SPR Auto Technologies Limited (SHRIPISTON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SPR Auto Technologies Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. Today from the management, we have with us Mr. Krishnakumar Srinivasan, Managing Director and Chief Executive Officer; and Mr. Prem Rathi, Executive Director and Chief Financial Officer. Before we begin, let me remind you that this discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It may be viewed in conjunction with the business risks that could cause future results, performance and achievements to differ significantly from what is expressed or implied by such forward-looking statements. I now hand the conference over to Mr. Krishnakumar for his opening remarks, post which we will open the floor for an interactive question-and-answer session. Thank you, and over to you, sir.

Thank you, Sanya. Hope you can hear me well.

Yes, sir. Please go ahead.

Okay. Thank you. Good evening, everyone. Thank you for joining us for this Q1 FY '27 earnings call. We hope you have had an opportunity to go through the financial results, the investor presentation and the press release, which are published on the stock exchanges and the company website. I'm really pleased to share that SPR Auto Technologies has commenced the financial year 2027 on a very strong note and delivered an encouraging performance during Q1 FY '27 as the company delivered a 51% year-on-year growth on a consolidated total income and a 27% year-on-year growth on consolidated EBITDA. The strong performance is particularly noteworthy given the challenging industry backdrop characterized by elevated commodity prices, supply chain disruptions and broader macroeconomical uncertainties stemming from heightened geopolitical tensions. Moreover, commodity cost adjustments normally have a time lag of a quarter for regularization customers, thereby presenting a temporary gap in the margins. Even with the above impacts, the company has delivered a strong financial performance during the quarter. Consolidated profit before tax grew by 7% year-on-year in Q1 FY '27, while profit after tax increased by 9% year-on-year. The growth is after reflecting the flow-through impact from EBITDA, primarily contributed by higher finance costs to fund the acquisition of the automotive interiors and lighting businesses. These elevated finance costs are expected to be temporary and should normalize as the related debt is repaid. Post the GST 2.0 reforms, we are seeing a phenomenal growth in both the 2-wheeler and the passenger car markets. We expect this volume momentum to continue for the above segments and also for the commercial vehicle and tractor segment throughout the year. Our strategy to invest in technology and capacity ahead of time has really helped us to cater to these increased demands. This performance underscores the strength and resilience of our diversified business model, our continued focus on operational excellence and the effectiveness of our strategic initiatives. We remain focused on driving cost efficiencies, streamlining the supply chain, integrating the low-cost automation and digitization programs across all our manufacturing operations and optimizing inventory and logistics planning. These initiatives are aimed at strengthening the structural resilience across the business and form the foundation of our established and growing presence in the auto components industry. We continue to build on our strong leadership in legacy products while steadily scaling our powertrain agnostic businesses, which, of course, enhances the future readiness of our portfolio. In the legacy business, we achieved a key milestone during the quarter with the successful completion of the acquisition of the Piston Manufacturing plant and machinery from Sunbeam Lightweighting Solutions Limited. This acquisition strengthens our piston manufacturing capacity and also enables us to meet the growing demand for all our products. I'm happy to state that we are continuing to win new programs for hybrid and flex fuel applications from all our customers in the legacy business. The integration of the recently acquired automotive interiors and lighting businesses progressed very well during the quarter. These businesses continued to deliver a strong performance, reinforcing the strategic rationale for the acquisition. We remain focused on aligning the operating processes, leveraging cross-selling opportunities and unlocking cost and operational synergies across the group. Post our acquisition, the auto interior business has also won some very important customer programs to fuel the future growth of this segment. The electric motor and controller business has been continuously exceeding all the targets that we have set for the businesses at the beginning of this year. Also, the high-precision injection molded components business has also witnessed a very significant growth during the quarter. We also continue to make a very steady progress on all our group-wide capacity expansion programs. These investments are designed to support customer programs, enhance capacity availability and create a stronger platform for future growth across all our products. All our businesses, including the legacy engine components business, the automotive interiors, lighting, the high-precision injection molded components and the EV motors and controllers continued to perform very well during the quarter. The power agnostic business now contribute over 35% of our consolidated total income, while nearly 60% of the overall business is positioned to remain relatively insulated from the impact of EV penetration. This reflects the steady progress of our diversification strategy and the increasing strength of our group. We continue to strengthen our ESG credentials through focused investment in renewable energy and robust sustainability practices. ESG remains a very strategic priority for the company, and we are pleased to report that we achieved a CDP B rating for climate and water disclosures. We obtained our TUV certified sustainability assurance. We secured certifications under ISO 14064, ISO 50001, ISO 46001, ISO 17029 and ISO 27001. We were also recognized with an EcoVadis bronze medal, putting us in the top 35 percentile globally on sustainability achievements, Dun & Bradstreet's highest ESG rating of 2 in India and the CII Award for corporate sustainability, further reaffirming our commitment to responsible business practices and long-term sustainable value creation. We have also continued our journey of winning many awards from all our customers across the country. We have also got our TSA certification done and are happy to state that from a cybersecurity angle, the company is well positioned to be able to counter any possibilities in the future. Looking forward, we remain focused on disciplined execution, strategic investments and sustained operational excellence. Backed by a diversified product portfolio, long-standing technology partnerships with global industry leaders and deep customer relationships, SPR Auto Technologies Limited is now well positioned to drive its next phase of growth and create sustainable long-term value for all our stakeholders. I thank you all for all your continued support, and I'm looking forward to taking your questions and request the moderator to open the floor for question and answers. Thank you once again.

