Sansera Engineering Limited (SANSERA.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sansera Engineering Limited Q2 and H1 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. B.R. Preetham, Executive Director and Group CEO of Sansera Engineering Limited. Thank you, and over to you, sir.

Thank you. Good morning, and welcome, everyone. Thanks for joining this call. On this call, I'm joined by our CFO, Vikas Goel, our ADS Head, Mr. Hari Krishnan, Praveen, our Head of Corporate Strategy; Rahul, our COO; Amit, our new CTO; and our Investor Relations advisers from SGA. The results and the presentations are uploaded on the stock exchange and the company website. I hope everybody has had a chance to look at them. With a healthy recovery in domestic market, Sansera reported its strongest ever quarterly performance and for the third time in a row with the revenues of INR 8,252 million with an EBITDA of 17.3% and a PAT of 8.7%. This growth came despite multiple challenges such as slowdown in exports, cost pressures and supply chain risks. Gathering consumption wave following changes in the GST rate, the domestic auto industry is expected to grow at a healthy pace. The entry-level motorcycle segment and the PV segment is poised for a strong volume expansion, and the overall PV segment is also expected to perform well. On the global side, stricter regional value content, RVC requirements are accelerating the shift towards localized manufacturing, especially in the U.S. and sourcing within the U.S., Mexico, Canada corridor. In line with these trends, we have set new benchmarks in our domestic sales during the quarter, which grew by 8.5% year-on-year. At the company level, this was our best ever quarter for both auto and non-auto segments. This performance has come despite the introduction of tariffs, which are causing some pressure on the sales offtake, especially in the U.S. and European market, also impacting our margins in certain cases. In Q2 FY '26, the automotive segment saw a strong demand in motorcycles and PVs, while PVs sales declined on a year-on-year basis. We have developed over 100 components for various customers in the premium 2-wheeler segment, which is helping us to drive strong growth in the ICE motorcycles especially in the premium segment. We are also engaging with the new customers and our existing customers, who are exploring a transition from in-house production to outsourced solutions. On the CV side, we are seeing a strong traction in our Swedish subsidiary with the addition of new emerging high-volume businesses. The auto segment grew by a healthy 56.4% year-on-year in Q2 FY '26, driven by strong offtake in the ADS segment, which delivered a top line of INR 496 million. With this, our top line in ADS for H1 FY '26 would be close to INR 864 million, and we are very confident that our sales guidance should be very close to INR 3,000 million. This business is expected to grow quarter-on-quarter over the next few quarters with a very strong momentum. Additionally, we witnessed healthy growth in our Off-road segment as well. Sales in the xEV and tech-agnostic segment remained in line with our Q1 FY '26. This segment was impacted by the tariff-related uncertainty and a lower offtake from one of our largest North American CV customer. Our international business delivered 7.3% growth on a year-on-year basis, led by a solid recovery in our Swedish operations and also a strong performance from our ADS division. The European business excluding sales from our Swedish subsidiary, declined by 28.5%. However, revenues from the other countries showed a healthy growth of 28%, again, led by the ADS exports. As of September 2025, our peak annual revenue for the new business stood at INR 21.5 billion. For auto, which is a predominant part of our business, the orders are open-ended in most cases. Hence, it is not possible to ascertain the unexecuted cumulative order backlog. However, our ADS business is growing fast. We would like to update you on the unexecuted order backlog for this segment. As of quarter end, it was more than [ INR 3,950 ] million. This order book puts us a significant -- gives us a significant advantage and puts us in a position of strength as a precision engineering company catering to global OEMs, while meeting our diversification goals. We are also exploring new geographies such as Japan and Korea to engage with a set of new and existing clients, especially in auto space. We aim to leverage our existing relationship with our OEMs to penetrate these markets. The U.S.A. continues to be an important market for us, and we have recently appointed a very senior professional to represent us there and target new growth avenues in the stationary engines, SUVs, et cetera. I would also like to welcome Mr. Amit Gautam, who has joined us as Chief Technology Officer earlier this month. He is a seasoned automotive technologist with over 26 years of experience in R&D, specializing in powertrain design, advanced engine development, calibration, transmission systems and simulation. With this, our previous CTO, Mr. Satish Kumar, has been designated as Chief Customer Relationship Officer and mentor to increase our focus on customer relationship. Lastly, I am proud to share that Sansera Engineering Aerospace division has achieved an honor of IGBC Platinum certification, a remarkable milestone that reinforces our unwavering commitment to green initiatives, sustainability and eco-friendly innovation. Now we have the certification for 2 of our plants, including our [indiscernible] plant. With this, now I would like to hand over the call to our CFO, Mr. Vikas Goel.

