Sharda Motor Industries Limited ($535602)

Ladies and gentlemen, good day, and welcome to the Q4 FY '26 Sharda Motors Limited Post Results Conference Call hosted by Equirus Securities. [Operator Instructions] I now hand the conference over to Mr. Mihir Vora from Equirus Securities. Thank you, and over to you.

Welcome, everyone, to the Q4 FY '26 Post Results Conference Call of Sharda Motor Industries Limited. From the management team, we have Mr. Aashim Relan, Group CEO; Mr. Ashwani Maheshwari, Decut Managing Director, and Mr. GD Takkar, the Group CFO. So without further ado, I now hand over the call to the management for the opening remarks. Over to you, sir.

Thank you very much, Mihir. Thanks a lot. My name is GD Takkar, and I thank everyone for joining the call today. I extend a warm welcome to all the participants on today's call. As Mihir just mentioned, I am joined by our Group, Mr. Aashim Relan, Deputy Managing Director, Mr. Ashwani Maheshwari; and Chief Manufacturing Officer, Mr. K.K. Shana. I trust you have had the opportunity to review our quarter 4 and 1 monthly results and investor presentation, which are available on Stock Exchanges as well as on our website. Before I move to the financials, let me briefly touch upon the Indian automobile industry's performance during last quarter, that means quarter 4. During that quarter, the Indian automobile industry continued to witness broad-based growth across all major vehicle categories. This robust performance was supported by improved affordability, following the GST rate reduction, enhanced purchasing power from personal income tax relief and lower financing costs due to successive raport action by the Reserve Bank of India. Demand momentum remained healthy across all major vehicle categories, reflecting a balanced mix of urban as well as rural consumption. Passenger Vehicle segment posted strong production numbers of 1,571,000 units in quarter 4 of FY '25/'26, registering a growth of 11.3% compared to Q4 of same period last year. The segment also clocked production numbers of INR 5,539,000 units in '25, '26, posting a growth of 9.4% as compared to previous financial years. While light commercial vehicle production grew by over 15.8%, reaching 208,000 units this quarter and by 11.2%, reaching 712,000 units in FY '26. In quarter 4 of FY '26, 3-wheeler posted Q4 production of 345,000 units with a growth of 32.4% as compared to same quarter last year. This segment also posted strong production numbers in financial year 2026 at 13 lakh units, registering a growth of 23.9% as compared to last financial year. FY '25, '26 has been a landmark year for the Indian automotive industry underpinned by a series of structural policy reforms that strengthened demand fundamentals and boosted consumer confidence. Consequently, the industry remains optimistic about continued growth across all vehicle categories in financial year '27, building on the strong domestic momentum seen in the later half of FY '26. However, uncertainties stemming from the West Asia conflict including volatility in crude oil and commodity prices, elevated exchange rates and disruptions to shipping routes continue to pose a risk to the sector. A stable geopolitical environment will be crucial for sustaining industry confidence and supporting further growth next year. Let me now walk you through the operational and financial performance for the quarter and year ended 31st March 2026. For quarter 4, on a consolidated basis, the company reported revenues of INR 971.8 crores, representing a Y-o-Y growth of 30%. Gross profit for the same period stood at INR 216.1 crores, a growth of 13% Y-o-Y. Gross profit remains the better indicator of underlying operating performance and growth was better than industry trends for this period. EBITDA for quarter 4 FY '26 came in at INR 112.9 crores, reflecting Y-o-Y growth of 12% with EBITDA margins at 11.6%. Profit before tax before exceptional items for the quarter stood at INR 119.6 crores after factoring in our share of profit from joint ventures and associates. In the corresponding quarter last year, profit before tax was INR 110.6 crores. Profit after tax for the quarter was INR 89.4 crores. For the 12 months ended 31st March 2026, total revenues stood at INR 3,396.8 crores, marking a growth of 20% over the same period last year. Gross profit for the period was INR 802.8 crores, up 8% Y-o-Y, again in line with the industry growth. EBITDA for a 12-month period stood at INR 419.1 crores, up 6% Y-o-Y. Profit before tax for 12 months was INR 459 crores, which included exceptional gain of INR 22.41 crores the idle industrial parcels in quarter 1 FY '26 and an exceptional loss of INR 4.26 crores towards impact of new labor costs in quarter 3 and quarter 4 of financial year FY '26. Compared to this, profit before tax was INR 420 crores in the 12 months last year. Profit after tax for the 12-month period stood at INR 345.4 crores as against INR 314.9 crores in the corresponding period last year. Now I hand over to Mr. Ashwani Maheshwari, Deputy Managing Director of the company for key business updates. Thank you.

