K Drive Mobility Solutions Private Limited (500493) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bharat Forge Conference Call to discuss the acquisition of Axle Business of AAM India Manufacturing Corporation Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Kalyani, Vice Chairman and Joint Managing Director, Bharat Forge Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. This is Amit Kalyani, Vice Chairman and Joint Managing Director of Bharat Forge. Thank you for attending our conference call to announce a major new initiative. I'm very pleased to announce that today, we signed a definitive agreement to acquire American Axle's Manufacturing India operations. American Axle's India is a manufacturer of axle products for commercial vehicles. We acquired this at an enterprise value of INR 545 crores, subject to closing adjustments. The acquired entity is a leading manufacturer of axles for a variety of applications for trucks and buses in India. We will be acquiring the commercial vehicle axle business of the company with plants in Pune and Chennai, along with the Engineering and Development Center. This transaction is subject to approval from the CCI and will close only after receiving CCI approval, and upon fulfillment of other customary closing conditions. The turnover of the company, which we are acquiring was approximately INR 1,384 crores. Basically, we want to align our business strategy with the growth strategy of India. We see opportunities for getting into products and using the core and base technology to get into a diverse set of new products, and that is the rationale for us acquiring this business. This business will be EPS and ROC accretive from year 1. And given that there are significant confidentiality considerations and the fact that they still need CCI approval, I don't think we are in a position to answer too many questions, but we are still happy to try and attempt to answer whatever you may have. I'll now be happy to take questions, which I and our management team will be happy to answer. Thank you.

[Operator Instructions] The first question is from the line of Mukesh Saraf from Avendus Spark.

My first question is on the components. I mean, how does this help in terms of synergies? And obviously, the forgings we can supply from Bharat Forge, but are there any other areas that we're looking at in terms of synergies absolutely [indiscernible] itself?

See, the synergies are on 3 fronts. One is on the market front; we are able to -- we will be able to offer a broader range of products. On the technology front, we'll be able to develop new products and technologies, and which will allow us to grow. And the third is the supply chain side.

Right. Right. Right. So could you elaborate a bit more in terms of new technologies, et cetera. So are you saying that because you will acquire this, there will be more products that this entity can then develop and supply to its customers?

We will drive its trajectory using technology, okay, to create new products.

All right.

[indiscernible]...

Sorry, go ahead.

Yes. Go ahead.

Yes. So when I look at the numbers, 6 out of the last 9 years, the EBIT is negative. So again, I mean, just related to the first question, what are the areas that you are looking to kind of change in this? Is there anything that you're looking at in terms of [indiscernible] it?

I don't -- look, quite honestly, I think we have acquired this business with a view to the future, with a view to what we believe we can do with it. I don't want to speak for what has happened in the past. But clearly, we have a strategy, we have a plan, and that's what we want to do.

Right. Right. I get that. And just lastly, in terms of CapEx, are you envisaging the CapEx that you might have to do in this entity? Because I see that the gross [ profit ] has probably doubled in the last decade. So is there a requirement of more CapEx that we'll have to do there?

Yes. Let us do the closing. At present, we don't feel we need any CapEx right away.

Sure. Okay. Got it.

But subject to the closing and then what happens after that, we will decide.

All right.

I don't think it is going to be anything significant.

All right. Okay.

[Operator Instructions] The next question is from the line of Pramod Amthe from InCred Equities.

A couple of questions. One, does Bharat Forge already supply to this entity and what proportion of requirement?

No, I don't -- we supply a very small amount, if at all.

Okay. So that's the immediate possibility for you, if in case this happens, right, in terms of forward integration.

Yes.

Second, globally, these axle businesses are controlled by very few majors. So in that context, how crucial is the technology and the sustenance of this technology in the medium term? Does the American Axle will continue to supply with technology in the coming years or you will be on your own as soon as to get you?

So we have signed an arrangement with them that we will continue to get support for existing products, okay, for a defined period of time. And then we will have to -- eventually the idea is that we want to develop a lot of new products as well.

Okay. And also considering the fact that in -- you guys did try AXL with one of the U.S. entities and also that might be a possibility for M&A series. Is there a scope of getting that support from the technology partner or you have to do it on your own? How are you insulated from it?

Sorry, I didn't understand that.

No, to move into...

We've got the IP transferred along with the business. So we have all the IP that we need to produce all these products currently. And again, new products, we can produce based on our capability and competence, and using the assets and the people that we have in this company.

Okay. Sure. And looking at the technology, any newer areas you feel you can explore better and make the viability of the business much stronger next 3 years, 5 years compared to...

Yes. Obviously -- that's the reason we are taking this step. So I think post the -- let us -- I think it's going to take a few months, and then we will be able to -- another blueprint in a little more definitive and make it public. Right now, all I will say is this is a strategic acquisition for our transformation of our business from further transformation from components to products.