Bharat Forge Ltd

NSE:BHARATFORG

Earnings Call Analysis

Bharat Forge Q1 FY25 showcases growth and recovery

In Q1 FY25, Bharat Forge's consolidated revenue rose by 6% to INR 4,106 crores, with EBITDA growing by 23% to INR 759 crores. The standalone business saw a revenue increase of 10% to INR 2,338 crores and EBITDA margin at 28.1%. The defense sector is flourishing with new orders worth INR 980 crores. Overseas, the EU posted an EBITDA of INR 37 crores while the US reduced its EBITDA loss to INR 23 crores. The company is optimistic about significant growth and continued recovery despite challenges in certain overseas markets.

Q1 FY '25 Performance Highlights

Bharat Forge delivered a satisfactory performance in Q1 FY '25, marking a consolidated revenue increase by 6% year-over-year (YoY) to INR 4,106 crores. EBITDA saw a robust growth of 23% to INR 759 crores, resulting in an EBITDA margin improvement of 260 basis points to reach 18.5%. Profit Before Tax (PBT) grew by 30% to INR 469 crores. Furthermore, the company's standalone revenue increased by 10% YoY to INR 2,338 crores with a corresponding EBITDA growth of 18.9%, achieving a margin of 28.1%.

Operational Improvements and Strategies

The company has made significant strides in various segments, particularly in the oil and gas and defense enterprises. It has secured new business worth INR 980 crores across sectors such as defense, aluminum, and ferrous castings, which augurs well for future growth. Despite facing various cost pressures, including logistics, the company managed to maintain its margins, showcasing resilience and effective cost management strategies【4:0†source】.

Overseas Performance and Challenges

Bharat Forge's European operations showed stability with an EBITDA of INR 37 crores, despite a weak demand environment. In contrast, U.S. operations reduced their EBITDA loss to INR 23 crores. The utilization rates for Europe and U.S. were at 75% and 50%, respectively. The weakness in the overseas passenger vehicle (PV) business is expected to impact the aluminum business for the next one or two quarters, as it caters entirely to the PV segment【4:0†source】.

Strategic Focus

The company's return on capital employed (ROCE) stands at 18.4%, indicating a strong and improving balance sheet. Bharat Forge is focused on expanding its footprint in India, with a fundraising proposal of up to INR 2,000 crores mainly aimed at growth-oriented projects within the country. The company also plans to modernize its Mundhwa plant to significantly improve productivity【4:0†source】 .

Defense Sector and Future Prospects

Bharat Forge's defense business continues to show growth potential, with orders spanning across vehicles, artillery, and maintenance repair operations (MRO). The company has several significant artillery orders in the pipeline, including the ATAGS order, which is anticipated to finalize soon and is worth roughly INR 4,000 to INR 4,500 crores【4:0†source】. The company's ongoing projects and robust pipeline suggest that it is well-prepared to capitalize on both domestic and international defense opportunities.

Guidance and Outlook

Management expects a stable to positive outlook for the year across all business segments. In particular, the industrial and defense sectors are expected to continue growing, supported by new orders and increasing market shares. Additionally, Bharat Forge’s global business is on the road to recovery, with efforts in place to reduce losses in U.S. operations substantially by the end of this fiscal year and positive progress in European operations economics .

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Bharat Forge Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kedar Dixit, CFO, Bharat Forge Limited. Thank you, and over to you, sir.

[Kedar Dixit, executive]

Good afternoon, ladies and gentlemen, and thank you for participating in the call. I'll take you through the consolidated business highlights for the quarter. Along with me, I have Mr. Amit Kalyani, Vice Chairman and Deputy Managing Director; Raj Gopal who is the in charge of our IR operation; Subodh Tandale, who heads our Component Division and other finance colleagues.

