Steel Strips Wheels Limited (SSWL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Steel Strips Wheels Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Ms. Shruti More from Anand Rathi ]. Thank you, and over to you, ma'am.

Thank you, Shubham. Good afternoon, everyone. On behalf of Anand Rathi Research, I would like to welcome you all to Q3 FY '26 earnings call of Steel Strips Wheels Limited. Today, we have with us Mr. Dheeraj Garg, Managing Director; Mr. Rahul Kumar, Chief Financial Officer; Mr. Pranav Jain, DGM, Finance; and Mr. Puneet Sharma, DGM, Finance and Accounts. We'll start our opening comments from the management team, post which we will open the floor for Q&A. Now I'll hand over the call to management team. Over to you, Dheeraj sir.

Yes. Thank you, everyone. Yes. Good afternoon. Hope everyone is doing well. I hope everyone had an opportunity to go through the financial results and investor presentation, which we have uploaded on the stock exchange and our company website. So I'll start with the Q3 numbers. For Q3 FY '26, our revenue stood at INR 1,321 crores compared to INR 1,075 crores in the same period last year, reflecting a growth of 23%. This quarter was distinguished by record monthly sales in November and December, which demonstrates the resilience of our diversified approach that caters to every category within the auto industry. Despite sluggish demand in the export market, we delivered strong performance, supported by healthy domestic demand. EBITDA for the quarter came at INR 128 crores compared to INR 118 crores, a growth of 8% in the same period last year. This performance is the result of our continued focus on premiumization, operational excellence and the strong partnership we have built with the OEMs. Together, these factors have enabled us to sustain growth during the period. Now coming to our 9-month performance. Revenue for 9 months FY '26 stood at INR 3,708 crores compared to INR 3,195 crore in the same period last year, reflecting a growth of 16%. This growth was primarily driven by increased demand in the domestic market, supported by government reform that have boosted consumption across the auto industry. We remain optimistic that this momentum will continue across the domestic sector. EBITDA for the 9 months grew by 3%, largely due to a decline in our high-margin export segment, which was impacted by the tariff situation in the U.S. Profit after tax for the 9 months stood at INR 138 crores. Overall, these results highlight the resilience of our domestic operation and our ability to deliver growth despite external challenges in the export market. So the aluminum segment has been a standout performer for us over the last 9 months, and we anticipate this segment to further grow supported by recent GST reforms and RBI easing of finance costs, which have boosted passenger vehicle sales in the country. Alloy wheel have been a key driver, contributing approximate 37% to the total revenue and 20% in the volume terms. We expect this momentum to continue with alloy wheel increasing their share of overall revenue going forward. Now second one is our aluminum knuckle segment, which continues to build strong momentum with adoption expanding beyond EVs into ICE automotives. We are on the track to reach an annual capacity of 5 lakh units by the end of this year with a planned scale up to 11 lakh units next year. The business is currently operating at near full capacity utilization and has already delivered revenue of approximate INR 54 crores. Going ahead, our focus remains on broadening the customer base by onboarding additional OEMs, where we are seeing encouraging progress. So now our 2- to 3-wheeler business delivered strong performance this quarter with a healthy growth in both volume and value terms. This was supported by the implementation of GST 2 reforms, which has enhanced affordability of 2-wheelers and boosted household disposable income, thereby driving a demand. Additionally, the festive season this year was one of the strongest in recent times, further contributes to the robust growth in this segment. On export side, demand from the U.S. market remains somewhat subdued amid the ongoing tariff-related uncertainties. While we continue to monitor development closely, our approach has been to stay agile and well positioned for a normalization in the demand once there is greater clarity on the trade framework. In parallel, we have continuously focused on diversifying our export base. Europe has emerged as a key growth market for us and now accounts for over 58% of our export revenue. We expect this diversified mix to remain intact during this -- throughout this year, reinforcing our diversified approach to global markets. Looking ahead, we remain confident of maintaining business momentum in the coming quarters, supported by healthy order visibility across our key domestic segments such as tractor, aluminum wheels and commercial vehicles. While our diversified presence across automotive segment positions us well to navigate the current volatility in the export market. With this, we now open the floor for question and answers. Thank you.

