or on our own as well? No, on our own. Oh, okay. That's interesting. I mean, obviously Repower is an operating company, but. Right. Also on, stuff that we have developed in-house. Right. That's good to hear that. Second question is on the aluminum forging business. This quarter would have been a very dramatic quarter because of the energy cost inflation. Would you throw light on how big was the impact of energy cost inflation in this quarter for BFAT? Yeah. You know, actually the real increase will happen in the January to March quarter. Okay. Because energy prices went up in December. Okay. Okay. In this quarter. Another thing that I'd like to mention. Sorry. Another thing is that please, bear in mind that a lot of geopolitical and other issues are creating energy cost increases in Europe right now. Right. No, that's fair point. They are completely out of anyone's control, unfortunately. Sure. Sure. The 30,000 ton capacity in Europe for aluminum forging is now fully operational, right? The 10,000 existing- Fully operational, it's not fully utilized. What would be utilization in nine months? I would say the current rate of utilization would be about 10,000-12,000 tons. Oh, 10-12. I would say 50%. Okay. This will also fully ramp up next year? Next year and year after next. Okay. Any word on? This ramp up has got slowed down because of the chip shortage and other supply chain issues. Sure. Because overall vehicle production has come down. True. That's a fair point. Any word on the second phase expansion in the U.S., given that capacity is also fully sold out? Yeah. I will be in the U.S. very soon and we will by March end take a call on the second phase. Okay. Yeah. Got it. Lastly, what will be the impact of steel and other commodity pass through in this quarter, benefits on the revenue side? The total impact, this quarter would be, just one second. You're talking about compared to last year, right? Compared to last year or the second quarter. Compared to second quarter, it's about INR 30 crore, between INR 30 crore and INR 35 crore. Okay. This is helpful. Thanks. Thanks a lot. Thank you. The next question comes from the line of Pramod Amthe with InCred Capital. Please go ahead. Yeah. Hi, Amit. In this unprecedented inflationary times, both at the commodity and the processing cost, how does your cost escalation terms work, and do they break down or what's the thought how to recover it? Yeah. Again, I will let Subodh answer this. You know, we have different, let's say, clauses and agreements with different customers. Some are on a monthly basis, some are on a quarterly basis, but Subodh will explain. Sure. Pramod, the steel. Let's say for us, the major part of the inflation has been steel and, you know, as we have talked before, all of it has always been recovered through a mechanism. Let me say that mechanism continues as far as steel is concerned. There is a little more complication this time because of higher steel inflation. In principle, we have a mechanism to address that. Because of the unprecedented changes in energy and logistics, we are also working with our customers to set up mechanisms for these factors. We are insisting on a full pass-through of this inflation, and accordingly, those mechanisms are being addressed so that they can be reviewed on a quarterly basis. Sure. Thanks. Second is with regard to the sales traction. You guys alluded that your sales is still 20% below the FY 2019 levels. If I understand rightly, the large part of the shortfall seems to be on the industrial side, if I'm not wrong. Commercial. Commercial- It's actually on both. It's both on industrial and commercial. Oil and gas activity is not at the previous levels, neither is, you know, the construction and mining and stuff yet. Obviously the automotive is all down because of the chip related activity. Everything is down. In terms of directionally, it looks like the. Look at NAFTA sales. In FY 2019 it was 475,000. Yeah. This year it is going to be 275,000. Yeah. At least we get some grip in terms of numbers, volume, where they are and how that can pan out in the future. If I had to look at the industrial side, are you getting any bigger confidence now in the sense that, at least in one and a half years, two years, you will cross that historical peaks? No, I'll tell you why I do have the confidence that we will do it is because we have now entered a lot of new sectors, especially the renewable energy sector in this area, that will allow us to grow our business, and de-risk that business much more. Okay. This is through the acquisition which you made. No, not only through acquisition. Okay. Also, or, you know, organically. No, I said the production capacity which you acquired from that, entity. That is giving that comfort or- Yeah. Yeah. That actually will be a further growth even beyond that. Whatever we are talking about will only take up 20% of their capacity. You know, if you look at their sales, they are running at INR 20 odd crores a quarter, and they have the same facility as we do. They are doing 10% of what we do. Obviously they have huge capacity still available. Okay. The last question is with regard to your investments into the EV space. You have done into the two-wheeler space and also into the Tevva. You yourself have gone through the cycle of writing it down and participating