Bharat Forge Q2 FY27 Earnings Call: ATAGS Clearance Secured, Guides 20-25% Revenue Growth (BHARATFORG)

Record Standalone Sales, But Margin Optics Under Pressure

• Standalone revenue of Rs.2,526 crore, up ~30% YoY — the highest quarterly sales achieved across both export and domestic; standalone EBITDA at Rs.655 crore, up 20% YoY, with margin at 25.9%.
• Consolidated revenue of Rs.4,870 crore, up 21% YoY — consolidated EBITDA at Rs.778 crore, up ~9% YoY, translating to an EBITDA margin of ~16%.
• ~0.4% margin impact from inflation — escalating freight, energy and other input costs are being recovered from customers but with a lag; management characterized the impact as optical rather than actual.
• ~Rs.20 crore exceptional item — legal and consultancy charges for the European steel business (CDP) restructuring, which is on track and estimated to conclude by mid FY 2027-2028.
• Net debt-to-equity at 0.45x — cash of ~Rs.4,158 crore post QIP fundraise as of Q2 FY 2026-2027.
• Overseas mixed — Europe revenue Rs.931 crore with EBITDA of Rs.29 crore (~3.1% margin) despite lower utilization and a difficult operating environment; US revenue Rs.476 crore with EBITDA negative by ~Rs.6.7 crore.

ATAGS Clearance Secured; Revenue Conversion From FY 2027-2028

• Bulk production clearance for ATAGS received after delays — management corrected the premise that the order was deferred: the production approval was delayed (not deferred) and has now been received, with shipments/revenue conversion expected to begin from Q1 FY 2027-2028.
• 184 guns over ~4 years — contract requires supply of 108, 184 guns; Year 1 will be a ramp-up, Years 2-3 more steady, with full delivery expected over ~4 years from the Q1 FY 2027-2028 start.
• Revenue phasing of ~10% in year 1, 15-20% in year 2 — a similar amount in year 3 and the remainder in year 4 (period unspecified); the ATAC order sits in the standalone business (booked pre-KSSL) and will be novated to KSSL later (timing unspecified).
• Execution risk flagged — delivery pace depends on the customer's absorption rate, as the customer must train all its battalions on the new guns before deciding deployment; management noted induction of a major new platform is a serious process.
• Defense margins guided at 20-25% — depending on product mix as ATAGS production ramps in FY 2027-2028; margins may initially be in the 20-21% range at the start of the FY 2027-2028 ramp-up. ATAGS itself is a 20-22% margin product with very high asset turnover (period unspecified).
• Defense order book of Rs.10,600 crore at end of Q2 FY 2026-2027 — includes all defense orders (ATAGS, CQB and others), including orders where execution has not yet started; outstanding unexecuted defense order book cited at Rs.10,950 crore as of September (Q2 FY 2026-2027).
• CQB (small gun) clearance pending — bulk production clearance not yet received; once received, deliveries can begin within 4-6 months (period unspecified for the clearance).

Rs.2,100 Cr H1 Order Inflow; Aerospace and Semicon Ramps

• Rs.2,100 crore of new orders in H1 FY 2026-2027 — across India manufacturing businesses, of which the Forgings business received Rs.1,000 crore.
• Aerospace wins aggregating ~$100-120 million over the lifecycle — significant new business on both engine and landing-gear sides, delivering double-digit million-dollar revenue per year over a long period; management declined to name customers (including on whether it was the Pratt & Whitney mission-critical contract), citing multiple customers and products.
• New aerospace-dedicated facility ~60% sold out — expected to start operations in mid-FY 2027-2028.
• Semiconductor business to triple over the next two years — already at a double-digit million-dollar annual run rate against a $100 million annual opportunity cited earlier in the call (period unspecified); a new forging facility will serve aerospace, semicon and industrial for at least the next two-three years.
• Non-automotive production to start over the next 12 to 18 months — management declined to share specific customer commitments, describing a pipeline of unique, high-value components across aerospace (landing gears, structural components), semiconductors, industrial and space, using high-temperature alloys, titanium and aluminum.