Thank you, GD, for the financial updates. A very good evening, everyone. This is Ashwani Maheshwari. I extend a warm welcome to all participants on the call. I will take you through the key business updates for the quarter and our operating priorities as we move into FY '27. The global operating environment remains dynamic, particularly with the developments in West Asia. The key impacts remain crude price volatility, availability of critical parts and workforce availability across global supply chains. So far, the automotive industry has managed these factors very well. However, the situation remains dynamic, and we continue to monitor it closely. [indiscernible] also remained resilient due to a largely India-centric manufacturing footprint and our backward integration across tubes, stampings, fabrication and SMEs. Raw material imports are largely linked to customer-managed supply chains, and our operations remain aligned with customer production schedules. At the same time, the current global environment is accelerating a few favorable long-term queues for India. Customers in Europe and the U.S. are increasingly focused on supply chain diversification and China plus 1 sourcing. This is positive for Sharda given our capabilities across emission systems, thermal management components, lightweighting products, in pressure control tubes, heat shield and other global business adjacencies. Regulatory developments also continue to support our strategy. On BS VI, we have started readiness work by benchmarking European developments and engaging with customers on future system requirements. BS 6.3 or WNTP applicable from 1st of April 2027 for vehicles below 3.5 tons gross wage way is a more real-world representative test procedure and is expected to increase focus on catalyst efficiency thermal management and durability. On M5, a revised draft asset notification has been issued and the roadmap now proposed power online across factor kilowatt categories. While the near-term domestic opportunity now is on mufflers and integrated mufflers, the technology work already done is helping us in business development discussions, particularly in agri tractor and export-linked opportunities. CAFÉ is another important development the normal. These norms applicable from April '27 to March 2032, are structured as a multi-fuel ecologic inclusive regulation, while EV received the highest credits. The framework also supports hybrids, CNG, ethanol, flex fuel vehicles, lightweighting and other fuel efficiency technologies. Therefore, the response to CAFÉ 3 is most likely to be a combination of as hybrid, CNG, flex fuel and vehicle efficiency improvement. Except for [indiscernible], all other powertrains continue to require engineered emission systems. Moving on to our lightweighting vertical. This continues to be one of our key growth pillars. The structural drivers for lightweighting continue to get stronger. OEMs would balance fuel efficiency, CO2 reduction, EV range and CLP amongst others. We have already started building our lightweighting and powertrain agnostic portfolio including existing supplies to EV platforms of key OEMs. CAFÉ 3 further supports this direction as OEMs will increasingly focus on weight reduction, efficiency and platform optimization. During FY '26, we have done steady execution across the previously announced programs. SOP scheduled for FY '26 has started as per customer plan and the ramp-up is progressing in line with customer schedules. Our lightweighting FY '26 market share has increased to approximately 14% and is expected to rise further in FY '27 and FY '28, based on the orders already bought. This vertical already comprises of approximately 10% of our gross sales and will continue to be the growth engine for the future and be a large contributor. Further, this only PLA has added to our content per vehicle offering with subframes and [indiscernible] means. These will be the next product segments that will add to lightweighting vehicle growth. From a progress perspective, customer discussions and RFQ activities are underway across OEMs. In control arms and links, we focus on scaling existing programs and increasing platform participation. In Torsion Beams and frames or subframes, the current phase is around platform design standardization, capability building and customer engagement. These are relatively longer gestation products with higher engineering and validation requirements. Therefore, commercial scale-up will happen progressively over multiple quarters. In addition, we are in active discussion with other lightweighting technology partners for TA/JVs, which will add to our product offerings in the future. Moving on to export business. Exports remain a strategic growth priority