[Operator Instructions] The first question is from the line of Radha Radha from Motilal Oswal Financial.

Congratulations on the sharp improvement in Antolin performance. Sir, my first question is Antolin Global has introduced...

Sorry to interrupt, your voice is not clear.

Is this better?

Yes. It's better now. Yes.

Antolin Global has introduced several next-gen interior technologies over the past few quarters, like electrochromic sun visors, cockpit solutions integrated with human machine interface, emotional lighting, et cetera. So to what extent does SPR India has access to these technologies today? And how are they being localized for the Indian market? Do you see these differentiated capabilities becoming a key competitive advantage in winning new businesses with customers?

Yes. Thank you, Radha. We have an access to all the technologies that are globally available within the -- globally available and tested within the Antolin portfolio. We have -- as you all know, that we have already signed a long-term TLA, which is a complete licensing agreement. And we have all the solutions available. In fact, we are working on a number of programs with end customers for various HMI initiatives as well as the newer programs for headliners, the Imersa Technologies and others, which is all being tested with customers, and we are looking forward to -- once they fructify, then we'll be in the right position to come and inform all of you with regards to all the new businesses that we are working on. So -- but we are happy to state that we are working on all the technologies. All the technologies are seamlessly available to us, and we'll be probably amongst the frontrunners to introduce some of those technologies, which have been time tested elsewhere in the globe with Indian customers, and we are already working on it.

All right, sir. That's great to hear. Second question is, sir, Eaton U.S.A. has shut down its engine valves plant in the last calendar year-end. So are you witnessing a boost in exports due to this? And apart from this, what are the other key growth drivers in the export segment for piston?

Yes. So Eaton is basically mostly in the engine valve segment. They don't operate on the piston side. But as far as the engine valve segment is concerned, we do have the growth, and we are working on a number of initiatives to be able to meet our customer programs. And the mobility solutions of Eaton has been now sold to Dana, as you might have heard. And we have yet to see as to what exactly is the strategy of Dana to grow the business here in India. As far as India is concerned, I think we lead the stack with a fairly good market share across all customers and across all industry segments. And we are fairly well entrenched with most of our customers to be able to cater to their demands.

Understood, sir. Sir, last question is Takahata Global has a lot of products in non-auto like office automation, measuring instruments, et cetera. So are we supplying these components from the Indian entity to our customers as well? And what can be the scale of non-auto portion of the business in the next 3 to 4 years as compared to where it is today? And what are the delta in margins of non-auto compared to auto?

