Bharat Forge Limited (500493) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bharat Forge Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Amit Kalyani. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen, and thank you for joining us on our investor call. Good to be interacting with all of you after some very difficult times that we have all faced, both personally and in our businesses. I have with me, as is customary, our finance team, our group CFO -- our CFO, unfortunately, is not here today, but Head of IR is also here. And we have teams from our customer-facing side as well. So let me first give you a little bit of a highlight of the quarter. So quarter 1 was an unprecedented quarter where the lockdown started March 20, 17th or 18th or whatever it was. And all of April was a washout, most of May was a washout, and we basically started production only in the month of June. That too, with the extreme lockdown in Pune, we had, I would say, on an overall basis, the capacity utilization was approximately at 20%. But I'm very glad to tell you that we used the 2 months to streamline processes, optimize costs, get more and more digital and focus on reducing costs. And all these steps that we have taken will continue and keep increasing over the next 3 quarters. And this time next year, you will see a very significant impact of these. And there will be a significant impact on a quarter-by-quarter basis as well. As you've seen from the numbers, for the first time in, I don't know how many years, but more than 10 years, we have a loss for the quarter, something that we are very unhappy about. But when you're operating at these kind of levels, I think there's really nothing one can do. And it was very disappointing for us. But I think the good side is that the company has responded very well. Our teams have responded very well, and we are focusing a lot on our customers. We are beginning to see green shoots. We are seeing improvement in demand across every sector in the domestic market and some of our export markets as well. The first quarter was a quarter of shutdowns and lockdowns for everyone. And the very fact that you couldn't go to a dealership and buy a car, obviously, when you're lockdown, is not a priority. The domestic revival that we are seeing right now is quite substantial, and we believe that it is driven both by the upcoming festive season and also by some changes in buying behavior and consumer behavior. We expect on a whole basis -- gross basis that our Q2 revenues will be lower than Q2 of last year. But our domestic revenues will be more or less equivalent as last year's Q2. There are certain elements of our exports, which are impacted, such as oil and gas, which are lower, but -- which are also cyclical businesses and affected by the overall demand cycle. And when that recovers, they will bounce back. But on the other side, if you look at the heavy truck market and the pass car market in Europe and U.S., both are quite good. The ACT numbers that have come in on end of July came in at just above 20,000, and the overall projections for the year have been increased both for this year and for next year. Coming to our overseas subsidiaries, we announced the result for the Jan to March quarter. We have posted a loss of INR 36 crores. The full impact of COVID, however, will be visible in the next quarter as well. And we have disclosed during our Q4 interaction that the international operations will have a cash loss of about EUR 5 million for the first 6 months. So just to be clear, we are talking about that kind of a figure for the first 6 months. And there also, we have restructuring going on with an external agency helping us. And we hope that this will, over the next few quarters, see some impact and get us back to the right direction. One of the major, let's say, announcements that has happened that I'm sure many of you would like to know more about is on the defense side. On Sunday, there was an announcement made by the defense minister about 101 items that are put on the negative list, which means that these 101 items have to be produced within the country. So this is an extremely good step. I think this is a step that recognizes the capability that exists within the country, and also the areas within which India can be very quickly self-sufficient and eventually also a global player. This is good, not just for big companies like us, but also for the supply chain. A lot of companies from the automotive supply chain, MSMEs, et cetera, are companies that we are working with. We're working with close to 400 companies in our defense ecosystem on -- actually more than 400 in the supply chain of our defense ecosystem. And we hope that any order that we get will also provide them with a lot of good news as well. So that's really all I want to say. And we continue to focus on the customer. The one thing that we have done during this downturn is create increased customer focus in spite of not being able to physically meet the customer, look at how we can better serve the customer, be more proactive, be more faster, be more solution-oriented, come up with innovations that can help solve customer problems and using our technology and knowledge get ourselves closer to our customers. So that's really all I wanted to say. And I think I'd be happy to take your questions now.

[Operator Instructions] We take the first question from the line of Kapil Singh from Nomura.

Sir, congrats. I think it was a pretty good result considering that we had only 20% utilization, to achieve EBITDA breakeven was commendable, and congrats to the entire team to put in this effort. Firstly, sir, you have talked about the revenue guidance, especially for the domestic business. Could you walk us through what are the areas where we are seeing recovery? And what does this imply for domestic truck industry?

