Davos 2023: Buses, Two- And Three-Wheelers To Spur EV Growth, Says Bharat Forge
The demand for electric buses is robust, that's driven by government procurement and state transport or municipal transport.
Electric buses, two-wheeler segment and three-wheeler segments will drive growth in the electric vehicle industry in India, Bharat Forge Ltd.'s Deputy Managing Director Amit Kalyani said.
The demand for electric buses is robust, driven by government procurement and state transport or municipal transport and to fleets, Kalyani told BQ Prime's Niraj Shah on the sidelines of the World Economic Forum in Davos.
"The biggest growth in EVs is going to come from the two-and-three-wheeler sector because that is a sector where, commercially, it makes a lot of sense for users because they save a lot of money," he said.
Bharat Forge is focused on the EV supply chain at the global level and for EV products for India, Kalyani said. "We supply to companies in the U.S., Europe, and China."
The company is also a supplier for traditional original equipment manufacturers that are transitioning to hybrids and EVs, along with EV startups, he added.
Watch the full video here:
Edited excerpts from the interview:
So, it's bitterly cold in terms of the economic prospects around the world as well, so to say, at least on the western side, and a lot of areas where your businesses are there, so how do you juxtapose what's happening around the world, particularly in the western hemisphere versus the business decisions that you have to take over the course of the next five years?
Amit Kalyani: Well, there are two things, one is you have to look at the megatrends and the direction in which a lot of our consumer segments are going.
So, whether you talk about automotive, which is completely going electric and green, to industrial which is seeing a big growth in India and in certain new sectors, largely in mass transportation, etc. and of course, growth markets like aerospace defence, which is a market which has opened up in India and, you know, e-mobility which is a big growth opportunity, both in the Indian market and global markets. So, we look at each of our businesses, both as local and global markets, that's all you can do really.
Being financially resilient, technologically strong and having great customer relationships, and very closely working with them provides you with opportunities, both in good and bad times. So, I think you just have to keep your ear to the ground, be close to your customers and focus on what you can do and try to adjust to the changes taking place around you. So, all you can do really.
Let me ask this in a different way, would some capacity expansion decisions or product innovation decisions, would they get pushed back a little bit because of what is happening in the west and your vision of how demand could get impacted in 2023?
Amit Kalyani: So, right now in Europe we are seeing very strong demand on the commercial vehicle side, and in the U.S. also, the commercial vehicle demand is very strong and likely to remain strong because it's a huge replacement market which is going to come up in the year ‘23.
On the past car side, a lot of our customers are constrained with the capacity of the supply chain, so they are producing below their stated capacities. So, within that you have to adjust your product portfolio to make sure that you are able to supply the products that they are making and because we are platform suppliers, pretty much what we supply goes into a number of different models. So, at a platform level, you are fine.
But the second question you asked, which is about innovation, I think it has to get accelerated, because how do you reduce cost, how do you lightweight and how do you become greener? So, if you see some of the things that we have been doing in terms of investments, in terms of acquisitions, in terms of R&D have been focused on, where is it that we have the opportunity to grow, where can we sell more to our consumers.
So, for example, getting into the castings business, the iron and steel castings has been a complete complementarity because that business globally is even larger than the forging business. So, we have just gotten into that and now we have made an acquisition. The second one, which will happen soon will take up capacity to almost 140-150,000 tons of melting, about 100,000 tons of output and that's only the start.
We believe that sectors like those who provide an industrial business very strong growth going forward, double-digit growth, and allow us to move from making only components to making subsystems because a subsystem that goes into these kinds of vehicles, the combination of forgings and machining with engineering, which is what will be the next step, which will be the post 2025-26 kind of step for us.
Amit, when you think of these things, and kind of contextualise it with the fact, as Howard Marks spoke to us recently and talked about this being a decade of sea change wherein, we have had three decades of easy money coming in, liquidity may not be as easy so to say. Does that have any bearing on the quantum of capacity expansion that businesses like yours might normally do versus they might do now?
Amit Kalyani: Easy money affects growth, but we are also growing because we are taking shares away from other people. Please remember, that as a company we are about 1.4-1.5 billion. There are companies in the automotive supply chain which are 50-60 billion and the overall addressable market size between all the things we do is unlimited.
So, for us to grow, there are three levers, one is India growth, which will continue to grow. The new products and technologies we have gotten into which will provide growth and taking away market share or taking away you know, let's say value capture from other players or even from OEMs wanting to outsource. So, there's plenty of opportunity to grow.
