Menon Bearings Limited (523828) Earnings Call Transcript & Summary

Ladies and gentlemen, on behalf of Kaptify Consulting, Investor Relations team, I welcome you all to the Q1 FY '27 Post-Earnings Conference Call of Menon Bearings Limited. Today on the call from the management team, we have with us Mr. Arun Aradhye, Managing Director; and Mr. Aditya Menon, part of promotor Group. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to quickly brief first about the business and performance highlights for the quarter ended Q1 FY '27, the growth plan and vision for the coming year, post which we will open the floor for Q&A. Over to you, sir.

Good afternoon, everyone. On behalf of Menon Bearings Limited, I extend a very warm welcome to all our shareholders, investors, analysts and members of the investment community, to our conference call to discuss the financial performance of the company for the first quarter ended June 30, 2026. Thank you for taking the time to join us today for your continued trust and confidence in Menon Bearings Limited. The first quarter of FY '26-'27 has been a strong and encouraging one for the company. And I'm glad to tell you that we have recorded highest ever sales, highest ever EBITDA, highest ever profit before tax and PAT in the history of this company for this quarter. Despite the dynamic business environment, we delivered robust growth in revenue and profitability, supported by healthy demand across our business segments include operational efficiencies and continued focus on cost optimization and customer satisfaction. Now coming to the standalone performance of [indiscernible] and mineral dairy. During the quarter, sales increased to INR 67.06 crores from INR 47.76 crores as compared to the corresponding quarter of the last year. That is year-on-year increase of 40.41%. And total increased by about 41%. EBITDA is up by 60%. Our continued emphasis on operational excellence resulted in profit report tax of INR 13.85 crores as compared to INR 9.3 crores, last year, reflecting a growth of 64.32%. Consequently, profit after tax has also gone up 63.53%, which is now INR 11.23 crores. Now coming back to the consolidated performance of the company. On a consolidated basis, the sales increased by -- to INR 91.79 crores as structured to INR 67.21 crores last year same quarter, registering a growth of 36.57% and total income increased by 37.05% and EBITDA on a consolidated basis is up by 57%. Profit before tax reached to INR 18.51 crores as compared to INR 11.06 crores last year, corresponding quarter, representing a growth of 67.36% and upward profit after tax also increased by 67.35%. Our earnings per share also improved significantly to 2.62% compared to 1.50%. So coming to the outlook now. We remain focused on strengthening our relationship and leadership position through technological advancement, continuous improvement in manufacturing processes, product innovation and customer-centric solutions. Our efforts continue to be directed towards sustainable growth, operational excellence and creating long-term value for all our stakeholders. While the global business environment continued to present certain uncertainties, the underlying demand outlook for the automotive and engineering sector remains encouraging. With our strong customer relationship, diverse product portfolio and disciplined execution, we are confident of sustaining our momentum in the coming quarters also. That is because more particularly due to our last month's visit to Canada and USA, it is expected to yield substantial volumes in the coming period of work year. Also, a number of parts for various customers have been already developed and after testing and validation, those all will be productionized over a period of time now. The total potential of additional business for the current and next financial year is expected to be around INR 65 crores to INR 75 crores, subject to good margin and geopolitical situation doesn't worsen further. Before I conclude, I would like to express my sincere gratitude to our customers, employees, suppliers, business partners, shareholders and all other stakeholders for their continued support and confidence in Menon Bearings Limited. With these opening remarks, I now invite our management team to provide further insights into the operational performance of the company, Mr. Aditya.

Good afternoon, everyone. Hopefully, everyone has seen the results. So all 3 funds, Menon Bearings, Menon Alkops and Menon Brakes for this quarter. We're been working extremely hard during the difficult times, and we've achieved this outstanding results, what I would say, I would like to thank the Menon Bearing team, the management to get the results. And I would like to open the floor to question and answers so we can discuss our -- discuss further about our growth and what numbers we're going to achieve and what the future of Menon Bearings -- the bright future of Menon Bearings, how it's going to look. Thank you.

