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Bharat Forge Ltd

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BSE Code : 500493 | NSE Symbol : BHARATFORG | ISIN : INE465A01025 | Industry : Castings, Forgings & Fastners |


Chairman's Speech

We've undergone significant transformation in the past two decades, from just an auto components supplier to a reliable & dependable components supplier for auto & industrial applications, solutions provider to defence industry and developing solutions for e-mobility.

It is my privilege to present to you our Integrated Annual Report for FY2024. This has been an exceptional year for Bharat Forge on many fronts. Our performance in the core forgings business has been strong, the defence vertical has taken off in a meaningful way, and the Indian subsidiaries continue to deliver strong results. While the overseas operations are showing signs of stability, there is still a long way to go before we reach there. The most heartening aspect of the year has been the slow but steady progress in the E-mobility business. I will touch upon all these points in more detail later in my letter.

A THRIVING OPERATING ENVIRONMENT

The macroeconomic volatility and geopolitical tensions have dominated the global economic environment during FY2024. Against this backdrop, India's growth continues to be resilient, underpinned by strong public capex, booming industrial and manufacturing activity, and robust private consumption. India's Gross Domestic Product (GDP) grew by 8.2% in FY2024, making it one of the fastest-growing economies in the world.

The global automotive industry has demonstrated resilience despite macroeconomic challenges, such as higher inflation, supply chain disruptions, and rising raw material costs. Demand momentum continued in CY 2023, with the easing of supply chain issues and inventory restocking. Growth was primarily led by the North American and European automotive markets with sustained demand for fleet replacement and personal mobility.

The Indian automobile industry delivered a robust performance in FY2024, propelled by strong economic growth and favorable government schemes. Improved vehicle availability, higher production, and the launch of newer, premium models contributed to a positive consumer sentiment and growth in the Passenger Vehicle (PV) segment. The domestic Commercial Vehicle (CV) segment was marginally impacted by a shift towards higher tonnage trucks with greater payload capacity.

A YEAR OF STEADY PERFORMANCE AND PROGRESS

FY2024 was a year of performance supported by all business verticals. The standalone business achieved revenue of '89,686 million, reflecting a growth of 18.4%. EBITDA was up 28% to '24,686 million and PAT grew by 36% to '14,249 million. The export business surpassed USD 580 million in revenue owing to a sharp increase in the PV export segment, which grew by 33% to '12,694 million. A deeper dive into the financials will reflect how de-risked the revenue stream has become, potentially reducing the impact of CV cyclicality.

For the year, the return ratios witnessed a sharp improvement with ROCE% inching towards 20% mark, ROE% closer to 17% and D/E (Net of cash) of 0.20.

Our consolidated revenue grew by 21.5% to '156,821 million while PAT increased by 79% to '9,102 million.

The consolidated balance sheet remains strong with cash of '31,800 million on the books and D/E (net of cash) at comfortable levels of 0.6.

During the year, we secured new businesses worth nearly '63,000 million, across automotive, industrial, defence and industrial casting businesses.

Our strategic focus and investments have yielded exponential growth in the defence business. This segment has taken off in a very meaningful way. With robust execution of export orders, we have achieved a strong revenue of '15,610 million, with more than 90% being export-driven. Overall, the defence vertical secured new orders worth '44,940 million.

Our industrial castings business, acquired in July 2022, has begun to deliver on its promise.

In its second year post-acquisition, this segment significantly contributed to our overall growth. J S Auto Cast ended FY2024 with a revenue of '5,667 million representing an impressive growth of 29.4% and an EBITDA of '755 million, marking a growth of 80%. We are working on several initiatives to enhance operational efficiencies and expand capacities including new product development, which will translate into stronger performance in the future.

The overseas aluminum operations faced a challenging period due to both internal and external headwinds. A steadfast focus on improving capacity utilization, cost optimization, and cost recoveries will deliver the performance envisaged during the project conception stage. In FY2024, our European operations posted an EBITDA of '1,410 million, while the US operations reported an EBITDA loss of '953 million. The aluminum assets will capitalize on the megatrends of lightweighting and new mobility technologies. The products produced in the EU and NA are powertrain agnostic with supplies to both ICE and EV platforms.

BUILDING A STRONGER ENTITY FOR THE FUTURE

We've undergone significant transformation in the past two decades, driven by the belief that the industry will increasingly shift towards emerging technologies and benefit from the booming domestic economy. We have established the necessary levers and executed meaningful investments to lay the groundwork for a robust future.

Our evolution from a manufacturer of critical auto components to a supplier of critical components and products/systems across multiple sectors has led to exceptional outcomes over a period. We have focused on creating opportunities in our areas of strength: material science, metallurgy, and metal forming and leveraging our customer relationships. With these as our foundation, we aim to move up the product and system value chain across various verticals, with an emphasis on technology and innovation.

We've strengthened our core business and expanded capabilities across automotive, defence, industrial, and aerospace segments through the introduction of new products, technological advancements, and acquisition of marquee customers. We have also enhanced our execution competencies with a combination of dedicated plants and a strong human resource pool, positioning Bharat Forge for sustained growth.

