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Bharat Forge Ltd Management Discussions

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Apr 2, 2025|11:39:58 AM

Bharat Forge Ltd Share Price Management Discussions

ECONOMIC REVIEW

GLOBAL ECONOMY

The global economy demonstrated remarkable resilience in the face of unprecedented challenges in CY 2023.

Despite central banks raising interest rates to stabilize prices, growth in employment and incomes remained stable, buoyed by favorable demand and supply dynamics in major economies. Among major economies, the United States demonstrated the strongest recovery. Healthy consumer spending, swift containment of the banking crisis, tight labor market, and rising wages have supported economic growth. The European Union (EU) has also demonstrated resilience in navigating through unprecedented shocks arising from the prolonged Russia-Ukraine war. Economic growth in several emerging markets and developing economies (EMDEs) has surpassed expectations in CY 2023.

While several major economies demonstrated resilience, underlying risks persist due to escalating geopoliticalconflicts, sluggish recovery in China, volatility in energy and food markets, and higher interest rates. Recent geopolitical upheavals, including the ongoing Russia-Ukraine war and conflicts in the Middle East and the Red Sea route, have affected global supply chains, resulting in increased logistical costs, shipment delays, and elevated fuel and commodity prices.

Outlook

Global growth, estimated at 3.2% in CY 2023, is projected to continue at the same pace in both CY 2024 and CY 2025. The global expansion is likely to remain modest owing to surging inflation and increasing geopolitical tensions. Advanced Economies (AEs) are expected to see an uptick in growth, from 1.6% in CY 2023 to 1.7% in CY 2024 and 1.8% in CY 2025. Growth in Emerging Markets and Developing Economies (EMDEs) is expected to witness a moderate decline from 4.3% in CY 2023 to 4.2% in both CY 2024 and CY 2025.

INDIAN ECONOMY

India has emerged as a beacon of strength and resilience amidst the volatile global economic landscape, retaining its position as the worlds fifth-largest economy. India recorded a Gross Domestic Product (GDP) growth of 8.2% in FY2024 as against 7.0% growth achieved in FY2023. Growth was primarily led by strong domestic demand, favorable demographics, moderate inflation, stable interest rates, and increased capital expenditure.

High-frequency indicators such as the Index of Industrial Production (IIP), Goods & Services Tax (GST) collections, manufacturing Purchasing Managers Index (PMI), and increasing private capital expenditure contributed to the robust economic momentum. The Reserve Bank of India has maintained the policy repo rate at 6.50% and remains vigilant to take effective measures to combat high inflation and support overall economic growth.

Outlook

Indias economic outlook remains positive, supported by strong consumer demand, increased capital expenditure, improving prospects of rural consumption due to easing inflation, and proactive government policy measures.

The Interim Budget 2024-25 lays the foundation for achieving the vision of a developed and self-reliant India by 2047. It outlines a comprehensive economic management strategy, including infrastructure development, digital public infrastructure, taxation reforms, and proactive inflation management.

BUSINESS ENVIRONMENT

Automobile Business

Global Automotive Industry Overview

The global automotive industry has exhibited resilience amid an uncertain demand environment influenced by macroeconomic factors, including higher inflation leading to elevated vehicle prices and sluggish consumer spending. Despite strikes in U.S. auto factories, supply chain disruptions, and escalating raw material costs in CY 2023, there is a sense of optimism as recovery is evident in the global automotive market.

Global car sales experienced a remarkable revival in CY 2023, growing by ~10% and surpassing 72 million units as supply chain challenges eased. In Europe, sales increased by 18.6% compared to CY 2022, driven by similar trends observed in both EU and Eastern European markets. Furthermore, car sales in North America remained steady in CY 2023, with the region witnessing a significant 15% growth. The United States recorded double-digit growth in new car sales, rising by 14.4% compared to the previous year. Despite subdued economic growth, car sales in China reached over 22 million units in CY 2023, registering a YoY increase of 4.5%.

Global car production reached ~76 million units in CY 2023, marking a robust 10.2% increase from the previous year, driven by positive production trends observed across regions. Car production in Europe grew substantially, reaching ~15 million units, reflecting a YoY improvement of 12.6%. Meanwhile, in North America, production surged by 12.4%, resulting in the production of 11.7 million cars in CY 2023. The US showed a similar trend, with a growth rate of 8.5%, resulting in the production of over 7.6 million cars.

The Electric Vehicle (EV) market exudes optimism, driven by a rapid transition toward electrification as governments and consumers worldwide strive to mitigate the escalating impacts of climate change. Global sales of fully electric or battery electric vehicles (BEVs) accounted for 9.5 million out of the total 13.6 million EVs sold globally in CY 2023.

