Bharat Forge’s Defense Expansion Strategy Gains Momentum Amid Optimism. What Lies Ahead for the Company?
India’s Defense Industry: From Importer to Innovator
In March 2012, the seventh edition of DefExpo, India’s prominent defense exhibition, hosted a staggering 580 exhibitors, showcasing their products at Pragati Maidan in New Delhi. Among them, 232 international major players from countries like the US, Russia, France, Israel, the UK, and Germany gathered with the hope of capturing the attention of the Indian defense establishment. At that time, India held the title of the largest importer of weapons globally, with an arms procurement budget of $16 billion. This trend continues today, with India maintaining an 11% share in global imports and an annual procurement budget exceeding $20 billion.
Among the exhibitors stood Bharat Forge Ltd, a renowned auto component manufacturer entering the defense sphere. Their booth proudly showcased the ‘Bharat 52’, a 155 mm, 52-caliber artillery gun akin to those extensively employed during the Kargil war.
Baba Kalyani, as the chairman and managing director of Bharat Forge, recounted the experience at the expo. “When the defense ministry officials came, they examined the gun, had a good laugh, and then left,” he recollected. “It seemed like nobody had faith in the capability of an Indian company to manufacture a gun,” he continued.
Despite the disappointing reaction, Kalyani embraced the challenge of showcasing India’s prowess in manufacturing indigenous weapons. Over the span of 12 years, from 2010 to 2022, Bharat Forge invested over ₹700 crore in the development of weapons, guns, armored vehicles, and ammunition, all without substantial revenue to show for their efforts.
The Vision of Indigenous Innovation
Bharat Forge’s ambitious investment in defense technology reflected not only their commitment to innovation but also a visionary aspiration to establish India as a capable manufacturer of its own weaponry. This strategic leap aimed to reposition India from being solely an importer of defense equipment to an influential innovator in the sector.
This remarkable endeavor, characterized by relentless perseverance in the face of skepticism, exemplifies a transformative phase in India’s defense industry. The proactive pursuit of self-reliance and technological advancement has the potential to significantly redefine India’s global standing in the defense arena.
A Paradigm Shift in Industrial Landscape
Bharat Forge’s unwavering dedication to indigenous research and development has set a compelling precedent for Indian companies. It signifies a shift from conventional practices of reliance on foreign defense technology to a proactive approach focused on self-sufficiency and innovation.
This pivotal transformation not only contributes to enhancing India’s defense capabilities but also aligns with broader strategic imperatives of fostering indigenous expertise and reducing dependency on external sources for critical defense requirements.
India’s Defense Industry Evolution
Since the National Democratic Alliance (NDA) assumed power in 2014, there has been a concerted effort to prioritize indigenous defense production and gradually remove barriers to private sector participation. This shift in policy has created opportunities for companies like Bharat Forge to flourish in the defense sector.
Despite its defense vertical currently representing a small fraction of Bharat Forge’s overall revenue, contributing approximately ₹300 crore out of a total of ₹12,910 crore in 2022-23, the company’s chairman and managing director, Baba Kalyani, anticipates a substantial surge in its contribution by 2024-25. Kalyani confidently asserts that the defense segment is poised to outpace the company’s traditional business, potentially becoming its primary revenue stream in the near future.
The robustness of Bharat Forge’s outlook for its defense business is reinforced by its burgeoning order book. In the second quarter of 2023-24 alone, the company secured orders amounting to ₹1,100 crore. The total order book presently amounts to ₹3,000 crore, with plans for execution within a 24-month timeframe.
Projections for Future Growth
Bharat Forge’s bullish stance on the upward trajectory of its defense business is supported by its substantial investments in designing, prototyping, and developing advanced defense products. As the company navigates this strategic juncture, it finds itself well-positioned for significant expansion in the defense industry.
