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Bharat Forge Ltd. expects its standalone business to grow 20-25% in financial year 2026-27, while margins are likely to recover to the 27-28% range in the second quarter, Chairman and Managing Director Baba Kalyani told CNBC-TV18 on Monday.
The Pune headquartered company’s standalone EBITDA margin fell to 24.9% in the June quarter from 27.1% a year ago, with Kalyani attributing the pressure largely to higher energy costs. He said the company expects to recover these costs from customers.
“We have had almost a 160-basis-point increase in the energy cost, which we will recover from our customers,” Kalyani said.
Asked when margins would return to the 27-28% range, Kalyani said, “I think this quarter (Q2FY27) itself.”
Kalyani expects the company’s growth momentum to strengthen through the year, with the second quarter expected to be reasonably strong and the December and March quarters likely to be even stronger.
“We should see quarter two reasonably strong, and of course, quarter three, quarter four will be even stronger,” he said.
June-quarter performance
Bharat Forge reported a consolidated net loss of ₹90 crore for the June quarter, compared with a net profit of ₹284 crore in the year-ago period. The result was impacted by exceptional items amounting to ₹358 crore.
Consolidated revenue rose 18.7% year-on-year to ₹4,640 crore, ahead of the CNBC-TV18 poll estimate of ₹4,591 crore. EBITDA stood at ₹709.4 crore, below the poll estimate of ₹783 crore, while the consolidated EBITDA margin declined to 15.29% from 17% a year ago.
On a standalone basis, net profit fell 5% year-on-year to ₹321.3 crore, while revenue increased 11.5% to ₹2,347.4 crore. Standalone EBITDA stood at ₹585.6 crore.
Kalyani attributed the higher costs to inflation arising from the West Asia conflict, shortages of LPG and the subsequent switch to other fuels. He said customers, both domestic and overseas, are expected to reimburse the company for higher metal, energy and transportation costs.
“The understanding with all our customers, both domestic and export, is that these are metal prices, energy prices and, of course, transportation. In the case of exports, that's a big cost increase. They will get reimbursed,” he said.
The company is also seeing growth from newer areas outside its traditional businesses, although Kalyani said it needs to put the required capacity in place to take advantage of the opportunity.
“The growth momentum is very strong for us, and we just have to put in the requisite capacities in place to take advantage of this,” he said.
₹1,800 crore investment in new growth areas
Bharat Forge plans to invest ₹1,800 crore over the next 12-18 months in sunrise sectors, including aerospace, defence, semiconductors and data centres.
Kalyani said the data centre component business is expected to be operational by February-March 2027, while the aerospace facility should be ready by December 2026 or January 2027.
The company is setting up a large forging facility to manufacture components used in data centre power generation engines.
Kalyani expects the data centre business to generate an additional annual opportunity of around $100-120 million, while aerospace could add another $100 million in annualised business.
US operations, European restructuring
Bharat Forge faced a specific operational issue in the US during the quarter, where two of its three forging presses broke down, affecting operations for around two months. Kalyani expects the US business to deliver better results in the next quarter.
The company also does not expect significant additional exceptional charges in FY27 as it continues to restructure its European operations.
Bharat Forge has signed an agreement with the Works Council as part of the restructuring of its German subsidiary CDP, and expects the process to be completed by the middle of next year.
“Right now, no. I think right now we are quite busy with getting the CDP restructuring done,” Kalyani said when asked whether the company was evaluating further restructuring of its global manufacturing footprint.
He said the difficult operating environment in Europe continues to weigh on companies across the region.
₹2,500 crore equity raise
Bharat Forge has obtained an enabling resolution to raise up to ₹2,500 crore through equity. Kalyani said the company needs additional capital to fund capacity expansion in newer, technology-intensive businesses over the next three to four years.
He clarified that the resolution is intended to provide the company with flexibility to raise funds as required.
The company also has a defence order book of around ₹11,000 crore. Kalyani said production of artillery guns and small arms is awaiting regulatory clearance, which is expected next month.