Our growth will be largely done in India and in North America, as far as investments are concerned, because those are the markets where we see tremendous growth on new products, new technologies, and where we can play a meaningful role.
I heard you mention this and somebody else has also mentioned this to us that even Europe, which may be in the throes of a recession/slowdown, will actually see heavy demand for the forging side because the CV replacements is going to be strong. You are saying Europe will also not just sail through but deliver growth in 2023?
Amit Kalyani: In Europe when you see very significant growth, you don't see 25-30% annual growth between a linear and a strong year in Europe, you see a 15% growth, whereas in the U.S., the swings are much greater.
But it looks apparent that a lot of growth is going to happen in Europe, because also of the change in transportation of some critical goods which used to come either by sea or by pipeline, and now coming through other means.
So also, different routes from where raw materials and supplies are coming into Europe. So that needs a lot more trucking because rail capacity cannot be built immediately, roads are available.
So, increase in inputs or imports into Europe from close by or into mainland Europe into the big four or five geographies is going to provide more boost to transportation plus the replacement demand.
Now, a bit about what your next couple of days might look like here simply because the mood over the last, say 36 hours that I have been here, there's a lot of chatter around India. Your meetings that might be scheduled, are they lot about the very businesses that you are in and is there a clamour for Indian companies, clients wanting to meet them, you in particular?
Amit Kalyani: So, I have a lot of meetings with our automotive customers because mainly, if you look at our businesses, the automotive business is the one where we have clients all over the world plus I am part of the automotive governance. So, a lot of my sessions are around manufacturing and automotive supply chain, energy, green etc. So, I do have a lot of meetings there.
If you look at the defence, it’s a B2G business, countries buyers, individuals don't buy this. So, I don't have any meetings around that because this is not a forum for that. We do have meetings with prospective partners, with people who we are working with in other geographies. I can't name anything, but we always look at new opportunities, new geographies, and meet people who have synergies and complementarities that you can work with, and you know, win-win for both.
Since you invoked defence, while it's B2G, since the Russia-Ukraine conflict broke out, I presume there is a lot of talk around more and more defence sourcing, defence capabilities, where does your company fit into it, both India and abroad?
Amit Kalyani: So currently, our business is largely in India, and we do have a good amount of export business that we have won. We haven't started exporting anything but none of our business is in any of the conflict zones. So, we are not exporting to any place which has an active conflict going on, that is consciously something that we are not doing.
But that has made people realise they need to create new sources, because a lot of sources are either getting depleted or destroyed and, in that light, people are looking at new long-term relationships to secure their long-term future.
This is the G-part which is looking to do this from private venues?
Amit Kalyani: Yes, and I must say the Indian government, the MEA, is really supporting and facilitating this by encouraging foreign companies to understand better what is happening in India, what Indian companies can do, and how they can benefit from it.
So right from the DefExpo to visits of various government, you know, military people to India to obviously with the Government of India and to private companies is taken off in a big way.
Tell us about all aerospace as well, I have read you intend to move up the value chain meaningfully, where is it right now, where does it go?
Amit Kalyani: We started aerospace with making simple components, just forgings which we make using existing equipment, then we got into fully machined products. Now we are moving into assemblies. So gradually as we keep going ahead, we are not going to make aircraft for sure, but we will make what enables an aircraft industry or supports the, let's say, supply chain of the aerospace industry in India.
So, we are already working with HAL on all their programmes, a lot of future programmes as well, including a lot of MRO work that they are unable to get from outside now. So, a lot of those are being made in India by us. So, we are making landing gears, wheels, structural components and even things like APUs, etc.
So, these are pretty challenging and complex products because we have a whole turbomachinery division that allows us to laterally move into this and of course the government and you know, the Air Force or the Navy are very supportive. They really are going an extra mile in helping and handholding, and we have access to their labs, so that you can test your products, which is really remarkable. That is something that has never happened for the last 75 years.
So, I mean, how does such a business move? I mean, is there a step-up impact that comes in at some point of time?
Amit Kalyani: For a long time, our aerospace business was very small. So I have always mentioned that the first milestone is to get to 100 plus million, and I am fairly certain that in 1.5 to 2 years will be in excess of that and then once you get to those kinds of figures, even 20-25% growth a year in three, four years, it takes you to a fairly sizable number and then you have enough critical mass that you can either bid for a big new project or you can take over some programme from someone, so all that can happen.