for us with focus on North America and Europe. Our focused products include CV emission components and genset emission covenants, tractor emission components, temperature control tubes, [indiscernible] and emission efficiencies. Very happy to announce that during the quarter, we received an order from a leading global agriculture equipment OEM for supplies to Europe. This is a strategically important entry into the global agricultural equipment segment. It is the first order with this customer and the customer has a large addressable wallet for products where Sharda has relevant capability. Successful execution of this order will help us build a meaningful order book. with this customer over a period of time. This current order has an annual value of approximately USD 2 million and a lifetime value of approximately USD 10 million, with the SOP scheduled from Q1 FY '28. We have also received an order from an existing customer, a large U.S.-based heavy industry emission company. This slide for this OEM export order India. This is a test order, but of strategic importance as the dealers entry into another U.S. CV OEM. Our previously announced export order with the North American engine and generic manufacturer remains aligned to customer schedules. SOPs moved from Q2 to Q3 FY '27 with gradual ramp-up based on customer schedule requirements. We continue to see healthy [indiscernible] pipeline, supported by a dedicated export focused team. We brought a localization China plus 1 and supply chain diversification teams in Europe and the U.S. remain positive for our global business strategy. Now moving on to emission systems and efficiencies. Our core emission business remains steady and strategically important. We continue to maintain strong quality and delivery performance while also preparing for the next phase of regulatory requirement including or BS VI retailers. In emission efficiencies, the successful SOP of temperature-controlled tubes for one of the largest off-highway manufactured India is an important milestone. The program has commenced and is ramping up as per customer schedule. This strengthens our position in thermal management adjacencies and create a platform to build further business in temperature control tubes, [indiscernible] and related products. Coming on to infrastructure. The facility is progressing as a plan. The facility is being set up closer to customers' manufacturing location and is expected to improve logistics, responsiveness and customer alignment. The capacity will be modular and scalable. And the plan will support existing business as well as future opportunities in emission and lightweighting products in North India. The [indiscernible] lightweighting plant has started SOP and is gradually ramping up. Capacity deployment continues to be modular and aligned with customer packed demand. On R&D, we continue to invest in people, testing, simulation, validation and product development. During Q4 FY '26, we filed 2 more patents, with this, the total number of patents filed stand at 282 and total awarded patents, Standard 4. Our R&D efforts are focused across submission and thermal management. light weighting and suspension and global business products. These capabilities are critical as we move towards higher technology content and a creator system-level participation. On M&A, our approach remained disciplined but active the current global disruption and supply chain realignment can create opportunities for well-capitalized India-based players. Sharda has a strong balance sheet, which gives us flexibility to deploy capital where there is strategic fit, customer and technology relevance. We will remain disciplined on valuation and ROC potential. On technology partnership, we continue to evaluate opportunities in powertrain agnostic products, lightweighting and structural component and processes. China and Korea remain important markets because of their capabilities in any platforms, hybrid platforms, Cache system, suspension technologies and advanced lightweighting. Moving on to FY '27 outlook. The production plan and the preparations from OEMs indicate a steady demand. Our growth contributors include full year revenues from earlier lightweighting rating suspension orders. Partial revenue from FY '26 lightweighting suspension orders with SOP in FY '27, CV adjacency impact, North American export ramp-up and other export orders and, of course, the supportive OEM volume outlook with [indiscernible] projections on industry growth. Our focus in indisciplined execution, timely SOPs, customer -- ROC discipline and continue building a more diversified powertrain agnostic and globally relevant Sharda Motor. Thank you so much. With this, we can open the floor for Q&A.