[Operator Instructions] We take the first question from Arnav Sakhuja.

Congrats on a good set of results. So my first question is that I was reading in your presentation that the Brakes -- in the brake segment the diananometer seems to have arrived. So what is the revenue that we can expect from the brake segment in FY '27?

We see basically that is under construction now and is expected by the end of August. Thereafter, the railway people will come and visit our shop. They will have a thorough audit. And after that, they will approve our company, Menon Brakes for registration with railways. And thereafter, [indiscernible] validation, et cetera, it will start and it will take another 1 year. And with this, in the first stage itself, we expect that to start with, we will add a business up around INR 526 crores to start with and eventually, it will go up to INR 25 crores to INR 30 crores within next 2 years.

And just to -- just to give us a more deeper explanation. By next month, August and the machine is supposed to be commissioned at our [indiscernible]. So maybe 1 more month by September end, the technical team, it is a very difficult testing grade. So by September end, it should be all running. So like Mr. Aradhye said, one way we are already in touch with the railway -- Indian railway in our DSO, where our vendor pot has been registered. So -- and at the same time, back until the dinometer is coming, we already [indiscernible] times for all railways, like the bogeys, the transport bogeys, 1 day bharat. So technically, we are developing times for all the railway applications. So in September, we'll get a better idea how the business starts where we get like first, for example, our [indiscernible]. They will take a sample from us and test it for around 3 months. Then they will be putting the testing rate, testing the quality of the product. And then they will start like business from a small piece of business. So like Mr. Aradhye said it could be anywhere from INR [indiscernible] INR 25 crores. So -- but as management, we are trying to -- we are aiming at all different parts of the railway department like cargo, cargo bogeys, passenger bogeys, the one day bharat fast ways then metros. So we are developing from our technology. So where we can applications are all railway applications. So that's one avenue after dinometer comes. The second avenue after the dinometer comes is OEMs. If you see this quarter, the brakes also is doing pretty well. So once the dinometer comes, we will have access to different OEMs also, original equipment manufacturers in India. So that also will give a boost -- a lot of boost for Menon Brakes. So 2027 should be a very good bright future for Menon Brakes also, a good year. Numbers, I can't tell you or we can't do want to give you any concrete numbers because after dinometer comes, if the numbers significantly increase also.

So this is what is the conservative estimate that we are already told to you, that is regarding the railways. Apart from that, the OE business is also coming up. We are very sure having relations with all the OEMs, maintain already listened with them for last so many years. We are underinsured that we will get additional business from them and maybe there will be substantial and significant increase in the volumes of Menon Brakes in the next year.

And currently, also because of the -- like if rolls for the last couple of years, dinometer has been delayed. But as management at Menon Brakes, we are not being stuck up on that. We've developed new products for 2-wheelers, 3-wheelers. So that's why the growth currently this quarter also there has been a good growth in Menon Brakes and good margin also, good EBITDA margin also.

But at the same time, I would like here to take you the right from 12% EBITDA early year now, we have reached to 25% EBITDA in brakes also. I mean that is above all other segments, yes. So that shows our operational efficiencies and how we run our businesses, how we keep everything very tight and professional.

So my next question is that I was reading again in your presentation that you are planning to enter Africa via a distributor network. So which products would this be for? And what could be the possible revenue potential from Africa?

You see the possible revenue from Africa so far as mailing buses and [indiscernible] are concerned is around INR 9 crores. And at the same time, we are working on supplies to Africa. So far as brake linings are concerned, and that is expected to be around INR 6 crores to INR 7 crores for the year. So this is what is the estimated figure that we have as of now. Apart from that, resolute business that we are transacting through the distributor in Dubai, who is catering to the African market, which is to tune up around INR 7 crore to INR 8 crores per year.

