Steel Strips Wheels Limited (513262) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Steel Strips Wheels Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Smit Shah from ICICI Securities for opening remarks. Thank you, and over to you.

Thank you, Ryan. Good morning, everyone. On behalf of ICICI Securities, I would like to welcome you all to Q1 FY '27 Earnings Call of Steel Strips Wheels Limited. Today, we have with us Mr. Dheeraj Garg, Managing Director; Mr. Rahul Kumar, Chief Financial Officer; Mr. Aditya Dixit, Executive Director, International Marketing and Operations; and Mr. Pranav Jain, Vice President, Finance. We will start the call with brief opening remarks from the management team about the quarter gone by, and then we'll proceed to the Q&A session. Thank you, and over to you, Dheeraj Garg.

Good morning, everyone. Hope everyone is doing well. And I hope that everyone has had an opportunity to go through the financial results and investor presentation, which we have uploaded on the stock exchange and on our company website. I'm pleased to share that we have delivered another healthy quarter, reflecting the strength of our diversified business model, continued focus on premium products and improving operating efficiencies. Despite the war in West Asia and the volatility in commodity prices especially, our business has continued to demonstrate resilience across key segments. Now coming to the quarterly performance for Q1 FY '27, the company reported a revenue of INR 1,509 crores. This is a growth of about 27% year-on-year. The quarter witnessed healthy momentum across alloy wheels, tractor wheels, commercial vehicle segments, supported by domestic -- improved domestic demand. Standalone EBITDA with other income for the quarter increased by 32% Y-o-Y and stood at INR 165.17 crores. EBITDA per wheel for current quarter stands at INR 314 per wheel as compared to INR 262 per wheel in the Quarter 1 FY '26. Margin percentages expanded during the quarter by 40 bps, driven by input increases received from OEMs other than raw materials, operating leverage, a favorable product mix and an increasing share of premium products and continued cost optimization initiatives across manufacturing facilities. The profit after tax grew 43% Y-o-Y to INR 71.51 crores with PAT margin improving to 4.7%. This performance reflects the combined benefits of robust revenue growth, margin expansion and operating leverage. Our alloy wheel business, which contributes 35% continues to remain 1 of the strongest growth driver of the company. The increasing penetration of alloy wheels across passenger vehicles, coupled with a leadership position in the domestic market enable us to further strengthen this business. Our aluminum knuckle business is progressing in line with our expectations. Capacity expansion at our Bhuj facility is progressing as planned, and we remain focused on increasing customer approvals and commercial supplies. We believe this business will become an important growth engine over the medium term as lightweight aluminum components gain wider adoption across both ICE and electric vehicles. The Tractor segment continued to perform well during this quarter, supported by robust rural recovery, the shift towards higher horsepower mechanization, increase in healthy rural cash flows and stable replacement demand. This remains 1 of our highest value-added businesses and continues to contribute positively towards our overall profitability. The Commercial Vehicles segment also witnessed gradual improvement, supported by replacement demand, infrastructure-led investments and improving freight movement. While industry demand continues to remain uneven across certain categories, we remain optimistic about the medium-term outlook supported by increased government spending and improving economic activity. Over the last 2 years, we have consciously diversified our export portfolio by expanding our presence across Europe, Latin America and other international markets, thereby reducing our dependence on 1 single geography. This strategy has shown clear green shoots for exports market. Demand for the exports have started showing recovery yielding to positive results and improved business momentum. We continue to witness healthy traction from both existing and newly nominated customers. The normalization of global trade conditions, along with increasing customer confidence in India as a reliable sourcing destination continues to create new opportunities for us. We remain confident of further improving our export performance over the coming quarters through higher volumes, better customer mix and continued geographical diversification. The manpower challenges experienced during the previous year have now been fully resolved, enabling smoother production planning and better execution. Higher utilization across all our plant continues to improve operating leverage and supports margin expansion. Now as already conveyed, we are setting up 2 manufacturing facilities in Bhuj. The first is an aluminum wheel plant with an annual capacity of 1.2 million wheels, while the second is an aluminum knuckles facility with an annual capacity of 1.1 million units. We will be at about 6.2 million wheels in the aluminum segment and trial production is expected to commence in the fourth quarter of this current financial year. Looking ahead, we remain optimistic about our outlook for FY '27, targeting a top line growth of 20% plus. We remain focused on enhancing profitability by increasing our EBITDA per wheel from around INR 262 in the previous financial year to more than INR 310 through this financial year. Improved utilization of capacity and growth in the exports market are reliable reasons why we say so. Our focus will continue to remain on operational excellence, expanding our premium product portfolio, improving exports, enhancing customer relationships and also investing in AI, thereby delivering high productivity gains in labor, and delivering overall long term value for all stakeholders. With that, I would like to thank all our employees, customers, suppliers, shareholders and business partners for their continued trust and support. Now we are open for your questions and answers. Please go ahead.