[Operator Instructions] The first question comes from the line of Preet Pitani with InCred.

My first question will be on the line of data which on an annual basis. First is our revenue industry split like PVC or way another, and as if you could mention what was your export for this year?

Sorry. you want PVCV breakup for our data or you're talking about the [indiscernible] PVCV dat?

No, no, no. For our data. Like last year, it was 55, 40, 55 PV, 45 so, what will be the data for this year?

So our CV emissions contribution is 44% for this financial year and PV emissions contribution is 43% of highway gensets and exports together currently contribute 1% because these are growing. Suspension contributes 9%, 2% from supply chain vertical and 1% from miscellaneous. So this is the breakup of overall revenues of financial year FY '26.

And second question would be on the growth of FY '26. Like you mentioned that last year, we had suspensions around 9%. And this year also, it is of around 9%. Our top line growth was in emissions, we have that raw material due to each of our top varies. I believe there is no such [indiscernible] in suspense. We have seen 20% suspension, and if we remove this 20% growth from the subtotal, business has grown at around 6% to 7%, whereas underlying PV and LCV industry has grown at 9% and 15%. So why did we underperform the industry? Were there any specific reason? Or are we losing market share? If you could give some insight on the same.

So -- yes, so on the -- I mean there are multiple questions in what you've asked. I think one primary question is that why the suspension percentage still remains around 9% to 10% of our total sales. Now in FY '26, lightweighting has seen a decent growth in absolute value as compared to FY '25 and sold the value market share. As we said, the value market share has further gone up from 12.5% to 14% on a full year basis. The data which is shared is including Catalyst and is because of the increased catalyst price this year is leading to the number, not showing in the [indiscernible] increase. So on a value-added sales basis, the lightweighting vertical has increased in percentage of sales. And of course, as we said that going forward in FY '27 and FY '28, based on the order book, this percentage will certainly go up.

No, sir. I think there was some misunderstanding. I've asked that, yes, I understand that suspension business has grown at a good pace, probably have added from 12.5% to 14%. If we remove the suspension business, our gross profit growth comes at around 6% to 7%, whereas underlying industry has grown around 9% for PV and 15% for LCV. So why we have underperformed the underlying industry? Was there any specific one-offs? Or will we lose any market share, if you could call out on this thing.

Sure. I think it's very clear now. So -- as far as growth for this quarter is concerned, our gross profit growth was 13% versus industries growth of roughly 10%. And on annual basis, our gross profit growth was 8%, which is largely in line with the industry, which we serve. One of the key customers of the industry, which we don't serve if we exclude that the overall industry growth was around 8% and our growth is also on similar lines. Now in terms of how it compares with the overall growth, excluding suspension. So suspension, as Mr. Ashwani Maheshwari just mentioned, continues to be broadly at the same level as it was last year. So if you look at it from that perspective, our gross profit growth, therefore, has been consistent with the industry growth. So there has not been any leakage of any form in terms of customers or margins. It has been consistent as it was last year and broadly in line with the industry.

Sure, sir. Sir, if you could just on this data, if you could brief, apart from the export orders, which we have got, and apart from the suspension higher growth, which we are planning, is there any other growth driver in terms of top line? Or similarly in terms of margin because our margin same level, how we grew in the gross profit level, our EBITDA margin also increased at the same level. So are there any operating benefit which we can get for both revenue as well as margin?

So revenue, our strategy is around diversification of powertrain products and geography. So lightweighting vertical, as we explained, because of the orders booked in FY '27, '28 will continue to grow extremely well. In exports, we have booked -- despite all the geopolitical tensions and tariffs, we have added largest CV Indian maker in the world. We've added on the top -- one of the top 3 largest are tractor company and also 2 more customers. So this will be a second driver of the growth. And the third driver of the growth continues to be emissions in [indiscernible], which I have spoken about.

That answers my question. But just let me just rephrase so that I get a better understanding. Apart from the export orders, which we have already shown in our PPT and lightweighting, if we keep light-weighting suspension business, which we are growing and then TLA, which we have signed, in which we will be growing, is there any other opportunity which we are looking? Of course, you mentioned about M&A and TLA, like increasing share, like the one OEM, which we are not supplying, we will not -- it has been rumors in the market that they have been going to one of our competitors and they will be starting supplying to them from like 2 years down the line. So are we also getting some share of business there? Is there any talking going on?

So I presume you are talking about one of the largest manufacturer of PV [indiscernible] in terms of percentage. Now as we have always said that our current market is excluding that largest share. Now while the opportunity with that company is very attractive, and they represent a significant part of the vehicle market, but they already have a very well-established supplier ecosystem, and they have a dedicated exhaust partnerships and JVs, which have been supplying for a long time. For us, entering into that customer is certainly a long-term opportunity, but it could be a long term rather than an immediate conversion. I mean we continue our work on direct and indirect inventories, but it would not be possible or appropriate for us to indicate a specific time line of entering to that customer.