We already supply to non-auto components. We also make non-auto components in India. We already supply to medical industry. We supply to sports industry. We supply to music industry. But as you know, these segments do not have very high volumes. They are all low-volume segments. And so that way, for example, the music industry, we supply the complete keyboard for some of our customers like Yamaha and others, which is the keyboards, et cetera, they are not sold in millions. It is not like in automotive. So it will be on a lower side. We don't normally give the breakup of this segment, but it's a sizable segment for us, and it's a good margin business for us. Thank you.

The next question is from the line of Gokul Maheshwari from Awriga Capital Advisors.

KT, sir, if I may ask on the -- what kind of opportunity do you see for our legacy business once the CAFE norms are introduced? And does this increase our realization or a chance to consolidate our market share in this product segment?

Yes. We -- see, we are already working with our customers on the CAFE norms. And based on the new CAFE norms that have been released, we are already -- we have already submitted products which are under testing and validation with the customers. And most of these products require a different kind of an approach with regards to frictional reduction as well as reduction of exhaust gases and others for which a completely new technology has to be introduced in terms of coating and in terms of the piston ring manufacturing strategy. So all this has already been done. We have already invested ahead of time, and the technology is all available within our manufacturing setup that we have in Ghaziabad and Patridi. And our engineering teams are well -- have well progressed with the development of these technologies. So we are well entrenched with all our customers.

But does this increase the realizations for the same product, which we were supplying earlier?

Yes, to some extent, yes. Because with all the new technologies, the cost is also more, the realization is also more.

Okay. And is our competition also following us by offering this to their OEM customers?

I would say that we are leading the game.

Okay. Great. Secondly, sir, just on the M&A front, I mean, in the past calls, you've mentioned that you would want to look to expand our scope of offerings and look for M&As. Just a question, given the -- where we are in the automotive cycle, how are you protecting yourself because we are -- the industry is doing very well in the last 12 months or so and more specifically after GST cuts, and this could be possibly closer to peak sales or peak profitability from a cycle perspective. So how are you safeguarding yourselves when you're looking at potential opportunities over there?

Well, if I understood your question right, you are asking me how we are safeguarding with regards to newer M&As and doing it at the right deal price and all that, right?

Right time and right price, actually.

Yes. So we have a very detailed working that we do with our M&A team. And the M&A team looks at multiple angles. It's not only the angle of multiple on EBITDA, but it's a very detailed exercise that we do with regards to the overall strategy of investment. And we, of course, take all the future outlooks in place, and we look at the current situation of the industry as well as look at the situation of the -- how the industry is growing over the next 5 to 10 years' time and then do a lot of forecasting to be able to take a decision with regards to our M&A direction.

All right. Great. Just lastly, in the non-auto business, in the annual report, you mentioned there is a mention of pistons for railways, snowmobiles, compressors, et cetera. What would be the contribution of this segment to our current size, current business? And how do you see this business shape up over the next 2 or 3 years?

Well, it has been a sizable business because, see, this -- again, as I said, this is a segment which is growing for us. And if I give one figure, it will change tomorrow morning because it is a continuous growth that we are having both in terms of the compressor industry, the marine, the defense and the various other applications like snowmobiles and others. So at this stage, to give any number percentage to this will not be correct because we expect this to percentage over. It's a sizable business now. Over last 4 years, I think we have grown almost at the rate of 15% to 20% in this particular segment. And we have entered into various applications, including lawn-moving applications and others. And all this has really helped us to maintain our growth trajectory and also maintain continuous growth, which is better than the market growth. We have always maintained that we want to outgrow the end markets.

The next question is from the line of Vijay Pandey from Axis Capital.

Sir, a couple of questions. Firstly, if you can give the breakup between the plastic business, Antolin business and EMFI, the revenue and EBITDA for the first quarter.