FY2024 was a year of steady growth for commercial vehicle exports. The Company grew its CV exports by 8.5% to 21,134 million, with all the markets showing significant growth.

Outlook

The global automotive industry is anticipated to experience a sluggish recovery in CY 2024 as it navigates through an uncertain demand environment. However, the industry is benefiting from demand resurgence and production uptick benefiting to inventory restocking efforts, with supply chains stabilizing and demand steadily rebounding. S&P Global forecasts that global sales of new vehicles will reach 88.3 million units, reflecting a 2.8% YoY growth in CY 2024. Despite the near-term uncertainties in Europe and the US, global sales of battery electric passenger vehicles globally are expected to reach 13.3 million units in CY 2024, constituting ~16.2% of total global passenger vehicle sales.

Company Review of the Exports Auto Market Commercial Vehicles (CV)

FY2024 was a year of steady growth for commercial vehicle exports. The Company grew its CV exports by 8.5% to 21,134 million, with all markets showing significant growth. The cornerstone of the commercial vehicles success story has been market share growth. Despite the US class 8 production, adjusted for cyclicality, growing only in low single digits, the Companys growth rates have been considerably superior. The Companys focus on providing safety-critical components differentiates it from competitors. Bharat Forge remains the supplier of choice for critical engine, chassis, and drive-line components to heavy commercial vehicles. The content per vehicle as well as the value-added for every part supplied has increased over time. While the US remains its primary market, the Company continues to diversify its presence in other regions.

Looking ahead, in CY 2024, the US class 8 market is expected to be a mixed bag, while the European HCV market will remain unpredictable due to an uneven economic recovery. Overall, FY2025 will be a year of consolidation, with the market remaining stable to moderately negative.

Passenger Vehicles (PV)

FY2024 was a strong year for passenger car exports.

The Company grew its PV exports by 33% to 12,694 million. This robust performance, following a spectacular year in FY2023, demonstrates the Companys ability to replicate the CV success story in passenger vehicle sector. The Company believes that the twin benefits of a growing market and an expanding market share will drive its growth in the medium to long term.

The strategy of starting with one-part for one client and gradually expanding to many parts for multiple clients in a growing market has resulted in astounding success over the last few years. The Company is working towards increasing its geographical footprint as well as diversifying its client base to mitigate the impact of any region or OEM-specific challenges.

Another important aspect of the passenger vehicle business has been the increased value-add, with a substantial percentage of PV exports being shipped in a fully machined condition.

The ‘last-man standing strategy for the ICE segment has ensured that the OEM clients view Bharat Forge as a reliable partner rather than just a component supplier.

The Company has signed long-term supply agreements with most of its OEM clients assuring supplies until 2035.

The passenger car business presents significant growth opportunities as more OEMs seek to develop strategic relationships with established suppliers like Bharat Forge.

Indian Automotive Industry Overview

The Indian automobile industry exhibited a strong performance, with sales growing by 12.5% in FY2024.

Indias strong economic growth and implementation of favorable government schemes have yielded positive outcomes. According to the Society of Indian Automobile Manufacturers (SIAM), the Passenger Vehicle (PV) segment led the growth, registering an 8.4% surge in sales, contributing to overall sales of ~5 million units, including 4.2 million domestic sales and 0.7 million exports. Improved vehicle availability due to increased production, an attractive model mix, and the launch of new models significantly contributed to the sales growth in the PV segment.

The domestic Commercial Vehicle (CV) segment registered a marginal growth of 0.6%, reaching 9.7 million units.

Over the last few years, the growth in Medium and Heavy Commercial Vehicles (MHCV) segment is also characterized

by a shift towards tractor-trailers and tippers resulting in higher payload capacity. The overall industry volumes need to be viewed in this context. Conversely, the sales of Light Commercial Vehicles (LCVs) and Small Commercial Vehicles (SCVs) declined, attributed to a decrease in the CNG segment.

The combined production of PV, CV, 3W, 2W, and Quadricycles stood at 28.43 million units in FY2024.

The strong performance of the PV segment was fueled by positive consumer sentiments, new model launches and product upgrades from OEMs, greater availability, effective marketing, enticing offers and schemes, and recovery in the rural market. Furthermore, there is a consistent rise in EV adoption in India with the electric four-wheeler sales reaching 90,432 units in FY2024.