The next question comes from the line of Ankur Poddar, [indiscernible] Investments.

Sir, this is regarding the SOP for North American Indian manufacturer, which we have received last year. So there has been a couple of delays, which has happened in execution of this SOP. So is it -- can you share some thought on that why this [indiscernible] happening? And 1 more question here is, is it for the new launch for the product? Or is it we are replacing some existing customers there?

So we essentially follow the customer schedule on this SOP. And yes, there have been a couple of quarters delay in the launch. And we would now be -- we are following customer schedules, and we'll start the sample order, sometimes in Q2, but the SOP as per the customer schedule would start in Q3. Now there is -- we explained last time that TDL at the [indiscernible] is difficult to explain by us. Primarily, they are related to some of the inventory buildup, which would have happened because of the transition of norms is what we understand.

Okay. Okay. And sir, this is for the new launch or this is for the existing model where we are replacing some suppliers there?

No, this is for our new launch. This is for a new launch of product.

Okay. Okay. And sir, do you see any benefit of the new CAFÉ Norms, which are expected to come in by April 2027. Is there a kind of value addition do we envisage per vehicle on our contact from the current levels?

So you're talking about the CAFÉ 3 Norms?

Yes, yes.

Yes. So CAFÉ 3 Norms, if you go to the draft cater notification, it is structured as a multi-fuel technology includes regulation. -- in this -- while EVs received the highest credit, this framework call to support if you see hybrid CNG, ethanol, flex fuel lightweighting and other fuel efficiency technologies. Now our view is, therefore, the response to CAFÉ would most likely be a combination of EVs, hybrids, CNG, flex fuel and other vehicle efficiency improvement. Now except for pure EVs, all of the powertrains continue to require engineered emission systems.

Exactly, sir.

Yes, absolutely. So our growth engine for lightweighting and power in agnostic products is what would be deleveraging on the CAFÉ 3 Norms. We are already supplying lightweighting products on platforms of key OEMs and CAFÉ 3 is further strengthening its team because OEM will essentially have to focus on grade reduction, efficiency and platform optimization. So this norm is a very strong tailwind for our new lightweighting portfolio as OEMs would require to make their platform lighter and standardized design across multiple power. So primary -- so hence, to summarize, this would not only need to multi-fuel, which would require engineered emission systems. This will also lead to lightweighting, which is in line with our strategy of lightweighting of our portfolio expansion.

Okay, sir, is my understanding right, as the OEM would prepare for this norm from 6 months or 1 year prior of their products. Our content or value per vehicle will gradually increase, so starting from FY '27 so, right?

Yes, content per vehicle would depend upon -- as we said, would depend upon the platform standardization, and we are adding a lightweighting portfolio apart from control arms and links. We are also adding Torsion Beam and substrates. This entire portfolio will lead to a content increase. we intend approximately adding almost 4,000 to 10,000 in content because of the portfolio -- content rents because the portfolio enhancement.

Okay. Okay. Sir, in terms of, again, coming back to the gross profit question, repeating the earlier participant, which he asked. In last -- in fact, not this quarter, last 2, 3 quarters, we have been underperforming the volumes in the passenger vehicle industry. If you consider any days like Y-o-Y growth? Or it's not underperforming, we are on par with the volume growth. So we are not seeing any kind of value addition there because we are constantly adding new products in like betting and other telemision products. So that is why the questions being raised that is there some dilution in the market share which is happening in our products. So if you can throw some light more clear on this or maybe share some presentation where you bifurcate what kind of growth in each segment and what kind of value addition, minus the value of each segment. So that will give us a very clear picture how our company is performing on a quarter-on-quarter basis vis-a-vis the industry.

Thank you very much. There are a couple of parts to the question. I will take them one by one.

I'm sorry to interrupt Mr. Ankur, I would request you to please come back in the queue for further questions. The next question comes from the line of Mihir Vora with Ikura Securities..

GD sir, You can just complete the previous participant question. I think it was left.