Thank you, Preetham. Good morning, everyone. Let me take you through our consolidated financial performance during second quarter of FY '26. Our revenue from operations increased by 8.1% on a year-on-year basis, reaching INR 8,252 million. The gross margins remained stable at 41.2%. And I would like to draw your attention despite the growth, we were able -- and other headwinds, we were able to maintain this gross margin ratio. And just to underline, we had a solid growth of revenue in our ADS division, about 80% on a year-on-year basis. Similar growth in our Swedish business, but -- these were able to absorb the decline that we faced in our exports from India on a non-IDS basis, which was about 18% during the quarter. So despite all this, because of the healthy business mix, we were able to maintain our gross margin ratios. Our EBITDA for the quarter stood at INR 1,431 million with an EBITDA margin of 17.3%. Depreciation and amortization are on uptrend due to the addition of new asset [ class ] to support the growth initiatives. Finance cost for the quarter stood at INR 81 million, which is significantly lower on a year-on-year basis, owing to the deployment of reduction of debt that we've had. This resulted in a healthy profit after tax of INR 714 million with a margin of 8.7%. When we look at our half yearly performance for the H1 of FY '26, we did a top line of INR 15,915 million with an EBITDA of 17.3% and a profit after tax of 8.4%. This represents impressive growth across parameters in this uncertain environment. Our operating cash flow net of taxes for the period continues to be healthy and strong and stood at INR 2,050 million, which is 13% of the operating revenue and 17% of the EBITDA for this period. During H1, we incurred CapEx of approximately INR 2 billion. Slide #11 on our presentation shows the breakup of the same. Non-auto is our top priority on the CapEx front as of now because of the opportunities that we are getting there. On the balance sheet front, we continue to remain net debt free. With this, we would like to conclude our opening remarks and open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Mukesh Saraf from Avendus Spark.

Firstly, congratulations on good numbers in a tough environment. Just want to start off with the ADS division. You have mentioned about the cumulative order backlog. But you also have an order book number that we mentioned, I think it's about 24% of your overall order book. So that comes to around, say, INR 500-odd crores. So how do we look at this INR 500 crores number and that INR 3,950 crore number? Could you kind of explain a bit more on this -- it will help us understand if this is just a kind of a back-ended growth that we're going to see?

Yes, I would start this and then I let Hari to take over. See, basically, we have -- when we were representing our order book, generally, we would not give any cumulative order book on the overall, we only represent the peak annual revenue potential that is there on the unexecuted order. So this is primarily because most of our automotive order books are open-ended. They don't generally have a closure date that has been put. Generally, it is open-ended. So that is the reason generally, we were avoiding that. But then in ADS, specifically in ADS, we do get a contract for a specific period, which at the end of the contract period would get either extended or get terminated. But in most of the cases, generally, if your QCDM parameters are good, you get extended. So currently, the visibility that we have up to FY '30 amounts this. So I'll just let Hari take over and just explain you how we are looking at this. Hari?

Mukesh, as Preetham explained, this is just a methodology on what we did so far, but it was very important for us to capture the ADS business differently since we have clear visibility of the life of the program. So what it really means is rather than telling you what is the value of the business, which we have booked and not started production as yet, versus now telling you that as on date, if I were to take all the available orders in hand and estimate the lifetime value of all the programs confirmed with a clear cutoff period of 4 years, it is almost INR 4,000 crores.

Right, right. So sorry to harp on this a bit more. I mean, in the order book, the peak annual revenue potential we have is around INR 500 crores. But say, in the next 4, 5 years, if we are going to have a cumulative revenue of INR 4,000 crores, then obviously, we're going to cross that INR 500 crore peak number.

Absolutely. You're right, you're right. You're right. Your understanding is perfectly right.

Now Mukesh, just to add to what -- so the INR 500 crore program does not include the programs, which we have already started production, which we are already executing and which is on various stages of maturity. So if I have to accumulate all these existing programs, which are going to run up to FY '30 and then add the annual -- peak annual. So this is how it actually gets cumulated.

You're right, Mukesh, in probably coming to a conclusion that the peak value of the ADS business in the next 4 years will be something close to INR 500 crores to INR 600 crores plus what we are probably doing currently.

And a little more color on this. I mean, are you able to give us some breakup of [ ADS annexure ] of this INR 4,000 crores? I mean, just a broad color, is it largely aerospace or...