On a consolidated basis, on a Y-o-Y, revenue grew by about 6% to INR 4,106 crores, while EBITDA grew by 23% to INR 759 crores, and PBT has also seen a significant growth of 30% to INR 469 crores. EBITDA margins improved by 260 basis points on a Y-o-Y basis to 18.5% in this quarter with bulk of improvement driven by Indian entities. Consolidated balance sheet continues to remain robust with ROCE moving in the right direction of our target. And currently, we are at 18.4% as of June 2024.

Talking about standalone business highlights. We had a stable performance in Q1 with revenues of INR 2,338 crores with a growth of about 10% Y-o-Y. Standalone EBITDA grew by 18.9% on a Y-o-Y basis, translating into EBITDA margin of 28.1%. PBT grew by 24% to INR 523 crores. Export performance saw good recovery in oil and gas business, which was offset by a decline in PV business.

During the quarter, company has secured new business worth almost INR 980 crores across various sectors, including defense, aluminum and ferrous castings and core forging business. Balance sheet also continues to remain strong with ROCE and RONW improving with a strong liquidity position.

Talking about overseas subsidiaries operations in EU Aluminum continue to be stable with tangible progress made on pricing support from our customers, price repair activity, which we are carrying on. In spite of weak demand environment in Europe in this quarter, our European operations posted an EBITDA of INR 37 crores, while U.S. operations reduced their EBITDA loss to INR 23 crores. We continue to work to improve these operations.

Utilization in Europe and U.S. aluminum was at 75% and 50%, respectively. The weakness in overseas PV business will also have next 1 or 2 quarter impact on the aluminum business because it currently caters 100% to PV segment.

Now I will hand over to Amit sir for the management comment on the business end.

[Amit Kalyani, executive]

Thank you, Kedar. So overall I would say it was a satisfactory quarter on the consolidated basis, with performance ticking most of the boxes. On the standalone front, I think we've had a good quarter. We're able to maintain our margin despite cost pressures, especially on the logistics front. Oil and gas business is starting to show positive momentum. Our defense business is continuing to ramp up smoothly. And more importantly, we continue to win significant new orders and have very active business pipeline discussion.

The return ratios continue to inch up. And more importantly, we have a strong balance sheet with a fair amount of cash. Our JS Auto has recorded an extremely good quarter. We've had close to 50% growth in EBITDA for the quarter Y-o-Y. And as you know, that we have always tried to derisk our business, while the defense is starting to show a glimpse of [ stroke ] potential. The most exciting part is also JSA, which should cross INR 1,000 crores mark in sales very shortly, also with the initiatives they're working on internally, the operating profitability should see a fairly significant increase in percentage terms.

Our overseas operations are on the road to recovery. We are confident that the losses in the U.S. will come down very substantially by the end of this fiscal and Europe should do better as well. Unfortunately, there is some trepidation on the demand side conditions in Europe currently because of macroeconomic and geopolitical issues, which are probably putting a slight question mark on the overall top line growth in the EU.

On the proposal for fundraising of up to INR 2,000 crores, the last time that Bharat Forge raised any funds, any equity was in 2010, '11 during the Global Financial Crisis. This fund raise is solely going to be growth oriented for deployment in India. Going ahead, we see multiple opportunities on the horizon. And while we evaluate each decision on its merits, the focus of our growth and expansion of footprint will take place in India.

On the impairment of investment in Tork, it's basically a victim of the funding freeze and the impact of the same subsidy norms. Twice, we were very close to getting investor -- twice, Tork was very close to getting investors in its company, but that did not materialize. As you are aware, we are investors in Tork and we have invested slightly more than INR 150 crores overall. And the Tork management has been working on finding alternative funding options as it is not in our business practice to fund business losses in continuity and perpetuity.

So overall I think whether it is the Automotive business or the Defense business or the Industrial business, we expect to see a stable year -- stable to positive year. Our Industrial business will continue to grow and do better. The Defense business is doing fairly well, and we expect it to remain stable and continue growing as new orders come in and start getting executed over the next few years.

