Subros Limited (SUBROS.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Subros Limited Q2 FY '26 Post Results Earnings Conference Call hosted by B&K Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj. Thank you, and over to you, sir.

Thanks, Nischa. Welcome to Subros Limited Q2 FY '25-'26 Post Results Conference Call. From Subros Limited management, we have with us today Mr. Parmod Kumar Duggal, Chief Executive Officer; Mr. Hemant Kumar Agarwal, Chief Financial Officer and Senior Vice President Finance; and Mr. Sukhbinder Singh Gill, Vice President Finance. I now hand over the call to Mr. Parmod Kumar Duggal for the opening remarks, to be followed by the question-and-answer session. Over to you, sir.

Thank you, Mr. Jayaraj. Good evening, ladies and gentlemen, and welcome all of you for Subros investor call for quarter 2 FY '26. The Indian automotive industry exhibited a mixed yet promising trend in quarter 2. The passenger vehicle segment observed a sale of 1.04 million units, reflecting a marginal 1.5% year-on-year decline primarily due to inventory correction high base effect. However, September 2025 marked a 4.4% increase in PV sales driven by early festive demand and improved customer sentiment and also a GST rate reduction. Export performance was particularly strong, achieving all-time high of 2,42,000 units, up by 23% year-on-year. Even October sales are more encouraging than September, showing more than 11% growth as compared to the last year October. From a microeconomic lens, the government 2025-'26 union budget and GST rationalization has provided a favorable backdrop for the industry. The cut in GST rate on small car, motorcycle from 28% to 18%, coupled with the exemption on lithium battery components, has strengthened the demand at domestic level. As a result, festive-driven retail momentum is positioning quarter 3 for a robust growth. Subros has consistent performance in quarter 2. We have achieved a growth of over 6% during the quarter and in half year, more than 7% despite PV and CV segment is marginally or negative in H1. There is 12% improvement in profitability due to consistent push for cost optimization. In addition, company has realized a long-awaited incentive from the Gujarat government as part of the investment promotion scheme launched by the Government of Gujarat during the setup of Karsanpura project. This amount is occurred as an eligibility criteria. In the quarter, we have accounted for INR 13.39 crores in other income against this incentive accrued. There is an impact of commodity price increase during the quarter as against the last quarter. Due to this, there is a period lag of compensation from our customer. This has impacted our MSR during the quarter. During the quarter, two truck AC notification of mandatory AC in N2 and N3 category of trucks got implemented. It's implemented on June 8, but the impact in quarter 2 is a full quarter impact. Now the volumes are at ramp-up stage, and this is a big growth opportunity for Subros to expand our business in CV segment. The result of quarter 2 '25-'26 has been shared with the stock exchange and it is posted on the website also. Let me elaborate on the summary of the results one by one. Subros has performed better than the industry in quarter 2. Revenue growth is 6.22% with a significant improvement in margin and the result of aggressive push towards operational efficiencies and cost-down efforts. The company has achieved a revenue of INR 879.83 crores during the quarter 2 '25-'26. Our share of business in passenger vehicle AC market is 41%, which is almost consistent to our past trend. And in commercial vehicle, truck ACs or blower is 44%, and in bus units AC segment, it is 15% during the quarter. The company has realized EBITDA of INR 87.98 crores in quarter 2, which is 10.04% of the net sales as against the EBITDA of INR 82.82 crores, which was 10.03% of the net sales in the corresponding quarter of the last year. There is an improvement in EBITDA by 6.24% as compared to the corresponding quarter. Profit before tax in quarter 2 is INR 54.49 crores, which is 6.22% of the net sales. PBT margin with the corresponding quarter of the last year has improved by 11.96%. Profit after tax in Q2 is INR 40.59 crores, which is 4.63% of the net sales, and there is an improvement of 11.36%. Now on the business update side. Our financial and business performance is consistent in few quarters and at an improvement path. In our H1 growth, for CV trucks, due to this notification impact and also on the Railway business execution, the growth is 70% and 26%, respectively. Our business growth in hybrid cars further strengthens Subros' position as a leading manufacturer of automotive thermal products in India. This marks a significant step in our continued growth and participation in rapidly evolving EV and strong hybrid segment. The contribution of hybrid, electric CNG-based vehicle thermal product is 24% of the total revenue. This has grown by 30% in the first half as compared to the previous year. Our Railway business segment continue to emerge as a strong growth vertical. With accelerated investment in railway infrastructure, electrification and deployment of high-speed and semi high-speed trains, we see ample opportunity to expand our footprint. Our capabilities are being realigned to support this momentum and ensure we play a meaningful role in India's next-gen mobility landscape. As we informed to the stock exchange, we bagged a new tender of INR 27 crores recently concluded and business awarded to us. A major milestone in our growth and sustainability road map is upcoming green manufacturing plant at Kharkoda. We are as per the plan and our facilities will be rolled out as per the customer-aligned milestone. Before I conclude, let me summarize the financial results once again. Revenue from operations, INR 879.83 crores with a growth of 6.22%; EBITDA of INR 87.98 crores with a growth of 6.24%; PBT of INR 54.49 crores with a growth of 11.96%; and PAT at INR 40.59 crores with a growth of 11.36%. Thank you very much. Now we are ready to take questions.