Sure. So basically, the growth, as rightly mentioned, has been broadly in line with the industry growth. All of you would have seen a lot of orders being announced in FY '25 as well as FY '26, particularly in the new areas of growth, which are lightweighting as well as exports. Now you would have also noticed some of the SOPs have taken place towards the second half of FY '26 and good number of orders will see SOPs this financial year and next financial year. And as a result, the real impact of these orders will be visible in our growth as we move along. So, so far, absolutely right. This is not clearly visible because impact is limited as these have gone into SOPs recently only. As the ramp-up takes place as new orders SOPs, we will start seeing the growth. And on the other disclosures, as we mentioned earlier as well, we are in the process of implementing SAP. And gradually, we would know what more we can share to give a better idea about our growth in due course of time. We will keep updating all these stakeholders in our quarterly calls, maybe in the next couple of quarters, we will get back on that as well.

Yes, Okay. So going ahead with my question here. So sir, basically, you've got a lot of orders in terms of emission component system for export business. So just one thing here. Does this also have an element of catalyst or this is without catalyst kind of orders?

As we explained that in export, our focus is on CE emission components, temperature control tubes, genset emission components and small agri genset exhaust systems. Specifically to your point, whatever we have announced till now, does not have a catalyst component and the export orders.

Okay. All right. So this will be something which would be pure revenue, which will come through -- and yes, so this is one. Apart from that, sir, my question was on CapEx outlook which we are looking at. So till now, I think we have the suspension plant, which is up and running now, but seeing the good order intake, which is coming into that segment. And apart from that, we'll be also going through into other light-weighting components. So what kind of CapEx strategy do you have here or some number here, what can we see in terms of CapEx spend for the next 2 years?

So as far as FY '27 is concerned, our growth CapEx guidance is around INR 90 crores to INR 110 crores. and we are increasing this because we are augmenting R&D capabilities in lightweighting and readiness for new emission norms and a lot of SOP of new programs are also taking place this year. Now investment in new facilities to expand the footprint as per customer needs will be definitely over and above this yearly CapEx range, which I just mentioned. And besides this additional CapEx, we will do in due course of time for growing lightweighting and powertrain agnostic component business. Investment, definitely, as we have said earlier as well, will remain linked to customer schedules and order visibility.

Okay, okay. And in terms of emission side, we don't require any further CapEx pool to deliver the export orders as well? Like no major CapEx except for the Uttarakhand plant?

Yes. So I think in emissions, the capacity augmentation is relatively straightforward and CapEx involved is also very limited. So it's not very sizable. You rightly mentioned about this facility. Depending on the customer needs, whatever we have to incur in line with their requirements, definitely, we will always be engaging with the customer.

Next question comes from the line of Manpreet Arora with Arora Wealth Advisors.

So I think question 1 is around the TREM price regulation. The other is around the pure [indiscernible] so most of the trem price -- so you mentioned that the new modification, drop modification limit. our opportunity to [indiscernible], et cetera. So if you can expand a bit more on that. I believe that from October, less than 24 horsepower are probably included and then the 25 to 50 will get into 2032. If you can explain other terms of [indiscernible] and how -- is there something that we can still sell in this market? And what would be the opportunity for?

Okay. Yes. Sorry, I couldn't get your first name. So I would just say Mr. Arora. So your question is around 15%. I think you've broke in between, but I broadly understood your question. So 1 is around what trem 5 notification says. And then what would be the opportunity size for us. So there's a revised draft gazette notification. Now this notification now proposes power load wise basis with different norms and time lines for different kilowatt categories. If I have to go node wise, there is one more which is below 19 kilowatt, the trem 5 is applicable from October '26 is a very limited small market. The key relevant segment is 19 to 37 kilowatts, in which the revised trem 3 notification is valid. Now this is roughly 75% to 80% of the market. Because revised notification, the opportunity is likely to be around [indiscernible] integrated muffler design. Now this will be a very small, much smaller niche segment. And what we are awaiting is further design finalization to estimate the actual opportunity size. The next kilowatt is 37 to 56 in which the TREM 4 is already applicable. This is, again, a small volume business and at Sharda,we are already present in this business. Then there is about 56 kilowatts in which TREM 5 is applicable from October '26. Now this is not material again for domestic factors. So for us, there are 2 impacts, 90 to 27 kilowatt. The new trem 3 AA which will be around integrated mufflers, we await the design confirmation to get the opportunity side. It's a niche small size. The second advantage, which we have caught by trem 5 is there is a lot of -- while we have not done any CapEx, but there's a lot of R&D capability, which we have built around 5, which is helping us engage with the customers and as we announced, there is a new export order, which we have got from one of the top 3 agri equipment manufacturer, which will start the SOP from Q1 FY '28.