We have a very solid and robust pipeline as well. And overall, I think Bharat Forge is on a new growth trajectory, and we are prepared for the growth opportunities that are coming our way. And I think good times should be ahead of us.

So I think that's all I really have to say, and I'm happy to take your questions now.

[Operator]

[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.

[Kapil Singh, analyst]

Good afternoon, sir. We saw very strong performance in the Defense business. So if you could talk about what were the areas in which these new orders have been won? And in terms of ramp-up also, if you note current run rate is somewhere around INR 2,500 crores annualized and the order book is somewhere around INR 5,400 crores. So I mean, earlier, we had talked about the fact that this order book could take like 3 to 4 years to execute, but our execution is running much faster. So how should we think about this? Are the execution time lines much faster? And yes, if there is some [ odd mix ] here as well will help.

[Amit Kalyani, executive]

Yes. See, as we had mentioned last time, our goal was to achieve a 50% or so growth in Defense this year. Some orders are lumpy, some orders take slightly longer. There are certain orders where we have been working for quite a long time where revenue recognition happens in a certain quarter. So it can be a little lumpy. I think overall I would still say that we will exceed 50% growth for the year and maintain our profitability.

[Kapil Singh, analyst]

Sure. Sir, and the order wins, what areas were these orders?

[Amit Kalyani, executive]

Our order wins are across areas, it's across vehicles, artillery and MRO items. MRO is basically things that are used in sustainance and consumables for the sector.

[Kapil Singh, analyst]

Okay. And sir, artillery guns, we still don't have any update. What could be the time line?

[Amit Kalyani, executive]

We have very significant orders in artillery. ATAGS -- you're talking about ATAGS that is -- I think is very close to finalization, hopefully by the end of August, it should be final. But as you know that it is not up to us. It's a process that is undergoing and hopefully, we will see some clarity very soon.

[Kapil Singh, analyst]

Sure sir, and sir just on the other part of the business, if you could share outlook, particularly on the CVs. We have seen some weakness in order inflows in U.S. and also in India. We saw recent CV data was soft. So any color there, what kind of growth you are expecting in these 2 segments? And I also noticed that overseas non-auto despite the improvement in oil and gas did not report a growth this quarter. So some color there also how much was oil and gas and what is the outlook here?

[Amit Kalyani, executive]

Yes. Just give me a second, our colleague will answer that.

[S. Tandale, executive]

So the U.S. business, if you are referring to the incoming [ classic ] order that is [ waving ] and we've seen from over the last year and 1.5 years. But the overall [ bid ] level is stable.

[Operator]

Sorry to interrupt sir, but the management line has been disconnected. Please wait while we re-connect them back. Ladies and gentlemen, the management line has been connected back. Thank you for patiently holding.

[S. Tandale, executive]

Yes. Sorry for the inconvenience, we got dropped off. There is enough backlog in the system. The [ win ] rates are still stable. So it's not really affecting production in the U.S., but as of now, the outlook for the next year is stable according to at least 2 out of the 3 major OEMs. So we have to wait and watch how that goes.

As far as India is concerned, the expectation for the year is YTD it will be flat, plus/minus 5% at then. So I think we have seen quarter progression in the same way. It seems like there will be a heavier quarter 3 and even heavier quarter 4, but we have to wait and watch but this is the best all the OEMs are indicating right now, that's what we see from the market.

[Amit Kalyani, executive]

Additionally, you mentioned two things. So we have seen a significant uptick in the oil and glass export business. It is heading back towards positive territory. And there are certain other programs where the shipments are a little lumpy. But for the full year, the kind of growth that we have envisaged, it will happen.

Secondly, in the domestic market, although the numbers have gone down in PV production and sales, our market share has gone up and our revenue has -- is higher than the underlying market.

[Operator]

The next question is from the line of Gunjan from Bank of America.