See, domestic truck, quarter 1 was a washout. There's almost no production. So quarter 2, we'll see -- the demand that we are seeing is it's not anywhere near last year's demand, but it is significantly higher than quarter 1. And the tractor industry, the pass car industry, the industrial sector are all seeing fairly strong growth. So that's why I said on an overall basis, in spite of the CV market being at 1/3 of its normal number, we will have domestic revenues almost equal to our normal domestic revenue as last quarter -- as, say, last year.

And sir, apart from PVs, where else are you seeing positive growth?

So agriculture, construction and mining, industrial and passenger cars.

Okay. Okay. Sir, second question is, you've talked about significant cost restructuring. Could you give us a sense of how much cost we have brought down? If we look at, let's say, revenue base of FY '20, how much cost improvement or percentage margin improvement do you think we can achieve with the cost reduction we have done, if we had last year's revenue base?

You'll see it from next quarter. Just wait. Because it's still work in progress. I think we've identified and actioned about 70% of the cost reduction, 30% is still underway. But I think we are very confident. We know what's happening. Give us some time. You will see that with lower sales, we'll have margins equivalent to previous times.

Okay. Okay. And third, sir, just on the defense side, could you give some color as to what is the potential opportunity that you see for Bharat Forge in next 2 to 3 years? And we've been waiting for some time on the artillery guns order as well. Does announcement of Sunday give you more visibility in terms of ordering taking place anytime soon?

Well, the one thing that Sundays -- this document does is it clearly tells us that the products that we are focused on, all of them are meant for domestic manufacturing. And in certain products, such as artillery guns, it's very clear that there will be nobody -- there's nobody as competitive as us, either on technology or on overall basis. So we are looking forward to the conclusion of our final trials. We have gone through, I think, 3 sets of trials or 4 sets of trials for the first gun, 3 sets of trails for the second gun, and we have 4 platforms that we have developed. And once the last phase of trials is over, I think then we are ready for the sale process to begin. And what is good about these products is that we will be able to supply these products on a global basis. There are many countries that have immense interest in our products, and we hope that we are able to take advantage of this worldwide. Only thing I can't tell you is the time frame. Because of COVID, even the ranges were shut. So it's not a usual time.

Okay, sir. We look forward to visibility later on when we interact.

Sure. Thank you.

The next question is from the line of Amyn Pirani from CLSA.

Just continuing with the defense question. So one of the items, which is going to be embargoed for imports from December this year itself is the 155, 52-caliber gun, which I think is one of your major products. So I mean -- and I think there was a plan at one-time to have 3,000 such guns. Do you think these numbers will be changed dramatically or there could be some early ordering because the embargo is from December this year. Any comment you have on that?

Look, I think the government is very clear on the sectors where it wants domestic manufacturing, where it believes that domestic companies are capable. Obviously, I can't predict what others will do or what anybody will do. All I can say is that we have clarity as far as what it is that we have developed and its capability, meeting domestic and global requirements. And I don't know the number of 3,000, but we have a capability to make a large number of these platforms and meet all the requirements that India has.

Okay. Okay. Okay. And this question keeps coming up from the investor side. I mean, the guns as well as the forging, everything is in Bharat Forge? Or is there something in your subsidiary, KSSL, if you can clarify?

Look, the guns per se will be made and sold for the domestic market by Bharat Forge. But for any other market, it will be through KSSL, but all the components and systems will be made in Bharat Forge and the value capture of that will happen in Bharat Forge. When you have to bid for foreign contracts, there are lot of guarantees and warranties that one has to give over a long period of time. One doesn't want that to be -- I don't want that to be in BFL. At the same time, we don't want BFL to be associated with any other factors at global level.

Understood. Understood. And when we had met last year in October, there was a kind of a outlook that defense revenues, which were around INR 500 crores in FY '19 could double by FY '23, has that changed materially because of what has happened in the last 6 months? Or do you think that, that trajectory can still continue? And does that include anything from the regulation change that happened 2 days ago?

So that figure that we had given you of doubling by '23 was based on components, suppliers and small programs. That is -- that will still happen. And all these big programs are above and beyond that.