We normally -- within the quarter, we don't give the breakup. The first half, you will get the breakup. But you have the breakup of the end of last year. And you can see that more or less that kind of a trend has been maintained even today because we see a all-round growth across the auto industry, thanks to the GST 2.0. As a result, we see that the end markets are really doing well, and we are seeing a full growth in -- across all the segments that we operate in today.

Sir, actually, just want to understand how the margin profile is looking for the plastic and Antolin business. I think plastic is around 18%, 19% EBITDA margin and Antolin was at around 7%, 8%. So just want to see has this...

We have significantly improved the interiors business also. And that has come with a lot of synergies playing out as well as we have streamlined a lot of things with regards to the fixed costs, and we have taken a lot of actions with regards to improving the cost structure of the company, which has really helped us to improve the margins. As of now, I can say that we have crossed the double-digit figure, and we are in the early mid-teens, I should say.

Okay. Okay. That's good to hear. Secondly, sir, I would like want to know the industry has definitely grown at 20% in Q1. But our like -- if I see our stand-alone business, the legacy business, there, the growth was around 12%. So I just want to know any reason for lower performance versus the industry? Is it only -- if you can throw some color.

Yes, I will -- let me attempt to answer your question. Basically, if you see, the industry was also carrying a good amount of stock. We go by the manufacturing that has been done, not by the sales because sales normally carry a lot of stock coming from the previous year. So if you really see the manufacturing, the manufacturing growth has been in the region of around 12% to 14% and our growth has been over 16%. So we have actually outgrown the industry even as we speak. And within the mix, if you see, the 2-wheelers have grown by almost 20%. The passenger car has probably grown by around 11% from a manufacturing angle, 19% and 11% to be exact from the manufacturing angle. And -- but the commercial vehicles and the tractor industry have grown by somewhere around 7% to 8%. And the other industries have grown by something like 4%, 5%, including the compressor industry. So as a result, you will see a mix of all this coming into the end product this thing. But overall, considering that the exports got affected because of the war situation, where there was a tremendous impact in the -- on the export side. And also because of the sudden rise in the 2-wheeler and the passenger car industry, the manufacturing had to be a little bit tweaked towards the OE industry. As a result, you will see that the growth impact is fairly significant considering that we have grown at this percentage, which is better than the market percentage even after considering all these segments of the market. And I'm happy to state that we have actually satisfied all the segments of the market with regards to our supply.

And sir, over last 1 month or last 1.5 months post when the things have started to normalize and West Asia, has the exports picked up? So could we expect a better quarter in exports in second quarter?

See, exports are still quite affected, especially in Europe and in America. So both U.S., America and the Middle East markets, including Egypt and others, Turkey, Egypt and others have been badly affected. And they have not still picked up, and it's quite slow, I would say. There are still a lot of ambiguities in the overall supply chain with regards to what will happen with regards to a very seamless supply chain situation that we had earlier. So I personally think that it will take some more time for things to normalize. Commodity prices have started falling. It had gone to unprecedented levels. We have had to face a very unprecedented increase in the commodity prices, but we have been able to manage it, and we see this now slightly coming down. So hopefully, it should all normalize within this next quarter.

And lastly, sir, just if you can probably give us some of the technologies that can come up from Antolin business, upcoming technology which we can see over the next 1 or 2 years, that would be pretty helpful.

I think I spoke in the earlier question, a number of technologies on which we are working on, including HMIs as well as the Imersa Technologies, the technologies with various kind of pillar trims, backlight pillar trims, the floor consoles, et cetera. So a number of areas on which we are working on.

[Operator Instructions] The next question is from the line of Harsh Shah from Seven Rivers Holding. The current participant has been disconnected from the call. We'll take the next participant. The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, am I audible?

Yes, Mukherjee. Go ahead.

Sir, this EBITDA impact of INR 300 million that was mentioned in the investor presentation. So are we able to receive like price hikes from the OEMs to pass this on? And any time line by which we think our margins can normalize?