The foresight and tenacity displayed by Bharat Forge underscore the evolving landscape of India’s defense industry, signaling a promising shift towards self-reliance and heightened domestic manufacturing capabilities. With a burgeoning order book and a proactive approach to innovation, Bharat Forge is poised to play a pivotal role in shaping the future of India’s defense sector.
The Reshaping Landscape of India’s Defense Industry
The optimism of Kalyani, Bharat Forge’s chairman, is grounded in India’s evolving arms procurement strategy, marked by a significant uptick in local sourcing of arms and ammunition. Notably, the import of arms and ammunition between 2013-17 and 2018-22 witnessed an 11% decline, reflecting a deliberate shift towards self-reliance. In a remarkable demonstration of this trend, Indian players recorded a substantial surge in defense equipment exports, reaching ₹16,000 crore in 2022-23.
Major Players and Strategic Bets
The increasing emphasis on indigenous defense capabilities has spurred several Indian conglomerates, including L&T, the Tata group, the Mahindra group, the Reliance group, and Ashok Leyland, to make substantial investments in the defense sector. This strategic focus underscores a collective commitment to fortify India’s defense manufacturing landscape, thereby reducing reliance on foreign sources.
Bharat Forge’s Preparedness and Technological Advancements
Bharat Forge stands poised with a diverse array of products, spanning artillery, armored vehicles, ammunition (shells), missiles (including anti-tank guided missiles and long-range guided missiles), as well as naval/marine applications like unmanned vehicles and drones. Notably, the company has meticulously developed these weapons and products using its own proprietary technology, reflecting a steadfast commitment to indigenous innovation. Additionally, Bharat Forge is on the brink of completing a dedicated ₹150 crore facility tailored for defense production, further underscoring its preparedness to meet the burgeoning demands of the defense industry.
Embracing a New Horizon: The Evolution of Bharat Forge in the Defense Sector
The foray of Bharat Forge into the defense industry signifies a remarkable transition that burgeoned in 2010. At that juncture, Baba Kalyani, the visionary mind behind Bharat Forge, engaged in informal discussions with officials in the defense ministry and his acquaintances in the army, spurred by the dearth of domestic artillery gun manufacturers in India. This dearth had left the nation entirely reliant on imports for its defense requisites.
With Bharat Forge already supplying gun barrels to numerous ordnance factories, Kalyani pondered over the prospect of venturing into artillery gun production, leveraging the company’s global eminence as a leading forging entity. Reflecting on this pivotal moment, Kalyani recollected, “We possessed extensive expertise in working with steel—forging and machining it into diverse forms and dimensions. Moreover, we were already engaged in barrel production.” Delving deeper into the intricacies of artillery gun construction, Kalyani sought insights from the Gun Carriage Factory in Jabalpur and undertook a comprehensive exploration of the nuances of artillery guns at the renowned Cranfield University in the UK, internationally acknowledged for its prowess in defense education.
Fortuitously, Kalyani stumbled upon an unprecedented opportunity during his expedition to Cranfield University. Professors there apprised him of an available gun manufacturing plant owned by Ruag AG, a Swiss defense equipment behemoth. Seizing this serendipitous moment, Kalyani expeditiously ventured to Zurich and, within a day, concluded an agreement to procure the plant. The ensuing relocation of the machinery to Bharat Forge’s Indian facility transpired over a span of two months, marking a bold and audacious leap of faith.
Amit B. Kalyani, the joint managing director of Bharat Forge, alluded to the unconventional trajectory embarked upon by the company, affirming, “My father was resolute in demonstrating the capability of an Indian enterprise to produce world-class artillery.” This audacious venture unfolded in the absence of any overt advantages. Antedating the emergence of ‘Atmanirbhar Bharat’ as a prominent paradigm, the endeavor lacked certitude regarding the indigenous procurement of guns by the Indian army or the specifics of the requisite artillery. Drawing on the company’s proficiency as the foremost manufacturer and supplier of intricate high-precision components like crankshafts, Amit Kalyani exuded confidence in Bharat Forge’s ability to surmount the challenges entwined with artillery production.