[Operator Instructions] The first question comes from the line of Saurabh Jain from Sunidhi.

Yes. So congratulations on the wonderful set of top line. For the last couple of months, we have done a record turnover. Sir, looks like domestic realizations have remained stable, but exports realization, just if we do the back math, so have witnessed a substantial jump during the quarter. So how do you see this? And are these sustainable? What kind of trend do you see? And also, if you can -- within the question, if you can explain how rapidly and how smoothly we are able to pass on the increase in raw material prices?

I think I'll take the last one -- question because this comes repeatedly in every meeting. And once for all, I want to clarify that raw material is a pass-through. So every 3 months, there's a change in aluminum prices that is set up by the customer based on the previous 3 months rates. So there is an absolute pass-through. Maybe sometimes there's a lag, but that sort of averages out for the whole year. So there's no problem there. And also for the steel business, it's quarterly set, and it's a long old tradition. So there is always a pass-through on raw material. We cannot afford to have not a pass-through on raw materials, okay? But coming back to your earlier questions, you see this year has -- what has happened is that all our verticals, barring exports have outshown. You have seen that in the industry with the CV industry growing 16% year-on-year for the 9 months. And we see the aluminum wheel penetration of our products increasing with the newer launches this year. So that has been a big boost for us. Similarly, knuckles, although it hasn't done 100% of what our expectations were, but still we are going to be touching close to INR 80 crores, INR 90 crores turnover -- close to INR 80 crores turnover by the end of the quarter. So generally speaking, and then we have tractors doing really well. Tractors, again, have been showing us a 12% to 13% growth rate. And so everything has done. Even pass car has done well. But of course, as we all know, pass car steel business is a low-margin business for us. Now the missing point has been the exports business. Our steel business of exports has been compromised to the extent of INR 300 crores to INR 400 crores from the American market. And that was a high-margin business. That brought the EBITDA per wheel to a very high extent. If you look at the fourth quarter of last year, last financial year, we had the highest EBITDA per wheel, INR 265, if I'm not mistaken, something around that. So this year -- this quarter, we've done close to INR 260. And that is mainly on back of increased truck wheel sales, increased tractor wheel sales and a stupendous growth in the aluminum segment for us. In fact, last -- one of the previous calls that I attended, everybody was complaining about the second quarter performance. And I told them, very clearly because the capacity utilization has dramatically fallen in CV, dramatically fallen in other -- even in aluminum, we were not able to get that kind of traction. But with the GST reforms, things have just changed. Suddenly, every segment is doing well. Every domestic segment is doing well and -- but exports is down. Now on the exports front, as you have seen my colleague, Pranav mentioned that 58% of our revenues are coming from Europe. So we've made good traction in the export market in Europe, and that to too OEM sales. Out of competitive reasons, I may not be able to tell you exactly what we have been able to achieve, but we are able to get a lot of business from the OEM space in Europe. And that is going to grow and in fact, going to double this next financial year as we go on. So yes, the American hit has been there on steel wheels. And hopefully, it will go away in a sense that in 3 to 6 months, we will see some resolution of this matter also. But this is something that we have to watch for. But generally, we are absolutely bullish. In fact, I remember saying that in April that this is the best time for us, but suddenly, we had a big drop in the second quarter. But now I can say that with the GST reform, this is a [Foreign Language] rally, and this will go on. And our capacity for CV wheels has just come at the right time. We have expanded our capacity in CV wheels in Jamshedpur, and we are totally sold out in the CV segment. We are totally sold out in the tractor OTR segment. We're completely 100% running there. On aluminum wheels, we are completely sold out. So our capacity is 5 million. So we are about to reach 5 million. We are hovering around 4.6 million, 4.7 million, but we'll hopefully hit 5 million wheel annualized in the month of March. So all in all, all segments are firing up well, except for our steel wheel business for the export market. That's something that is not in our hands. And I think margin profile going forward, as I said, we don't talk in percentage terms. We talk in absolute wheels -- absolute number per wheel. And that absolute number per wheel, as I said, in spite of exports of steel wheels not being there, we've reached INR 260. And one may also add that with the higher utilization, our conversion costs are coming down, our fixed costs are coming down. So you will naturally see an increase in margins in the month of January to March because we've had this bull run from, let's say, November, December mainly. But I think going forward, January to March looks like a turnover -- again, a 20% turnover growth increase from the previous quarter. I think we are looking at INR 1,450. I don't know how much did this time we did?