at the higher valuation. How are you looking at this space, especially where the valuations are going through the roof? You guys will continue- We are not participating at a higher valuation. What has happened is, Tevva has raised money at a significantly higher valuation. Right. Therefore, our investment in that has got revalued to the value at which they have raised fresh capital. You are maintaining the stake there or you are diluting? We've not put in any fresh money. Okay? Okay. Would you- Our stake has come down in percentage terms, but in value terms, it has significantly gone up. Is that because of some discomfort on valuation or incremental capital allocation you don't- I don't want to put in unlimited amounts of money in these businesses. The purpose of putting money in these businesses is to learn technology and bring those products into Indian market when they are applicable to our markets. That is what we are doing. Okay. The other venture is two-wheelers, which also seems to be at an inflection point now, the way the product has- They have now already launched their first two products, and they have received only from Pune, where they have launched a very good response. They will be producing and launching their vehicles by April, they will start supplying their vehicles. There you have a decent chunk of stake, right? More than 50%. In case for execution they need a funding, you guys will be participating there or how to look at? Yeah, yeah. We are fully working with them in making sure that they have everything they need to go to market. In fact, their plant is already almost constructed and all their equipment is mostly in and going in for trial production. Okay. In that sense, any commitment in terms of next 1-2 years, how much investments you may have to put into this? Tevva, you said you will not be going in, but at least for Tork or others. We are going to not make significant investments in company as such, but we will make significant investments in making components, systems and subsystems. Okay. Sure. Got it. Thanks, and all the best. Okay. Thank you. The next question comes from the line of Ashutosh Tiwari with Equirus Securities. Please go ahead. Yeah, sir. We talked about that, the overseas CVs will pick up, but can it go back to, say, 2Q or 1Q levels in Q4? How do you see trajectory over there? He's saying, can Q4 overseas CV go back to second quarter numbers, so higher than this. Yeah, we expect them to go up. We expect them to be higher than Q3 for sure. Okay. The visibility of going towards 1Q or 2Q still is not there. One second. It's a 20%. I think it'll be pretty close to Q2. Close. It'll be close to Q2. I think it should be pretty close to Q2. We see strong traction over there. Secondly, like, India Industrials, if I look at capex of that, cylinder, oxygen cylinder, it was around INR 226 crore. How do you see that ramping up in the subsequent quarters, 4Q and Q1? We had talked about some Kalyani Forge order earlier, defense order, which was supposed to start delivery from fourth quarter. How do you see the ramp-up in that going ahead? The vehicle orders will start getting delivered in small amount in quarter three, then it'll roll in. I mean, small amount in quarter four and then in the first half of next year. We are getting more and more orders, so I think this will be a continuing business. Overall Industrials India will see, I mean, a strong growth going ahead beyond this INR 226 crore? Yeah, yeah, absolutely. Okay. Okay. I think there's a fair chance to say that we can grow this to a, you know, INR 300-400 crore business in the next two years per quarter. Okay. India Industrial. Sure. Okay. Thanks a lot. Bye. Thank you. The next question comes from the line of Hitesh Goel with CLSA. Please go ahead. Thank you for taking my question, sir. Can you, sir, break down the you know, the industrial business in terms of you've talked about the oil and gas business and exports, but how much is coming from the construction equipment, renewable energy, so that we get some sense? Renewable energy right now is very, very small. Okay? I would say oil and gas is about 50% and, you know, about 10% is aerospace and defense, and then 40% is, other industrial, which is construction, mining, et cetera. This is in exports, right? In the domestic- In domestic, I would say, out of the INR 220-odd crores, more than one-third is construction and mining. Agriculture is about 15%. Aerospace is about 10%. You have assorted other sectors which are about 30%. Okay. Great. Thank you. Thank you. Thank you. The next question comes from the line of Jeetu Panjabi with EM Capital Advisors. Please go ahead. Hi, Amit. Thank you for this. A couple of questions. One, can you take us through your outlook over the next 18 months on key demand segments, for example, U.S. trucking, European trucking and industrials or whatever. Just give us how you're thinking. Jeetu, you're a bigger expert on the U.S. CV market than I am. All I can tell you is that there is extremely strong demand for transportation being driven by this whole logistical boom in, you know, the delivery services. Secondly, the infrastructure spending that is starting to take place in the U.S. or should be starting to take place in the U.S., whether it is replacing bridges, roads, you