Bharat Forge’s foray into artillery gun manufacturing epitomizes a watershed moment, embodying the power of resolute determination and relentless pursuit of excellence. This audacious leap into uncharted territories stands as a testimony to the unwavering commitment towards innovation and self-sufficiency within the Indian defense industry
The Pursuit of Independence in Defense Production
Upon venturing into defense production, Bharat Forge made a pivotal decision to cultivate self-reliance. Neelesh Tungar, the president of defense at Bharat Forge, highlighted the significance of owning the technology and intellectual property, recognizing its crucial role in establishing a global presence. An organic approach was preferred over technical tie-ups to sidestep potential export limitations, embodying the company’s commitment to independent innovation.
The company’s foray into defense production presented a trial by fire as the acquisition of the Ruag plant solely furnished machinery, omitting design blueprints, material specifications, and technical expertise in gun manufacturing. Undeterred, Bharat Forge embarked on a journey of self-education and skill acquisition to bridge the knowledge gap.
Navigating a myriad of challenges, the pursuit of optimal fracture toughness demanded a delicate equilibrium of tensile strength, yield strength, and metal microstructure. Senior Kalyani, an influential figure within the organization, elaborated on the complexities encountered during this period. Leveraging the resources of the Kalyani Centre for Technical Innovation, Bharat Forge harnessed its burgeoning proficiency in metallurgical engineering. After persevering through 10 to 12 iterations, the company ultimately achieved the desired level of toughness, underscoring their unwavering commitment to mastery and excellence in the field of defense production
Bharat Forge’s Technological Triumphs and Market Expansion
Bharat Forge, a prominent player in India’s defense equipment sector, faced daunting challenges as it delved into artillery gun manufacturing. Their endeavors involved the meticulous heat treatment of the gun barrels to prevent bending. After overcoming initial setbacks, including the need for ingenious solutions, two years of intensive effort culminated in the development of their inaugural gun, the Bharat 52.
Pioneering Innovations and Regulatory Hurdles
After creating a reliable product, Bharat Forge encountered a significant obstacle – the absence of standardized testing protocols for indigenous artillery guns in India. The Indian Army dominated the firing ranges, with no established procedures to assess guns from private entities. Consequently, the company had to dispatch their gun to Rock Island in the US for testing, obtaining a certification and video evidence of its successful firing.
Policy Overhaul and Strategic Investments
During an army conference in January 2016, Baba Kalyani, the chairman of Bharat Forge, highlighted the complex testing challenges in India. This caught the attention of the then-defense minister, Manohar Parrikar, who promptly implemented a new policy within weeks. Over the span of 2010 to 2022, the company dedicated over ₹700 crore to product design, development, and testing, all under the umbrella of Kalyani Strategic Systems Ltd, a wholly owned subsidiary of Bharat Forge.
Diversification and Global Recognition
Amidst India’s defense industry reforms, Bharat Forge broadened its product portfolio, introducing the Advanced Towed Artillery Gun System (ATAGS) and venturing into armored vehicle production. Their meticulous testing and development efforts paid off, as their innovations garnered acclaim, with Sri Lanka procuring their Armoured Troop Carrier, and the Kalyani M4 finding utility with the United Nations and the Indian Army. These developments signaled Bharat Forge’s readiness to compete in the international defense marketplace, marking a significant milestone in their journey.
Overcoming Obstacles in Indian Defense Procurement
Bharat Forge, a prominent player in India’s defense sector, faces numerous challenges despite the government’s “Make in India” initiative. While the company has started supplying the country’s paramilitary forces, many of its products are entangled in the army’s intricate procurement process. Unlike its other businesses, defense orders fluctuate significantly, sometimes leading to substantial orders, and other times resulting in slow periods. This unpredictability demands a different strategic approach, as noted by an anonymous Indian arms expert.