[Gunjan Prithyani, analyst]

Just quick follow-up on defense. On this ATAGS order, is there any change to the value if you can just refresh us how would it -- how big it can be? And you also mentioned this mounted gun system for which we have bid -- for which also RFQ has been submitted and we're expecting some update on that. So if you can just talk about that as well. I mean I'm just trying to get how big India value of orders can be?

[Amit Kalyani, executive]

Look, let me put it in a general term for you, okay? And I think this is important for all the participants. India itself needs close to 4,000 guns. It needs guns of several different kinds. It needs towed guns. It needs mounted guns. It needs self-retract and self-propelled guns. It needs 105 mounted guns. Fortunately, for us, we make all of these vehicles, all of these products.

We have 9 artillery platforms, So we can compete in any category that is envisaged or required. Additionally, globally as well, there is a huge requirement for replacement of guns of very old vintage. So there is another equal or more opportunity outside India. As you know that our current business has started off by exports, and we expect that the export potential and export business will continue to grow for us, and we will be a global player in this area.

So the current order of ATAGS that is supposed to open is roughly 307 order guns. So that itself is roughly in excess of INR 4,000 or INR 4,500 crores, just 300 guns. So you can extrapolate and understand what is possible.

[Gunjan Prithyani, analyst]

This is the overall guns and whatever we get out, I mean it can be 50-50. Is that understanding correct?

[Amit Kalyani, executive]

See, it's currently -- it's L1, L2 is 60-40. So it depends on how many platforms get bidded out and get closed in the next few years, but we have that kind of potential. And then when you're doing exports, obviously, it is -- typically, there's only one player because these companies all buy from only one company, these countries. So I think that there is ample potential.

[Gunjan Prithyani, analyst]

Yes. Amit, while we are at Defense, I also mentioned -- see a mention of the shells, which were in shortage and which you mentioned in your annual report that we now have a significant visibility on that business. Can you just give us some understanding? Is it part of the order book already or it's a recurring order that you keep bidding? I'm not too clear about the [indiscernible] trying to get...

[Amit Kalyani, executive]

Combination of three things. We have long-term orders. We have new orders, and we have orders that we've been supplying for some time now. And it is already generating us revenue. Hello?

[Gunjan Prithyani, analyst]

Yes. Okay. Okay. Got it. The second question I had was on Aerospace. Anything that to call out for this quarter? And how should the revenue ramp-up be there?

[Amit Kalyani, executive]

Again, as I mentioned, certain businesses like Aerospace, there is customer approval processes for new products. So unfortunately because of everything that's going on, our customers haven't been able to come here and do the approval processing. But we expect this year, a 15% to 20% growth in our business and next year, strong double-digit growth, and we're on track for that.

[Gunjan Prithyani, analyst]

And last year, if I recollect was INR 250 crores or so [indiscernible].

[Amit Kalyani, executive]

Correct. Correct.

[Gunjan Prithyani, analyst]

Okay. Got it. And last question on the cap raise again. I mean you mentioned that there are opportunities. Is it something inorganic that we are -- that are coming our way because it's a pretty sizable cap raise, which -- if it's organic, it does take time, right? So I'm just trying to get...

[Amit Kalyani, executive]

It will be a combination of both, but it will be India.

[Gunjan Prithyani, analyst]

Okay. And no new segments or open to new segment diversification as well.

[Amit Kalyani, executive]

Both. But very allied to what we do metallurgical products, similar to what we do or value additions of what we do and focused on creating more customer traction and centricity for ourselves.

[Operator]

[Operator Instructions] The next question is from the line of Jinesh Gandhi from AMBIT Capital.

[Jinesh Gandhi, analyst]

So one clarification. When we talk of different business INR 600-odd crores, we account for that in the domestic side only or this will split between domestic and exports?

[Amit Kalyani, executive]

It's all accounted in domestic.

[Jinesh Gandhi, analyst]

All accounted in domestic. Besides being exports, so it's more of how much supply as a result that will be accounted in domestic. Is that correct?

