Kross Limited (KROSS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kross Limited Q2 FY '27 Earnings Conference Call hosted by Equirus Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Jain from Equirus Securities. Thank you, sir, and over to you.

Good afternoon, everyone. On behalf of Equirus Securities, I welcome you all to the Q2 FY '27 Post Results Earnings Conference Call of Kross Limited. From the management side, we have with us Mr. Sudhir Rai, Chairman and Managing Director; Mr. Sumeet Rai, Whole Time Director; and Mr. Kunal Rai, Whole Time Director. I'll now hand over the call to Kunal Rai for his opening remarks. Over to you, sir.

Okay. I'm Sudhir here. Good afternoon to everyone. Thank you for joining us on this earnings call of Kross Limited for the second quarter and half year ended September 30, '26. Alongside me, I have Sumeet Rai, Whole-Time Director; Kunal Rai, Whole-Time Director, along with other members of our management and our Investor Relations Adviser Kaptify Consulting. I am pleased to share that Kross Limited has continued to build on the strong momentum recorded in Q1 FY '27. During Q2 FY '27 revenue from operations stood at INR 235 crores, registering a growth of 80%. EBITDA was INR 36 crores and EBITDA margins of 13%, while profit after tax stood at INR 196 million, reflecting to a year-on-year change of 143%. H1 FY '27. Revenues from operations stood at INR 419 crores, EBITDA at INR 53 crores and profit after tax at INR 33.16 crores. The investments we have made in the capacity expansion and operational capabilities are beginning to support our growth. And we expect the utilization of these expanded capacities to improve over the coming quarters. The company is completely focused on capacity expansion and gearing up for the coming years, which is also witnessed by a preferential issue to the tune of INR 636 crores. The sequential improvement in volumes, particularly in the Commercial Vehicles and trailer segments support our operating performance quarter during this quarter. While we have witnessed some pressure from rising consumable and commodity costs, the price revisions, including concluded with the OEMs and Taiwan customers are expected to support us during the Q3 and Q4. We continued to focus on cost discipline, process efficiency and higher utilization of capacities we have created. Let me now share a few updates on our business segments and its key performances. M&S CV and commercial vehicles. The momentum in the commercial segment has continued with robust demand indicated by the OEMs. Based on our current indication, we expect Q3 and Q4 volumes to be stronger than Q2. Overall volumes and historically also H2 is always 20% up on H1. With the improvement in commercial vehicle volumes, the tractor trailer segment is also performing well, too. Our Q2 volumes have exceeded the earlier recorded levels of Q4 of '26. Trailer segment and extended and extruded actual beams. Commercial vehicles, commercial production of our extruded axle beam has commenced and the capacity utilization of this is approximately 80% of our current output. This initiative is expected to provide us cost benefit and strengthen our manufacturing capabilities. This particular aspect of business by Q3 or Q4, we will be producing our trailer actions in this methodology only by the extruded beam process. Agri segment, demand in the agri segment has remained consistent. We expect this momentum to continue into Q3, supported by relatively lower inventory levels of tractors in the market. Exports continue to make focus efforts to expand our export business. Exports now contribute approximately 8% of our component business. We remain committed to building a broader customer base, and increasing the contribution of exports in our overall business. Year-on-year, we expect this year to be 45% higher than our previous year. With these remarks, I would like to hand it over to Sumeet Rai to take through our expansion and other initiatives.

Hi, everyone. I'd like to talk about our capacity expansion and new initiatives and also an outlook on the industry. Our capacity expansion program continues to progress. We have a focus on backward integration, improving cost competitiveness and creating capacities for our future growth plans. Our seamless tube facility is progressing as per schedule. The sizing mill and straightening mills have been received and installed, and we plan to undertake production trials in February or March of 2027. This facility is expected to broaden our product capabilities and support our long-term growth plans. The company further envisages expansion through strategic increase in axle shaft production, forward integration into manufacturing by making cold run tubes and enhanced investment in robotic automation for forging operations as well as machining facilities. These initiatives are proposed to be undertaken and financed through the ongoing preferential issue, thereby strengthening the company's technological capabilities operational efficiency and value-added product portfolio. Looking ahead at this industry, we remain optimistic about the demand across our industries. The continued momentum in commercial vehicles, healthy tractor demand and the planned ramp-up for our new products provide good opportunities of growth for us. With this, I'll hand over the call to Kunal to walk you through our financial performance.