INR 50 lakhs.

INR 1,320.

Yes. So INR 1,300 would go close to INR 1,475. So I don't -- that's not 20%, but still a strong performance. And that is because we are sold out. And we see that the next financial year coming forward, we'll also see such buoyancy because there is no lack of demand. When we speak to OEMs, the OEMs are very excited about the business. And they're excited about exporting cars out of India. So this is another phenomenon that you must follow is that the OEMs are also exporting cars out of India. Just don't look at the sales of cars within India. So again, I mean, I'll just go back to my earlier comments that it is the best time, but I think it's even a better time now with the GST cuts.

Okay. But sir, exports realizations were both in steel and alloy wheels, so were -- they are looking substantially up, like more than 20%, 25%. So is there any one-off or this will sustain in the coming quarters?

What is your question regarding the margins in export?

Exports realization, sir, both in steel and alloy wheels are looking substantially up.

So it is up mainly because of -- I cannot spell out the reason, but high-value [ Ditherm ] wheels are going. I just mentioned to you that we have grown a lot of business in Europe. So please get a hint from that. And that is the reason why you see a per unit price going up.

Okay. And sir, my last question was on the profitability front of course -- yes.

And also the fact that the Americans can't selling because their steel is obviously cheaper than aluminum. So you have to make that connect.

Okay. And sir, my last question is on profitability. Of course, I understand you don't talk about in percentage terms, but just trying to understand, despite a higher alloy wheel mix and a substantial jump in the top line, our EBITDA margins kind of looking suppressed below 10%. Historically, our peak EBITDA margins used to be 12%, 13%. But with more value addition pie and also substantially up top line, the margins look under pressure. So do you think in the coming years, we can expect previous peaks to be reclaimed?

Listen, the point is you are talking about the wrong question. The question is that raw material price increases invalidate this argument. If raw material price is going up by 10% and then you expect the EBITDA of the company also to grow by 10%, it's not possible linearly. Obviously, it will come down when the selling price goes up and the margin per wheel is what is more important to us. And the margin per wheel is -- has gone up from INR 240 in the last quarter, it has gone to INR 260 this quarter, right? So obviously, there is an improvement because there's a higher value addition business done plus volumes have gone up. So similarly, let us not look at 10% because the raw material prices have moved up for both aluminum and steel.

Okay. Got it, sir.

[indiscernible] heard this question. I hope the audience gets it that let's not debate the whole thing again and again. Let's look at how much I make per unit because I make -- sell in units.

Sure, sir. All the best.

Thank you.

[Operator Instructions] The next question comes from the line of Vikas Sharda from NTAsset Management. [Operator Instructions]

I have a couple of questions. One is that you have announced the capacity expansion in alloy wheels and aluminum knuckle. So what would be the total CapEx you're looking for, say, FY '27?

Okay. So let me clarify one thing. We've already completed the CapEx for 5 million wheels. So in March, everything will be commissioned fully with all the extras that we need to have for the basic CapEx. So that CapEx is over. Now we are doing another CapEx in Bhuj, where we had bought the AMW factory, and we are utilizing the building and the land and the development around it. We are saving close to INR 100 crores in CapEx cost there. And we are putting up a new facility to make aluminum wheels as well as aluminum knuckles. So the total expansion cost will be around INR 420 crores. And so INR 420 crores...

Yes. So that is for the expansion?

Yes. So...

And including the maintenance CapEx, how much would it be total for FY '27?

INR 40 crore.

So INR 40 crores, we even had INR 40 crores for brownfield maintenance CapEx, but there will be other CapEx with regards to maintenance only. That's it. Maintenance CapEx is about INR 40 crores, right?

Yes.

