SKP Bearing Industries Limited (SKP) 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 SKP Bearings Industries Limited. Today, on the call from the management, we have with us Mr. Shrinand Palshikar, Chairman and Managing Director, along with his management team. 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 will now request the management team to briefly run us through the investor presentation for the period ended June 2026, the growth perspective and vision for the coming year, post which we will open the floor for Q&A. Over to the management team.

Thank you, Kaptify. Firstly, a very good evening to everyone present here. I'm Shripada Patil, CFO of SKP Bearings Industries Limited. We have gathered here today for the quarter 1 FY '27 earnings call. With your permission, I'd like to start. Next slide, please. As you must have seen from the results, which we have declared, when we compare quarter 1 to FY '26 to quarter 1 of FY '27, we are seeing a year-on-year growth in operations, EBITDA, earnings before interest tax as well as PAT. So we are seeing a growth from quarter-to-quarter comparison. Next, please. A brief on this slide. As you know, previously, SKP is already supplying to companies supplying in the defense and aerospace sector. So in this quarter, we are seeing a positive flow in this sector as well as the segment has seen improvement. And we are having approval process in one of these major entities. Next, please. For the manufacturing business, this year, we have sorted it in manufacturing and renewable. As per the feedback in the last call, investors wanted to understand how the manufacturing business is progressing. So this is where we have shown a focus over here, where the installed capacity of Ball, you can see at 2,000 tonnes per annum, their utilization of 17% is achieved. Whereas in Roller plant, last quarter, that is the quarter 4 of FY '26, and we have had a capacity addition in quarter 1. So you can see there is a marginal increase in the annualized installed capacity of quarter 1 FY '27. And this is further deemed to increase in this coming quarter with the installation of various other machines. With the installation of additional capacity, our utilization remains the same. So as you can see, our additional capacity is already being booked by existing customers and the customers which were in the pipeline. And as you may see that if you consider our segment analysis, so ROCE of Core Indian -- of our manufacturing stands at approximately 40% to 50%. Renewable energy is a stand-alone segment as it is running from past many years. Next slide, please. Our France operation, the strategies are playing out well. We are seeing a quarter-to-quarter increase of customers in a marginal way, not in a substantial way. Even the SOBs of major clients, which have increased, remain the same. As we know, France works in the calendar year. So whatever change in projections for France entity is expected in quarter 3 of FY '27. Next, please. Our stand-alone income statement, this is a quarter-to-quarter comparison. As we compare quarter 1 FY '26 and quarter 1 FY '27, this gives us a better picture because it minimizes the seasonal fluctuations. And as we can see on a quarter-to-quarter basis, we are having improvement in the top line as well as in profit before tax, but you can see the interest has increased because of the borrowing as well as there are one-time financial costs, which took place in this quarter because of which we are seeing a drop in the PAT margin. Next, please. On a consolidated level, we are seeing a slight drop in the EBITDA margin. That is again because of the total expenditure. France entity, everything is similar as before. Regarding the revenue breakdown, we can see the quarter 1. As we have explained time and again that SKP is focusing on export and global companies. So with that playing out well, even despite our top line increasing, we are seeing that 5% of our revenue is still contributing to export. So we can see that export contribution has started increasing, and it is expected to increase still further in this coming quarters. The FY '26 industrial revenue contribution remains approximately same as this is an annualized contribution. Next, please. This is a brief for those who are new to our company. SKP is a bearing -- not a bearing, bearing component manufacturer, rollers, primarily needles, cylindricals, steel balls and special purpose pins. We started in the year 1991 as a partnership concern. Over the years, we have expanded into different segments as well as in renewable. In 2022, we became listed on NSE SME; '24, we acquired the France plant. And just the next for the products, please. Next slide, please, Kaptify. Our Board of Directors, there are primarily 4: Mr. Shrinand Palshikar, Sangita Palshikar, Kishore Parikh and Gautam -- sorry, Rajeev Lokare and Gautam Ganguli. Our manufacturing plants, we have total of 4 plants, 1 plant, which is from where SKP started. There is now it is machine building and developments. Plant 2 is the current plant, the head office. Plant 3 dedicated for ball manufacturing. Plant 4 is in France. Next, please. So with this, I would like to open -- I would like to ask our MD, sir, if they want to give some feedback. Post their discussion, we will open the call for question and answer.