Understood. Understood. That's very helpful. And just lastly, this quarter, the raw material number was very high. Was there some inventory onetime issue or something if you can explain?

So our sales were 17,000 tonnes, our production was about 15,000 tonnes, so there was an inventory impact, deinventorization of raw material. Therefore, if you see, the manufacturing expenses is lower and -- but the gross margin is still more or less the same -- operating margin is still more or less the same.

The next question is from the line of Pramod Amthe from CGS-CIMB.

Amit, first one is with regard to the international subsidiaries. Have you got any fiscal benefits in the March quarter or similarly in June quarter?

No, we don't get any fiscal benefits. All we have is in Germany...

Sir, in the sense, employee...

Hold on. Hold on. All we have is, in Germany, there is something called short time work, where people can stay at home and 80% of their salary is paid for by the government, and small percentage of their allowances are paid by us, and -- that's it. Okay?

Is it a significant amount to help you? Or...

It doesn't help you. It just -- instead of laying people off, you just make them stay at home and their cost is 80% covered by the government.

Okay. And the second one is with regard to defense. With this announcement, do you see any new products to be addressed? And does that open up new opportunities? One. Second, how do you plan to approach? Do you have capabilities in-house? Or you would be looking for some external technology support to do them...

Pramod, we have created a strategy of 3 horizons. Horizon 1 are products like our artillery guns, some of the armored vehicles and some of the specialty vehicles are between Horizon 1 and Horizon 2. And Horizon 3 are a lot of products that come into the electronics and high-tech domain. We have even high-tech products in Horizon 1, such as the product that we have in our joint venture with Rafael, Kalyani Rafael Advanced Systems. So the point is that we have an extremely wide horizon of products. Now based on the announcements, we will deepen our capability within these product segments and add strength in areas that we need. But I don't think we are going to go into newer areas.

Okay. Sure. That's helpful.

So like for example, we're not going to get into making ships or something. That's not something that we are interested in.

The next question is from the line of Binay Singh from Morgan Stanley.

On the defense side, like, if you were to take more like a 5-year view, what will be sort of your aspirational revenue target? And linked to that, do you expect any incremental spending on investments or CapEx this year in FY '21, FY '22?

We don't expect any incremental spending for CapEx in existing products in '21, '22. There is 1 product, which we have a license for, which we have developed, which we will be setting up a plant based on some high probability of orders, and that will be somewhere in the INR 50 crores to INR 60 crores, maybe INR 100 crores over 2 year kind of figure.

And what sort of an aspirational revenue target will you have over a 5-year period? I know, sir, it's difficult to give, but...

The problem with this answer is if I give you a low number, you will say India is such a big importer, you should be more ambitious. If I give you a high figure, you'll think that I'm crazy. So it's a no win scenario. But let's just say that the way we have built the nonautomotive business as a big part of our automotive -- big part of our overall manufacturing, similarly, even the defense business can become a big vertical for us.

Great. Great. No, no, best wishes for that. And just lastly, one follow-on question on exports. So you said in quarter 2, exports will be lower than previous year. And you mentioned that oil and gas business is down very sharply. So is it fair to assume that ex oil and gas business, the other segments are actually seeing very similar levels versus last year?

Honestly, the figures are changing day by day. Give us little more time, but I think directionally, we're heading in the same direction. We're not at the same level. We're still lower, but we are seeing growth for sure.

The next question is from the line of Ronak Sarda from Systematix Shares.

Congrats on decent set of numbers. Amit, first question on the exports side. I mean, we saw ACT Research has upgraded the production targets for classic trucks. Can you just walk us through how that will change the production? Is it more back-ended towards Q3? Or has the change in production already been reflected? And similarly, oil and gas, how do you see the change in production volumes? Is it again more Q3 or Q4 driven? Or we can see some benefits coming in next quarter -- this quarter at least?

Just one second. Subodh, are you online?

Yes, yes, I'm here.

Okay. Do you want to answer that?

Yes. Sure.

Please.

So Ronak, we have to take this -- your question on classic in 2 ways. One way is definitely a positive trend, and we are seeing this for the last 2 months, and particularly from a net order point of view. But you also have to remember that these net orders don't necessarily mean production in the respective period because the production can also be in subsequent months. So while all this augers extremely well for us, we have to be cautious of the actual production that happens in the next 6 months to see what result it actually has on our demand. Having said this, we are seeing a slow traction towards increased demand already.