Outlook

The Indian automotive industry remains optimistic about continuing the growth momentum in CY 2024, buoyed by a positive macroeconomic outlook and favorable monsoon forecast. Despite concerns about high inventory levels, the PV segment is expected to grow in CY 2024, supported by new product launches, a strong order book, and positive market sentiments.

The enhanced capital outlay of 11.1 lakh crore for infrastructure development, combined with a higher allocation of 2.78 lakh crore for the Ministry of Road Transport and Highways (MoRTH) in FY2025, is anticipated to boost the prospects for the automotive sector. Furthermore, the tenure of the Production-Linked Incentive (PLI) scheme for automobile and auto components has been extended by one year until FY2028, providing support for growth and competitiveness in the sector.

The governments push for EV adoption and clean mobility, rationalizing the GST tax structure on EV charging and batteries, along with the reinforcement of existing EV policies and the introduction of new ones, will be pivotal in fostering the growth of electric mobility in India. To provide additional momentum to EV adoption, the outlay of FAME India scheme Phase II has been increased from 10,000 crore to 11,500 crore. In the Interim Budget of 2024-25,

the governments emphasis on expanding and strengthening the EV ecosystem by supporting manufacturing and charging infrastructure is expected to further boost the momentum of the EV sector.

The Indian automotive industry is well positioned to capitalize on the ‘China plus one strategy, with Original Equipment Manufacturers (OEMs) choosing India as their preferred manufacturing hub for serving international markets. Indias potential to emerge as a key manufacturing hub is attracting attention from major global players, as they seek to diversify their manufacturing operations beyond China.

Company Review of the Domestic Auto Market Commercial Vehicles (CV)

In FY2024, the Indian CV segment reported a revenue of 10,341 million, reflecting a growth of 2%. The domestic auto market remained optimistic, driven by sustained government capital expenditure. Construction activity continued to rise, fueled by demand for private housing and buoyant industrial activity, which supported overall investment.

As the tonnage of commercial vehicles continues to increase, OEMs are likely to launch new and more sophisticated product platforms in the near future.

These developments present interesting opportunities for suppliers like Bharat Forge.

FY2025 is likely to be a year of consolidation as policy initiatives and investment decisions get crystallized post the Union Budget in July. Bharat Forge is a key player in the domestic CV market and continues to mirror the industry performance. The Companys ability to deliver critical products and strong customer focus is likely to ensure a steady performance in FY2025.

Passenger Vehicles (PV)

The Indian PV market showed healthy growth in FY2024. However, Bharat Forge faced some customer-specific challenges, leading to a muted performance. Despite these challenges, the Company remains focused on deepening engagement with existing customers and initiating relationships with new ones to grow the business.

Industrial Business

The governments consistent emphasis on enhancing physical and digital infrastructure presents significant opportunities for the Industrial segment. The increased capital outlay of 11.1 lakh crore in the Interim Budget 2024-25 will serve as a significant catalyst for the infrastructure sectors growth.

The construction industry in India expanded by 9.6% in real terms in CY 2023, driven by the increase in infrastructure projects, growing urbanization, and a surge in the housing and industrial sectors. Furthermore, in alignment with Indias goal of achieving 500 GW of renewable energy capacity by CY 2030, ~13.5 GW of renewable energy capacity was added during CY 2023.

Company Review of the Industrial Segment

Bharat Forges Industrial vertical recorded strong performance given the market conditions. Sectors such as Construction & Mining, Aerospace, Railways, and Capital goods drove the year-on-year growth. In the domestic market, the Steel, Cement, and Sugar sectors witnessed good demand momentum. In the export market, Aerospace, Construction & Mining, and other Heavy Horsepower engines applications recorded strong double-digit growth backed by strong public capex and roll out of 5G tech across markets.

To further diversify the industrial portfolio, Bharat Forge has ventured into new sunrise sectors with the potential to become major growth drivers in the next 3-4 years. The Oil & Gas sector faced a difficult year as technology-related changes led to major inventory correction at the OEM end. However, improvement is expected gradually, as new supplies ramp up over time post the technology upgrade. Aerospace improved its YoY performance and remains an important pillar of growth.

J S AUTO CAST

The castings ferrous landscape in India is a massive opportunity. Given Bharat Forges inherent metallurgical capabilities and as a natural extension to its forging competence, the Company acquired J S Auto Cast in FY2023. This marked the Companys foray into industrial ferrous castings space, enabling it to tap the huge opportunities in wind energy, hydraulics, construction, and mining, among others with enhanced capabilities and competencies. During the year, the liquid metal capacity at J S Auto Cast increased to 130,000 MT per annum.

