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Below is the verbatim transcript of Baba Kalyani's interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy
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Sonia: If you could start off by telling us what kind of opportunity do you see particularly from this proposal of 814 artillery guns?
A: First of all just to clarify this is a great signal from our new defence minister to get industry to participate in the manufacture of defence hardware which is what Prime Minister Modi's views have been. So this is the first major programme that has now been put into what is well-known as the buy and make India category. Where an Indian company will be the lead and it can get technology from whoever it wants and it needs to manufacture bulk of the products within India. So I look at this mainly as something that is mindset changing process. As far as this particular project is concerned, this has to go through a fairly elaborate process of RFPs, RFQs, selection of vendors, tryouts and I don't see the first gun coming out in anything less than five-six years. So it is not like there is an order tomorrow and there is going to be manufacturing happening in two years time. So it is a long process but much needed process. So from an industry perspective I am very pleased that the new defence minister Manohar Parrikar has taken a very quick decision in getting this process started.
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Latha: You have been scouting for joint ventures to exactly service this kind of a trend. You already have JV with an Israeli company. Are you looking at more JVs and can you bring us upto speed on when we may hear about them?
A: We have announced a couple of JVs in different spaces in the defence area, Elbit being one of them. We have a relationship with another Israeli company called Rafael. Then we are working with a Swedish company, we have relationship with an American company, so we have couple of relationships. But our philosophy is that we want to leverage largely our manufacturing base so we want to make everything ourselves here. We will create new facilities to build this, we have already built artillery guns in the last two-three years. So it is a good thing to see that the government at last is now getting this whole make and buy Indian category into practise.
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Sonia: You said you will create new facilities and you have already been doing that. How much has your capex been so far and will you be putting in more money for expansion?
A: We have had very limited capex so far but as I have said earlier we will start our new capex cycle somewhere around end of this fiscal which is March April of next year. Our targets are to double our topline by 2018 and therefore we will do some amount of capex for the next three-four years somewhere in the region of Rs 300 crore a year, something like that.
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Sonia: Can you give us a sense of what kind of margins do these defence orders really bring for the company, what will the blended margins look like once you start getting these orders and they get factored into your revenue stream?
A: Margins is related to the level of technology that you are going to use and also related to whether that technology is yours or it is coming from outside. So if I am able to build things with my own technology which is pretty high technology, you get high margins otherwise you are in the commodity side of the business.
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Bharat Forge stock price On November 25, 2014, at 15:33 hrs Bharat Forge was quoting at Rs 941.75, up Rs 1.00, or 0.11 percent. The 52-week high of the share was Rs 956.60 and the 52-week low was Rs 286.50. The company's trailing 12-month (TTM) EPS was at Rs 22.86 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 41.2. The latest book value of the company is Rs 115.67 per share. At current value, the price-to-book value of the company is 8.14.
Read more at: Expect first order for guns in 4-5 years: Bharat Forge - Moneycontrol.com