I wouldn't want to dig into that because this is -- please understand that there is a sensitivity around semicon because we have -- currently, we are working with one major customer, so which would mean that we would divulge a lot of their information. So we would like to avoid that. But just to add to this that, see, our current facility, as we have also previously mentioned in our various calls, that can cater up to about INR 600 crores to INR 650 crores of existing mix of the components. So we are looking at that kind of revenue for the next year. And then that's the reason why yesterday, the Board has given us an approval for starting a new hangar, which we would be starting and our basic idea is to finish this by middle of next year, say around June to July so that we are ready to take on further business. So this would be about close to about 70,000 square foot of addition, which means that yes, almost 2/3 of the existing facility that would get added further.

We believe that with the new facility, which will be ready by June, July, Mukesh, we should be good to meet our projections for the next 4 years.

Yes.

And secondly, on the U.S., [ Amit ] I think last time you said that you have kind of put -- you are very close to doing due diligence on the land, but then you kind of put on hold with the tariffs. Any update there on any clarity you have on how -- what the customers are telling you that they require you to do an investment right away there? Any clarity you can give?

Well, I think the situation remains the same as on today, except that there has been continuous discussions on the subject almost on a weekly basis. And with the most recent promising inputs, what we are getting that the tariffs are going to be significantly lower any time now as what we read in the papers, I think we believe that will be a very big trigger point to see further momentum on that front.

But Mukesh, adding to what Hari said that while all the decision-making has been kept on hold, there's a lot of analytics that are being carried out as to on various tariff scenarios. But what is more important because people have now understood that the tariff -- base tariff of between, say, 15% -- 10% to 20%, we could say that it would be anywhere between 10% and 20%. That is taken as a base case for calculating. But more importantly, the focus is on regional content. So the value addition that is going to be done. So that is the primary importance, and they expect that this to further go up to close to 75%, 80% in the years to come. So that is why for all the future programs -- so the content value addition is what is being discussed. So that is more -- I think that is the primary focus of all the OEMs now.

[Operator Instructions] The next question is from the line of Siddhartha Bera from Nomura.

Congrats on a good set of numbers. Sir, first question is on the export PV segment, where I see that it is still under a bit of stress compared to other segments. So can you throw some outlook here on the Europe side? What is happening? Is there any scope to gain more business given that we are hearing a lot of stress in the local players there? And when should we expect some of these things to sort of normalize and pick up for us going ahead?

Yes. Actually, this has been one of our -- both on ICE as well as on EV passenger vehicle has been the most stressed segment for us. In fact, what I want to tell you is on a year-on-year basis, on a passenger car, we have degrown by 22%. But till H1, it is 25.8%. This is both in terms of xEV customers as well as the ICE OEMs. But predominantly, this was in the ICE customers, there were a couple of large programs, which got delayed in terms of introduction of the models. But that we see that, that is primarily now started. We are seeing the increased offtake projections for the remaining portion of the current financial year. So that should definitely help. The second portion of your question of how do we see Europe. Europe also was weaker. We don't see too much of a change in European numbers for the coming financial year. Of course, this was also coupled with holiday in Europe. So H2 should be better than H1 definitely. But then what we see is a lot of OEMs have now started talking about outsourcing of these -- we have some large inquiries that we are discussing even in Europe for the -- our existing range of components. So I guess that with all the tariff and the content issues -- and then the -- primarily the resource constraints on the manufacturing front, especially on the human manpower availability, there is a lot of potential outsourcing plans that are being made. And we are definitely in discussion with a few of our large customers for some very good RFQs.

Good to hear that, sir. Second question is on this profitability side. Now I understand ADS profitability should be a lot better compared to the company average margin. So where do you see the overall margin settling at now with the very strong growth in the ADS segment like you have guided? So in the next few years, maybe if not immediately in the near term, if you can throw some color about where should we sort of see this settling at?

Yes. I mean, basically, see, unfortunately, for us, while we have done well on ADS segment, as I said that the exports on -- exports front on ICE has come down, which is also a very high-margin potential business for us. So the gain in one has largely got offsetted by the loss in the other segment. But just to give you some color that while we are now -- our run rate in ADS has been almost now for the next 5 months should be close to about INR 38 crores to INR 40 crores per month. So this would mean that there would be an improved utilization of our resources. And this would also result in margin, which has been actually very close to between -- I would say, I would not like to put up a number, but then it would be anywhere between 25% and 30% for the ADS business. So we are closer to the higher end of that band. This is what I think we should take.

The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.