The Company successfully completed the acquisition of the SEZ unit of Indo-Shell Mould, located within 3 km of the main Foundry unit at SIPCOT, Coimbatore. This acquisition aims to scale up J S Auto Casts automotive business.

The year gone by, saw JSA increasing its business organically, FY2024 revenues were 567 crore with an EBITDA margin of 13.4%.

The year gone by, saw JSA increasing its business organically, FY2024 revenues were 567 crore with an EBITDA margin of 13.4%. J S Auto Casts client profile also underwent significant diversification, reducing sectoral and customer concentration. JSAs revenue mix was balanced evenly between domestic and exports. Going ahead,

J S Auto Cast plans to scale up its machining capabilities significantly in response to strong demand for fully machined castings.

A range of initiatives focused on value addition, operational efficiency, capacity expansion, and new product development are underway to strengthen the Companys future. With its differentiated offerings in a highly fragmented industry, Bharat Forge expects a strong growth trajectory for J S Auto Cast in the coming years.

Overseas Business

Bharat Forges international operations consist of Steel & Aluminum Forgings, with facilities in Europe and the US.

The Steel Forging business caters primarily to commercial vehicles, while the aluminum business supplies forgings for premium passenger cars and electric vehicles. The aluminum operations are engaged in the manufacture of chassis components for passenger cars, insulating the Company from any powertrain specific preferences of consumers.

After a challenging FY2023, the overseas business witnessed positive developments on the operational front in FY2024. The European operations have stabilized, with both the aluminum lines operating at near optimum capacity. With operational stability achieved, the Company is re-negotiating older contracts with OEMs to reflect the new realities of wage and energy inflation in the post-COVID era.

The US aluminum business is a greenfield facility built to address the demand for premium PVs and EVs in North America. The aluminum business in the US has shown considerable improvement on the operational front, with

incremental gains in cycle times and yields over FY2023. The currently operational Phase 1 unit will narrow its losses in FY2025 as capacity utilization improves.

The capex for Phase 2 of US aluminum operations remains on track with capacity already booked by OEMs. The Phase 2 capex will likely conclude by early FY2026, with a gradual ramp-up to full capacity thereafter.

In Million
Overseas revenue break-up FY2024 FY2023
Steel Forgings 32,422 30,389
(62%) (71%)
AL Forgings 19,738 12,396
(38%) (29%)
Total 52,160 42,785

Defence Business

India ranks as the third-largest defence spender in the world, following the US and China. Capital expenditure by the Ministry of Defence (MoD) has increased by 15%-20% over the past five years and is expected to accelerate further. The escalating geopolitical risks worldwide have been leading to higher defence budgets. In the Interim Budget 2024-25, the government maintained its focus on defence modernization and indigenous manufacturing, with an increased budget allocation of 6.21 lakh crore for the defence sector.

The governments push for indigenization and self-reliance in defence through the Make in India initiative, has resulted in increased defence production and exports. In FY2024, Indias defence production reached 74,739 crore.

Private sector companies made a significant contribution, accounting for 22% of the total production, valued at 16,411 crore. Out of 4,666 defence items, including assemblies, sub-assemblies, raw materials, critical spares, and components earmarked for indigenization, 2,920 have already been indigenized. Additionally, ~40 to 50 licenses for defence production were issued annually.

Collaborative efforts have enabled India to expand its defence exports to over 75 countries. Indias defence exports surged to 21,083 crore in FY2024, demonstrating a growth of 32.5% compared to 15,920 crore achieved in the previous fiscal year. The Ministry of Defence aims to triple annual defence production to 3 lakh crore and double defence exports to 50,000 crore by FY2029. Aligned with the ambition of positioning India as a global manufacturing hub, the government intends to manufacture advanced systems like aero engines and gas turbines in the country over the next five years.

With prudent strategies, emphasis on innovation and research, and robust government support, Indias defence sector is poised for exponential growth.

As a part of this effort, Bharat Forges 100% subsidiary, Kalyani Strategic Systems Ltd (KSSL), has engaged with many friendly countries to address their defence & security requirements in artillery systems, battlefield protection, ammunition empties, and other requirements from its product portfolio.

This collaboration resulted in KSSL receiving the prestigious export order worth USD 155.5 million for Advanced Towed Artillery Gun System (ATAGS) and MArG - BR systems to a non-conflict zone. In August 2023, KSSL exported the first indigenously designed, developed and manufactured artillery system from India. As global stock of empty shells depleted and capacities constraints weighed, KSSL secured multiple orders for ammunition empties (shells) with capacity booked for the next 2-3 years. As a matter of policy, all defence exports are to non-conflict zones.