Navigating Competition and Market Dynamics
Additionally, Bharat Forge encounters stiff competition from well-established global defense majors such as the US’s Raytheon and Northrop Grumman, France’s Thales, and UK-based BAE Systems, both in the domestic and export markets. However, the company remains confident in its unique product range and modular systems approach, which allows extensive customization to meet customer requirements.
Regulatory Hurdles and Evolving Warfare Landscape
While there are no export restrictions, Bharat Forge must carefully analyze jurisdictions and obtain necessary certificates from the government and customers. Moreover, the rapidly evolving nature of warfare necessitates continuous investments in product development and innovation. Despite these challenges, Baba Kalyani, the senior executive at Bharat Forge, remains optimistic about the potential of the defense segment, envisioning it to become the company’s largest revenue generator in the near future. Analysts also share this positive outlook, highlighting the company’s defense vertical as a key growth area with the expectation of significant orders from the Indian army.
Projections for Growth in the Defense Sector
As the company gears up for substantial growth in the defense space, analysts anticipate an impending order for ATAGs from the Indian army. Motilal Oswal’s recent report underscores the promising outlook for Bharat Forge’s defense segment, with ongoing execution and expansion into new products and markets. With the company poised to overcome these hurdles, the defense sector seems set to play a pivotal role in Bharat Forge’s future revenue streams.
Bharat Forge’s Ambitious Technological Vision
Bharat Forge, a stalwart in India’s defense sector, has set its sights on technological transformation. By 2030, the company aspires to evolve into a technology powerhouse, reinforcing its commitment to cutting-edge hi-tech products. Junior Kalyani emphasized the pivotal role of the defense business in this pursuit, noting its criticality for the company’s future.
A Shift towards Solutions Provision
As part of its strategic evolution, Bharat Forge aims to transition its component forging and industrial business verticals into solutions providers rather than mere product suppliers. Emphasizing customer collaboration in product design, the company has cultivated a robust technology backbone across all its operations. Notably, their annual research and development (R&D) investment exceeds 3.5% of their revenue, reflecting a steadfast dedication to innovation.
Venturing into Aerospace and Electric Vehicles
In line with its technological ambitions, Bharat Forge has diversified into the aerospace and electric vehicle (EV) sectors. Within aerospace, the company is venturing into the development of critical products such as aircraft landing gear, transmission systems for helicopters, and aircraft gearboxes. Simultaneously, their foray into the EV domain encompasses the production of power electronics, e-bikes, and the re-powering of trucks and buses via conversion from traditional diesel engines to battery-powered vehicles. Junior Kalyani envisions a substantial elevation in cutting-edge product offerings, targeting an increase from the current 5% to an ambitious 30% in the near future, underscoring the company’s unwavering focus on advanced technology.
Financial Fortitude and Market Perception
In the fiscal year 2022-23, Bharat Forge recorded consolidated revenues of ₹12,910 crore and a net profit of ₹528 crore, with approximately 65% of its Indian output earmarked for export. The company’s buoyant market performance is evidenced by its stock price nearing its 52-week high of ₹1,299, reflecting investor enthusiasm for its future prospects. With optimistic financial projections, the father-son duo anticipates a surge in consolidated revenues, projecting an impressive ₹20,000 crore within the next two years.
Defense as a Catalyst for Advancement
The company’s foray into the defense business is positioned as a linchpin in its technological odyssey. The Kalyanis underscore the anticipated growth in domestic procurement of defense products, propelled by the validation and acceptance of their offerings. This aligns with the pivotal role played by Bharat Forge’s ATAGS, showcased in India’s 74th Independence Day celebrations at the Red Fort, symbolizing the remarkable journey from past skepticism to present acclaim.
Bharat Forge’s strategic pivot towards advanced technology illustrates a compelling narrative of ambition, innovation, and market prowess, heralding a promising future as it surges towards technological eminence.