[Amit Kalyani, executive]

Yes.

[Jinesh Gandhi, analyst]

Got it. Secondly, with respect to the aluminum forging business in U.S. and Europe. So while currently it is a passenger vehicle-oriented business, is this technology relevant for non-PVs and non-auto segment as well, which we are looking at? How to think about that?

[Amit Kalyani, executive]

Non-auto is definitely possible. But non-PV, it will be limited by the size of the product. Typically, you can make products up to about 12-odd kilos in weight. So the whole reason for this whole aluminum forging is basically light-weighting. So it is applicable for areas where weight is a factor.

[Jinesh Gandhi, analyst]

Right, right. And in that context, how should we think about the pathway to the low double-digit EBITDA margins, which you have been talking about, both for U.S. and Europe? What needs to fall in place to reach there?

[Amit Kalyani, executive]

Yes. I think on the Europe side, we are getting resolution for the price repair. And we will see that by Q4, we will be 00, if not slightly positive. In the U.S., I think we would have been there except for a steep decline because of some certain customer-specific issues where business has gone down for a short period of time for about 3 to 4 months. So once that recovers, I think we will be back on track there as well.

[Jinesh Gandhi, analyst]

Okay. Okay. And non-aluminum forging business...

[Operator]

I'm sorry to interrupt, sir. Could you please fall back in the question queue. The next question is from the line of Amyn Pirani from JPMorgan.

[Amyn Pirani, analyst]

My first question was on continuation on this overseas subsidiaries only. Given your commentary, it looks like the major part of the improvement will be felt only in FY '26 because these things will take some time. So in that context, when we look at your presentation and there's a comment around reduction in losses, is it mostly related to the India subsidiaries which are going to drive this, this year? Or you still feel that we could see substantial reduction in losses in the overseas subsidiaries despite the concerns that you are highlighting?

[Amit Kalyani, executive]

I expect that we will see a substantial improvement in the overseas subsidiaries for this year as well. Especially for Europe, we will see a big improvement because of the actions that I talked about. Next year, undoubtedly, will be even better. U.S., because of this reduction in volume, unfortunately, it will not show. But if you see as a percentage, I think, if you look at the quarter-by-quarter, I think by quarter 4, you will start seeing a fairly strong improvement. So both, I would say, on the yearly basis, I would look at more on the quarter to see the improvement. And that will then carry forward

[Amyn Pirani, analyst]

Understood. Understood. And secondly, just a bookkeeping question. If I look at your presentation, in Slide 11. If I look at the India operation EBITDA, I'm assuming this is standalone plus the Indian subs. But if I add the EBITDA of standalone and the Indian subs, I still get like a INR 50 crore EBITDA, which is unexplained. Is there some accounting thing here? Or am I missing something?

[Amit Kalyani, executive]

So this is mainly due to the inventory reduction for our trading entity as there is inventory movement, it will keep on fluctuating. This time since there was an inventory reduction, there was a benefit for the group.

[Amyn Pirani, analyst]

Okay. Okay. On an annual basis, should we assume that this is like a net-net 0?

[Amit Kalyani, executive]

Yes, yes, Aymn. There will be quarterly fluctuations, but on a normalized basis, it should be 0 somewhere.

[Operator]

The next question is from the line of Pramod Amthe from InCred Equities.

[Pramod Amthe, analyst]

So the first question is with regard to the continuity of the government. Does it help you in terms of [ G2G ] orders progressing further [indiscernible] in the coming quarters or years? And also related to that is, what is the status of product performance of what you are supplying to some of the international clients, both on guns and vehicles?

[Amit Kalyani, executive]

I think the second question, the product performance is absolutely satisfactory. There are no complaints. There has been no issue of any kind. We are also now training the maintenance staff over there on maintaining these products for the medium to long term, in addition to the people that we have deployed to maintain.