The robust demand for arms globally drove KSSLs FY2024 revenue to 1,422 crore with a healthy order backlog of 5,192 crore at the end of FY2024. The Companys platforms focus on deterrence (artillery systems), battlefield protection (KM4), situational awareness, and consumables. Bharat Forges defence activities in India have made strides towards fulfilling the orders for KM4 and are strategically entrenched to meet the artillery modernization requirements of the Indian Army. After the successful completion of all exhaustive trials, the final competitive bids for 307 ATAGS were submitted in FY2024 with contract award expected in FY2025. The RFP responses for 155/52 Mounted Gun System (MGS) were submitted in FY2024. The technical evaluation process and trials for MGS are expected to commence in FY2025.

Bharat Forge will continue to adhere to the highest standards of ESG and will avoid involvement in weapons of mass destruction or any other platforms banned by various multilateral organizations. Bharat Forge and its subsidiaries will not engage in research, or be a part of the supply chain for controversial weapons like Anti-Personnel mines, Biological and Chemical weapons, cluster munitions, incendiary weapons, white phosphorus ammunition, or blinding laser weapons.

Aerospace Business

FY2024 marked significant growth for the Aerospace business, with notable achievements in customer acquisition, product development, and technological advancements. Currently, the Companys Aerospace verticalcaters to civilian aircraft; however, multiple initiatives are underway to enter the military aviation space. The business focuses on the aero-frame, landing gear and critical engine components.

During FY2024, a major global aero-engine OEM recognized Bharat Forge for zero-defect deliveries of critical rotating engine components. Leveraging its metallurgical expertise, the Company has gained considerable proficiency in metal forming technology for building super-alloys.

This will facilitate development of complex engine parts and air-frame components in future.

The turbomachinery division has produced critical turbomachinery products for the Indian Aerospace sector and has been engaged in maintenance and overhaul of these products, generating revenue throughout the entire product life cycle.

Bharat Forge will set up a new manufacturing facility in Pune to expand its machining capabilities for aerospace components. The aerospace division operates entirely on a digital platform leveraging IoT and Industry 4.0 standards. This ensures seamless integration from design to manufacturing, testing, and complete life cycle management. The Company continues to prioritize investments in its people and technology. Talent upgrade, re-skilling, and upskilling have been key areas of focus, fostering robustness and agility within the divisions operations and positioning the business for future growth.

E-Mobility Business

Bharat Forges E-mobility business overcame numerous challenges relating to the FAME policy and the general sluggishness in EV demand.

The Companys solutions for retrofitting medium size trucks are certified under the AIS 123 standards. These vehicles have cumulatively completed 300,000 km of on-road tests. Bharat Forge has engaged with diverse customer segments such as cement, FMCG, e-commerce, and perishable goods, during testing and the solution was received well across all the segments.

Its state-of-the-art R&D facility at Pune is engaged in integrating more product offerings in the coming years to address the varied needs of the Indian transport industrys sustainability goals. The electronic components business introduced its first product, a DC-DC Converter with small quantities of commercial supplies commencing in FY2024.

Going ahead, the Company expects the E-mobility business to gradually pick up as concerns around high upfront investments and battery range anxieties get addressed.

FINANCIAL REVIEW

STANDALONE

Analysis of Standalone Profit and Loss Statement

Particulars FY2024 FY2023 % Change
Total Revenue 89,686.34 75,727.12 18.43%
Raw Material 38,300.99 32,833.46
Manufacturing Expenses 12,244.60 11,199.38
Manpower Cost 6,014.47 5,430.06
Other Expenditure 8,439.18 6,975.99
Total Expenditure 64,999.24 56,438.89 15.17%
EBITDA 24,687.10 19,288.23 27.99%
EBITDA (%) 27.53% 25.47%
Depreciation 4,420.42 4,259.57
Interest 2,874.12 2,126.89
Other Income 1,623.41 1,504.96
PBT 19,015.97 14,406.73 31.99%
Exchange Gain/ (Loss) 90.67 (177.13)
PBT 19,106.64 14,229.60 34.27%
Exceptional Items Gain/ (Loss) (154.33) (402.13)
PBT 18,952.31 13,827.47
Taxation 4,702.74 3,372.73
PAT 14,249.57 10,454.74 36.30%
CONSOLIDATED
Analysis of Consolidated Profit and Loss Statement (in Million)
Particulars FY2024 FY2023 % Change
Total Revenue 156,820.71 129,102.59 21.47%
Raw Material 73,791.91 59,613.53
Manufacturing Expenses 21,321.30 19,877.33
Manpower Cost 18,599.97 15,631.00
Other Expenditure 17,446.68 16,216.33
Total Expenditure 131,159.86 111,338.19 17.80%
EBITDA 25,660.85 17,764.40 44.45%
EBITDA (%) 16.36% 13.76%
Depreciation 8,481.96 7,355.86
Interest 4,911.67 2,986.20
Other Income 2,274.24 1,728.57
PBT 14,541.46 9,150.91 58.91%
Exchange Gain/ (Loss) (81.46) (89.17)
PBT 14,460.00 9,061.74 59.57%
Exceptional Items (123.23) (457.91)
Share of (Loss)/Profit of Associates and Joint Ventures 53.15 (334.38)
PBT 14,389.92 8,269.45
Taxation 5,288.33 3,185.58
PAT 9,101.59 5,083.87 79.03%