[Operator Instructions] We take the first question from the line of Aditya Khetan from SMIFS Institutional Equities.

Congrats on a good set of numbers. So my first question is on [ 2 -- EBITDA for the year ]. Sir, when we look at this quarter, INR 309 versus our stated guidance for FY '27 of INR 300 per wheel, any idea, sir, like -- so should we like assume that for the next 3 quarters it will gradually reduce, or are we upping our guidance on EBITDA per wheel? Consequently, on EBITDA number which you've stated, that looks fine, like, some INR 650 crore guidance which we have stated that should be met. But on EBITDA per wheel, how should we look at going ahead?

So if you recall my conversation since the last 2 years, I've been harping on the issue of getting input price increases from customers. So this is a culmination of all that effort. We got some increases last year, but now we've got almost all our increases and still more to come. So that itself has it added more than 1% on the margins. And that kind of explains the jump from INR 280 to INR 314 now. So going ahead, I think -- I don't want to jump the gun and say that we will do INR 325 or INR 350. But all I can say is that it will be -- this should be a benchmark in our minds. And perhaps after the second quarter, we can review where we are headed. But I can say that we have an upside bias on the INR 314 number. But let's see how the product mix stands out, what happens in West Asia, what happens with commodity prices. There's a lot of things to -- but we are very optimistic about this current quarter that's ongoing right now.

Got it. Okay. Sir, on to the export side, we still see a dip on Y-o-Y basis. I believe, sir, now all the tariff-related uncertainties behind. So this quarter, so generally, so there shouldn't be any sort of a tariff component. So what explains this dip from INR 160 crores last quarter to INR 127 crores this quarter?

I think it's a question of -- I think -- let me -- hold on 1 second, I'll tell you. So I think you're comparing the Y-o-Y number, right?

Yes. Y-o-Y. Correct.

After that, the Trump tariffs took place and there was a lot of bickering with India over tariffs. So we were sort of at an awkward position against Vietnam and Thailand for extended periods of time, which led to a decline in exports. And so now with the tariffs coming down to 10%, and now we feel that it's a level playing field for everyone, so that's why you will see that in the month of June, we have shown a 7% increase in exports. So after a long 2 years, I think it is the first time we have shown an increase in exports. And that is the reason why in my speech, I'm highlighting that the uncertainties regarding tariffs have sort of stabilized or not fully gone away, but they have stabilized at a level playing field for everyone. That's what I mean by that. And so you will see increase in exports now. And also, we've also mentioned about the diversification of exports. I think on this export question, I'm sure other people would also like to ask questions. So I'll let Aditya speak about the exports. Aditya, go ahead.

Yes. On a year-over-year basis, as Mr. Garg just now explained, that is the reason why we see a dip on a year-over-year basis. But if you compare what has happened in the last quarter and where we are talking about this quarter, Q1, so you will see there is a recovery of almost 37%. And that is why we are coming from that. Yes, we do see that the impact of the tariffs are going away. Now that we are at a level playing field with our competition, which is in Southeast Asia. So we expect that the remaining 3 quarters of this financial year, we don't see the headwinds coming back on the tariff side. And at the same time, we expect a ramp-up of all our OEM awarded businesses to happen in these 3 quarters and which are not in the U.S., but they are in the other geographies of the world. So we do not have that ambiguity of whether the tariffs are going to impact that ramp-up of these OEM programs. So I think we are very well on track in terms of our overall annual number, which we have set a target of around INR 600 crores. We are on the right track.

Got it, sir. Onto the knuckles business, when we look this quarter, some INR 23 crores of a top line. Looks similar when we compare it with your Q3 numbers. Although I know on quarter-on-quarter basis, there is a good jump. And on to the customer side also, like there has been no meaningful ramp-up, like, we are working with 2 customers for over the last 1 year. Any sort of a meaningful uptake we can see, sir, in '27, '28 -- we can quantify?