Good afternoon, everyone. Thanks for joining our earnings call. As usual, though we are not compelled to do these earnings calls as well as the quarterly reporting, we are voluntarily doing to maintain our transparency and explain to our investors how the things are going. So we are -- look at overall scenario as SKP, we are doing good, not good, very good. Of course, results are a little fluctuating because of many situations. But we are very confident that the future time, it is going to do very good. And we have good opportunities. We are adding good number of customers, also very potential customers. First time, it's the global customers, what we are adding. From India, we will be in a position to supply to China, maybe Japan, Korea. Already other sites -- global other sites already business has started. That is why you see all the increases are there. Also, there are potential to add another few more customers, which are in pipeline. They are testing and validation because these are very large clients. So their process on onboarding is ongoing. Any time, we can have a good news and the process of onboarding will be completed and the business will be transformed into revenue. So these are the good things for the future. We have our global issues like we had a big issue starting March from February end when the war started. So the fluctuations in all costs, supply chain disruptions, many, many issues were prevalent. But because of these, many customers are also getting affected, also the supply lines are getting affected. But with all these things, we are doing good. And for future, we see a very good potential for SKP. So this is all from my side. Thank you.

[Operator Instructions] We'll take the first question from Nikita Jain.

I wanted to understand, can management provide any directional indication of numbers of active customers today versus at the time of acquisition or the extent of revenue recovery from pre-acquisition level?

For SKP France?

SKP France?

Yes, ma'am.

So basically, pre-acquisition level, if we consider as 100%, so post-acquisition, due to the change of entity and the regulation requirement, we had dropped to approximately 5% to 10%. And now, we are at approximately 40% to 50%. But the SOBs are less. So we are expecting the SOBs to revise year-on-year.

Okay. I also wanted to know what gives management confidence in the continued recovery of France business? Are existing customers increasing their share of business? Or is the growth primarily coming from new customer additions?

It's both actually. Usually, in European and American countries, it works that they plan their entire year and the entire scheduling at one time itself. So usually, as per our -- in September to December, this is when the planning happens. So whatever SOB is decided during that portion, that continues for the next entire year. So as of now, we are having approximately a marginal, like approximately 10% to 20%, 30% in various customers. So this is -- SOB is expected to change in quarter 3 in September to December. So this is what is giving us a positive look for the topline improvement. The bottom line is covered to the best of our ability as of now. So bottom line, we have optimized -- over the past 2 years, we have optimized the bottom line. And at the same time, the top line is increasing, but it's increasing marginally. Because we are seeing a projection, that is what is keeping us confident.

We'll take the next question from Harleen Kaur.

I have a few questions. First is Ball plant utilization remained at around 17% in the Q1 FY '27 compared with the earlier expectation of reaching 50% to 60% utilization. What are the key factors behind the slower ramp-up? And what is the current time line for a meaningful improvement in the utilization?

Actually, we had seen an improvement in the month 3 of quarter 1. But because that is only one portion of the 2 months, so the average was pulled down. In the quarter 2, we are expecting a better utilization compared to 17%. So we'll be lying somewhere between 17% and 50% as per the projection.

Okay, ma'am. My second question is, how many customers are currently at the qualification or sample stage versus regular commercial production in the Ball business? And what is the typical time required to move from the qualification to meaningful recurring volumes?

How many in a sense you mean in the number of customers?

Yes, ma'am.

Okay. So basically, we are having approximately 4 to 5 customers who are in the sampling stages. And the others are basically somewhere between deciding whether they want to start with SKP or not. So commercials are clear, but they are not taking the decision to shift from China or not or shift from existing source. So 5 to 6, we are already in the sampling stage. And there is a portion of which the SOB is lesser, so that SOB has also increased in this quarter, so which results will show in the coming quarter. I hope that clarifies your question, ma'am.

Yes, yes. My one -- I have a few more questions. At 50% to 60% utilization, what kind of revenue and profitability contribution can the Ball business potentially make? And how should investors think about the operating leverage from the existing capacity?

Regarding the revenue, I think we can just do a cross multiplication if 17% is doing this much, so 20%, 30% -- 40%, 50% will...