HUMAN RESOURCES

During the fiscal year 2023-24, Bharat Forge embarked on a transformative journey towards enhancing employee experience through digital HR services. The Company centralized and standardized the delivery of the entire employee lifecycle process across Bharat Forge Limited (BFL) and its subsidiaries. This initiative streamlined pre and post-on-boarding engagements, probation processes, transfers, compensation corrections, benefits administration as well as separations and settlements, ensuring consistency and efficiency in HR service delivery and employee experience.

ENHANCING DIVERSITY: WOMEN ON SHOP-FLOOR PROJECT

As part of its commitment to diversity and inclusion, Bharat Forge launched the Women on Shop-Floor program to increase diversity on the shop floor and create a more inclusive workspace. Investments were made to enhance the enabling infrastructure and create a thriving workplace for women employees. The program began with targeted recruitment drives focused on sourcing talented women professionals with diverse skill sets and backgrounds. Through proactive outreach efforts and partnerships with educational institutions, Bharat Forge actively sought to identify and engage with potential candidates, ensuring a diverse talent pipeline for shop-floor roles. Once recruited, women employees underwent specialized training programs tailored to their specific needs and requirements. These training sessions encompassed not only technical skills related to manufacturing processes but also focused on safety protocols, quality standards, equipment operation and product knowledge. By providing comprehensive training and support, Bharat Forge aims to equip women employees with the necessary skills and confidence to excel in their roles on the shop floor. Regular reviews and assessments were conducted to monitor the progress and effectiveness of the Women on Shop-Floor Project. Through continuous evaluation and adaptation, Bharat Forge remained committed to ensuring the success and sustainability of the project over the long term.

PERFORMANCE MANAGEMENT SYSTEM 2.0

Bharat Forge has developed a robust performance management system that is digitized and based on SMART Goals. The PMS System is aimed at recognizing individual performance and driving overall business performance through a Balance Score Card approach. This has been instrumental in fostering employee development and driving business success. This system includes processes such as the annual appraisal, performance improvement plans (PIPs), and SMART goals implementation, tailored to align employee goals with organizational objectives andprovide regular feedback and support. Throughout the year, roadshows and other communication initiatives were conducted to ensure ongoing dialog between employees and leadership regarding performance expectations, organizational priorities, and career development opportunities.

TALENT MANAGEMENT AND SUCCESSION PLANNING

Bharat Forge has strengthened its focus on Talent Management and Succession Planning which aims to identify and groom talent for the future organizational needs while also addressing individual career aspirations. These initiatives include succession planning and individual development processes to ensure leadership continuity and organizational resilience.

Mapping High Potentials and Critical Roles

Each function underwent a rigorous assessment to identify high-potential and critical roles within the organization.

This mapping exercise facilitated a comprehensive understanding of talent distribution across various levels and functions, enabling targeted development interventions.

Leadership Development and Succession Planning

Bharat Forge placed significant emphasis on developing a robust leadership pipeline through succession planning initiatives. Development plans were tailored to individual high-potential employees, with a focus on readiness for future leadership roles and addressing specific talent needs. The succession planning outlined clear pathways for talent progression, identifying successors for key positions and ensuring a seamless transition when vacancies arise.

Fitment and Rotation

The internal leaders were prioritized for open positions, aligning with the Companys commitment to nurturing talent from within. This approach not only facilitates career progression for employees but also strengthens the talent pool for critical positions.

SKILL ENHANCEMENT PROGRAM FOR SHOP FLOOR PERSONNEL

Bharat Forge recognizes the invaluable contributions of its blue-collar workers to its manufacturing excellence and overall success. In line with its commitment to continuous improvement and employee development, the Company has implemented a comprehensive Skill Enhancement Program specifically for its blue-collar workforce.