The Defence business represents a critical pillar in our growth strategy. It's a sector which we seeded in 2013 and has taken 10 years to bear fruit. With a comprehensive range of world-class products, including towed, mounted, and ultra-light guns, as well as protected vehicles and unmanned systems incubated through indigenous technologies, we are well-positioned to meet the diverse needs of global markets. Our commitment to innovation and excellence has led to the development of nine platforms in the artillery segment. We are now building the capability to manufacture over 250 guns and 1,000 vehicles per annum. Our manufacturing ecosystem will be structured to exceed this capacity should the demand rise. Since inception, we have been categorical about the activities we will not undertake as part of the defence business, which includes all weapons and systems banned by various UN and other international conventions. In FY2025, the defence vertical will transition entirely into our 100% owned subsidiary, Kalyani Strategic Systems Limited (KSSL) once the new facilities are fully commissioned and licenses are transferred.

The defence business will not venture into businesses barred under various UN Conventions including those which ban manufacture and use of cluster munitions.

Our industrial castings business has demonstrated remarkable progress since its acquisition in June 2022. This business has enhanced our overall capacities and capabilities, enabling us to deliver high-performance castings to a broad range of industrial and automotive applications. Leveraging advanced manufacturing techniques and focusing on quality has positioned us as a trusted supplier in this sector. Given JSA's strong reputation, accomplished management, and a superior talent pool, we expect robust growth in the coming years. With its ability to deliver high-quality complex castings, we anticipate JSA will become one of India's top three casting suppliers.

Our aerospace business is on the cusp of a significant breakthrough. Investments in cutting-edge technology and facilities have enabled us to become a key player in the aerospace supply chain for global leaders, aligned with the Atmanirbhar Bharat initiative. We are developing advanced components that meet the stringent requirements of the aerospace industry, ensuring safety, reliability, and performance. Our continued efforts in this segment are set to yield substantial growth, driven by increasing demand and our ability to innovate continuously.

The overseas business has significantly graduated from steel to aluminum forgings. Our priority remains to achieve sustainable profitability in our overseas business. The European operations are already in the black, and we expect our US operations to achieve operational stability in the coming year. We anticipate robust performance from our overseas subsidiaries in FY2025, driven by strong demand for drive train-agnostic components.

As we endeavor to stay future-ready in an evolving technology landscape,

I am pleased to inform you that we have inaugurated a state-of-the-art digital center with advanced capabilities in AI/Machine Learning and IoT applications. These investments will help us make our manufacturing process more competitive and enable us to incubate future technology capabilities and talent development.

Our investments in e-mobility are showing promise. We continue to build capabilities and competencies aligned with the needs of the end consumer. All our endeavors in this space will be organic in nature, utilizing our own technology and know-how.

As our new, high-potential verticals gain traction and become profitable, we expect capex intensity to reduce and return ratios to improve. A stronger foothold in less cyclical sectors and diversification across B2B, B2G, and B2C customer segments will translate into consistent revenue generation. We are confident that our dedicated efforts, strategic pivots, and focus on technology and innovation will fortify our core and drive our success.

CONTRIBUTION TO SUSTAINABILITY

Sustainability is an integral part of our business, and we remain committed to advancing sustainability across operations. We aspire to lead ESG in the manufacturing space and have set bold targets for the same. Accordingly, we have institutionalized an ESG framework at the Board level. This framework acts as a guide for all our decisions. Consistent progress has been made in the areas of stakeholder engagement, resource efficiency, climate change, supply chain sustainability, customer engagement, risk management, ethics, and compliance. Our unwavering commitment towards reduction in emissions, increased use of secondary raw materials, optimal use of resources, and enhanced use of green energy remains on track. As a testament to our efforts, Bharat Forge's ESG score has seen significant improvement over the previous year. While maintaining a laser-sharp focus on implementing ESG initiatives, we ensure that the outcomes are intertwined with our business priorities, ensuring sustainable growth.

We continue to prioritize R&D, quality, technology and engineering excellence, and sustainability in operations which positions us on a stronger footing.

THE BIG PICTURE

Bharat Forge is a company in constant evolution and in value creation mode. At the core, we remain focused on innovation, indigenization, and customer satisfaction. As the new verticals grow in scale, size, and reputation in their respective domains, we expect the financial profile of the parent company to massively transform into a cash-generating entity focused on incubating newer businesses and verticals. Exciting times are ahead as we focus on execution, creating a very vibrant and dynamic talent pool. The Bharat Forge of circa 2030 will be an engineering conglomerate spanning various sectors and applications.

ACKNOWLEDGMENT

I extend my gratitude to all our employees, customers, supply chain partners, investors and the Government of India for their continued support. Looking ahead, the opportunities before us are abundant. We have cemented our position as an eminent player in the industry with large capacities, high-end technologies, operational excellence, and a talented workforce. Now with our ambitious plans, we are well-positioned to continue our journey of growth and innovation. Our strategic investments, technological advancements, and unwavering commitment to quality and customer satisfaction will propel us into the next orbit of success.

I remain dedicated to our continued success and look forward to working with each one of you to take Bharat Forge to greater heights and create value for all.

Warm regards,

B N Kalyani

Chairman and Managing Director