Actually leading the aluminum parts or other revenues can be emergent export to Africa. So before we were doing through Dubai, we shall do to Dubai. But now we are looking at different avenues. Because of the war of last 3 months, we didn't have orders. So actually our results could have been even better. But last 3 months, those merchant export orders were stuck because of backlog because of the Strait of Hormuz and the war. So now it has restarted. So until then, our marketing teams have been putting effort. We are finding direct merchant exporters from Africa [indiscernible] do pickup, but we have our terms and conditions, where we need 100% advance. Other things that keep [indiscernible] sales, but other things that are important. So we have identified a few suppliers, few merchant export customers who are on our terms and conditions. So that's what Mr. Aradhye said. So there in Busin Washer and Brayton material. So leading the aluminium segment, everything else can be given to African markets, and there's a huge potential. But we are starting slowly one step at a time. So already this month, we have given small orders already given. But we have terms and condition for the payment cycle, where we require 100% advance at least in the lease 6 months. After there's a relation in a cycle like payment cycle, then we can go for something else. But currently, we are very stringent. We don't want to run behind just in our business that is coming. You want to look at sustainable and secure business. So they are already bigger from our side. We have taken out of marketing efforts in identifying merchant exporters who are agreeing with our terms and conditions.

We'll take the next question from Mr. Bhargav. [Operator Instructions] Next question is from Bhargav Buddhadev.

Yes. Yes, and congratulations on a very good set of numbers. My first question is that you mentioned in your opening remarks that there was a trip made to Canada and U.S. and INR 50 crores to INR 60 crores of additional revenue opportunity can come in the Alkop business from a new customer. So what is the visibility? When can we expect basically this business to start producing right now, if I'm not mistaken, the quarterly run rate is about INR 21-odd crores in the Alkop business. So the annualized run rate is about INR 80 crores. So is it fair to say that FY '28, you are expecting another INR 50 crores on top of INR 80 crores?

So for this year, we are targeting for INR 100 crores, next around INR 125 crores. Like I told you, at Alkop, for new business to get realized it takes 9 to 12 months. So Mr. Aradhye and our marketing has had been in the month of June, around 15 days in the U.S. They targeted to Canada, they target to USA, they were in Detroit, their automobile hub of the world. They're in Cleveland, Atlanta, and for Menon Bearing customers, but after they we were very aggressive in the marketing showing what kind of products we do, so we were especially called for Magna and Linamar. I don't want to take many names, but a lot of [indiscernible] always come, [indiscernible] have come. Thus to Allison Transmission, Magna, these are all bearing customers. So these guys, we saw the aluminum plants, Magna has 9 plants in Canada alone. They buy INR 1,800 crores per year where we do have engine bearing supply for the last 15 years. So they're getting RFQ NDA signing, rental profile for. So even if you start small, it's a big ocean to take from. So these customers put China plus 1 policy and Menon Bearings brand for the last 20 years, we have the Menon Alkop also got the entry. So already RFPs are from India signing has come, technical discussion -- or it's only been 1 month. All this has already started. At the same time, you can so much potential in the U.S. We have assigned a person there who is based in the U.S. who will continue to follow up and try to make this process realization as in shorter period of time as possible. If it's 9 to 12 months, we are trying as management, how we can get it to 6 months, 7 months. So that's the efforts that have already been taken. And in Menon Bearing and Alkop, what do you say? Potential from the U.S., we have been observed and already Mr. Aradhye said like all the INR 65 crore, engine bearing division. The biometal division has already started getting RFPs and orders. So this visit has been very fruitful for us. So you will see by the quarter 3, quarter 4, where engine bearings already started supplying. And maybe by next year, Alkop also should be able -- sample should be submitted by next year, by 2027. Orders for aluminium dividend also should start coming to suffice. So that is of the U.S. trip, like how you have asked about the U.S. trip, how we as management, we saw a lot of -- as we are a household name now for quality and more technical products, they get a lot of attention and demand from the USA. Some of these customers got in touch with us. So in September, we have a visit to Europe also, we have there for 15 days. [indiscernible] new land actually, we don't supply to them in India. But we were there in Delhi with them last month. So we've got invited from them to visit the [indiscernible] suppliers. Maybe Indian customers, we are -- they have a more price efficient, I don't know, reason why we are not in India, but they have invited us personally to Europe to attend their factory visit, their meetings. So we have taken a project in September also to visit a few European customers, seeing more markets there for merchant export and new customers. So we are very aggressive. So this growth what we are talking about, this U.S. ripe and Europe trip, this will be realized in 2027, '28. So that will be an addition to our already order book what we have. So what growth you have seen this quarter is already for the hard work that we have done for the last 2, 3 years. So we are, as management, now very happy with that result, but we are taking 2 steps forward. So by 2028, 2029, what order book we will have. So we are taking those efforts right now. And we already -- the guy in the U.S., we have appointed he's already visiting us for the last 15 days here. So the industry is happening is planning which department we have to coordinate with. So we already had him on our payroll. So we are aggressively taking these projects forward.

