Kranti Industries Limited (542459) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to the Kranti Industries Limited Q1 FY '27 Earnings Conference Call. We have with us today from the management, Mr. Sachin Subhash Vora, Promoter, Chairman and Managing Director; Mr. Sumit Subhash Vora, Promoter and Whole-Time Director; Ms. [ Aamkada Baruade ], Company Secretary and Compliance Officer. Before we proceed with this call, I would like to take this opportunity to remind everyone about the disclaimer related to this conference call. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what may be expressed or implied by such forward-looking statements. I now hand over the conference to Mr. Sumit Vora for his opening remarks. Thank you, and over to you, sir.

Come all our shareholders, investors, analysts and other stakeholders to Kranti Industries Limited Q1 FY '27 Earnings Conference Call. We sincerely appreciate your continued interest in Kranti, and thank you for taking the time to join us today. I trust that you have an opportunity to review our Q1 FY '27 financial results and press release, which have been filed with the stock exchanges and are available for your reference. The first quarter of FY '27 has been a positive start for Kranti, particularly from the revenue and operating perspective. During the quarter, we continue to operate in a supportive domestic automotive environment with healthy demand across several vehicle segments and continued emphasis by OEMs on localization and domestic sourcing. For Kranti, our priorities during the quarter remained clear: consistent execution, customer engagement, cost discipline, improving manufacturing productivity and better utilization of our existing capabilities. At the same time, we continue to work on strengthening our customer relationships and developing new business opportunity that can contribute to a broader and more sustainable business over the coming quarters. With that, let me begin with the industry environment, industry overview. The Indian automotive industry has started FY '27 on a strong footing. According to industry data, passenger vehicle sales during Q1 FY '27 reached the highest ever first quarter level with domestic sales of approximately 12.74 lakh units, representing a growth of 25.9% over the corresponding period last year. Commercial vehicles and 3-wheelers also recorded the highest ever Q1 sales. This performance reflects relative healthy domestic demand, improved consumer sentiment, supportive financing conditions and continued product launches across the automotive ecosystem. With the broader mobility and agricultural ecosystem, the tractor segment also remained encouraging. Tractor registration crossed approximately 2.28 lakh units by June '24 compared with around 2.21 lakh units during the corresponding period of the previous year. This indicates that rural demand remained reasonably supportive at the beginning of FY '27. The tractor industry has benefited from relatively healthy rural cash flows, continued farm mechanization and improving affordability. At the same time, we remain mindful that the outlook for the agriculture segment will continue to depend on monsoon conditions, kharif sowing, farm income and input cost. From the broader industry perspective, the environment is constructive, although certain external uncertainties remain. Geopolitical developments and disruptions in West Asia, fluctuations in commodity prices and logistics cost and uncertainty in some international markets continue to require close monitoring. Auto component exporters are also navigating trade-related challenges in certain geographies. Nevertheless, we believe the underlying structural opportunity for Indian component manufacturers remains strong. The continued focus on localization, supply chain diversification and domestic sourcing is creating opportunities for precision engineering companies with the right combination of manufacturing capabilities, quality, engineering expertise and delivery reliability. For Kranti, this environment provides a constructive platform to deepen our relationship with existing customers while selectively pursuing new opportunities. Operational overview. Coming to Kranti, Q1 FY '27 was characterized by focused execution and disciplined operations. We achieved a healthy year-on-year improvement in our top line during the quarter while continuing to focus on improving operational efficiencies and utilization of our manufacturing infrastructure. Our teams remain closely engaged with customers across the automotive and agriculture segment. We continue to support existing programs while simultaneously work on new business opportunities and expanding our addressable customer base. We remain focused on 4 key operating priorities. First, customer engagement and business development. We are working closely with our customers to understand their evolving requirements and participate in new product and localization opportunities. Second, capacity utilization and productivity. We continue to focus on improving the utilization of our existing manufacturing assets and enhancing productivity through better processes, planning and operational discipline. Third, cost and expenditure control. We are maintaining a disciplined approach towards operating expenses and are continuously evaluating opportunities to improve manufacturing efficiency and optimize our cost structure. Fourth, quality and delivery performance. For us, quality, consistency and reliable delivery remain fundamental to building long-term relationship with our customers. The broader shift towards localization and domestic sourcing continues to provide a favorable backdrop for precision component manufacturers, and we intend to participate in these opportunities in the calibrated and commercially disciplined manner. Q1 FY '27 financial performance. Let me now take you through our financial performance for the quarter. Revenue from operations for Q1 FY '27 stood at INR 25.47 crores, representing a strong 26.8% year-on-year growth. This performance reflects healthy business momentum and continued engagement across our key customer segment. Our gross profit stood at INR 12.61 crores, representing a 14% year-on-year increase. Gross profit margin improved to 49.5%, representing an improvement of approximately 566 basis points year-on-year. At the operating level, EBITDA stood at INR 2.88 crores with an EBITDA margin of 11.3% -- the operating performance reflects the benefits of expenditure, disciplined operational focus and changes in our business mix. While the improvement at the operating level is encouraging, profitability at the bottom line continues to be impacted by certain fixed and nonoperating cost elements. For Q1 FY '27, the company reported a PAT loss of INR 5.5 lakh compared to the PAT of INR 66.6 lakhs in the Q1 FY '26. The movement in profitability during the quarter was primarily impacted by employee-related fixed cost, higher finance costs associated with working capital requirement and higher depreciation. Therefore, while our revenue growth and operating performance has improved, we recognize that there is further work to be done to translate this growth into a stronger bottom line profitability. This remains an important area of focus for the management team as we progress through this FY '27. Our objective is not merely to grow revenue, but to achieve profitable and sustainable growth through better capacity utilization, improved productivity, disciplined cost management and a stronger business mix. Business outlook for FY '27. Looking ahead, we remain cautiously optimistic about the opportunities available to us during FY '27. Our immediate priorities will continue to be strengthening relationships with existing customers, improving utilization of our manufacturing capabilities and developing new business opportunities across the segments we serve. We see continued opportunity arising from localization and the increasing preference of OEMs for reliable domestic supply chain. We will evaluate these opportunities selectively with a clear focus on commercial viability, technical capability, customer relationships and return on capital. At the same time, we remain disciplined in our approach towards capital allocation. Our focus will be on making better use of our infrastructure and capabilities that we have already established, while adding capacity or making new investment where there is adequate visibility of demand and attractive long-term returns. We also remain focused on improving our operating leverage. As volumes improve, we expect better utilization of our manufacturing infrastructure to provide opportunities for improving margins. However, we will continue to closely monitor employee cost, finance costs, depreciation and other fixed expenses to ensure that revenue growth translates progressively into improved earnings. To summarize, we believe Kranti has started FY '27 on a positive operating trajectory. A 26.8% year-on-year growth in revenue demonstrates healthy business momentum, while the improvement in gross margin and EBITDA reflects the benefits of our continued focus on operational discipline. At the same time, we are conscious that there is still work to be done on the profitability front. Our priorities for the remainder of FY '27 are therefore very clear. Grow the business, improve capacity utilization, strengthen operating margins, maintain cost discipline and convert our business opportunities into sustainable and profitable growth. We remain committed to building Kranti as a stronger, more diversified and more competitive precision engineering company. We are grateful to our customers for their continued confidence, to our employees for their commitment and dedication and to our shareholders and investors for their continued trust and support. We remain focused on executing our strategy with discipline and creating sustainable long-term value for all our stakeholders. Thank you once again for joining us today. I now look forward for taking questions from you.