So with [indiscernible] muffler market, is that something we are already present in of supplying to? Or this is a marketing once we get the design...

So as a capability, we have very deep capability in this particular segment. because of the products which we make in the business which we do. Now the specific design, which this 19 to 37-kilowatt segment would mean for which we are engaging now with the customers. Now this would essentially be a combination of design capability and manufacturing capability, both of them which we have. So we have now engaged with the customer, we have which we are in the process now and [indiscernible] is the opportunity. But as I said, it's a smaller niche opportunity.

Yes. What I was trying to get at that this will be over and above what we do today?

Absolutely. You're absolutely right. Absolutely right. We have spoken about the growth. This particular aspect we have not spoken about. So this is over and above.

Okay. So let's say, INR 2,000 crore was the premise potential market with catalyst in every frame with popular and integrated mufflers will Will it be like a 10% of that market, 20% of the market?

No, I do not know about this INR 2,000 crore market. I guess this is sort of your estimate. But in the muffler integrated No, as I said, at this point of time, it's a much smaller market, very difficult for us to say what the market size would be and what the percentage would be. This would essentially, when we get the final notification start engaging with the customer, you will get to know the size. Suffice to say that this is almost a 75% to 80% of the tractor market, 19 to 37 kilowatt is what we are talking about.

Please come back in the queue for further questions. The next question comes from the line of Darshan with [indiscernible].

So I had a few questions. So firstly, as you have mentioned that lightweighting vertical is being negated in the future. So currently, it comprises about 10%, right? So how much do we aim at being as a percentage of total revenue in the future?

Now we explained that the percentage revenue, for example, this year itself, we were last year 9% and we continue to be 9%. Now this percentage on the overall sale is dependent upon top line, mathematically the nominal -- it's dependent on the top line. So while in terms of value, there is a very decent growth in light weighting, but our percentage revenue has to remain 9% because the top line has got impacted, as GD explained by the catalyst price increase. So it is difficult for us to say as to what percentage we would came at. But if I put the FY '27 orders, and if I put the FY '28 orders, we would almost be 3x from what we were last year in FY '28. So that's the kind of increase which is going to happen.

Okay. That's helpful. And also, if you could give a little clarity on how much margins would be in the lightweighting vertical?

So light weighting vertical had a very good margin. And while this is obviously a very new segment for us, steadily growing for us, and gradually, as it stabilizes, the margins will also stabilize further. At vertical lever, obviously, we don't share the margins. However, these will continue to be decent margins. Emissions definitely, as we have said previously also will be relatively higher, but margins in this business also will be quite good.

Okay. And one last question I have is that we had a good amount of orders in the last quarter, as you have mentioned and in the presentation as well. But the inventories have risen quite rapidly from around INR 10 crores to INR 75 crores. So is there any supply chain disruptions or anything if you could give a little bit of clarification on that?

Which number again sorry, where did you pick up this data of inventory increase?

This is in the cash flow statement.

Two parts to the question. One is, are we facing any supply chain disruption? The market as of now is no supply chain disruption. The volatility continue. We are keeping an extremely close watch under the entire development. But as on today, as we speak, there is no supply chain disruption. On the inventory, I'll request GD to.

Yes. So Darshan, I got your point. So you have looked at the inventory levels. So if you see, there has been steep growth in revenues this year, 30%. So obviously, inventories have moved in line with that. If you look at it on a number of days basis, these have rather improved. So this is purely on account of overall increase in scale of operations. So this is nothing unusual there.

That's helpful. Thank you, and all the best for the future.

We have a follow-up question. It's from the line of Preet Pitani.

