Message From The Chairman & Managing Director

Industry Sustains Positivity

The global automobile industry demonstrated resilience through the year. The North American automotive markets had a good run with sustained fleet replacement demand and strong appetite for personal mobility. European automotive markets were broadly subdued, except for the medium heavy truck segment, which witnessed good volumes.

Domestic demand for passenger vehicles (PV) and medium and heavy commercial vehicles (MHCV) remained strong, driven by healthy consumer demand and increased industrial activity. As a result, India emerged the third largest automotive market, surpassing Japan. Two notable trends are clearly playing out in the domestic automotive market. There is a growing preference towards premium offerings in the PV market, with more demand for SUVs/CUVs vis-à-vis small cars. In the E-mobility space, electric two and three-wheelers have taken off in a meaningful way, driven by FAME II subsidies and tax relief measures by various state governments. However, the uncertainty on FAME subsidies is an overhang on EV adoption and is likely to result in consolidation.

A Reflection of the Past Year

FY 2023 was a record year with the Company achieving historical high revenues for the standalone operations. This accomplishment was on the back of strong growth in key end markets coupled with successful ramp-up of business in segments such as PV, Aerospace etc.

The standalone business achieved revenue of ₹ 75,727 million, reflecting a growth of 21.1%, and PBT grew by 8.3% to ₹ 14,398 million. Key milestones for the year were the export business surpassing USD 0.50 billion in revenues and a sharp increase in the PV export business which grew by 71% to ₹ 9,553 million.

The overseas operations faced a challenging period due to supply chain issues and sharp jump in input costs. Slower than anticipated ramp-up of new aluminum forgings capacities in Germany and North America further impacted utilization rates. The business posted an EBITDA loss of ₹ 961 million in FY 2023. We are currently steering the path to profitability by way of improving capacity utilization, optimizing costs and cost recoveries from customers.

For the consolidated entity, topline grew by 23.4% to ₹ 129,103 million while the profit after tax declined by 52.8% to ₹ 5,084 million. The balance sheet continues to remain strong with cash of ₹ 31,405 million on the books and D/E (net of cash) at comfortable levels of 0.54.

The defence arm, Kalyani Strategic Systems Limited (KSSL), achieved its maiden breakthrough by bagging an export order of USD 155.5 million for supplying artillery gun system, which will be an indigenously developed and manufactured product with 100% intellectual property owned by us. Overall, the defence vertical secured orders worth ₹ 20,000 million, in FY 2023. The forging business secured new orders worth ₹ 15,000 million and JS Autocast (JSA) has secured new business worth ₹ 3,800 million. These order wins provide a strong revenue visibility for the coming few years.

The results have been impressive: 20-year CAGR of 14% in sales, 13% in profitability and shareholder value creation (ex-dividend) of 19% alongside attaining market leadership position.

This time around, our transformation is centered on moving forward towards products & systems while simultaneously deepening our presence in the components space. This will be achieved by leveraging our core strengths, including strong relations with customers, and expertise in material, metallurgical, and metal forming. With this as the fulcrum, FY 2024 will witness the Company’s progression up the product and system value chain across verticals with increased emphasis on technology and innovation.

The Defence vertical, incubated in 2011, has successfully graduated from developing components to sub-systems and full systems. The vertical is progressing ahead with a capability-driven strategy whereby it is leveraging expertise in metallurgy and material science and technologies like embedded electronics, control systems, artificial intelligence, etc. to develop multiple platforms and products. This makes us amongst the few Indian companies to possess such depth of capabilities, and that too all indigenously developed.

The overseas businesses, which are facing challenges, have taken a pivot from steel to aluminum forgings. With our global aluminum forging units now operational, we expect the benefits to start coming in as they begin to stabilize in FY 2024. The aluminum investments are key to having a meaningful presence in the light-weighting transition playing out in the automotive world across traditional and new energy vehicles, and to improve the overall financial performance of the international operations.

In the Industrial business, the acquisition of JSA has provided us an excellent entry in the ferrous casting space. JSA’s recent acquisition of Indo Shell Mould Limited’s SEZ unit has further enhanced its capacities, positioning it to become an anchor for building larger business. These acquisitions are enabling an increase in the ability to cross-sell to our existing customers and also giving us access to new customers in the Industrial sector. JSA given its reputation with customers and an accomplished management will witness strong growth in the coming years. Our ambition is to make JSA amongst the top three casting suppliers in India.

In the Aerospace business, we have leveraged our components manufacturing expertise to build a value-added portfolio and evolve into a tier-I system developer. We are exploring opportunities to become a part of the supply chain for global leaders looking to set up manufacturing facilities for large systems in India under the aegis of Atmanirbhar Bharat. This business has clear growth visibility for the next two years and is expected to grow at a steady clip in the future driven by enhancement of customers & product.

The E-mobility vertical, started in 2017, reached a milestone by consolidating all competencies under our subsidiary KPTL, including strategic investments, joint ventures (JVs) and the R&D-led knowledge to deliver at scale. This includes investments in TEVVA for electric trucks, Tork Motors for electric motorcycles and a JV with REFU for inverters. KPTL successfully started its first micro-factory in the e-mobility space during the year, for assembly of E-Bike catering to Tork Motors. It is now preparing to launch an upcoming repowering micro-factory, that will target electrifying old trucks, a big opportunity given the Indian government’s mandate for old vehicle scrappage. We have received all certifications and completed mileage goals on test vehicles for this business. As a part of controlled launch, it has initiated pilot program with select customers.

On the environment front, we are progressing towards our vision of 50% lesser emissions by 2030, and have defined a robust decarbonization roadmap. In FY 2023, we reduced energy consumption and entered into renewable PPA for 60.65 MW. We are progressing towards water positivity by 2030, having reduced our water intensity by another 2% in FY 2023.

Our efforts in sustainable development of communities have been inspirational. Across 100 villages of Maharashtra, we have undertaken scalable measures around education, health, livelihood and infrastructure development. The impact is evident in improved literacy and standard of living of villagers. We aim to make these into sustainable green villages with net zero carbon. To our employees, we are providing a workplace that is diverse, inclusive and safe, and at the same time rewarding.

One of the key initiatives in our ESG journey and assisting our customers in the sustainability journey is the use of “Green Steel”, manufactured using 100% renewable energy and 70%+ recycled scrap materials with zero GHG footprint. I am happy and proud to inform you that BFL has become the 1st company in India to utilize green steel in its forging operations and supply components to its customers.

Further, as the new verticals gain traction and become profitable and relevant in their respective ecosystem, we expect the capex intensity to subside and the return ratios to improve. A stronger foothold in less cyclical sectors and diversification across the customer segments of B2B, B2G and B2C will further translate into stable and predictable revenue generation. We also believe our strategy of creating own intellectual property as technology platforms will truly differentiate us.

Final Thoughts

As we get going on achieving our business and strategic goals for the coming year and work on the glide path for Vision 2030, our focus would be on delivering G(Growth) D(Diversification) P(Profitability), Growth driven by Diversification with Profitability.

I thank all the stakeholders for their trust in us every time we transform. While we are confident of achieving results as always, we will not be complacent. Having set our targets for an ambitious and bigger transformation, we will revisit them in FY 2026 to determine the progress and take corrective steps it required. The journey will be anything but smooth and many challenges will come in the newer frontiers. We believe that we are on much stronger and stable footing.

Going forward, I seek the continued support of all stakeholders to make Bharat Forge a company that is completely different from what it is today and create value for all.

Warm regards,