[Operator Instructions] The first question is from the line of Mayur from Wealth Managers India Private Limited.

Am I audible?

Yes, please.

Sir, so I had two questions, one on the growth and other on the margins. While we understand the PV industry growth in the second quarter was almost flattish to negligible, whereas we have grown by almost 6%, but given the fact that our CV business has grown sharply and also Railway would have contributed to some extent, isn't the impact much lesser? Or shouldn't the growth have been much better overall for us given that our share in hybrids and other things are also improving and Maruti, as a customer is also relatively doing now stable? So given all this, isn't the growth much lesser? Or is that something which is there, something one-off which we need to consider in Q3? Has there been any delay or any postponement?

So there are two questions. One is that, as you said, that PV segment growth overall is sluggish or flattish but our growth is overall 6% and within PV segment, we have grown in H1 almost by 4.46%. There are programs from customer side on electric vehicle or in strong hybrid where we have got the business but the ramp-up is not as expected. Still, the large OEM is in the stage of ramping up. To start with, it started with export. But domestic market, soon it will start. So there is some delay in that ramp up. So hopefully, in end of quarter 3 or quarter 4, there will be a full impact coming in. Second aspect on the CV segment. CV segment growth is majorly because of content per vehicle because, if you remember, in the truck segment N2, N3 categories, the blower was introduced. Now the AC is introduced. So the numbers may remain same but the content per vehicle may have gone to 2x or 3x or 4x based on different combination by each OEM. Railway segment has grown during the quarter and it has grown by almost around 264% in H1 as compared to H1 of last year because we executed a large order. So we are hopeful now since the GST impact in October has resulted positively to the industry. And so far, the trends are there in the first 10 days of November also, that quarter 3 would be better with these positive sentiments.

Yes. Actually, sir, the question was that only that if we exclude the CV growth, which because of this change from blower to -- I mean, in the cabin segment, and also if we exclude the Railway growth, then isn't our growth much sluggish? That was what I was trying to understand.

And that's what I answered, that minus that, only PV segment, our growth is 4.46%, whereas on production basis, the industry has grown lesser than that. And as these two reasons which I cited is definitely the reason why we are not that even better than this number.

Okay. And sir, second on the margin. If we exclude the impact of this Gujarat incentives, which is INR 13 cr, then our EBITDA percentage remains lower than last year in percentage terms. Any reason why would it be?

Of course. So if we exclude this incentive, there is a...

And sorry, just to add, if we look at the material cost as a percentage of sales, that has remained largely flattish. So what I'm trying to understand is while our gross margins are relatively stable, but our EBITDA margins are lower if we exclude the impact of these incentives.

So this was the precise answer I wanted to give, that if you see EBITDA of quarter 2, this is around 10.04% as against the last quarter of 10.02%. But if you compare the material sales ratio, which was 71.8%, has increased to 73.08%. So 1.28% is the impact of commodity and foreign exchange because that has impacted negatively in quarter 2. So since there is a quarter lag or a period lag, some OEMs are compensating on a 6 monthly basis, some OEMs have compensated with commodity impacts on a quarterly basis. So there could be a quarter lag. So impact of quarter 2 will come in quarter 3, provided these commodity impacts are softening in quarter 3. So this is a major reason. So if we exclude this incentive amount, the impact of around 1% would be because of these two elements.

Okay. And sir, are we on track for FY '27, 12% margin?

Still hopes are there unless there is a disruption in the market. But still we are hopeful.

[Operator Instructions] The next question comes from the line of Mihir Vora from Equirus Capital.

So sir, my question is basically on the EBITDA margin mix of your other income. So basically, the margins are around at 8%-odd level, which last year was around 9%. And we have seen a sharp jump into the employee cost as such and other expenses. So any color on it, why the employee costs have now gone up to around INR 91 crores kind of a run rate versus an INR 83 crores-odd in the last year?