Secondly, I think the government is doubling down on creating opportunities for Indian companies to export because it becomes a part of their external affairs development initiative as well and relationship development, long-term relationship development initiatives. So not only are they doing [ G2G ], but there's also now let's say, more funding being made available for exporting these products to certain target countries.

[Pramod Amthe, analyst]

And the second one is with regard to the VRS in Mundhwa, which we're again extending. Wanted to know the thought process, do you see a substantial productivity upgrade possible and hence the investment towards it? Or how are you looking at that plant?

[Amit Kalyani, executive]

So look, in Mundhwa, we have some parts of it, which are very old. So there, the productivity is low. So we want to completely modernize that and dramatically improve the productivity. And for that, clearly, we can't have so many people, extra people. So we're trying to do a VRS between a combination of VRS and retirement age of people. We aim to reduce a few hundred people from this plant in the next couple of years.

[Pramod Amthe, analyst]

And these are which product lines if we can...

[Amit Kalyani, executive]

This is across the board. These are people who joined us in the '80s basically.

[Operator]

The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities.

[Mumuksh Mandlesha, analyst]

Congratulations on new order wins...

[Amit Kalyani, executive]

Can't hear, sorry, can't hear.

[Mumuksh Mandlesha, analyst]

Yes. Is it better, sir? Is it better, sir? Yes. So on the freight cost, sir, and availability of the [ fleet ] sir, has there any demand impact this quarter? And what could be the cost impact in the Q1. And going ahead, how do you see both the cost and availability issue?

[Amit Kalyani, executive]

Look, there is an issue, obviously, there is an issue of availability I don't know if you're aware why a lot of containers are not available besides the fact that shipping lines are taking longer routes, so they are stopping at less ports. So overall, we have managed to mitigate almost all the freight cost increase for this quarter. And we will continue to work on that and between whatever we can do and whatever we structurally do with our customers, we will manage this.

[Mumuksh Mandlesha, analyst]

Is it possible to quantify the freight cost impact for the quarter, sir?

[Amit Kalyani, executive]

No, it's difficult. Because as I said, it happens over a period of time. And we get recoveries over a period of time. We do mitigating factors over a period of time. I can't quantify it. But we are managing quite well in the quarter in spite of that.

[Mumuksh Mandlesha, analyst]

Got it, sir. On the export front, this is the first quarter where we've seen a decline, a small decline. So going ahead, based on the customer production plan, will exports be more flattish? Or there's a possibility of larger decline for the year?

[S. Tandale, executive]

At this point, we don't see a reason for larger decline. It is very volatile, of course, we expect it to be steady, but we are also taking a lot of actions to improve our share of business and all of that in the marketplace. So even if the market decline happens, we are trying to prevent the impact on us. So there's lot happening right now.

[Mumuksh Mandlesha, analyst]

So this market share gain, it's basically you're talking about is because of a lot of Europe Plus One strategy -- diversification strategy, sir?

[S. Tandale, executive]

There are lot of reasons. It's not just that.

[Mumuksh Mandlesha, analyst]

Okay. And sir, also can you comment on the subsegments like higher horsepower engine, construction equipment [indiscernible] segment, how they are performing?

[S. Tandale, executive]

Higher horsepower engine is performing quite well because of the overall increase in demand for our standby power. Construction and mining is on the weaker side. There are structural changes that keep coming every 2, 3 years. So we are going through that cycle. So hopefully that should start doing better next year.

[Operator]

The next question is from the line of Vivek Kumar from JM Financial.

[Vivek Kumar, analyst]

Most of them have been answered. Just one part. Could you share the capacity utilization at the overseas subsidiaries?

[Amit Kalyani, executive]

In Europe, it's about 70% and in U.S., about 30%.

[Vivek Kumar, analyst]

That means similar to the previous quarter.

[Amit Kalyani, executive]

Yes, more or less.

[Operator]

The next question is from the line of Rohan Vora from Envision Capital.