Hi. Good afternoon, everybody. I would like to take you through the key financial highlights for both the quarter 2 as well as H1 of FY '27. Firstly, on the quarter, which has just ended September 30, 2026. Our revenue from our operations stood at INR 235 crores, registering a growth of 80% Y-o-Y. EBITDA this quarter was at INR 30.6 crores with a margin of 13%. PBT is at INR 26.94 crores which has changed an increase by 100 -- more than 100%. Our PAT stands at INR 19.69 crores. If you look into our sales segment mix for this specific quarter, our trailer segment has contributed close to 49% of our revenue, while the component business contributed the balance 51%. If we look into the H1 highlights, the revenue totally stands at INR 419.4 crores as compared to INR 270 crores of last year. EBITDA stands at INR 53.32 crores, and PAT stands at INR 316 crores. For the half year, the investments in our capacity expansions and backward integration initiatives has started contributing to our operational readiness, and we expect our utilization levels to improve progressively over the coming 2 quarters. This should further support our margins as well. CapEx towards during the period has been directed mostly towards the seamless use facility and other capacity enhancement initiatives. Overall, in quarter 2 and H1 FY '27 results reflect the early benefits of our strategic investments and improving the demand environment. We remain focused towards the profitable growth and operational efficiency to deliver sustainable value for all our stakeholders. We now open the floor for further queries. Thank you.

[Operator Instructions] The first question is from the line of Anubhav Bukarjhe from Pristine Capital.

Hello, am I audible?

Yes, sir you are audible.

Congratulations from that an exceptional set of numbers. My first question is that our growth for both the tractor axle and suspension and the CV component segment have been much higher than the underlying MSC segment like industry growth. So can you share some color on what factors have driven the higher than industry growth?

I'll just talk about the trailer segment and then Kunal can talk about the parts business that we have. So on the trailer segment, we have got good demand in the previous quarter. You see there are a few factors which increase the demand. Number one, the monsoons ended in about, you can say, in July and then the demand started picking up in August. And now we are hoping Q3 and Q4 will sustain or even increase with the current demand that we have. And so there was a bit of -- people who are waiting for those monsoons to get over to buy the vehicles. And basically, we have done a lot to increase share of business with our larger customers. So these 2, 3 things combined have given the sales in the trailer segment.

Similarly for our other business with the OEMs as well now we see that over the last 3, 4 quarters since the time the GST rationalization has come in. Demand from CV has been exceptionally good. And indications do suggest that the next 2 quarters, that is quarter 3 and quarter 4, should be even better. And we have a very diversified product base when we look into our component business. Another driver on our component business has been on the exports, where a couple of years back, we really didn't have any and now it contributes almost 7.5%, 8% of our total component business and that is also growing. So these are the factors mostly where we are being able to outpace the industry standard as per your question.

Get that. And how has been the feedback from our customers, trailer fabricators for the extruded trailer axle like if you can share some color on that?

The feedback is positive as of now. We have an -- you can say, at the moment, 80% of the axles that are rolling out of the plant, are with the exclusion process with a single piece. 20% of the axles have been made in the conventional way or the way that we were making it. So this mass rollout of axles has started happening from, you can say, the month of August. And the feedback is positive, whichever customer is visiting us and having a look at the process is understanding the benefits of the process. And the benefits of the process will be seen over a longer time period and time frame, but we are getting positive feedback from the market.

Yes. And are the feasible days before FY '24 used to be like 70 days or lower? Then over like, if I don't think '26, it got stretched. And even if I look at the first half balance sheet, it's still at like 90 days, given like the [indiscernible] cycle -- like do you see it coming down back to FY '24 level some color on that?

It will eventually come down. You see the last 2 years FY '25 or FY '26, at least the first half of FY '26, the business on the CV segment had been considerably slow. These -- the receivable days also, I must point out, they do get stretched, especially in the trailer industry or the trailer segment. But if you look into our receivable base, which was in H1 of last year, they were in excess of 110 days. And if we look into for the quarter, it's almost come down back to around 81 days and overall for H1 period, it's at around 90 days. So with now things improving as far as the trailer segment, it would be getting better. And there is a small portion of our export business, which we still have receivable days above 120. So that would remain -- but that portion is only 4%, 4.5% of our business right now. But overall, we see that our receivable days will be at around 80 and our working capital cycle should be lesser than 90, 95 days.

Yes. And in the opening...

Sorry to interrupt, Mr. Mercarji. I'd request you to come back in the question queue for more follow-up questions. The next question is from the line of Pritesh Cheda from Lucky Investment Managers.

Just from the presentation, when you say utilization is 70% to 80% in extruded axle.. So now basically, we only expanded capacity of 7,500 axle for month. You are running that capacity at 70% to 80%, means that the interpretation of the own statement and bulk of the volume that you're producing is all extruded axle beam?

No, no, sir. That's not the information that -- we're making currently 4,000 trailer axles, 4,200 trailer axles per month. On that, we are utilizing between 65% to 80% of our -- 80% of our extruded beams, which we basically are mentioning that in the next 1 or 2 quarters, we will be switching 200%.

So it's on 4,500 of your original capacity and not on the 7,500 of the expanded capacity?

It's not about the 4,500 existing capacity. It's basically on 4,500 of our existing sales and the manufacturing that we are doing of 4,500 axles per month. On that, it is at 80% today.

It is all now sold as extruded axle.

The extruded axles, correct.

Okay. No, that's clear. Second, if you could tell us for the quarter and for half year, what was the axle and suspension volume? And what was the growth? So we get some idea on the volume growth?