So two elements. As I mentioned in my previous answer, EBITDA margin has impact of, one, material costs. If you compare 6-month basis as compared to 6-month basis, there is an impact of 0.37% on the material cost. Whereas in terms of staff costs, from 9.98%, it has increased to 10.3%. This is nothing but only the annual salary correction, inflationary impact which we have given to the employees. That has contributed to the increase of staff costs. So these two reasons are there for EBITDA segment.

Right. And sir, the Kharkoda facility is on track to be commissioned on time? Or are there any delays?

Yes. Kharkoda facility is at the construction stage. Equipments are at order stage. So it is aligned to the program which OEM is supposed to launch in the month of June or July of next year. So it is as per track.

All right. And finally, I missed the part on the incentives part. So basically, we have around INR 13 crores or INR 14 crores-odd kind of other income from the incentives. And this will continue in the going quarters as well? Or how can we see that?

Hemant, can you answer that, please?

So the incentive, if you see from the P&L perspective, definitely around INR 3 crores per year will definitely get accounted for. Rest is the exceptional income for this quarter.

The next question comes from the line of [ Puneet Javeri ] from [ Javeri & Co. ]

Just could you give us the revenue share in terms of category for this quarter, PV, ECM, trucks versus Railway?

So overall revenue from passenger vehicle segment is INR 787 crores against a total of INR 877 crores. The truck business has contributed INR 62 crores in the quarter. Railway has contributed INR 12 crores. And rest is from bus, aftermarket or other segments. So within the PV segment, sale of ECM is approximately INR 140 crores.

So out of the INR 787 crores, INR 140 crores is ECM, right?

Correct.

And just one follow-up in terms of the earlier participant also asked you about growth in the auto segment. Did you see an impact because of GST rollout in this quarter? So from August 15 to September 22, you had the delay in actual purchases of vehicles, but the commentary from most OEMs has been that production wasn't hampered for a lot of the carmakers. So did you have any kind of lag in terms of loss essentially in terms of business because of the delayed production? Any impact on this quarter with respect to your clients?

No, not at all because they are true that each OEM started building up stock because of this anticipated rationalization of GST impact starting from 22nd of September. So everybody was anticipating. So stocking was happening. So from a production side, there was no major impact of that.

And please correct me if I'm wrong, your last year's trucks business was roughly about INR 125 crores. Given what you've done in quarter 1 as well as in quarter 2 as well, do you expect that there should be any upside risk to your earlier target of roughly about INR 150 crores in terms of revenue? Because you're already at, I think, and please correct me if I'm wrong, almost INR 100 crores, right? So do you expect that the earlier target will be crossed quite handsomely given what you've done in H1 already?

That's right. In FY '25, we have done INR 125 crores from truck business. H1, we have done INR 105 crores already. So we are expecting we'll be crossing INR 200 crores in this financial year.

And the margins for both these, for buses will be quite comparable to the passenger vehicle side, right?

Yes. Margin statement will be almost comparable, whether it's a truck or a passenger vehicle. So both are more or less similar.

[Operator Instructions] The next question is from the line of Annamalai Jayaraj from B&K Securities.

I have one or two questions, sir. So first one is now, I think, from the OEMs, I mean, are indicating some growth in volumes going ahead because of GST. Generally, whatever indications we are getting from our customers? Are we seeing some sense of improvement in the run rate, sir?

For the volume for passenger vehicle segment because of GST, that's what you're questioning?

Yes, yes. Yes, that's what, sir.

Yes, that's true because the projections have slightly gone upside. But I'll say that overall annual volume against our plan will not have much significant variation because in the month of June, July or August, because of this anticipated GST, the sales were less than the projection. So maybe in the H2, there would be a recovery of whatever shortfall we had in the month of this June, July, August. So of course, H2 should be better than H1.

Okay. Understood, sir. And second one is with the GST cut, the expectations are these entry-level vehicles may recover from whatever it had gone down. So with our major customer, do we have more exposure? Our market share in the entry level will be more than the company average market share? Or it will be similar? For example, with Maruti, we have some X market share with such a company. In the entry level, our market share will be high or it will be similar, sir?

GST rationalization is giving a positive trend to the small cars, especially in the A segment. And A segment of all the OEM, whether it is Renault Nissan or Maruti or maybe A+ segment of Hyundai, will have a growth. So we are seeing a positive trend now coming in from Maruti also as part of the projection of 6 months. So we will be better off in terms of our market share for A-segment car with OEMs.