Yes. Sir, my question is related [Technical Difficulty] ADS Division. When we are talking of this INR 5,000 crores kind of -- INR 4,000 crores of cumulative lifestyle order. So does that include [ MMFIRC ] (sic) [ MMRFIC ] order also? Or it's again a separate? And what is our -- when we are now investing and increasing our stake in [ MMFIRC ] (sic) [ MMRFIC ], so can you give some more color on our road map for next 3 years?

No, the ADS business of Sansera does not include anything on MMRFIC. We don't give any guidance on MMRFIC, as of now. because we don't hold majority in MMRFIC as of now. Currently, I think our holding is about 31%. And as we had communicated in the earlier communications also that Sansera since has a right to go up to 51%. And Board has -- in yesterday's Board meeting has approved a further investment of INR 30 crores, which would be deployed before the end of this financial year. This, as per our [ listing ] should be able to take us beyond 50%. Now I don't have any specific projections to give in terms of MMRFIC currently. So there are a lot of positive programs, which are quite sensitive in nature in terms of the disclosures that I can give, which we are all working, the company is working, both in defense and in space programs. And these are very exciting. That is the reason that the Board is also very upbeat and have approved the investment.

And second thing on this PV side on the export business, what you are talking, is it largely for a connecting rod or [indiscernible] also component that we want to do? And second thing what I understand since a lot of people have exited from the connecting rod business globally. So how do we see our stake in -- I mean, contribution increasing? And what kind of a business that are we looking for from this connecting rod?

Yes. I mean, if you are asking us what is our interest in manufacturing facility in U.S., it would be only to begin with for connecting rod, especially machining, we are not looking at any forging facility as of now. So we would be doing some forging and green machining in India and looking at finished machining, assembly and inspection in the U.S. But to just to get you that -- see, a lot of the current existing programs, majority of them are still being catered to by the OEMs themselves, and they are all looking at all the newer programs. Now with renewed interest in ICE and the stroke hybrid because even in hybrid, our components are common, renewed interest and focus from all the OEMs, there are a lot of upgrades for the existing programs and also the newer platforms that are being designed. We are already part of such programs. So for those, we have a good chance for being active source, whether a majority source or a significant source, that depends on our presence, which is going to be critical for them. So that is the reason that we are looking at a facility in U.S. We already have a facility in Sweden. So any such initiative by the European Union, we can cover it from our Swedish facility.

The next question is from the line of [ Nikhil Rao from ithoughtPMS ].

Congrats on a great set of numbers. So my question is on the EV passenger vehicles for the domestic market. So what exactly is your current like wallet share with all the major OEMs in that space? Like do you have like Mahindra, MG, Hyundai and Kia as your customers? And if it's not, what exactly is the strategy to win these accounts?

No. If you are talking about the passenger vehicle EV segment, we are only with Toyota on their hybrid, Toyota and Maruti. We are not on -- not yet on the newer platforms of either Mahindra or Hyundai or Kia. While there has been a lot of interest from both the sides, we are actually trying to get into a very focused product line, which you will hear from us in a few months to come because we are working on some of the very interesting products, which currently we are not into. So just to give you a straight answer, our presence in the passenger vehicle EV segment domestically has been very limited and limited to Toyota and Maruti.

And coming to EV scooter now, so are you the first choice supplier for all the biggest OEMs like Bajaj, TVS, Ather? And are there any plans to include Ola as well in your portfolio?

We are currently supplying to all the names that you said, Ather, TVS, Bajaj . We are open to any other OEMs, who would like to -- I mean, whom they would like to work with us. We are very welcome. I mean, it depends on the product. It also depends on the cost. So we have a structure with which we work. So we are focused on technology-agnostic components like aluminum forged and mission components, also on very high-precision components like rotor shafts and stator shafts and all those things. But these are definitely high-precision components, high-performance components. So our focus has been there. And we would definitely want to expand to any other customer, who would like to -- like us to work with. So we keep approaching the customers, and we keep looking forward for adding further customers.

And now coming to the ADS segment. So I just wanted to understand what the competitive landscape looks like in defense and semiconductor. And what is your right to win in this segment?