The Company made significant strides in developing its HR systems and process to drive talent development and address future talent needs of a growing organization. It is committed to driving HR excellence, fostering a culture of innovation, inclusivity and continuous improvement.

These initiatives underscore its commitment to nurturing talent, enhancing employee experience and achieving sustainable growth in the coming years.

Amidst global competition and venturing into various business verticals, Bharat Forge prioritizes maintaining a competitive advantage for sustainable growth.

Its workforce is pivotal in driving innovation and expertise. Through extensive training, the Company nurtures leadership and empowers employees to excel.

Bharat Forges Training Center offers diverse monthly programs spanning behavioral aspects, Soft Skills, Compliance, and Technical topics, benefiting all employees.

Specialized programs have also been developed for shop floor female employees, including:

• Campus to Corporate: Preparing graduate pass-outs for transition from academic environments to corporate settings

• Safety: Training to respond effectively in case of fire or any other exigencies

• Mentorship Initiatives: Offering guidance and support through tailored mentorship programs

The Company collaborates extensively with global companies, to provide comprehensive coaching on technical aspects, problem-solving, and soft skills. Special focus is placed on equipping shop floor work force with the necessary tools to improve their communication and presentation skills.

These initiatives are designed to impart the necessary knowledge to employees, enabling them to excel in their job roles as well as adapt to diverse professional environments.

INFORMATION TECHNOLOGY

The rapid adoption of technology and seamless connectivity between information systems, coupled with a "data lake" is the mantra driving efficiency in the Companys business operations. Bharat Forge has made significant investments in core information systems, including:

• Product Lifecycle Management System: To manage complex product design for the Defence vertical.

• Manufacturing Execution System: For the Electric Vehicle business.

• Human Resource Management System: For all verticals.

Interventions such as digitalizing equipment and plant maintenance, ensuring safe operations through Al-driven monitoring via CCTV camera systems, and preventing critical failures through early warning systems leveraging IoT ensured razor-sharp focus on improving equipment uptime and efficiency, making the enterprise more productive. Tremendous progress has been made in driving value from data held in information systems, including the automation of monthly, quarterly, and yearly financial reporting and complex analytics to identify opportunities for improvements in cost structures.

FY2024 was a pivotal year in many ways with democratization of Artificial Intelligence acting as the largest technological backdrop, driving enterprises into action. Bharat Forge took a pragmatic and focused approach in creating a state-of-the-art Artificial Intelligence & Tech center. This center aims to develop solutions in collaboration with start-ups and top educational institutions; focusing on:

• Driving Operational Efficiency

• Research in Deeptech and Robotics: For autonomous capabilities in manufacturing

• Embedding AI in Defence Platforms/Products

A small team of cross-functional experts has already embarked on the journey. This decade promises to be a decade of disruption with many unknowns. Bharat Forge actively leverages elements like Microsoft Co-pilot to improve workforce productivity, using simple tablet and smartphone applications to provide information at the fingertips of various business units and production lines. Democratizing information and providing tools where needed enhances the speed of decision-making. A state-of- the-art AR/VR collaboration suit is beginning to transform customer engagement and design reviews, demonstrating the belief in small yet meaningful interventions that bring significant transformations in culture and ways of working.

Strengthening the cyber security posture has seen many proactive steps, such as complete re-architecture of infrastructure & network security for the Defence vertical, employing a specialized set of solutions for encrypting information, and quarterly testing of our perimeter systems by experts simulating all known methods.

CORPORATE SOCIAL RESPONSIBILITY

At Bharat Forge, the ethos of giving back to society is ingrained in the Companys DNA. Before the advent of the CSR Act, the Company was actively engaged in community development initiatives. The commitment to sustainability,which entails integrating social and environmental development into business strategies, underscores the Companys dedication to inclusive growth.

VILLAGE DEVELOPMENT PROJECT

In alignment with this vision, alongside the ongoing efforts in skill development, education, and community development, Bharat Forge has embarked on a transformative endeavor: the "Village Development Project". The pillars of this project encompass ensuring access to water for agriculture and drinking purposes, augmenting livelihood opportunities, improving internal infrastructure such as roads, fostering education, and promoting healthcare services. These initiatives are meticulously aligned with the Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) principles, ensuring holistic and sustainable progress within the villages served.