Thank you. Secondly, in your presentation, it was written that in the Alkop business, the share of EV by FY '27 end can be in the range of 8% to 10%. So what is the current share of EV, if you can highlight? And also maybe in the next 3 years, where it is going because incrementally, when we are talking to a lot of auto-ancillary companies, they are now witnessing a lot of other SKUs, especially from Europe after this significant depreciation versus China. So obviously, more and more Indian companies are becoming more and more competitive versus Chinese. So just wanted to hear you thought.

Currently, we are around 4% to 5% only doing around 3, 4 main customers. But these customers, like I told you [indiscernible] we started 2 years ago. We are doing this four parts for them. Now we have gotten 5 RFPs within Alkop [indiscernible] Tata opens a whole company like we [indiscernible] before I was on for the last 30 years, but after Alkop, we entered 2 years ago. Started with 2 products only, we got 4, 5 more RFQs. So Tata [indiscernible], Tata funds or Tata and EV cars, we are, what do you say, developing new part for them. Now over time, before you end up developing smaller parts for them, or 400-tonne machine on 500-tonne machine, they also have more confidence on us. Now we are getting part from 1,600 tonne machine, 8-kilopart HPDC part. So that is showing us confident so that we can do these high technical parts. And we are making efforts for [indiscernible] concentrate also. When a more critical part comes to them, we are a preferred -- Menon Alkop is a preferred supplier for them also. So we are also gating. So 8% is for the near future for the next 2 years. But as part some RFQs come, when it gets sampled, then we I'm giving you 2 figures. So our RFQs for electric parts, but maybe technically, it's not matching -- rates are not matching. So once we start the sample production that [indiscernible] manufacturing it gets added to a list. So that's what like the system we work on.

[indiscernible] are correctly that you said in brakes, you are doing 25% EBITDA margins versus your peer going by 13%.

Yes, yes.

But Mr. Bhargav that just to it should not be [Foreign Language]. It's about product mix. So this quarter, what product mix we had help us achieve that number. Maybe next quarter, it may go down to a certain extent, but we will try to maintain that. But it's significantly higher than our competitors.

We'll take the next question from [indiscernible].

My question in retail business, right? So currently, a utilization is at 85%. So incrementally, we can do around INR 30 crores, INR 40 crores. So beyond that, what is our plan. How do we would -- like are you going to increase the capacity or you going to acquire somebody or what is the plan?

If you go through the presentation, [indiscernible] you will come to konw that we are relating about INR 9 crores to INR 10 crores this year, this financial year, for including the capacity and expect it to increase the capacity by almost 25% to 30%, which may yield the total revenue of up more than INR 25 crores, we can end revenue of INR 25 crores. So steps have been already taken to see that looking at the 87% actually, which is a capacity utilization at Menon Bearing. We have already taken our product to take to increase the capacity. So that there is a surge in demand at any time. The capacity for the third shift is always at our -- just the spot ship currently we are all running full time fully bottle operations around. So any [indiscernible] also then you can always run a third shift and reach more capacity and we can cope up with the demand.