Okay. Right. And is that trend similar for oil and gas as well? Or is there any...

No. Oil and gas is, at this point, that is not the trend for oil and gas because oil and gas is also going through some structural changes, as you are aware of. But overall, as for the last few weeks, the Brent prices are more or less stable, so in the 42 plus range. So if this continues for a couple of months more, then there will be increased drilling activity and there would be financing for that because right now more than demand, it is the financing of these activities that is a bigger issue. So we'll have to wait and watch. But again, the oil prices are staying and moving in the right direction.

Sure. Got it. Got it. Second question, I mean, I think you answered it in a way, but if you look at our other expenses, how do you see that trending over the next few quarters once the volumes come back? I mean, we have held it up pretty well in this quarter. How do you see that trend?

This is Kishore Saletore here. I think on the administrative expenses, there are 2 major components. One is on salary cost and the other is travel, marketing and so on. On the salary cost, we have put in place a road map for a very strong and a very severe reduction. It's not only a reduction in manpower, we are actually looking at the entire activity and trying to go digital, where each and every man position is being examined to see whether it can be done digitally. So as you can imagine, it's a little long drawn exercise. But we hope that will give us a fair amount of benefit. If you see our salary cost, for instance, last year, year-on-year quarter, it was about INR 125 crores. It's now down to about INR 115 crores. And this is just the beginning. So that is one part. The second thing is on the administrative expenses is in terms of travel, thanks to COVID, I think the silver lining is that all of us have got used to Zoom calls and MS Teams and so on. So everyone is working and it's working well. So I think the idea is to now focus on reducing that cost. Also a lot of related costs in terms of marketing conferences, et cetera, has also come down. So I think we will try and make an optimal mix of this. So these are some of the things which we are looking at in terms of the fixed cost reduction. I hope that answers your question.

Yes. And just, I mean, a clarification on the financial side. You didn't highlight what would be stand-alone and consol net debt in the analyst update. Do you have those numbers ready on the net debt side for both stand-alone and consol?

We can give that to you off-line. I don't have it at the moment, but we can share that with you off-line. It's roughly the same in terms of cash to net debt.

I'll take it off-line.

Sure.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

My first question pertains to defense. So given that defense has its own time lines for order to revenue translation? Can you indicate what are the milestones you would be watching internally for getting more constructive on this opportunity on defense spend on the localization side?

Okay. So first of all, all the products that we are making are 100% local. They are 100% designed, engineered, developed and the components are all local. We have, as I mentioned, artillery guns, 3 of which are already in advanced stages of testing one which is in the final stages of testing, it's gone through all the tests. It's the user test, which is now going on, which is going on this month. Once testing is over, then you have -- as long as it meets the requirements, you have a -- now under this new framework where 101 products have been put in the India list. And I don't know what is going to be the new process, whether it's discussion, negotiation, what is it because that is still to come out. But you should expect that within a year of that, hopefully, we have more clarity on what is the volume and what is the orders.

Okay. So once orders are placed, then there will be about 2, 3 years in which we'll hit the peak revenue?

No. In this case, once the orders are placed, we can start deliveries in less than 3 to 4 months. Okay?

Okay. Okay. Okay. Understood. Understood...

Maybe even shorter. I mean, we can start deliveries literally in 2 months. And then obviously, the deliveries will start at a smaller rate, and then in 3, 4, 5 months, the rate will increase.

Right, right, right. Understood. Secondly, on the domestic side, you indicated about second quarter being flattish, and you highlighted that could be driven by passenger vehicles, agri and industrial. So effectively, are we indicating that passenger vehicles, agri and industrial will be growing on Y-o-Y basis enough to offset the decline in CV because CVs, at least on the domestic side, we're not seeing any signs of recovery. So how do you see that?

There are 3 sectors where we are going to see domestic growth. One is agri, the other is pass car and the third is industrial, okay? And we have new customers in all 3 areas, new business in all 3 areas and market share gains in all 3 areas, including in the CV sector. So we will -- because of these 3, 4 factors, we should have a domestic, which is flattish compared to last year.