There is a lot of pain in parts of the aerospace supply chain also because not all the aerospace companies are doing well. People have had challenges around technology, certifications, etc. So, a lot of people are also impacted and on top of that India is buying so many aircraft, I am talking about commercials, and the offsets now are a huge opportunity. If you combine offset opportunity with pain in the value chain, that's a very big tailwind also.
One thing that I noticed here, at least four people came up to me and spoke to me and three of those four were in the EV space, in some subsegment of the whole EV drive that India is doing or the world is doing at large. Now you spoke to me about a couple of quarters ago about the exciting things that you are doing, could you talk a bit about this, it's the right platform.
In EV, we are doing multiple things, but largely I would look at supply chain and then EV for India. So, the supply chain is at a global level, it's both in India, it's outside India. We supply to Tata, we supply to Mahindra, we supply to other companies. We supply to companies in the U.S., in Europe, in China.
We supply to both the traditional OEMs which are transitioning to hybrid and EV vehicles and to the EV start-ups and then in India, we have a product portfolio which is separate from our product portfolio anywhere else, which is for the two and three-wheelers, where we supply battery cases, motor housings, gearboxes, etc. for the two and three-wheeler market in India.
I believe that the biggest growth in India is going to come from the two and three-wheeler sector because that is a sector where commercially it makes a lot of sense for the user because they save a lot of money. The other area where you will see a lot of growth comes from buses, that's driven by government procurement and state transport or municipal transport and to fleets.
Your business and multiple businesses that you run, a clutch of supply chain-led inputs, a lot of transportation outside and again, that involves shipping, supply chains, and so on so forth. The last 24 months have been, for lack of a better word, fractured, are things easing out, are you hopeful of some more easing or is it difficult to predict?
Amit Kalyani: So, you mentioned the stress in the last 24 months, I am very happy to say that we have not missed one single shipment or delivery out of India. We have not starved a single customer of ours because of the supply chain and logistics from India. I think, Indian companies and our partners on the logistics side have been really exceptional in helping us manage this period very well.
So, you mentioned varied businesses, what we did is over the last 12 months, we have now transitioned our company from one monolithic entity into five verticals, run by five business heads, and they are now in the next 6-12 months, they will become like virtual companies. So, they have everything from HR, finance, accounting, R&D, engineering, all within, some of them are shared services because the whole direction, the corporate procurement, finance obviously has to be shared. R&D also, some of it is shared, some of it is bespoke, but what this allows it gives you sharper focus, narrower focus, allows the business unit to be much more customer aligned, and much more agile and that is the direction that we are going to go into.
Right now, in the next two years, we will get these verticals fully speeded up, and you know, you are transitioning from one structure to another, and then they will move into the next step of growth, which is how do you move from components into subsystems, systems and services So, that's going to be the next direction.
In 2030, do you hope each of these five verticals could individually become the size of the current automotive business, so to say?
Amit Kalyani: I don't know about every one of every one of them, but I think, at least I would say two to three of them should be, have the potential to be of the current automotives. Bharat Forge is 40% industrial today, 60% automotive, so definitely has the size of the automotive. Maybe some of them will even be the size of our current business.
You are doing a set of interesting things in order to accelerate the growth. I heard you on a forum talk about how green steel enables you to kind of move or become more competitive, maybe not just you, but the space at large. There are other tie-ups that you might be doing which are helping you do that, this whole aluminium business is spoken about a lot, just wrap up this conversation with that.
Amit Kalyani: In some way, we are trying to demystify things like green manufacturing. So, we have been using renewable energy in our plants for the last 30 years. Today 30% of energy is renewable. One of our steel mills is now 100% on renewable energy, so that one plant will be fully converted to make only green steel by next year.
Already we will have almost 30% of that plant running on green steel. By next year, it will be 100% green, which means 250 to 300,000 tons of specialty bar quality, which is high-end steel used in automotive, aerospace and other applications will be completely green.
What this will do is, it will allow us to create a brand and support those customers who want to also take the leap in being green through their value chain and this is not just for us but as a company making green steel, it is also good for Indian suppliers to take a lead in being green.
See, I think we have a very big advantage in India that our cost of renewable energy is the cheapest in the world. We don't need subsidies for renewable energy. So, if you can take advantage of that and create a lead both psychologically and on the product side there’s nothing like it.