So with whatever capacity we have currently is just the bearing segment, right, how much revenue -- peak revenue is possible for us?

This revenue from this, it can be about INR 400 crores.

[indiscernible] the biometal dividend.

So in the Bearing segment?

Yes, we don't [indiscernible] Please go ahead.

And the aluminum die casting business sir considering you guys have been talking about INR 750 realization. But when we calculated like on the 60% utilization, it is above INR 800, right, the realization currently? or is there some mismatch realization?

Realization, it has gone up to INR 900 plus now because of [indiscernible]. Otherwise, it's roughly around -- when it is INR 250 of 400g of alminium, it's around INR 700. But now average aluminum rates that become INR 340, INR 370. So it has been a somewhat volatile. But Alkop also, we are actually engineering bearing also we have done [indiscernible], which is 50% are occupied. So that land has more to utilize. And aluminum division also, we have done 6,500 square feet new building a machine shop, which is 50% land like [indiscernible] share.

[indiscernible].

[indiscernible] whatever new development we are doing in the presentation you can see that is the cost of machinery getting added to increasing the capacity. Otherwise, machine line capacity, we have around 7 acres in aluminum plants still empty, so tomorrow [indiscernible], you do have to go and spend [indiscernible].

The factory, we're doing whatever we have just constructing which is 65,000 square feet out of which almost 25,000 to 30,000 [indiscernible] expansion, where we are going to have the machine [indiscernible] sport, which has been already ordered and we are having the [indiscernible] around core cost of ops for this year in Alkop.

Okay. Okay. Okay. So we have everything in place for the additional -- whatever INR 500 crore revenue we are talking about, right?

For the next 2 turns, we don't have to do any significant increase in capacity to get this line. So that investment in the last 2 years, we have done it looking at the future order book.

We take the next question from [indiscernible].

a really good set of numbers, congratulations for that. The first question would be that the exposed to [indiscernible] for FY '27. Historically, it has been around 24% to 30% of range. And this is a big step in 1 year. So is this driven by existing customers and where we are new geography wins like you already mentioned, Africa, but what about the customer, is at that being wallet share?

No, Okay? Is it because of addition additional business with the existing customers as well as acquisition of new customers, it is a mix of both. As we expect that by next year, the export may go up to 37% of the total remaining.

And we have actually, we do export to countries, but majority of our export goes to the United States. So we are taking new [indiscernible]. We are taking efforts to do different geographies in the U.S.A. Now we went to Canada, we were take a very less [indiscernible] in Canada. We visited 2 big giants in Canada. So different geographies in September, we have a visit to Europe. So looking at different customers in Europe. South America is given to Argentina, Brazil, that was -- we were not giving that in a big way before. We were just giving small quantities, but that has increased. So that's why our growth is actually Indian customers are increasing, but on average, export majority of the growth is coming from exports. But we are looking at different geographies where we can supply our products too.

So it is a mix of existing customers as well as acquisition of net customers.

Okay, sir. And my second question would be more on this new parts that you are developing and under development. So will you [indiscernible] any sign of that. What would be the revenue contribution that you see from that new developments? And for the [indiscernible] you said that the CapEx requirement would not be that significant for the decent year. But what would be the utilization after this next CapEx cycle does get bigger.