First question, like you mentioned that we have a higher margin emission and a little bit less than emission in suspension business. And I understand that you cannot get the -- we cannot give the exact breakup of the margin. But if you could just mention the differential of the margin like it will be 100 basis points or 200 basis points or 300 basis point for full year 2026?

We -- as a policy, we do not share the vertical level margin. So I cannot share them indirectly as well. However, as I said, there are good margins in this vertical. And this vertical is still growing and will grow a lot in the next couple of years on the back of the orders which we already have. And we expect the margins to improve further from here and which will be visible in -- as we will see all along, I think that is next, I can share at this stage.

And apart from this, all the orders, which we have mentioned in the export, I believe export we will be requiring a higher working capital for the export. So will export margins be better than our company's margin? Or it will be also on the same level?

Yes. So broadly, you're right, export margins relatively are going to be higher. And as you rightly said, there will be an increased working capital requirements. So on a net basis, these will broadly be in line with the domestic business margin. So at a net level, this will be broadly in line.

And the annual value which you have mentioned in the PPT for export, for example, just to take an example, if we take any customer in which you have mentioned that it will be starting from quarter 3 or quarter 4 of FY '26, so will we see on FY '27 entire basis, the annual value which you have reported in PPT or it will take 1 or 2 years to gradually ramp up and then we will see 2 years later that this pool number?

So obviously, at order level, as a policy, we don't share any specific numbers. However, whatever is the outcome against any particular order, this will be strictly in line with the customer requirements. The annual value is based on the customer guidance. And accordingly, that is arrived at. Precisely what will be the revenue will entirely depend on the customer schedules and their requirement, and we will abide by that. So annual value is just a projection, which ideally should be the case. But this can move either way based on ultimate requirement of the customer.

The next follow-up comes from Ankur Poddar.

Can you share some thought or your vision behind your association with [indiscernible] and what kind of industry will cater? CV or PB? And what kind of market size will we cater in these kind of products? If you can share some thoughts.

Okay. So there are 2 3 parts again to your question. So let me explain the Donghee association. So with Donghee, the association of our technology licensing agreement that enables us to expand our suspension lightweighting portfolio from our existing control arms and we will include soft frames and Torsion Beam. So this essentially deepened our participation in powertrain agnostic products. In lightweighting, we have already increased our market share in control arm and link to 14%. And based on FY '27, FY '28 order book, we are going to grow it further. This will strengthen our capability in this segment. And we also have localized R&D, manufacturing expertise and Donghee will give us the global access to global technology and benchmarks. Now Donghee Association, as I said, will help us add Torsion Beam into the portfolio. This will help not only penetration but also help in content per vehicle, which would depend upon the architecture and the product scope. And this is where our lightweighting vertical portfolio will grow further. We are already engaged with Donghee and focusing on knowledge transfer, manufacturing and design technology, improvement of existing products and the operational efficiency improvement. The soft frame Torsion Beam will essentially supplement and add to the portfolio and content increase. And as as we are talking about Cafe 3, the norm -- the norms will also accelerate the platform standardization. Customers are already talking about platform standardization across multifuel technology.

Okay. And to the export market for these products also will be able to export under this agreement?

So as of now, the agreement TLA is for India. However, India-based exports are included in the TLA. It means our manufacturing and an export, that's part of TLA. But this TLA is valid only for India geography. If you're talking about only this TLA. But in our export, and I explained to you in the product segment, we are targeting emission components we are targeting temperature controlled tubes, we are targeting heat shields, and we are targeting small agri and [indiscernible].

And when do you envisage the SOP will start under this agreement?

So as I explained, there are 2 parts which we are talking about. We are talking about our operational efficiency improvement, improvement of our existing product portfolio. And the second part is the adding the software Torsion Beam. Now software Torsion Beam, the discussions have already started with the OEM. We are in a little long gestation period. over a period of few quarters, we anticipate to see success in this area.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you very much, and thanks a lot. We appreciate your participation in today's earnings call. We trust that we have addressed all your queries. Should you have any further questions, please feel free to reach out to our Investor Relations adviser, Ernst & Young. Thank you, and have a pleasant evening. Thanks a lot.

Thanks so much everybody on the call. Appreciate it. Thank you so much.

Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.