No. This -- as I said, this is an impact which has happened because of commodity prices and also the impact of our interest cost that we have paid. So to a fair extent, that has been covered up already in our -- as you can see from our financial results. It's certainly better than if you really discount the fact that we have had to pay the interest on our NCDs. If you really take that out, then you will see that our performance has been really in line with our previous quarter's performances. And we continue to maintain those performances. And I don't see any reason why we will drop further.

Sir, my question was more on the -- not on the finance cost, but more on the like EBITDA impact because of logistics and commodity inflation. So do we need to like ask for any sort of price hikes from the OEM or...

I mentioned that we have a back-to-back arrangement with all our customers, but it has a time lag delay. Normally, there is a delay of a quarter with most of the customers. That's how the industry operates. And that's why what will happen is whatever is the commodity increase that we have had this year, based on the average commodity prices, we get the price increase for the next quarter, and that gets covered in the next quarter. So we already have a back-to-back arrangement with all our customers. And not only for this particular business, even for our plastics business as well as our motors business and the interiors business.

And sir, for the motor controller business and plastics business, will you be able to share what kind of like revenue growth have we witnessed year-on-year in these 2 segments?

Well, last year, we grew by double. And I'm hoping that we continue that trend. I'm pushing my team for that. But then we'll certainly continue to outgrow the markets.

Okay. And sir, my last question is for the auto interior and business, like do we have a margin target that we want to achieve? Can we bring it to the stand-alone kind of margins? Can you share some perspective on that?

No, I already replied this to the earlier question. Yes, we have improved the margins and we have improved from the earlier 7%, 8% that they were operating on to almost, let's say, the early teens.

The next question is from the line of Harsh Shah from Seven Rivers Holding.

Am I audible?

Yes, go ahead.

Yes, yes. Sir, I was referring to Slide 8 of our presentation, wherein it's mentioned that production volumes have grown by 22%. Now when I compare that with our stand-alone revenue, which has grown at around 12%, 12.5%. So how do we reconcile it?

Normally, what happens is volume need not necessarily because the mix changes in the industry. Even all our end customers, if you see our -- even if you see our end customers, the overall post GST 2.0, what has happened is the mix has changed. They've gone in for more production of low-end cars. I mean, let me not put it as low-end cars. It is basically smaller sized cars, smaller sized vehicles because the demand for that is more both in the rural and the urban segment. So automatically, the price per -- the realization price per piece changes as we have those kind of products going in more. And you will find that by value, the realization could slightly vary because the mix changes drastically.

Okay. Okay. And another...

So what is important is to maintain the kind of margins that we want to maintain, which we have been able to do that.

Yes. So another question is on the margin side. So if I look at the stand-alone business, now I'm comparing sequentially Q4 FY '26 versus Q1 FY '27. So between these 2 quarters, our gross margins have gone up on stand-alone business. It has gone up by 60 bps, yet our EBITDA margins have come down. They have almost come down by 200 bps. So what explains that?

That's what I explain the commodity prices. You have a quarter delay in the commodity prices, and you will see.

Our gross margins have improved between Q4 FY '26 to Q1 FY '27, our gross margins are almost intact, yet the EBITDA margins are down by 200 bps.

No, that's what I said. It's a combination of a multiple combination of mix plus volumes and also the fact that -- when I say mix, it also means the mix of our overall business within our portfolio, the kind of mix that we have. So overall, it shows that some of our areas of, let's say, aftermarket business and other things have -- normally in the first quarter, we always have a lag. In the first quarter, if you really compare the first quarter of last year, we'll always see that lag.

Okay. And sir, last question is any update on the fund raise and any new acquisitions that are in the admin?

Yes, we -- our team is working on the acquisition part. And there is a lot of work going on there. And we'll come -- we'll inform the -- all of you guys at the right time. As far as fundraise is concerned, I think we are progressing as per target.

The next question is from the line of Nandan Pradhan from Emkay Global Financial Services.

Congratulations on a great set of results. I hope I'm audible.

Yes, Nandan.