Yes, I think it's a great question you've asked. I'm glad you can do that. So we started out this business with Mahindra, and that was meant for the electric vehicle program. But since then, you've seen the ups and down in the EV market. So you can understand what I'm talking about. But since then, we have acquired another customer. And within these 2 customers that I talked about earlier, we have got new businesses awarded now so much so that now we are absolutely running at the moment as we speak at 100% utilization. And our expansion in Bhuj has become extremely important and necessary. And it's the perfect timing for us because that order book is almost completely sold out. So whatever I'm planning to produce in Bhuj, that's been sold out. So you will see great, great numbers coming from the aluminum side -- knuckles side. Thank you for asking this question.

Got it. Sir, just 1 last question. On to the CapEx program, sir, like, we have an ambitious CapEx program for expanding in capacities, alloy wheels and EV. If you can -- I see that number of INR 200 crores CapEx incurred in FY '26. How should we see like what was the total CapEx program, if you can highlight? And how much has been completed and breakup, sir, if you can provide like business-wise, knuckles wise, and alloy wheels, that would be helpful.

I think, Pranav, you can go ahead.

Yes. Total CapEx, which we are planning in the current year is from the Bhuj plant where we are expanding our alloy wheel capacity by 1.2 million, and knuckles capacity 0.6 million. And the total CapEx in both these are around INR 420 crores. And as agreed, we are also doing some replacement and other plant CapEx of around INR 80 crores. So total CapEx is around INR 500 crores. And...

So now in addition to that, we are, as I have mentioned to you in the last call that we are working on expanding our agricultural wheel capacity. So in line with that, we are going to spend about INR 150 crores to set up this line and it's a brownfield expansion. It's not a greenfield expansion. And so we reckon that this would also come in partially this year and partially the next year. So in all, as Pranav said, INR 420 crores for these 2 plus INR 80 crores for the brownfield, INR 500 crores. So let's say, INR 600 crores plus/minus, you could sort of benchmark this as a CapEx for this year.

We take the next question from the line of Nishita Shanklesha from Sapphire Capital.

So just if you could -- your voice was actually not that audible. You said that they are doing a brownfield expansion. What is that expansion for? Like what product is it for?

Yes. So it is making agriculture wheel. So the thing is...

Agriculture wheel.

Agriculture wheel, but also it will be a fungible line to make a car wheel, passenger car wheel. So in a way, it's an augmentation of both our mother plant in Chandigarh -- near Chandigarh, and this is an augmentation of about up to 2 million wheels, both put together, small as well as agriculture. So this expansion -- because we see a tremendous traction for steel wheels also in India. And I would like to talk about that also, in fact. So if investors here probably a few of us will recall that I had always mentioned that the steel wheel business is a declining business, and it's been taken over by aluminum. But now we see not only is aluminum growing, but also steel has started to grow. And this has happened right after the GST cuts in India. And I think this trend is going to continue because the industry is absolutely sold out of capacity. I mean all the 15, 20 years of problems is pass car steel industry had have come to an end. We started a new chapter. I've already spoken about 2 years ago that we are getting input price increases. But on top of input price increases, now we are talking about increase in volumes, and increase in volume means that we need to expand capacity. And we are expanding capacity in the agriculture space where there is a generic growth every year because -- simply because of the mechanization necessary in the country as well as the number of people that need to be [ fed ]. So this is a hedge, but we are very optimistic that the steel pass car business is also going to grow more than 5%. And that is great for us because we also have a lot of export business now. So we are actually short of capacity. If you really ask me, all my business units are running at more than 95% utilization. I mentioned this last time also, and that's the reason why we have operating efficiencies also. So -- and this has happened after maybe 30, 40 years. It has never happened with us. And I've been saying this since last year, except for the first quarter last year, which was a miss, was the truck wheel business. But now we feel that everything is very steady and it's growing very smartly.

Right. So with this brownfield expansion, our steel wheel capacity will go up to 29 million, right?

Well, it's 24 million. So I think that'll go up to 26 million.

Okay. Understood. And when will we commercialize this?

I think we are very optimistic to commercialize it before the end of this calendar year, definitely. I think you will see the results of this in the fourth quarter, for sure, in this year, because there is demand. There is huge demand that the industry is projecting and experiencing as we speak right now. It's a good situation to be in.