So INR 420 crores plus INR 40 crores. And let me tell you one thing that this investment is meant for the export market and also for the Indian market. But this is a unique investment that we are making in aluminum wheels because it will cover every category of aluminum wheels sold in the world. So it will be a very comprehensive project, and we'll be looking at the entire world region for these products. Similarly, for knuckles, we are expanding for our existing customers in India, but also for the export business in Europe. We are very close to making strategic deals with European customers regarding aluminum knuckles and other related aluminum products. So I think there is a question regarding this also, how are we diversifying? So within the -- we started off with the low-pressure die casting business with wheels. Then we got into counter pressure die casting with knuckles. So similarly, there are other products that can be made with these technologies, and we are investigating and aligning with our customers to manufacture them and send them abroad. So it's going to be a contract based with the European customers.

Understand. So with next year, INR 420 crore plus INR 40 crore. And how much would it be for FY '26 in aggregate?

FY '26 will be around INR 225 crores to INR 250 crores.

Okay. Understand. And...

And this will include a part of [indiscernible] we'll share for the next year.

Sorry, could you repeat that?

That this will include some part of the total CapEx, which I have already told that INR 420 crores of the CapEx, which we are doing for alloy wheel and knuckle, and this will be broadly certified into 3 years. Some of the part which will be added in FY '26, some will be covered in FY '27 and remaining 10% or 20% will be covered in FY '28.

Got it. Makes sense. And sir, second question I have is that what is your cost of debt? Because when I look at your P&L now, your interest expense is running at almost INR 120 crores annualized, while your gross debt is INR 900 crores or so. So is there any additional borrowing cost or some finance cost part of it? And in general, what is your borrowing cost?

Yes. The total overall debt cost is around 8% to 8.5%, right? Average cost is this much. And there are some of the factoring lines are there, right? And that factoring is adjusted in the debtor, the debtor factoring limits, which are there. And in the balance sheet, same is adjusted against the debtors.

Understand. Okay. So that increases the total number, yes. And finally, sir, one question that. Hello?

Yes, please.

Yes. So one question. In your MHCV segment, you report your market share and it has come down Y-o-Y. And it shows that for Tata Motors, your share of volume has gone down for share -- percentage share has come down for steel wheel. So any particular points to highlight there?

I don't think for medium heavy commercial vehicles, our share has gone down. I don't know why this projection has come to you. But overall commercial vehicles, there are light commercial vehicles that we don't sell into. But for medium heavy commercial vehicles, I don't see our share of business has come down. Last what I saw was about 42% 52%.

52% on CV.

52%, yes, 52% on CV. So that, I don't think has changed much.

So if you look at, say, last year third quarter, it was 61%.

It can vary from quarter-to-quarter. But I think for the whole year, you might want to look at that. But 7% drop is not possible because we are, in fact, selling -- getting a bigger market share than the official market share that the customers have offered us. So maybe there is some error in our reporting here. I will double check this aspect. But clearly, I mean, our truck sales are up 16% over last year. So we have not lost market share. I don't think the industry has grown 16%.

Yes. So if you look at the numbers in the last year third quarter presentation, it was 61%. So it shows a drop. But yes, it could be an error.

Yes, it could be an error. But as of now, there has been no loss of market share for medium, heavy commercial vehicles that I'm very sure about because that's our bread and butter. And that's a really good business, and we are [indiscernible] market.

Now that 62% is [indiscernible] only, now this 52% is for both MHCV and LCV and this...

[Foreign Language]

Yes. So the total share is 52% if you include both MHCV and LCV.

But only in medium heavy commercial vehicle what our -- LCV yes, at 62%.

It's medium commercial overall is 52%.

You just said includes...

I said that includes, overall is 52% last time [Foreign Language] it is 62%, that's all.

I think we'll come back to you. We'll clarify this. I think we'll clarify through...

Through our SGA team.

Through SGA we'll clarify this aspect. I'm sorry for this confusion.

The next question comes from the line of [ Nishita from Sapphire Capital ].

Yes. Am I audible?

Yes, please go ahead.

Yes, ma'am.

Yes. So I had this question on the CapEx that you're going to do in FY '27 in Bhuj. So what is the total capacity going to be in that plant?