The developments span 108 villages across various key indicators, aiming to enhance farmers income levels and transform these communities into environmentally sustainable and socially vibrant entities. The Company is deeply committed to environmental sustainability and community well-being. Its initiatives include planting over 1 lakh trees with geotagging, conserving a total of 2,625 TMC of water (including 418 TCM of water this year) through various harvesting structures, and generating a total of 469 KW of renewable energy (including 308.5 KW this year) via solar systems in villages.

SKILL DEVELOPMENT

Bharat Forge has established a Center of Excellence (CoE) and Incubation Center at Vidya Pratishthan in Baramati for 450 students. This center focuses on high-tech skills like Robotics, IoT, AIML, and Data Analytics. The Company prioritizes womens empowerment, with over 60% of students being girls. The Company sponsors and mentors 45 rural female students pursuing engineering or diploma courses through the Student Welfare Association.

Bharat Forge has trained 420 farmers in advanced agricultural technologies through collaboration with ADT Baramati, which has partnered with Microsoft and Oxford for further advancements. As an industry partner with four Government ITIs, Bharat Forge provides technical support and skill development trainings to 1,354 students enhance employability.

HEALTH

For the betterment of the health of the villagers, Bharat Forge has constructed 41,729 meters of underground drainage, making the villages clean and hygienic.

The Company has also conducted 8 cancer screening camps for 1,036 women villagers. Additionally, 7 telemedicine centers have been set up, making doctors available at the doorstep to 11,000 people from remote areas.

EDUCATION

Bharat Forges educational program focuses on uplifting children from underprivileged backgrounds and augmenting the infrastructure of government schools. The Company provides non-formal education to 5,000 children from 130 slum communities through partnerships with Pratham Education Foundation & Dynan Prabodhini. Infrastructure development has been carried out for 3 Zilla Parishad and government schools, with a total of 42 schools benefiting from these efforts.

WOMEN EMPOWERMENT

The community development program aims at empowering 900 women from the underprivileged sections by providing vocational training, business enterprise support, and other resources to promote entrepreneurial ecosystem.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

Bharat Forges ESG journey formally commenced with the formation of the ESG Committee at the Board level in FY2022. Under the guidance and directions of this committee, the ESG framework has evolved within the organization. The ESG framework helps identify, organize, analyze, prioritize, and guide decisions on various business risks. It comprises 7 objectives and 25 measures focusing on the organizations key material ESG issues. Periodic monitoring by the management team ensures steady progress on these identified measures.

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. Noteworthy achievements include sustained performance in emission reduction, increased use of secondary raw materials, optimal resource utilization, enhanced use of green energy, certification for the energy management system, SBTi approval of near-term emission reduction targets, and recognition from our global customers.

ESG considerations are integral in all decisions associated with mergers & acquisitions. Sustainability reports, reflecting these efforts, are aligned with the GRI framework. Significant improvements in ESG assessment scores year-on-year underscore the Companys commitment and progress.

While maintaining a sharp focus on implementing ESG initiatives, Bharat Forge ensures that the outcomes are intertwined with its business priorities, recognizing that sustainable growth is a business imperative.

RISK MANAGEMENT

The Company has implemented a structured risk management process to identify, prioritize, mitigate, and monitor risks. The principal risks affecting its business encompass economic, foreign exchange, raw material, technology, funding, talent, and cybersecurity.

The Company has taken adequate steps to address and mitigate these risks.

Some aspects have been highlighted below :

• Persistent global challenges with inflation and supply chain disruptions continue to significantly impact macroeconomic conditions, crucial for the Companys growth

• Proper functioning of all equipment is imperative; any shortcomings may disrupt the Companys ability to fulfill customer requirements

• The growing shortage of skilled labor poses a major risk in retaining workers in the Company

• Ensuring worker safety remains a crucial operational concern across all the plants

• Adapting to a rapidly changing technological landscape

to address dynamic customer needs is necessary to remain relevant and sustain growth

• With business operations interconnected via secured networks, cyber security has become very critical for Bharat Forge. Any attacks on secured networks or data theft can lead to financial/reputational losses

• The global nature of the Companys business means that any disruption in the movement of goods to customers is a significant operational risk

• The Company earns significant revenue through exports. Even though it prudently hedges the foreign currency revenues, it is exposed to sudden fluctuations in foreign exchange rates for the unhedged portion

• Interest rates are likely to remain higher for a longer timeframe, this may lead to higher borrowing costs and will impact post-tax profit

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a well-governed internal control system that authorizes, records, and reports transactions to safeguard assets and protect against loss from unauthorized use or disposition. The internal controls ensure the reliability of data and financial information to ensure accountability of assets. These internal controls are supplemented by extensive internal audits, management reviews, and documented policies, guidelines, and procedures.

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