First question comes from Mahesh -- there is no response. The next question comes from Abhijit Rao from VP Capital.

Sir, how is the business for FY '27 pipeline business? And which segments are expected to drive the next phase of growth, business pipeline?

Business pipeline, the FY '27 is on a greater positive note. We -- in line with our last year performance, we expect a double-digit growth this year also. That is the way currently the market scenario as well as the demand from customers that is looking into that way. Sector-wise, we are focusing though our major segment is tractor segment, which is again having a double digit -- expected to have a double-digit growth this year also. In addition to that, we are entering into new segments like other engineering as well as defense segment. So we see a good potential in coming quarters to work out on this.

Okay. Understood. So sir, any steps are being taken to reduce the dependence on the tractor segment and diversify the overall business mix?

Yes, we are already diversifying. So the incremental business, what we are anticipating, that will be from the new segment like defense, other engineering and even we have entered into agri implements and that. And what -- the second major point what I will say is not only being into tractor segment, we are already diversified with different OEMs manufacturer. So with things tractor segment growth is also not a bad where we don't see that in next 2, 3 years, at least there will be any backward looking towards that segment also. That segment is also growing. I will add on a few things on this. Please understand we are very thoughtfully working on the diversification of the business and reducing the dependency on agriculture business. So if you see in last 5, 6 years from about 99%, 100% of business from tractor industry, we are now around that 65%. And this ratio would remain now 60%, 65% because now the business is growing in all the directions with the tractor business itself. So it will continue to grow, but other business will also be growing in the same range.

Okay, sir. Understood. And sir, can you give the numbers of utilization, capacity utilization across all plants?

Capacity utilization in our 3 plants in Pune for Q1 was somewhere around 70%. And for the plant in Jaipur, which we have recently started, it is still below 60%.

Okay. Okay. So sir, how is the working capital being managed across all these things?

Yes. Working capital is through working capital finance from the lenders as well as the internal accruals, what is going on.

So you plan to raise any money in the future?

The Board is under discussion of that, but right now, not finalized yet. So definitely -- we are definitely working on our next growth phase, but still it is under discussion at the Board level.

The next question comes from an individual investor.

My question is with the Jaipur plant operation, customer opportunities and product categories are being from this facility?

You?

With the Jaipur plant operational, what customer and product [indiscernible]...

Okay. So I'll give you the answer on this. With Jaipur right now, we are working with -- our direct customer is Universal Auto itself. But our end customers are customers like CNH, Escorts, Kubota, then Ashok Leyland, Dana, [ Edison ], [ IBC ]. So there are multiple customers. Now coming to your second part of the question is how are we going to get -- what is the capacity utilization, right? That was your second part of the question. -- currently...

Sorry...