Once approvals are received, production should begin within a few months, with the company expecting to see an impact from the business towards the end of the third quarter or beginning of the fourth quarter.
India to become key base for global revenues
Kalyani said Bharat Forge increasingly expects India to serve as the manufacturing base for its global revenues, given the country's cost competitiveness.
“Our global revenues are largely going to happen out of India going forward, because that's the best cost position that we have in terms of global revenue and global operations,” he said.
He added that Bharat Forge and its subsidiaries are seeing traction in exports of castings, aluminium castings and other products.
Meanwhile, the company is still awaiting environmental clearance for its planned Odisha project. Kalyani said the process could take another two to three months.
This is the edited excerpt of the interview.
Q: Usually, we get you to give us the big picture, but maybe we do the reverse this time. Margins, Mr. Kalyani, if you will allow me, have come off a little bit, about 170-odd basis points lower, and I think the commentary is that margins would have been 28% normalised for input cost increases. So, could you give us a sense of how much of this is sort of temporary? How much of this can be passed on? These input price increases can be passed on to customers, and when should we expect the reported numbers to get back to the 27% to 28% range, sir?
Baba Kalyani: Actually, you would have seen the same range, even in these results that we came out with. We have had almost a 160-basis-point increase in the energy cost, which we will recover from our customers. And, you know, with the growth that we have, as we have committed, we will see better margins coming up. I mean, even for that last quarter, we will recover these cost increases that have taken place.
Q: So, could you give us a sense of when you will be back in that 27% to 28% range?
Baba Kalyani: I think this quarter itself.
Q: The quarter we are in, Q2.
Baba Kalyani: Yeah, yeah. Q2.
Q: So this basically was an inability to pass this on immediately.
Baba Kalyani: The problem is when you have this kind of inflation, and this is largely because of the West Asia war and shortage of LPG to start with, then switching to other fuels and all those things, it takes a little time with customers to give them all the information that they need, in the level of detail that they need, for us to get our increases. But all the understanding with all our customers, both domestic and export, is that these are, you know, metal prices, energy prices and, of course, transportation. In the case of exports, that's a big cost increase. They will get reimbursed.
Q: So, in the press release, the language you've used is "continue to re-evaluate the current global manufacturing footprint". Does this go beyond the CDP restructuring, which is already ongoing? Will we have more exceptional costs related to CDP? And are you looking to further wind down any of your other global operations? Is that getting extended? And if yes, some details about it.
Baba Kalyani: Right now, no. I think right now we are quite busy with getting the CDP restructuring done. We have now signed an agreement with the Works Council, so that is pretty much finalised. And I think we will complete that. It will take probably until the middle of next year to complete it, and we will see how things go. You know, Germany is in a bad shape right now, as you probably heard. Almost all the companies are suffering in Europe because of this problem. So let's see what happens.
Q: you're talking about growth bouncing back in the second half of the year. Will that mean that quarter two as well will be a little bit softish, or are you expecting to get back?
Baba Kalyani: We should see quarter two reasonably strong, and of course, quarter three, quarter four will be even stronger. You know, the problem is that we are seeing growth from many areas which were not traditional, and I think it takes a little time to prepare for that growth and get it going. Actually, the growth momentum is very strong for us, and we just have to put in the requisite capacities in place to take advantage of this. So we are doing that. So we will see growth. We will definitely grow this year by 20-25%, as I had committed last time in our standalone business. All our other subsidiaries in India are doing well. They are also growing.
And of course, we have a problem in Europe. We are—you’re all aware of this—and we will fix this.
Q: You've also taken an approval to go ahead and raise some money via equity. That's ₹2,500 crore. Something we should hear about? It's just an enabling resolution, or are you going to be tapping the market soon?
Baba Kalyani: No, I think, you know, we've taken an enabling resolution from the board to raise funds because, to make the growth happen in the next three-four years, we need to put in a lot of capacity in addition to our normal capacities, because our growth is happening in a lot of new areas, and those new areas require new things to be put in, and they are far more technologically sophisticated and also good-margin businesses.