We have 3 segments here, aerospace, defense and semicon. Now over the last 1.5 decades, the aerospace component manufacturing industry has been now -- probably, I would say that has now matured to absorb all the complex parts that we have. Today, the peer group that we have, along with Sansera, we have capability to handle almost every component in the machining segment, whether it is on aluminum, titanium, steel or any other thing. Just to give you an example, Sansera, when we started in 2010, our journey to 2025 has been that now we only -- I mean, we have now matured to handle components up to 4 meters, 5 axles, including now we are setting up a very dedicated special process component, which means that the landscape of the components that we can address in an aerospace, including the engine and landing gear components, structural components, everything is more or less complete. So now whatever that we used to really -- India used to get a low value people, who did not wanted to take up these components in the other countries, we used to get. But that situation has changed now. We compete globally and win globally against all the global peers on the most complex packages that we have got. In fact, yesterday, we were awarded a 7.7 million annual package from one of our OEMs, and these are very complex parts. So on aerospace business, India stands a very, very good chance with the renewed focus from both the OEM majors on to Indian supply chain. This also needs to be one more factor that you need to also consider is that there is a huge shortage of skilled manpower, both white and blue collar for the aerospace manufacturing industry, both in U.S. and Europe. And this is actually driving a lot of business towards India. So I think if Indian companies like us stay focused on the quality and cost aspect, I think the business would definitely be doubling at least not if -- if not every year, every -- once in 2 years. On semicon, this is a new segment that we are -- we have got into. I can't really talk much about the landscape that is currently there. There are very good potential because the kind of components that have been now being manufactured by our company to the segment is definitely on the top of the pyramid. And this is just that I think what we have now seen is only a tip of the iceberg. We have a lot of exploration that to be done. And I think as we now done, industry also understands that the Indian ecosystem can cater to such kind of components and this thing. So the depth of the industry can definitely be penetrated. So on defense, we still have very, very -- I mean, we are in the very initial phases. We are working with both the Indian companies, both private and government and also their principles. So while our focus has been to get into the defense, we are just not taking anything and everything that comes to our way. We are quite selective in what we do, and we only want to handle components, which actually justifies our investment. So both on aerospace and semicon, we see a lot of growth coming in. But on defense, we are cautiously optimistic.

So just one clarification. So in aerospace and defense, your -- now is -- as a Tier 2 supplier and in semicon, it is more of a Tier 1 supplier, right?

No, just to clarify, in aerospace, we are Tier 1 and Tier 2 suppliers. We are Tier 1 suppliers to aircraft manufacturers like Boeing and Airbus. We are also parallelly Tier 2 suppliers to people, who supply to these 2 companies, what I mentioned. And in the semicon, we are Tier 1 suppliers to people who make the equipment for the semiconductor application. So I would say in semicon, we are Tier 1. In aerospace, we are Tier 1 and Tier 2.

[Operator Instructions] The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

Just a couple of questions on the ADS segment. Unlike auto, wherein there is a bit of variation in the offtake of the order just depending on how customer demand shapes up, Is it fair to assume that ADS is a more stable order and so the visibility that we have on growth is just a more higher probability outcome happening. And so, if you could just take us through under what situations could you'll actually be surprised in terms of how things play out? What could possibly cause that?

Yes. I think absolutely right when you said that there is a much higher degree of certainty as far as volumes happening in the aerospace industry, just given the fact there are very few players and there is a huge global demand. Now if you want to ask what exactly can upset the apple cart or what can go wrong, nobody wishes that anything goes wrong, but an incident like what happened with Boeing 4 years ago, right, that really set us back quite a bit. And now at least we are happy to note that we are almost back on track as far as Boeing is concerned. And Boeing themselves, I think, are now nearing peak production of what they were achieving before the entire incident. Barring such very unforeseen things, right, we have -- when we maintain a very high degree of outcome as far as property is concerned in the aerospace business, which is exactly what you said.

Just to add to what Hari said, see, one more aspect of this thing is, see, when we work on aerospace and semicon, we work with longer lead time on -- both on raw material procurement as well as on the inventory cycles. Here, while the development cycle also is very, very critical. See, unlike in aerospace, which we developed per order 1 component or maybe 2 components. Here, when we get an order, it would be multiple of [indiscernible]. It could be about 100 to 200 components per batch. And what happens is if we do not are able to deliver the FAI samples on time, we generally tend to miss the cycle because they have to order on the incumbent supplier. And if we are not able to get into that cycle, then we miss a complete either 6 months or 1 year. So which could mean that to that extent, for that program, a delay of about 6 months of mass production execution. So these are some of the potential risks that you should be keeping in mind because as we grow much faster, there are all chances that we handle multiple components with multiple customers and with a limited number of missions that are there for catering to FAIs, which we are constantly increasing. This is one of the risk that is always there in the business that if we miss a particular program, we would miss about 6 months to 1 year depending on their cycle of ordering.

And I just wanted to clarify the order book. I know you guys spoke about it in depth, I'm a bit confused that INR 3,950 crores over 5 years, is that a cumulative number? Or is that annualized? I'm a bit confused there.

No, no, it's a cumulative.

Cumulative number over the next 5 years.