know, airports, whatever. In that background, I would say that the U.S. is definitely going to see a fairly sustained and strong growth in transportation demand at least for the next 4-5 years. Okay. What about how do you look at India? Is India going to catch up? I think India is going to be on a 10-year growth trajectory because the kind of infrastructure spending that is being talked about and unlocked now is going to create a secular growth trend for at least the next 8-10 years. Okay. The converse question is what are you less excited about in the backdrop of what you just spoke? Look, I think, you know, the one thing which worries me is cost and inflation, because in a backdrop where demand isn't, or let's say production isn't at the highest level, costs are escalating for all kinds of, let's say, extraneous reasons. Then I am a little worried about Europe, because Europe is very sensitive and dependent on a lot of geopolitical issues, whether they affect, you know, raw material supplies, energy supplies, supply chain issues, et cetera. I also expect that a lot of suppliers will go bankrupt in Europe in the next six to 12 months. Mm-hmm. It is that. That is not a problem for us. What happens is that it disrupts the overall entire supply chain. Right. Actually one final one. How do you think of capital allocation in this context? Are you happy to do- We are going to only allocate capital on growth and not on any of our existing business and product unless we have long-term take or pay or business assurance. We have created a strategy, you know, where we want to be the last man standing in our business for however long these core products are made. There we are working on extreme focus on reduction of cost and efficiency and better technology in order to get a larger share of that market as it progresses. Okay. Fantastic. Good wishes, as always. Thank you so much. Thank you. Bye. Bye. Thank you. The next question comes from the line of Jinesh Gandhi with Motilal Oswal. Please go ahead. Hi. Just wanted to check on the Tork site. What's the capacity are they starting with, and any sense on the orders which they've got on hand? I think their first initial capacity they're setting up is gonna be about 50,000 pieces, 50,000 numbers of two-wheelers and an equal number of three-wheeler powertrains. I think just from Pune, they have received over 1,000 orders, and they stopped after that. They didn't take any more orders. Okay. Are you helping them in with respect to ramp up and having more wide launch on pan-India basis? We are not working actively, but we are helping them on the industrialization strategy. Okay. Not on the front end. Marketing and stuff, look, we are not in the B2C business, so I wouldn't call us experts in that. We are connecting them with people wherever it is needed and whatever help they need is being provided. Sure, sure. Secondly, on the Tevva side, you indicated there was recent fundraise. What, at what valuation did the fundraise happen and what is our effective stake after not participating in that? Just one. They have done two rounds of fundraise. The fundraise that we talked about was the previous one, after which we have done a reval. Recently they have done another fundraise at double the value of that. Post both these fundraises, our stake is just under 10%, about 9.8, 9.9, something like that. Would you not be aware of the last fundraise valuation? It's double of what it was in the previous. What was the previous one? Sorry. Like, okay, recently the company is valued in excess of INR 400 million. Good. Agree. Thanks. Thanks and all the best. Thank you. Again, anyone who wishes to ask a question, please press star and one on your touchtone telephone. Thank you. The next question comes from the line of Ashutosh Tiwari with Equirus Securities. Please go ahead. We talked about this power cost impact, possible impact on margins in overseas business. Because this huge increase in power costs in these European countries, do we see that probably forging companies in India like us will benefit in terms of increase outsourcing towards India? In the longer term, yes, not immediately. Okay. Will it be substantial impact for us in the fourth quarter? There will be a substantial impact, but obviously over a period of time that will get reimbursed. We don't produce energy. We have to buy energy from the grid. Okay. There is a price for it. Everybody has to pay it. You know, that is well understood that there is a pass-through on these variables. Okay. That was from my side. Thank you. Okay. Thank you. Thank you. The next question comes from the line of Kapil Singh with Nomura. Please go ahead. Hi, sir. Just a follow-up. If you could talk about whether Bharat Forge has bid for the PLI scheme, under the component champion and, you know, which are the areas that you are targeting over there if so? Sir, you're asking me about PLI. We have applied for the PLI scheme under two categories, under the Component Champion and OEM. Okay. As a OEM, what are we targeting to make? We have interest from several two-wheeler companies for us to manufacture for them and for certain global start-ups in commercial vehicles where they want us to manufacture, you know, on a EDDM basis, engineering, design, development and manufacture basis. We will manufacture the components and make the