The Pune headquartered company’s standalone EBITDA margin fell to 24.9% in the June quarter from 27.1% a year ago, with Kalyani attributing the pressure largely to higher energy costs. He said the company expects to recover these costs from customers.
“We have had almost a 160-basis-point increase in the energy cost, which we will recover from our customers,” Kalyani said.
Asked when margins would return to the 27-28% range, Kalyani said, “I think this quarter (Q2FY27) itself.”
Kalyani expects the company’s growth momentum to strengthen through the year, with the second quarter expected to be reasonably strong and the December and March quarters likely to be even stronger.
“We should see quarter two reasonably strong, and of course, quarter three, quarter four will be even stronger,” he said.
June-quarter performance
Bharat Forge reported a consolidated net loss of ₹90 crore for the June quarter, compared with a net profit of ₹284 crore in the year-ago period. The result was impacted by exceptional items amounting to ₹358 crore.
Consolidated revenue rose 18.7% year-on-year to ₹4,640 crore, ahead of the CNBC-TV18 poll estimate of ₹4,591 crore. EBITDA stood at ₹709.4 crore, below the poll estimate of ₹783 crore, while the consolidated EBITDA margin declined to 15.29% from 17% a year ago.
On a standalone basis, net profit fell 5% year-on-year to ₹321.3 crore, while revenue increased 11.5% to ₹2,347.4 crore. Standalone EBITDA stood at ₹585.6 crore.
Kalyani attributed the higher costs to inflation arising from the West Asia conflict, shortages of LPG and the subsequent switch to other fuels. He said customers, both domestic and overseas, are expected to reimburse the company for higher metal, energy and transportation costs.
“The understanding with all our customers, both domestic and export, is that these are metal prices, energy prices and, of course, transportation. In the case of exports, that's a big cost increase. They will get reimbursed,” he said.
The company is also seeing growth from newer areas outside its traditional businesses, although Kalyani said it needs to put the required capacity in place to take advantage of the opportunity.
“The growth momentum is very strong for us, and we just have to put in the requisite capacities in place to take advantage of this,” he said.
₹1,800 crore investment in new growth areas
Bharat Forge plans to invest ₹1,800 crore over the next 12-18 months in sunrise sectors, including aerospace, defence, semiconductors and data centres.
Kalyani said the data centre component business is expected to be operational by February-March 2027, while the aerospace facility should be ready by December 2026 or January 2027.
The company is setting up a large forging facility to manufacture components used in data centre power generation engines.
Kalyani expects the data centre business to generate an additional annual opportunity of around $100-120 million, while aerospace could add another $100 million in annualised business.
US operations, European restructuring
Bharat Forge faced a specific operational issue in the US during the quarter, where two of its three forging presses broke down, affecting operations for around two months. Kalyani expects the US business to deliver better results in the next quarter.
The company also does not expect significant additional exceptional charges in FY27 as it continues to restructure its European operations.
Bharat Forge has signed an agreement with the Works Council as part of the restructuring of its German subsidiary CDP, and expects the process to be completed by the middle of next year.
“Right now, no. I think right now we are quite busy with getting the CDP restructuring done,” Kalyani said when asked whether the company was evaluating further restructuring of its global manufacturing footprint.
He said the difficult operating environment in Europe continues to weigh on companies across the region.
₹2,500 crore equity raise
Bharat Forge has obtained an enabling resolution to raise up to ₹2,500 crore through equity. Kalyani said the company needs additional capital to fund capacity expansion in newer, technology-intensive businesses over the next three to four years.
He clarified that the resolution is intended to provide the company with flexibility to raise funds as required.
The company also has a defence order book of around ₹11,000 crore. Kalyani said production of artillery guns and small arms is awaiting regulatory clearance, which is expected next month.
Once approvals are received, production should begin within a few months, with the company expecting to see an impact from the business towards the end of the third quarter or beginning of the fourth quarter.