Got it. Got it. And lastly, on aerospace side, given that the impact of COVID and some question marks around the structural changes happening in the aerospace industry, are you seeing any bit of communication from your customers about how they see offtake of the orders which have been placed to you?

See, we have 3 categories of products that we supply into aerospace. One which we supply into commercial airspace, where the order -- the manufacturing of those products has reduced quite substantially because of the demand. Second is we supply into engines used in business jets, where the demand has actually gone up or is flat compared to last year. And then third is, we have now got new products going into the -- into categories that are used in replaceable parts. So between these 3, we will see growth in our export business in aerospace even next year.

Okay. Okay. So broadly, we still expect $100 -- $100 million revenue in next 3 years?

Directionally, yes, $100 million might become $85 million, $80 million, $90 million, $95 million, but yes. But if the whole market is going to shrink then -- but I think directionally, yes.

The next question is from the line of Puneet Gulati from HSBC.

My first question is with respect to the raw material costs. So the raw material cost has fallen only...

No, no, see, very simple. We had a deinventorization of raw material cost due to higher shipments and production. That is why raw material cost has gone up. But if you look at the operating margin, it will reflect the balancing between the manufacturing expenses and raw material cost.

Okay. Okay. That's why the other expenses is lower and raw material not so much.

Exactly.

Okay. Okay. And second, while you did comment on the revenue run rate for Q2, but in domestic business, is it also possible to give some more color on how bad can Q2 for international be? Or -- and what kind of uplift you're seeing from Q2 decrease versus Q2 previous levels?

Subodh, do you want to take this?

Sorry, Amit, I couldn't hear the question well. Could you please repeat?

Yes. So the domestic area [Technical Difficulty] they seem to be flat Q-on-Q...

Mr. Gulati, I'm sorry to interrupt, but your audio is not very clear, sir, it's breaking up.

Okay. Any better?

Yes, you may go ahead now.

Okay. So I just wanted some sense on how Q2 international business is likely to be?

It should be similar to, I guess, an average of Q1. It will be better than Q1 in overall numbers as such because we have more working days now. But in the overall scheme of things, the CV market is seeing improvement. The pass car markets are seeing slight improvements, not significant. And oil and gas markets are not really improving at all. So it should be very flattish, I would say.

Ex oil and gas, it should be flattish.

The next question is from the line of Sonal Gupta from UBS.

So just on the, I mean, just on the -- I mean, like the India business, like you mentioned, I mean, last year, if I remember correctly, Q2 had -- still had contribution from some defense contracts as well. So are we getting now new contracts on the defense side and that business has come back? Or have we won some new defense orders, I mean, just anything there?

No, nothing yet. No new orders yet. Only our normal orders of the consumables that we supply.

Right. Yes, but -- I mean, so nothing over and above that?

Nothing significant.

No, nothing significant.

Okay. And just on the defense side, I mean, just going back to your comments on the CNBC interview. I mean, you mentioned about ESG, I mean, criteria as well. So could you just highlight in terms of how you think that is sort of impacting how this business gets structured as well? I think you -- my sense is partly the structuring is coming from there?

Selling defense items into a responsible nation like India is easy, okay? Now there are many countries that buy weapons where we don't know what they do with it, okay? India has never been an aggressor anyway. So I don't want to -- I want to sell to places where it is safe to sell and where it is advisable to sell.

Okay. Okay. Got that. And just lastly on -- I mean, like given that we had such a big break in terms of -- I mean, typically, what happens in a cycle is that you start -- I mean, you see obviously the cuts earlier because the customers are reducing their inventory levels as well and so you have a double impact of the market slowing down as well as the customer cutting inventory. So would you say that, I mean, like between Q1 and Q2, that phase would sort of get over for you, and in fact, you might switch over to the other phase where now that the demand is starting to move up, the customers have to start to rebuild inventory as well, and so you could start seeing faster than -- your production growth can be faster than the industry production growth or something?

That's -- as you have to fill -- when the pipeline is -- when the inventory pipeline is emptied and as the production ramp-up, obviously, pipeline filling has to happen. But that depends on how aggressive the ramp-up is. If the ramp-up is gradual, the pipeline fill up is also gradual. If the ramp-up is aggressive, then that will happen aggressively. You're absolutely right. There's always a lead and lag effect in both the cases.