product and supply it on a either rolling chassis or finished product basis to them for commercial purposes. In the component scheme, what products are we looking to make? On components, we are gonna make pretty much every component that goes into an electric vehicle. The high value components. I mean, not chassis and stuff, but, you know, right from motors, power electronics, control electronics, battery, BMS, you know, all that stuff. Okay, perfect. Thank you. Yeah. Again, anyone who wishes to ask a question may press star and one on your touch-tone telephone. The next question comes from the line of Ronak Sarda with Systematix Group. Please go ahead. Yeah, hi. Thanks. A question on the international CVs, especially on the North America side. So, do we have what are the production targets for CY 2022? You highlighted the CY 2021 numbers were much lower than what they were initially planned and expected. For CVs? For CVs, yes. So what- Another question on the What are the production targets for Europe and U.S. for CV for 2022 or compared to 2021? In the U.S., they are expecting, let's say the Class 8 segment that we primarily partake in to be somewhere in the region of 300,000 units. In Europe, we are expecting a similar number. Okay. Could this go up if the supply chain eases, and there is more availability on the supply side? I mean, I'm assuming these are, post, you know, taking into account the supply chain constraints. See, at this point, most OEMs are not increasing their production slots as such in a month. I mean, they are maintaining a certain equilibrium. Right. Whereas the indication of demand is there. The broader impression is this may not go up from a production standpoint. They will continue to accumulate backlogs. Got it. It will spread into CY 2023 then to have a smoother production. Sure. Second question, Amit, for you. I mean, on the topic, you know, of production side, how much of the components are we supplying in terms of maybe the number of components, name of components or the value- We are going to supply. That go to the powertrain? You know, we are gonna supply the housing for the battery, for the motor, and also we are gonna manufacture certain the motor and the power electronics and control electronics for them. Sure. Okay. On the motor side, have you developed the motor with someone, with some type of collaboration or this is? No, this is a proprietary motor. Right. What would be the power range for this motor? The motor power range is peak power 6-9 kW currently, and the second model will be from 9-20 kW or from 10-20 kW. Right. We can manufacture both of them, you said? Yeah, yeah. We are setting up a line which can do flexible manufacturing. Right. Sure. Thanks a lot and all the very best. Thanks. Thank you. The next question comes from the line of Bhalchandra Shinde with Kotak Institutional Equities. Please go ahead. Hi, sir. As you mentioned, in Europe, there is a cost pressure. Would like to know on consolidated basis, how we see the profitability. Means like, do other regions also we will see the margin pressure and relatively our consolidated level margins will be under pressure? For how many quarters we see this scenario? Look, I don't have a magic ball, crystal ball, so I can't tell you how many quarters. You know, we are right now in the depths of winter. It's one of the most severe winters in the last 10-15 years, both in Europe and the U.S. Even in China and places in Saudi Arabia and some places there's snow. Places which normally don't get the severe winters have had a very severe winter. At the same time, we have geopolitical issues which are causing cost pressures. Honestly, I can't give you a you know, forward-looking view like that. When there is such a tremendous increase that happens so suddenly, it takes 3-6 months to, you know, resolve this through a dialogue with your customers. Sure. On current basis, how much relative EBITDA contribution is from these regions right now for us? Our EBITDA for the nine months from our overseas subsidiaries was about. What is the question? What is the question? Just repeat your last question again. The regions where we are seeing the cost pressure, how much EBITDA contribution over last nine months was there? It will be roughly about INR 230 crore-INR 235 crore. Thank you. From those operations outside India. Sure. Thanks. Thank you. Okay. Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Amit Kalyani for closing remarks. Ladies and gentlemen, thank you for your time and interest in asking all these questions and getting to know more about what's happening in our company. It's been a challenging quarter, but I think we are heading for exciting times. We have a lot of irons in the fire, and we expect that as these come to maturity, we will start seeing tremendous growth in top line, bottom line and the kind of business that this company will do in going ahead in the future. The new Bharat Forge is gonna be quite different from the old one, and we look forward to you being a part of this journey, as we go ahead. Thank you very much. If anybody has any direct questions, please contact our teams. Best wishes to you all and for a safe and healthy time, and have a nice weekend. Thank you. Bye. Thank you. On behalf of Bharat Forge, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.