India to become key base for global revenues
Kalyani said Bharat Forge increasingly expects India to serve as the manufacturing base for its global revenues, given the country's cost competitiveness.
“Our global revenues are largely going to happen out of India going forward, because that's the best cost position that we have in terms of global revenue and global operations,” he said.
He added that Bharat Forge and its subsidiaries are seeing traction in exports of castings, aluminium castings and other products.
Meanwhile, the company is still awaiting environmental clearance for its planned Odisha project. Kalyani said the process could take another two to three months.
This is the edited excerpt of the interview.
Q: Usually, we get you to give us the big picture, but maybe we do the reverse this time. Margins, Mr. Kalyani, if you will allow me, have come off a little bit, about 170-odd basis points lower, and I think the commentary is that margins would have been 28% normalised for input cost increases. So, could you give us a sense of how much of this is sort of temporary? How much of this can be passed on? These input price increases can be passed on to customers, and when should we expect the reported numbers to get back to the 27% to 28% range, sir?
Baba Kalyani: Actually, you would have seen the same range, even in these results that we came out with. We have had almost a 160-basis-point increase in the energy cost, which we will recover from our customers. And, you know, with the growth that we have, as we have committed, we will see better margins coming up. I mean, even for that last quarter, we will recover these cost increases that have taken place.
Q: So, could you give us a sense of when you will be back in that 27% to 28% range?
Baba Kalyani: I think this quarter itself.
Q: The quarter we are in, Q2.
Baba Kalyani: Yeah, yeah. Q2.
Q: So this basically was an inability to pass this on immediately.
Baba Kalyani: The problem is when you have this kind of inflation, and this is largely because of the West Asia war and shortage of LPG to start with, then switching to other fuels and all those things, it takes a little time with customers to give them all the information that they need, in the level of detail that they need, for us to get our increases. But all the understanding with all our customers, both domestic and export, is that these are, you know, metal prices, energy prices and, of course, transportation. In the case of exports, that's a big cost increase. They will get reimbursed.
Q: So, in the press release, the language you've used is "continue to re-evaluate the current global manufacturing footprint". Does this go beyond the CDP restructuring, which is already ongoing? Will we have more exceptional costs related to CDP? And are you looking to further wind down any of your other global operations? Is that getting extended? And if yes, some details about it.
Baba Kalyani: Right now, no. I think right now we are quite busy with getting the CDP restructuring done. We have now signed an agreement with the Works Council, so that is pretty much finalised. And I think we will complete that. It will take probably until the middle of next year to complete it, and we will see how things go. You know, Germany is in a bad shape right now, as you probably heard. Almost all the companies are suffering in Europe because of this problem. So let's see what happens.
Q: you're talking about growth bouncing back in the second half of the year. Will that mean that quarter two as well will be a little bit softish, or are you expecting to get back?
Baba Kalyani: We should see quarter two reasonably strong, and of course, quarter three, quarter four will be even stronger. You know, the problem is that we are seeing growth from many areas which were not traditional, and I think it takes a little time to prepare for that growth and get it going. Actually, the growth momentum is very strong for us, and we just have to put in the requisite capacities in place to take advantage of this. So we are doing that. So we will see growth. We will definitely grow this year by 20-25%, as I had committed last time in our standalone business. All our other subsidiaries in India are doing well. They are also growing.
And of course, we have a problem in Europe. We are—you’re all aware of this—and we will fix this.
Q: You've also taken an approval to go ahead and raise some money via equity. That's ₹2,500 crore. Something we should hear about? It's just an enabling resolution, or are you going to be tapping the market soon?
Baba Kalyani: No, I think, you know, we've taken an enabling resolution from the board to raise funds because, to make the growth happen in the next three-four years, we need to put in a lot of capacity in addition to our normal capacities, because our growth is happening in a lot of new areas, and those new areas require new things to be put in, and they are far more technologically sophisticated and also good-margin businesses.
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