Right. But I mean, like what we typically see is, especially in the industrial sector that you cater to, I mean, those can be very, very sharp, right, moves on both sides. So to that extent, do we see that? I mean, maybe you will sort of see a much sharper recovery going forward in the next couple of quarters. I mean, what I'm trying to understand is that the inventory reduction phase is clearly over, right?

Yes, inventory reduction phase is more or less over.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

On the Nellore facility, sir, you have spoken about INR 200 crores revenue in the first phase and the production to commence from Q3. Is it on track? And is there any delay in terms of acquire -- getting customer approvals for the products there?

There is a 4- to 5-month delay on everything. Plant commissioning is done. Our samples for some customers have gone out, for some because of the lockdown, we've had to shut down the plant.

Right, sir. So this INR 200 crore revenue maybe by FY '24, that is quite possible?

'24. I mean, that's a long time out. Hopefully, before that.

Okay. Okay. Okay. That helps, sir. In Europe, we were planning to add additional press line for aluminum products. So if you can give some update on how is the Europe business panning out. We are also seeing an increased demand for hybrid cars and EVs in Europe. So is there any new opportunity that is now coming up for us? And any update on our U.S. aluminum expansion plans?

Yes. So as you are aware, we announced that we are doing expansion in Germany. This expansion is now complete. It is now in the ramp-up phase. It's in the trial production phase. The plant has just been commissioned, and this will take 2 years to ramp up to full capacity. Because lot of the orders are new and also because of COVID, there has been a 3, 4 months delay in everything. But this was a large investment, almost EUR 60 million. And this will almost close to double our capacity in Europe. We are doing an identical plan to that in the U.S. in North Carolina, and a lot of the customers are common. So we expect that both these put together should have a big growth. But right now, everything is very nebulous because lots of customers are -- markets are down, customer -- production is down. So we still have to wait and watch when the ramp-up happens. But I think we have a good technology. We have a good product, and it will work.

And these are largely for the passenger cars, right, sir, in Europe?

Only for passenger cars. Both hybrid and electric, both.

Right, sir. Sir, just one question, if I may, please. On the exports -- on the passenger vehicle export side, sir, you did mention that we are seeing good traction there. So our earlier plans of new products, introduction of newer products, is that catching up on the export front, even as North America and Europe we are seeing good production improvement?

So we have made -- without going into too much detail, I will only say that we have made tremendous breakthroughs into getting into new products, extremely complicated new products. And these have a very good long term -- medium- to long-term potential, okay, for the passenger car sector. And these are products that we were absolutely not present in till very recently.

And these are largely driveline and transmission, sir?

Yes, driveline and transmission products. Absolutely.

The next question is from the line of Joseph George from IIFL.

Can you hear me?

Yes, absolutely, Joseph.

Yes. I had 2 questions. One was, could you give us a sense of how much was agri as a percentage of the stand-alone revenues maybe for the whole of FY '20, just to give a sense of the importance of the segment?

I'm sorry, I don't have that because that goes into our industrial sector. I don't have it right now.

Okay. Okay. So maybe I'll check with Raj later. Sir, the second question that I had was on defense. Now the opportunity with respect to maybe 2,000, 3,000 artillery guns, sounds huge in terms of potential revenues. But I just want to understand, based on your existing gross block, based on your existing capacity, how much can you actually deliver per annum maybe once you get the order? Because for huge revenues, you need a huge cost block as well.

Let's look at artillery guns, break it up into the core components, okay? The core components of the artillery guns are the barrel, the breach, the muzzle, the base, everything that carries the charge and fires the round, okay? We could make probably close to, I would say, initially about 50 barrels a year, going up to maybe in the second year or third -- second year, maybe about 100, and by optimization, maybe even up to 150 a year. So that should give you a sense of 150 guns a year is a very, very large capacity. And I'm talking about not just forging, I'm talking about forging, machining, rifling, autofrettage, fully finished. If I had to talk about only forging, we could probably make 4 or 5 a day.

Okay, okay. Understood.

We have unlimited capacity on the forging side.

The next question is from the line of Amyn Pirani from CLSA.

My question was actually on the export non-auto, ex oil and gas. So this quarter also, we've actually managed to do better than the other categories. So what are the components of non-oil and gas, and what is the outlook there?