Okay. So the capacity will be [ 1 billion ] in the aluminum wheels business and 1 million in the knuckles business. 1.2 knuckles, 1.2 -- sorry, 1.2 in the aluminum wheels and 0.6 in the knuckles, this will be additional capacity. It will be additional capacity. So three forth of a million in knuckles or 0.6 and 1.2 million in car wheels.

Okay. So the total capacity like with the existing plant and the new plant, the capacity will be grown to that, right?

Yes. So it will be -- right, so it will be 6.2 million for aluminum wheels and it will be 1.1 million knuckles.

Okay. Understood.

Yes.

And so how fast will we be able to like ramp up this facility?

So these projects will start before Diwali. This year, this calendar year.

Okay. Okay. Understood. And what will be the peak revenue from this facility?

I think you can do -- the peak revenue would be about, let's say, INR 600 crores from the wheel business. INR 600 crores to INR 700 crores because we're doing a lot of value add. So you can take it close to INR 700 crores of -- let's say, INR 600 crores. And for the knuckles, it should be a business of, let's say, about INR 200 crores.

Okay. Okay. Understood. And my -- and how are you going to fund this CapEx?

So it will be a mix of debt as well as our internal accruals. So we foresee a very robust EBITDA accretion going with this fourth quarter and the whole next year. We have very bullish projections. So I think a little bit of debt will come through depending on when we need the cash flows. But you can say about INR 200 crores net debt would be added, perhaps less, more around that number.

Okay. Okay. Understood. And also, I just wanted a clarification. You mentioned that our EBITDA per wheel is INR 260.

Which one? Yes, the current quarter, I think what my calculation tells me is INR 260.

Right. So that's for aluminum and steel wheel both?

Yes, it's a product mix. Everything is normalized on this weighted average.

Okay. Okay. Understood. And so going forward, how do we -- where do we see this EBITDA number? Is it going to be in the same?

It's a good question. No, listen. So last time when I spoke, I said that when we did INR 265, I was very bullish that we would hit INR 270 immediately in this financial year. But unfortunately, because the volumes dropped in the second quarter, it didn't fructify and the Trump tariff started. So the Trump tariffs really spoiled the party for us. But notwithstanding that party getting over, we have found a lot of business value addition in India itself. And we are now, as I said, utilizing 100% of our capacity. So I think INR 270 should not be far. We are hoping that in this fourth quarter, we'll hit INR 270. But for next year, we can come back to you with the numbers that we project because we want to give it some more time to see how the market develops. But clearly, we are looking at a 20% revenue growth next year. So next year, we're looking at a turnover of INR 1,000 crores easily. So that's very visible without the Trump tariffs getting over. If the Trump tariffs get over, then we can hit INR 6,500 crores because there's a lot of things that come into play. We get a bigger share of business in America because our competition in Thailand and in Vietnam is coming under investigation for circumventing duties. So if these 2 things happen, then those guys get caught up in that track and suddenly tariffs in India open up, then we can hit INR 500 crores additional revenue from America. So in a nutshell, we can hit INR 6,500 crores next year, but INR 6,000 crores is very visible and with better margins. So now you are coming back to your margin question. As I said, INR 270 is achievable in this fourth quarter of this financial year. And for the next year, I think we'll come back with numbers to you, but they will be definitely better than INR 270. So our entire order book for aluminum is sold out for the next 2 years. So it's not that we will lose business. I mean, if the Indian market performs the way it should and the export business that we have tied up continues to grow, we should have no problems next year. This is, I think, easily possible without the new revenue coming from Bhuj facilities.

Okay. So sir, just a clarification, you are -- like you are suggesting that INR 6,000 crores we can achieve besides the Bhuj facility revenue?

Yes. Yes. It is visible from the existing assets I have in for right now.

And how much do you envisage that the Bhuj facility will contribute in FY '27? Is it going to be significant?

As such -- not very significant. We are going to start it around Diwali time and then customer validation will take time, 3 to 4 months. So we are not counting much revenue. But I still feel that there is a chance of an upside there because if the market is doing really well, then the customers will try to approve the facility real quick and get on with their business with us. So right now, we are not including that in our forecast. But clearly, there is a possibility of an upside from that level -- I mean, from those assets.

Okay. Understood.

Thank you.

The next question comes from the line of Shashank Kanodia from ICICI Securities.