Till INR 500 crores, we are -- with this current infrastructure, what we have created is good enough. But back of the mind, they're looking at new land plots like Menon Alkop Aluminum rates division, we don't need to go for a new land parcel or a new factory because there are 7 acres of land available already Menon Bearings as a company, we've invested and kept in that. For Menon Bearing, Brakes and -- Menon Bushes, [indiscernible] and engine bearings, we are looking at different opportunities nearby because our synergies work if the company is an nearby, we do -- we share our resources XYZ. But we are looking for the next 2, 3 years also, we are actually ready. But back of the mine, we are looking at different MIs or different places where we can have our -- we are doing analysis, risk analysis, different analysis where we have synergies where a potential factor could be set up. But we are -- we prefer [indiscernible] and nearby [indiscernible] where what has been working for us for the last 30 years, we are with the same mindset, but we are keeping our [indiscernible] open mind and looking at different opportunities for that kind of CapEx. But currently, for the next 2, 3 years, we are prepared. So we are not giving too much like what you say -- not focusing on that currently. We're focusing on our operation because currently today because of war [indiscernible] time, we are actually achieved extraordinary numbers because the raw material prices have increased tremendously. Consumables, for example, carbide tools for all manufacturer or all automobile carbides are required. Those carbide tools price have increased by 300%. So these costs are not given to us by the customer. So even though during this tough time and volatile times, we can achieve these numbers. So if the war and it was more peaceful [indiscernible] and a better working environment, we would have achieved even better numbers and have been a very great milestone. So during these tough times, before we end [ 23 ], we have to do 50 days. We have to be proactive about 10 more things because of our uncertainty. So during better working environment, we will be doing even better.

Apart from 37 parts that you are mentioning, those have been already approved. Apart of that, we have considered a restock RP that we have received, which are under consideration at many stages. That is commercial feasibility, commercial, their samples, the [indiscernible] and then approval, et cetera, et cetera. So put together Alkop, that the aluminum and biometer put together, the least of such RFQs about INR 75 crores upward from potential business that we may -- we may get through our visit to Canada and U.S. that is different. But as of now, we are having that [indiscernible] and you can consider INR 7 crores to INR 5 crores of which is the least under consideration at various stages and with a striking rate of almost 75% to 80%, we can definitely add within this year and next year to the extent of more than INR 60 crores of with the additional business we will be getting.

The next question from [indiscernible] Mittal.

Yes. Thanks for the opportunity and congratulations on a great set of numbers. My first question is on the demand side. So actually are exposed to the auto side and the commercial vehicles, do you see any kind of risk from a potential slowdown on auto on the commercial vehicle side in the second half of the year, how is the kind of order visibility and demand with you have for the rest of the year?

You see considering the margin position, that may -- the tractor segment may effect to the connection, not larger because in some parts to drought less situation, but it is expected to improve within this month or next month. So we don't have to worry about that. But at the same time, government expenditure. Our public project is going up like anything. And because of the staffing policy of the government that is capping up government vehicles and other vehicles within 5 year -- after 15 years that is going so that the demand will remain constant. We don't have to worry at all about that.

And if you see the pie chart of our segment-wise sales, we are doing around with tractor and HCV segment, we are doing around 50%, we have taken conscious effort to diversify your other applications. And if you see the site, if you see in our business, the cyclic nature is always in the first or second quarter. Third or fourth quarter, if you see, are normally are much better. They are not affected by the cyclic nature of this auto industry.

Fourth quarter as it is, it is always [indiscernible].

And actually, of course, in second quarter are cyclic and if you see a performance, we have beaten our last year quarter by around 60%, INR 23 crores. So until now, we are not seeing that demand and all our customers, what numbers they have released to us, they are looking very positive and second quarter also looks similar. And then third -- fourth quarter, normally, if you see our 10-year, third and fourth quarter always are better than first, second quarter. So this year is looking promising. So as management, also, we are focusing very hard on the first quarter, and we have achieved our internal -- internal benchmark, we didn't achieve, but we crossed [indiscernible], I would say.

And my second question, as you said, the second half of the year is better. And I think in our last call, we were expecting INR 360 crores of revenue this year. And given that we have already done around in the first quarter. So even if we just analyze the first quarter, it comes to around INR 370 crores. So do you think that your guidance is kind of conservative and we could achieve a higher number? And also I...

I wouldn't want to comment on that. But fourth quarter, definitely, you will be on a very happier note than what we are -- because first 2 quarters, we have done a good job. And we have told 360 is a conservative number. But I don't want to comment more on the final number, which is the first quarter. But fourth quarter similar [indiscernible], it would be a much better scenario I would say.