Yes. So this is basically sectors like construction equipment, mining equipment, large diesel engines, et cetera, which have been used in the western world all over, whether it's U.S., Europe, lot of these makeshift hospitals, et cetera, have been built for COVID. So you've used a lot of equipment to build this and a lot of power generation equipment have been used for powering all these. So this is what has driven that.

Okay. Okay. But I mean -- but this would not be sustainable, right? I mean, then this would -- or what is your outlook on this?

I think if you read what most people in America are saying is that they are now realizing that their infrastructure is falling apart, and they need to rebuild their infrastructure. So this could be just the beginning of a new infrastructure boom in the U.S.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sorry, just harping on this defense thing. The import embargo, just a clarification, the import embargo on the items and the ordering, I'm talking about with respect to what is being talked about from 2016 is the towed artillery contract are 2 separate things, right? I mean, just because there is an import embargo, it doesn't mean that the ordering should come in, right? I mean that something is separate. And I'm talking about this artillery contract, which even L&T got the first contract in the tracked -- self-propelled tracked artillery gun, which also got tested in 2014, '15 came eventually in 2018. So these 2 are separate things, right? I mean, even import embargo doesn't mean that tender is getting open there, it's still on the testing side?

No, no. See, what it means is that these products can no longer be imported. They have to be locally made. So the example you gave would no longer be valid because that was only assembly. It wasn't manufacturing.

Because when we look at the self-propelled tracked gun, which, obviously, in the towed artillery gun, L&T is with you and competing with you along with [ Nexta ].

No, you're absolutely wrong. No, no, no. L&T does not make guns, they only assemble.

So -- yes, so I never said they make guns. What I'm saying, they've gone a JV partner with...

But they don't manufacture in India. They don't manufacture in India.

That's absolutely correct. My question was not that. My question was that with respect to bidding contention, what happened in 2016 or '17 that talked about procuring 1,500 guns, under Make in India, 1,100 would be under Make in India and 400 units a JV partner can make or you can import. Does that completely extinguish now the whole everything, 1,500 or 1,600 procurement needs to be done here?

Yes. Whatever -- now that category, whatever has to be procured has to be made in India.

Right. And if I remove the value support of the guns, the consumables because when we saw L&T -- I'm just giving an example, just to understand the value part, more understandable, when we look at the L&T Vajra gun order, which [indiscernible] went very higher at INR 7,000 crores and finally got renegotiated and it went to down about INR 5,000 crores. If I remove this procurement, and let's say, it's a procurement of 700 or 1,000 guns order comes in. If I remove the consumables part, each gun would cost around INR 15 crores to INR 16 crores? Because what I understand these figures were somewhere INR 8 crores to INR 10 crores for a towed gun, towed artillery gun per gun cost, removing the consumables for the value support of the life. Is that the right way to look at it?

So the value of our gun, depending on the level of technology and complexity and how advanced it is and how sophisticated it is, it can range...

Let's say, 155mm.

Yes. But even a 155mm, the ATAGS gun is the most advanced gun in the world. 48 kilometers where every other gun is between 35 and 40.

35 to -- yes.

7 kilometers is -- it cannot be measured in kilometers, but in the lives of soldiers -- when you're 7 kilometers further away, you can fire, it's immeasurable the value that it creates. So the point is that the value anywhere ranges between INR 12 crores, INR 13 crores, INR 14 crores, INR 15 crores. And then it depends on what kind of add-ons you have, what kind of sites, what kind of other high-tech technology items that you put on top of it, how many radars do you add to it, so on and so forth. Generally speaking, it's 12 to 15 in that ballpark.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Amit Kalyani for his closing comments. Over to you, sir.

Ladies and gentlemen, thank you very much for your encouragement and kind words and all your interest in our business. Unfortunately, like we normally do, we haven't had a chance to meet physically due to the current COVID crisis, but we are trying to put together something interesting for you. In the next 2, 3 months, we will be able to do a virtual Investor Day with you, maybe in October or so, which will be quite interactive and quite interesting. And I hope that you will have the time to attend that virtually, if not personally, if things don't improve, but I wish you all the best and stay safe, and thank you very much. Bye-bye.

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