What you are saying is our market share in the entry level will be more than the normal level?

Slightly better, yes.

The next question comes from the line of Mayur from Wealth Managers India Private Limited.

Sir, one, a little more operating question, financial question. Our cash from operating activities is a negative for this half. So what we see is we did not get the same support from the payables side. Increase in payables have been much lesser compared to what we saw in the last year. And that is why the OCF is also negative. So how do we see this scenario? And in the same light, if you can also indicate the total CapEx for this year, and anything we need to read from funding the CapEx?

So there are two questions from your side. One is that operating cash flow is negative mainly because of inventory increase as compared to the last year. So if you see the balance sheet, the inventory has increased by more than INR 75 crores during this period. And that is a strategic call taken because of the disruption which is happening, geopolitical disruption. The containers which are stuck up in the port, especially congestions, especially the lead time taken for the container to reach is slightly more than the normal. Just to run the customer line, we have built up stocks to derisk ourselves for that. So that's why our cash flow is stuck into inventory. And this is a strategic call, but it will get liquidated as everything will get settled on. This is part one of your question. Second part is on the CapEx side. So as we reported, our normal CapEx for our routine business for replacement and for debottlenecking is around INR 120 crores per year. So we are still on that spending only. There is no change in that. Of course, the greenfield project of Kharkoda, where we plan for INR 150 crores as overall investment, that is intact. So there is no change point in our previous statements.

And how much we would have spent, sir, by now on that, on the greenfield?

So right now, we have spent against INR 120 crores, maybe around INR 80 crores, INR 80 crores-odd.

Okay. So this will have some spillover in the next year again, right?

From a cash flow perspective, yes. There will be some payments which will be coming in next year. This is based on commitment basis.

Sir, slightly longer term, just the previous question which was there on the outlook growth based on the GST cut and some uptick in the entry-level segment. Sir, what kind of top line growth should one try to model and expect for the next year, sir, given that there can be some improvement as we go ahead? What do you think would be -- now we are fairly closer to the mark, so you would have some understanding of the next year. So what kind of growth should we start building in for FY '27, sir?

Very precise guidance would be difficult because we are not yet closer to the mark. We are just closer to the half line. So one, of course, GST has so far a very positive impact on the overall. But we have to wait for some more time because almost 2 months, there was a negative sales just because people paused their buying because of GST coming in. Now since GST has come and festive season has also come, so we need to watch whether this is a genuine demand increase or this is a compensation to that drop. So that is what we need to be watchful of. So real picture will come in December or January, what will be the delta we are getting through the GST rationalization. This is part one of your question. Part two, next year, of course, there are a lot of new initiatives which I think will result positively to us. One, business maybe ramp-up of Maruti's electric vehicle, which is going to be ramped up for full year. Ramp-up of Victoris, which has started last month, that will also see a full year volume growth coming in. So we are expecting next year growth would be slightly better than the current year growth, where we'll close, but it would be better than this year. How much exact quantification, we'll let you know in maybe subsequent calls.

But sir, double-digit would be least fair, at least that much, surely we'll...

We have to be very optimistic. And of course, if you ask me, as a management, we have to strive for double-digit growth. But we have to see the realistic one.

Our next question comes from the line of Annamalai Jayaraj from B&K Securities.

Sir, only one more question. And you generally now touched upon these electric vehicles. So for the electric vehicle, currently the compressors, Maruti will be directly importing from Denso. Is that understanding correct, sir?

Yes, as of now, correct.

Okay. See, if you leave the compressor aside, the other content, there will be increase compared to our normalized vehicle? Or it will be similar, sir, leaving the compressor aside?

No, it will be better because HVAC of normal car versus HVAC of EV car is having around 1.6x of revenue. Same way, hose and pipe, condenser or radiator, if we put all these four elements other than compressor together, it would be almost 2x of a conventional ICE thermal product.

Okay. And that EV compressor localization, I mean, what can be the scale in which we can look at EV compressor localization, sir?

So still, as I mentioned before also, EV market is evolving. And we have seen now hybrid and EV together are, I think, the major transformation going forward. So that's how our strategy for electric compressor. Even to discuss with our collaborator for these both variants, hybrid as well as EV, is ongoing. And we are at a very advanced stage of our discussion. Maybe next 3 months or 6 months' time, we will be able to elaborate with very specific plan for localization, timing or whatever we decide.