Sir, so I think just following up on the question from the previous participant, I think what we are trying to understand is our gross margins are intact. Sequentially, our staff cost as well as our OpEx has gone up. I understand there could be some impact from the minimum wage hike as well here, right? So just on that, and also, the other expense would include some sort of one-off expenditure since we are just integrating Antolin and do we consider this as a new normal? Or do we expect this run rate to go down as we get the synergies kicked in over the coming quarters? That would be the first question.

No, I think you are again -- the overall mix impact has an impact, while the gross margin could show the improvement. But if you compare it -- you cannot compare it sequentially with quarter 4 of last year because mix was completely different. So you'll have to see it with the mix of Q1. The mix of the market also makes a big difference. So both the things come together. Of course, we have our normal wage increases that we have every year, which happens normally during the first quarter, 1st of April. And that has a small impact on the employee cost percentage that you see. But otherwise, we are well within the targets.

Got it, sir. And sir, just I think across the ancillaries, the wage hike has seen an impact. And since we are also in the northern region, are we -- could you broadly give directionally some idea about how much the wage impact has been this quarter? And how are we seeing the...

Normally, in those internal figures, we don't normally give Nandan Ji. But the good part is that we have been able to retain the team. The team is doing a fantastic job. All of them are very motivated to work in the kind of atmosphere that we are presenting to them. And the team is doing a fantastic job.

The next question is from the line of Divyansh Gupta from Latent PMS.

Sir, the first question is to just understand the time lag from when we supply, let's say, the pistons to our OEMs to their production time line? What is the typical gap?

Can you come again? There was a small drop in your voice.

Can I repeat the question. Basically, let's say, we supply x number of pistons to, say, Maruti on 1st of April. How far ahead in their production line will that be consumed?

In their production line?

Basically for them to finally ship out the car? What is the time line?

It varies, it varies. Product to product, it varies. Some of the product, they -- when the demand is very good in the end markets, then those products goes within maybe less than a month's time. But if the products are depending on the kind of stock levels that they operate across various operators across the country, it varies. So it varies from time to time. But on an average, you can see the kind of volume growth that Suzuki is having, and we are growing quite well with them. We have a fairly good market share.

No, I wasn't specifically asking for Maruti. I just took Maruti as a, let's say, example, as a name as a placeholder.

Even others. Everywhere, it is the same story. See, on an average, the product when we supply, we, of course, do a lot of things to supply them. There are also requirements that we should supply just in time as the manufacturing takes place. But post their manufacturing, how much time they will take to supply to the end market, that is a question that you have to probably ask the end customer here.

Got it. Understood, sir. The second question was just if you can tell what would have been the growth of our consolidated business ex of Antolin. I'm just looking at the numbers and not margin or anything. But just ex of Antolin would have -- what would have been our growth -- top line growth?

I think it's over 16%.

And sir, just last question. With the government trying to push in higher blends of ethanol, we have readiness up till E85 is what I understand. The question that I have is that what are the kind of conversations we are having with our clients. And let's say, the ramp-up, the actual blending levels increase, would it lead to more CapEx just to support higher blending or current capacity can also support higher blending? And how far ahead we are.

See, what happens is when the blending goes on a higher side, the product undergoes a change, okay? You have to -- because of more water content and carbon content, you have to improve the kind of coatings that we have on the piston as well as on the rings. So we have already tested all the products that is required by our customers right up to E85. Now the strategy of what they want to introduce into the market will depend on various geopolitical situation -- sorry, the political situation in the country as well as the end customers' market needs. So as far as we are concerned, we are ready with the products. Every product -- every segment of the product, whether it is for E20 or whether it's for E40 or whether E85 will undergo a change and the price is different because of the content change that happens. So with most of the customers, we have already signed up. The products are all tested for our products. I don't know about what other products has an impact because of E20 or E40. And we feel that this situation should get addressed quickly. And hopefully, the customers will start growing that business. As far as we are concerned, on the flex fuel side, we are completely ready.

My question was a bit different. So my question was, let's say, we have to supply 100 pistons to Maruti. If we are doing for E20 versus, let's say, E40 or E85 to provide the same volume, do we need to do further CapEx?