I will answer that particular question. See, it also largely depends on the product mix. So what type of product mix, what type of the raw material, which customers -- what we are targeting right now, we are targeting a balance of around 30% of capacity right now targeting with a few customers. The revenue with 50% utilization, we can expect something closer to INR 30 crores annual revenue.

Okay. Sir, I have a few more questions. What -- at what utilization level does the consolidated EBITDA margin structurally cross 20%?

Can you repeat the question?

Yes, sir. At what utilization level does the consolidated EBITDA margin structurally cross 20%?

It's a very complex because you have clubbed 2 different continents. So 2 entities you have clubbed, where both case scenarios are a little different. But you want -- you are targeting an EBITDA margin of 20%. If I read it correctly?

I think she's trying to understand when do we reach 20% EBITDA margin at consolidated level.

At consolidated, right, that's the thing because it's France, also India. If you take India alone, we know the numbers. For the France, we are already in the -- but give us some time, we will calculate and tell you this particular question. Shripada ask someone to do that.

We will calculate and give you.

Do a math and just let us know.

We'll take the next question from Rudraksh Raheja.

Sir, you mentioned this Ball plant at 50% capacity utilization, we can get around INR 30 crores of revenues. So for this year, sir, despite a slow Q1, are we on track to get to that target of INR 30 crores? Can we recover that in the next 3 quarters?

What -- customer targets what we are keeping right now, we achieved this particular customer targets. Already our samples are through, commercials are through with some customers. With some customers, we are in phases of validation and all this. Commercial, more or less settled with everyone. Once it is through, the process may take 1 month to 3 months' time. If this process is through, within, say, how fast the customer also, it depends on customer also. So suppose we consider from our angle, the customer does it quickly as per the need base, in 1 quarter, suppose all validation process will start. I think next quarter, we can have a better utilization, start seeing better utilization. It cannot be all of a sudden, say, 17% or 20% to 50%, but you can see month-to-month improvement, so -- but quarterly, it may have a better situation.

Basically, Rudraksh, sir, because quarter 1 and quarter 2 is already halfway down, so 13% this year. But quarter 3, quarter 4, that is the approximate -- projections.

So maybe 30% to 40% would be better estimate for what we could achieve in the Ball plants for the whole year?

Correct. Correct. Maybe better also, maybe better. How fast the customer -- how responsive, also how the situation for the China situation comes because some customers are major importers from China. For them, it's like just shifting, but it is not taking place.

Understood, sir. Understood. And sir, on the France business, are we on track to achieve breakeven this year? Is that process going on?

It may not be possible in this next 1 or 2 quarters. Maybe at the end of the year, maybe it will be possible. It is just boundary line now.

Got it. And sir, for that business, we were in talks with some top customers that we lost at the time of acquisition. You said we were still in touch with them. Sir, any updates on that front?

Yes, yes. They already requested samples. Now, sample submission phase is already going on, commercial settled. So now sample submission and validation. The process could be quick also. Again, customer needs. But if you take from our angle, we plan to submit sample during this particular month. Once we submit the samples, if the customer validated quickly and approve it, maybe the SOB will start this quarter itself.

Got it. Got it. So maybe not this quarter, but we should see some ramp-up at least from next quarter onwards.

Actually, this was our customer already there, one of the top 4 customer, top 5 customers previously. So they already have validated the site, everything. It's just they need a new thought process or new things, new designs. In Europe, the designs also changes over a period of time. So they want to validate with all new things with new company, new products, that's okay. So onboarding is quick also. So it's not like -- but from our point of view, I think in this particular year, we should do a breakeven.

[Operator Instructions] We'll take the next question from Rakesh Mehta.

I have a couple of questions around the growth opportunity and customer diversification. So management had earlier highlighted a customer opportunity with potential revenue of approximately INR 100 crores by FY '30 across the customer global facilities. So how has this opportunity progressed? And what is the current visibility on order conversion and revenue ramp-up?

Shripada, you reply. You are mute.

I'm sorry, sir, can you please repeat the question?

Okay. So management had earlier highlighted a customer opportunity with potential revenue of approximately INR 100 crores. So around FY '30 across the customer global facility, how was the opportunity progress? And what is the current visibility of order conversion and revenue ramp?