[Rohan Vora, analyst]

Sir, you answered it earlier, but just to clarify, the fund raise that we are doing. So just wanted a bit of more color on it. Is it going for inorganic acquisition or organically expanding facilities?

[Amit Kalyani, executive]

[indiscernible] for growth of manufacturing footprint in India for both global and Indian opportunities. And it will be a combination of both greenfield and inorganic.

[Operator]

The next question is from the line of Mukesh Saraf from Avendus Spark.

[Mukesh Saraf, analyst]

My first question is on the European subsidies. I think in the opening remarks, there was some mention about pricing actions being taken there. So in the previous quarters, we have been mentioning that we should soon start picking some pricing actions. So the question is, is this going to be going on for some more time like ongoing price actions that we're going to take over the next few quarters? Or is it like a onetime that we are already done with?

[Amit Kalyani, executive]

So it will be done by next quarter fully. And then it will be implemented -- then it will be in place.

[Mukesh Saraf, analyst]

And this would be like for across your customers in the European operations?

[Amit Kalyani, executive]

For aluminum.

[Mukesh Saraf, analyst]

For aluminum. All right. And in continuation to this, you mentioned in the U.S. aluminum operations, we're seeing some weakness for a couple of months. would you be pushing back on some CapEx plans also because we had the Phase 2 CapEx coming in this year. So would that also be delayed?

[Amit Kalyani, executive]

Unfortunately, the CapEx is a project. It takes about 28 to 30 months to implement. So we're already in the middle of that. We're not going to rush to do it, but we have to do it anyway.

[Mukesh Saraf, analyst]

Got it. Got it. And just lastly, on your export passenger vehicle business. We have seen some kind of flattish performance after probably 2, 3 years of continued strong double digit growth. So obviously, the growth has been driven by market shares, et cetera. So are we kind of hitting some level of saturation there in terms of that.

[Amit Kalyani, executive]

In fact, we have one business last year, which will start from next year. So right now, there's a slight weakness because of the Brazilian market, which is one of the markets we export to. And otherwise, it's okay. And it will continue to grow. This market will continue to grow quite substantially for us.

[Operator]

The next question is from the line of [ Milan Shah ] from [indiscernible].

[Unknown Analyst]

Sir, I just wanted to ask one question. What kind of approval we have got from the government just now -- just two days back we announced for our subsidiary, KSSL?

[Amit Kalyani, executive]

In the beginning, there was no KSSL about 13, 14 years ago. So originally, we had approved -- we had got licenses in the name of Bharat Forge. Correct? We have got a lot of our Defense licenses in the name of Bharat Forge. So now that we have a wholly owned subsidiary called KSSL, all the licenses that we have got from the Ministry of Home Affairs for defense manufacturing, which requires specific licenses have now been obtained for KSSL. So all that business will be in KSSL. Okay?

[Unknown Analyst]

Okay. And sir, in continuation of that, sir, when the operation will be commenced, sir?

[Amit Kalyani, executive]

KSSL is the operating entity. But the new plant that we are building will start by about October.

[Unknown Analyst]

Around October.

[Amit Kalyani, executive]

Yes, October, November. I think post Diwali.

[Unknown Analyst]

Okay. And sir, just last question, sir. How much it will affect our top line and bottom line, sir?

[Amit Kalyani, executive]

Existing business will move there, and we will have ample capacity for growth.

[Unknown Analyst]

No, no, I was asking for the new approval we got for the company, how much it will affect our top line and bottom line regarding this particular new approval, sir?

[Amit Kalyani, executive]

The same approval, that Bharat Forge already had, has got transferred, has been, let's say, applied for and received in the name of KSSL, because we want all our defense business to be in KSSL. Okay? Don't want to do by our defense equipment in Bharat Forge.

[Operator]

The next question is from the line of [ Amisha Aggarwal ] from [indiscernible] Advisors.

[Unknown Analyst]

My question is with the classic net order falling to 12,400 units in July, down from the 16,000 average earlier in the year, how is the company addressing this slowdown? And what strategies are in place to mitigate its impact?