Sorry. If you look into for which period?

I said for the quarter 2 and for the half year?

For quarter 2, we've done roughly -- we've done in excess of 10,500 trailer axles. There has been a drastic increase in our suspension business, which includes both mechanical and air suspensions. And if you look into our half yearly, we have almost crossed 20,000 numbers.

What is the volume growth, sir?

The volume growth, if you compare it to H1 of last year, it is almost to the tune of just...

SP-8 Both H1 and quarter 2, if you could tell the volume growth.

Volume growth has been more than 55%, 60% if you compare it to H1 of last year.

55%?

Yes. H1 versus H1 has been...

Sir, firstly volume. So H1 is 55% and quarter 2 volume growth will be on this 10,500?

Similar, 50%, 55%.

And now you can give the value growth of XL and components, yes?

For which period?

For quarter 2, sir.

Quarter 2 on our trailer segment, we have almost done almost 100% as far as quarter versus quarter, we've done 50% more. In quarter 1, we had done of this year around INR 75 crores. And in quarter 2, we've done close to INR 115 crores.

Sir, actually, I was asking -- seeking Y-o-Y growth.

Y-oY growth in quarter 2 of last year, we had done approximately INR 58 crores, INR 60 crores.

So INR 75 crores this time versus INR 58 crores?

No. INR 115 crores compared to INR 58 crores, yes.

And this Y-o-Y, this volume growth that you gave for axles, 55% and 55% quarter 2 in H1, I'm assuming those are also Y-o-Y?

Yes.

[Operator Instructions] The next question is from the line of Ankur Poddar from Swan Investment Managers.

Congrats on a good set of numbers. So my first question is regarding our tipping jacks. So could you please help me with the volumes for this and the actual revenue from tipping jacks as well for the quarter?

We've done approximately similar volumes what we had done in the tipping jacks in quarter 2, we've done similar volumes what we had done in quarter 1. Once we get into quarter 4, we would be at a higher number. We set a capacity of close to 800 numbers, should be at a 50%, 60% of that capacity by quarter 4.

Okay. Understood. And in terms of value, can you tell us what the revenue was for the quarter?

The realization value of one tipping set is at approximately INR 1.4 lakh.

Okay. Understood. And my next question is regarding the outlook for the agri segment. So given that this year, the rainfall has been below average, how do we see the demand shaping up for H2?

So in the agri segment, it's -- we take it quarter by quarter. We see at least quarter 3 is a strong quarter in terms of volumes from the tractors being manufactured even in the month of November, October. [indiscernible] planned close to a production of 13,000, 14,000 tractors. Now tractors are a little seasonal. I think post November, that is post Diwali period, they do see a dip. And that's a cycle which is there every year. We didn't see too much of a dip last year, but it all depends on how much of inventory all these tractor manufacturer companies are carrying and how they will have their production plan at least for quarter 4. But quarter 3, we should be seeing similar numbers as compared to quarter 2.

Understood. And finally, so we have mentioned in our presentation that we are forward integrating into manufacturing of cold drawn tubes. So could you throw some more light on this? And so what would be the end application? What are the time lines we are looking at and some potential going forward?

Yes. You see, cold drawn tubes is basically the input of a cold drawn tube with the hot drawn tube. And in the first stage of our plan is to produce the hot drawn tube -- hot rolled tube. So there are -- in the Auto Components business, there is what you call some precision sizes which can only be achieved by a cold drawing process. Now giving you an example, our own tipping jacks, which we will be using the seamless tubes they need to be cold drawn because their size is a little more precise. And also it not only improves the size stability, but it also gives it more strength is the cold drawn tubes are stronger. So one, the expenditure involved in this is not as much as the hot drawn tubes. And we will be spending close to, I think, about INR 24, INR 25, INR 20-odd crores in this area in this cold drawn tube and the metal treatment involved with it. It's just basically this industry of your seamless tube you have to have this forward integration facility.

Understood. So will this completely be for our captive consumption? Or are we planning on selling it as

No, it is not. It is based on, one, if you want to sell certain cold drawn sizes, you will have to have this. And in Jamshedpur, we have to have this facility in our own shop, we cannot have this facility outside. There are certain manufacturers in the in Maharashtra and in Gujarat, where they have a lot of cold drawing facilities. But in Jamshedpur there is none. So we have to have the facility in house.

The next question is from the line of Shubham Batra from Ambit Asset Management Company.

Firstly, on the trailer axle business, so we have roughly grown our revenue, 55% Q-o-Q, which is significantly higher than what the underlying industry grew it -- so just wanted to understand what is driving such a strong growth in this segment?

It's basically, Shubham, we are -- we are working more on different regions where our probably wallet share wasn't there too much. We are hopefully gaining better market share with both our existing customers and addition of a few new customers as well. That's as far as on the market share, the extruded beams, we have just commenced our line a couple of months back. And hopefully, with that we should be able to improve that even further.