[Operator Instructions] The next question is from the line of [ Puneet Javeri ] from [ Javeri & Co. ]

Just one quick question in terms of your customers as well. I think last time, you spoke about your progress with Mahindra in terms of your share with the company with almost being 1/5 of their vehicle sales in ICE. Has that gone up as well in this particular quarter given your runway already with the client?

In this quarter, we are almost consistent with Mahindra PV. But Mahindra CV segment, there is a major change point because the pickup vehicle which Mahindra has launched is having an aircon now, that is pickup Bolero. So that business has grown. So Mahindra PV, in this H1, we have done almost 15% better than the corresponding H1. And Mahindra CV also, we have done slightly better here. So that is positive here. But we have tied up a few businesses with Mahindra for their future program, which would be operational next year. So we are hopeful that from our current level of 20% business of total thermal product buying of Mahindra, we will progress to around 25% going forward.

And any update with the other passenger vehicle makers as well? Because I think you were in conversations with a couple of them over the last few months. Any wins that you've had? Any progress that you can give us in that aspect?

So our engagement with all customers on their future program is kind of an ongoing subject for us. So we do tech shows. We do technology discussions with the OEMs for the forthcoming projects. And wherever we find that technology is comparable to their expectation, we get into our RFQ process and get into a negotiation process. So there are many, many fronts which are open right now. But unless we conclude on business, we will not be able to share right now with the market.

And the bus revenue in this quarter was INR 18 crores. Could you confirm that number?

For bus?

Buses in quarter 2, yes.

So buses in H1 is INR 18 crores. In quarter, it is INR 6 crores.

Okay. And any progress that you have on the bus side as well? Because I think the last time we have spoken, you were in conversations. Because we are also seeing players like Ashok Leyland also now increase their bus build capacity completely in terms of the planning that they have mentioned. So any update that you see? Could this be a business that we need to look at maybe next year in terms of transformation?

Yes. So our engagement right now with the two major OEMs on bus side is at a very advanced stage, and one of them is migrating into hydrogen bus. That's also a thermal system packaged by Subros. So that is at a field trial stage as of now. So I'm sure that within next 3 months, we'll be able to conclude the specification and the field trial will be okay. So next year, on EV side, on hydrogen thermals, I think we will see a very, very positive trend coming in.

And just one final question in terms of your view. You mentioned about EV is essentially having a 1.6x -- HVAC of EV cars basically being 1.6x. You also mentioned another key point of 2x of conventional ICE product. Could you mention the product? I think it was on the previous question.

So in total thermal business, we have five aggregates basically. One is HVAC, second is condenser, third is radiator, fourth is hose and pipe and fifth is compressor. So the question being asked was minus compressor, how is the delta per vehicle which is coming in from conventional to EV? That's what my answer is, that cumulatively for all four products other than compressor, it is 2x.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

So thank you very much to all of you to join so late. We were hard-pressed for the time today. So although we tried to answer all your queries, but the industry as of now, especially PV, CV segment is at a very positive based on the last month October, November basis performance. So we are hopeful that quarter 3 would be better in terms of overall sales performance. But we are still concerned about the microeconomic indicators, whether they will get stabilized or they will be more aggressive push to the overall performance. So we are watchful to that situation. So thank you very much for your confidence in Subros. Thank you.

Sir, can you take one last question?

Okay. No problem, no problem.

The next question is from the line of [ Nilesh ] from Anantnath Skycon Private Limited.

Sir, can you please give us that revenue share of Maruti Suzuki of quarter-on-quarter and two other OEMs that we are working with? And next question is on our top business.

Though I have already answered that in the previous question, but still I can answer that. So with Maruti PV, we have done around INR 594 crores in quarter 1 and around INR 580 crores in quarter 2. ECM business, we have done around INR 120 crores and INR 140 crores in quarter 1 and quarter 2, respectively. Mahindra, as I mentioned, that it is around INR 31 crores in quarter 1 and around similar amount in quarter 2. PV segment I did mention. Quarter 2, we have done overall INR 787 crores against quarter 1 of INR 800 crores. Buses, we have done INR 6 crores. Last quarter was INR 12 crores. Truck business, we have done INR 62 crores in quarter 2 and INR 43 crores in quarter 1.

Okay. Sir, can you also give the guidance for this financial year?

Financial year, we are seeing a growth which should be better than the overall industry. So industry is now expected, based on the new trend, maybe between 3% to 4% positive. So we will be able to do better than the industry performance.

Thank you. On behalf of B&K Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.