[Amit Kalyani, executive]

Sorry, can you -- Amisha, can you please repeat your question a little slowly and a little loudly. We couldn't understand what you were saying. It wasn't very clear.

[Unknown Analyst]

Okay, sir. So sir, my question is with classic net orders falling to 12,400 units in July, down from the 16,000 units average earlier in the year, how is the company addressing this slowdown? And what strategies are in place to mitigate its impact?

[Amit Kalyani, executive]

This order intake is for delivery 18 to 24 months in the future, okay? So there is enough order pipeline for this year and next year as it is. So this is only orders received in advance, well in advance. I don't foresee that to have any direct impact today or next year on our business.

[Unknown Analyst]

Okay. Okay, sir. And sir, also there has been a global slowdown. And as we have seen in the results also, that export revenue declined 6.3% quarter-on-quarter and 0.7% year-on-year as mentioned on Page #9 of the presentation. Keeping in mind the recession chances also in the U.S., so how is the company planning to address the challenges?

[Amit Kalyani, executive]

See, I tell you, we have a very simple philosophy, be the last man standing, have the strongest balance sheet, the best technology and the best overall cost structure and customer proximity. If you have that, even when back times are there, you can be -- do more for your customers because they also need to reduce cost structurally at that time.

[Operator]

The next question is from the line of Kapil Singh from Nomura.

[Kapil Singh, analyst]

Yes. Sir, just one follow-up. There was some news flow that in Europe, one of the aluminum suppliers have faced flooding and is facing disruption in supply. Just wanted to check if you have heard of any risk for Bharat Forge customers because of that.

[Amit Kalyani, executive]

No. Kapil, in our case, we melt and cast our own aluminum, which we then forge. So any such thing will not affect us. In fact, it may only be a positive for us. And honestly, I am not aware of this. I see something in Eastern Europe where because of the flood, some one plant that got flooded, but I think that's a specialty aluminum plant. It's not a commodity plant, not that -- okay. I mean if you can share that by e-mail with us, it will help us.

[Operator]

The next question is from the line of Jinesh Gandhi from AMBIT Capital.

[Jinesh Gandhi, analyst]

I had a follow-up on the European operations. So if you look at the European operations, [indiscernible] expanded capacity on the Indian forging side, the legacy business of steel forging and the old aluminum forging is back to normalcy in terms of margins which they used to do, say, pre-COVID or that is also under pressure today?

[Amit Kalyani, executive]

See, on the steel forging business, we are doing, let's say, overall product and business rationalization and rightsizing. We want to get rid of business or move business that is not adequately profitable and rightsize the business so that even with ups and down, we can make money. Rightsizing exercise will involve footprint optimization as well as manpower rationalization in the next 6 to 8 months.

[Jinesh Gandhi, analyst]

Got it. And the old aluminum forging that is back to 13%, 14% kind of EBITDA margin, which is [indiscernible].

[Amit Kalyani, executive]

Yes, that is running quite well.

[Jinesh Gandhi, analyst]

Great. And lastly, what should be the CapEx for standalone and consol business for this financial year?

[Amit Kalyani, executive]

So I would say, overall, between this year and next year, whatever we are spending will get spent over this year and next year, will be about INR 1,000 crores.

[Jinesh Gandhi, analyst]

This is including the subsidiary?

[Amit Kalyani, executive]

Yes, yes, everything.

[Operator]

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Mr. Amit Kalyani for the closing comments.

[Amit Kalyani, executive]

Ladies and gentlemen, thank you for your time, and most importantly, your extremely well thought out questions regarding our business. It's always reassuring to see the thought that we put into our business and for understanding of it.

Our management team and I are grateful for your time, and we will continue to improve the performance and operations of our business and hope to continue interacting with you going forward. Thank you, and have a nice weekend.

[Operator]

On behalf of Bharat Forge Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.