Yes. The -- it's going on well actually. The customer has acquired. We have received letter of nominations from approximately 3 to 4 sites for the Indian entity, others for the French entity. And the business has also started for these entities. The result you can see in the export percentage increase in our domestic revenue. And that is expected to increase further in the coming months.

Rakeshji, the site means it could be country or maybe multiple factories...

Plants.

In one country.

Basically, it's like a big business, big, what do you say, entity, like there is a one major group. And then that group has multiple small, small, small companies in different locations. It might be having 3, 4 companies in 1 country itself that way. So one factory is called as one site.

And the size of the site could be 2,000 people, 3,000 people.

Okay, sir. So are the current growth opportunity primarily coming from increasing wallet share with existing customers or SKP seeing a meaningful contribution from new customer additions?

Both. Both, actually. We are seeing a little bit of dip in quarter 1 for orders from a certain category of automotives. But as you can see, our overall industry distribution is very stable. So we -- any one industry does not have much impact. So other domestic markets are stable. And we are seeing slight increase in other markets as well. So usually, it turns out that when the automotive is down, the market goes up, or if the market is down, the automotive goes up. These sort of things are happening. So balancing out, we are seeing organic growth in the current existing customers as well as new customers, both are contributing.

I have one last question. So how has the customer mix evolved over the last few years? And is management seeing increasing diversification across customers, geography and end-use applications?

Yes. As you can see that majorly, we were having Indian automotives. So now, we have started adding export business and export OEMs and automotives. So diversifying that sector as well. And Indian automotive sector and other countries of global automotive sector works may be a bit different, not same. So that's a different diversification for our portfolio, yes.

We'll take the next question from Harleen Kaur.

Ma'am, I wanted to know, SKP is simultaneously investing in capacity, France and other growth initiatives. Can you give us the expected FY '27 and FY '28 CapEx and the corresponding incremental revenue and EBITDA expected from that particular CapEx, if it is possible to share?

Whatever majority CapEx, which had to be done, is already done. Whatever is happening now, it's normal. It's nothing like -- only for plant 2, we are having some projects which are still ongoing. That will show in this quarter. Besides that, whatever CapEx is there is normal expansion. So generally, how it is we do debottlenecking, we do some investments in R&D, we do some investments in machines, debottlenecking upwards, capacity is utilized. So this is normal CapEx, nothing substantial to disclose. And it's not like that is going to make any difference in the expense side or any other side.

Some of the investments -- capital investments could be customer need based, like customer may require some particular testing or specific requirement. That specific requirement could be linked to their projected volumes. So this is normal. So normal CapEx. But we do always CapEx on a year-to-year basis. So it is always investment in R&D, new machineries upgradation, quality upgradation. So normal CapEx is always there. But bigger is already over.

Okay, sir. Sir, does the France subsidiary require any further meaningful capital infusion from the parent over FY '27 or '28?

It will be -- support will be still required because till the time you don't do a breakeven, you need to inject cash. Now, whatever you must have seen that the losses, which were there, now it is reduced a lot. And you need to pay, you need to be very compliant to the law requirements, taxes, social contribution. So you need to be compliant. So there will be some investments will be needed, number one. Number two, we have some customers' requirements, new customers' requirements, which for future, it's very potential to add these customers. So it is in thought process. We are still not finalized these particular investments. But once we have a customer clear understanding of like some sort of MOM, and if it is need-based, probably we may have to expand or invest in those particular new requirements, new machineries and all. It's very customer requirement based.

So sir, how much and what return do you expect on that capital?

Currently, we are discussing with this. We are not still finalized. Once we finalize, probably we can finalize the amount of investment needed.

Yes. And Harleen, there were these 2 questions which you were asking. First, in the current question, on return on capital employed, as you can see in one of the slides, with the help of Kaptify, we have put in this figure. So you can see our return on capital expenditure is approximately 40% to 60%. And for the France entity, the returns are usually much higher. But because the entity is currently loss-making, we do not see that effect directly in the balance sheet. This comes to your second question, which you were asking at what top line are we expecting profit before tax of 20%. So as per the calculation, it is coming approximately INR 150 crores to INR 160 crores. So that's the approximate calculation, and we are hoping to achieve that in the coming years. I hope the questions are clear.

Sir and ma'am, we have one question in the chat. If a global bearing manufacturer can source the same rolling element from China at a lower manufacturing cost, what specifically prevents them from doing so?