Okay. Understood. And you mentioned that our new capacity of aluminum wheel, that is also completely sold out. So what are our further CapEx plans? Because if that is also completely sold out, we need to do further expansion, right?

Yes. So we have many ideas on that, many things on drawing board, nothing firm. But obviously we will see next 3 months, 6 months how our export profile looks. If the export profile looks the way it's looking, then for sure, we will be looking at expanding further on in aluminum, further on in knuckles. So these are the growth areas where we strongly dominate the market. So we want to have a market in the export segment to grow for us and make it as, I mean, substantially bigger than the domestic market in the long run. So the next 10 years, we want to sell more wheels in the export market than we sell in India. So that's our strategy going forward. So we want to be a very big global player in this business, leveraging India's top manufacturing base.

Okay. Understood. And my next question is, like, in the earlier call, you mentioned that in FY '27, we can do a top line of around INR 6,500 crores. So that makes our top line growth at around 25%. So are we confident on achieving that?

Yes. I think you can see the current run rate also. And so we are at INR 1,500 crores, that's about INR 6,000 crores run rate. But there will be growth in this quarter, all quarter. And then of course, an expansion happens and we are able to fully utilize our aluminum plant like we are doing right now, you will see a very different set of numbers. In fact, you will start seeing different set of numbers for the month of July itself. That will give you an idea as to where we are headed.

[Operator Instructions] We take the next question from the line of Aditya Jhawar from AK Investments.

Great set of numbers, team. I have one question. When I see the borrowings and interest cost, can you just help me how much percentage it is?

Pranav Jain, go ahead.

Yes, the total borrowing as we conveyed in last year is around the same number. That is total long-term and short-term borrowings are around INR 826 crores in FY '26. And the interest cost on that borrowing is ranging between 8% to 9%.

Then why in our P&L it is a little higher, I mean, INR 120 to INR 130 crores?

I already told you in last -- I think last quarter or maybe last to last quarter that there are some factoring limits which we have taken. And on and so when the demand needed and when the funds are required, we use that factoring limits. And that are in the range of INR 400 crores to INR 500 crores. These are factoring limits.

And you would have noticed that raw material prices in aluminum jumped up by more than INR 150 crores. There was an excess pressure of INR 150 crores just from the increase in commodity prices, which, of course, we have passed on to the customer, but it takes time for the money to arrive from the customer to us. So we've run a very tight ship on very extreme high aluminum prices.

Understood. Okay. And next, last question I have is, how much of the revenues are we thinking for this year from alloy business percentage of revenue and overall?

So if you assume INR 6,500 crores as a top line and you assume 35% as a benchmark or 37%, I think something like that it should show up.

And among all the businesses, we have more EBITDA in the alloy business, right? That's how...

That's why the absolute EBITDA per wheel is increasing. So the more I sell aluminum wheels, the more I sell truck wheels, the more I sell tractor wheels, the more I export, you will see increase in EBITDA. Even now as I've been saying for the last 2 years that we are getting input price increases, and we've gotten them. So we've got increases of 1% to 5%. So -- and some of them are yet to flow. So I think you will see a very healthy set of things happening from the margin expansion side as well as volume side.

And when I say -- when you talk about alloy, tractor, [indiscernible], so how much percentage of revenue comes from the -- I mean, when you categorize as premium, so how much percentage is that? I understand 30% is alloy, but rest all, if you...

Well, there is a look on knuckles 37%, and then truck and tractor -- I'll give you the number. 34% is truck and tractor. So it's a pretty good state of affairs.

So overall, 35% is value-added now.

Overall, 70% would be value added.

Okay, 70%. Great. And also one suggestion, I mean, if you can lighten the balance sheet by doing some equity, I mean, that would be helpful for the minority shareholders. So that's all from my side.

Okay.

We take the next question from the line of Madhur Rathi from Counter Cyclical Investments.

If you could help me understand our steel wheel EBITDA per wheel, what it is today, and what it was maybe 2 or 3 years ago? And how has this industry consolidation and price hikes helped us?

I think you asked a great question. I don't have the data right now with me to tell you how much comes from steel. But the next time, I will prepare this statement for you. Please remember to ask in next -- I will give you the breakup of aluminum wheel et cetera, as much as I can give you, because you are obviously secret -- proprietary information, I can't divulge, but I will give you some ideas to how this works. I will -- [ relative wise ] margins for you.