Baramati Capex Underway; JSA + K-Drive Scaling Toward Rs.2,300 Cr

• ~Rs.1,300 crores brownfield capex at Baramati — across four forging facilities and a large machining facility, adding ~100,000 tons of forging capacity; output to more than double over the next 2-3 years starting Q1 FY 2027-2028, with production trials for the first two assets expected Jan-Mar 2027 (Q4 FY 2026-2027), the third by mid-2027 and the last by end-2027.
• JSA + K-Drive combined revenue expected in excess of Rs.2,300 crores in FY 2026-2027 — ~Rs.600 crores quarterly run-rate, a 50% increase from ~Rs.400 crores/quarter at acquisition; management expects the combined business to roughly double (period unspecified) with higher margins.
• K-Drive targets double-digit EBITDA by FY 2028-2029 — per Amit Kalyani in response to Nomura's Kapil Singh; revenue targeted to grow at least 20% a year, if not 25% (period unspecified), via pass-car/SUV/pickup entry and hybrid-electric solutions.
• Export scope limited by non-compete — exports relevant only for certain sectors due to a non-compete with the company the business was acquired from; the off-highway segment is open, and Bharat Forge can export and compete there anywhere in the world.
• JS Autocast posted its best quarter — Q2 FY 2026-2027 revenue up 16% to Rs.220 crore, EBITDA up 35% with margins at 14.2% — highest quarterly revenue and EBITDA to date.
• US subsidiary fixes in progress — the steel subsidiary was hit by one-time breakdown issues, with a solution targeted by December (Q3 FY 2026-2027); the aluminum subsidiary faces a raw material cost issue, with new non-automotive products expected to lift profitability above break-even over the next 6-12 months (through ~Q3 FY 2027-2028).

Stable Production; Customers Seeking to Block Capacity Into FY 2028-2029

• Export CV business recorded its highest revenue in Q2 FY 2026-2027 — driven by volume growth, some market share gains, and ramp-up of new businesses.
• Production constant at a reasonably high level for the last 7-8 months — per Subodh Tandle, responding to October 2026 order-inflow weakness; order inflows have varied substantially through the year.
• Customers seeking to block capacity for the next 18-20 months — extending into FY 2028-2029 at high levels; all customers indicate production will remain very stable and be a little stronger than current levels, with the same outlook indicated for India.

H2 FY27 Acceleration Needed to Hit 20-25% FY27 Guidance

• FY 2026-2027 revenue growth guidance of 20-25% — management attributed the H2 FY 2026-2027 acceleration needed to meet it to across-the-board drivers: aerospace, industrial exports, semicon, CV, passenger exports, marine, and JSA and K-Drive, as new programs move into revenue.
• H2 FY 2026-2027 EBITDA growth expected in sync with top line — excluding a ~2-3% inflationary impact on top line, possibly even slightly better, per Amit Kalyani responding to Goldman Sachs' Chandramouli Muthia, who noted H1 FY 2026-2027 top line growth of ~20% lagged in gross profit and EBITDA absolute terms due to raw material inflation, pre-operating costs on new plants and one-off items.
• India manufacturing: well in excess of Rs.5,000 crore quarterly sales by end of FY 2027-2028 — from the current ~Rs.3,000-3,400 crore per quarter at ~22% margin (FY 2026-2027), with margin accretion of at least 200-250 bps.
• Defense margin uplift of at least 200-300 bps, possibly more — as mix shifts toward more sophisticated value-added products and fully filled ammunition (period unspecified).
• Strong H2 FY 2026-2027 defense boost expected — orders won over the last 6-12 months, including EP contracts, are expected to materialize in H2 FY 2026-2027, boosting defense top line and bottom line; management anticipates very strong order-book accretion in H2 FY 2026-2027 as won programs convert into contracts.
• Steel pass-through clarified — steel for components manufactured in India and exported abroad is bought in India and follows global price trends; Amit Kalyani clarified safeguard duty-inflated rates are Indian local costs, not global costs.