Sundram Fasteners Limited (SUNDRMFAST.BO) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sundaram Fasteners Q2 FY '26 Earnings Conference Call hosted by Avendus Spark. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mukesh Saraf from Avendus Spark. Thank you, and over to you, sir.

Thank you, [ Sayesha ]. Good afternoon, everyone. Mukesh Saraf here from Avendus Spark. Appreciate everybody logging into this 2Q FY '26 earnings call of Sundaram Fasteners. From the management team, I'm pleased to host Mr. R. Dilip Kumar, Chief Financial Officer; Mr. S. Bharathan, Executive Vice President, Marketing; and Mr. R. Ganesh, Vice President, Finance and Projects. I'll now hand over the call to Mr. Dilip Kumar for his opening remarks, post which we'll begin with the Q&A. Over to you, sir.

Yes. Thank you, Mukesh, and good afternoon. Welcome all to a discussion on Q2 earnings call. We've had a good quarter from the domestic market perspective. And the first half year numbers, we have closed at INR 2,723 crores with a profit after tax of INR 278 crores, which is the highest in the history of the company. And breaking down that to the quarterly numbers, we've had about 12% growth in the domestic segment. The exports have moderated as expected and compared to INR 389 crores in the corresponding quarter, we have registered INR 338 crores. And the other major element has been the foreign exchange, which USD-INR, which was at INR 85.4 in the beginning of the year, depreciated a bit rear ended and which was expected and closed at INR 88.4 for INR 3 depreciation. And we have benefited from that rupee depreciation in terms of the realization and also the restatement of our receivables. And we expect this trend -- or rupee to stay at these levels, INR 80 to INR 88 plus. So the benefit of rupee depreciation will be captured in our exports. Apart from a few insurance claims relating to the floods, which happened in Chennai and other onetime items, for the quarter, we have closed INR 1,356 crores compared to INR 1,300 crores in the corresponding quarter. And one thing I must tell you here is that the raw material prices have shown a softening trend. We are seeing that in the two types of materials which we use boron steel as well as the alloy steel, we have seen the prices have softened from time to time and which is reflecting in our high gross margin, which is back to 60% plus. And again, in -- due to product mix, and some lesser expenditure on tools, better control over stores and tools. We have managed to keep that line item under control. And the contribution has been at close to 28% for the quarter. The other fixed expenses have remained fairly stable, and we've been able to register an EBITDA of 18% for the quarter. And interest costs have been at INR 8 crores compared to INR 5 crores. And this is again because of a slightly higher borrowing compared to the last year and also the interest sub mention, which RBI has withdrawn. So therefore, higher finance costs. We also capitalized some of the amounts which were capital work in progress and profit for the quarter, again, I must report is the highest at INR 140 crores for the quarter. And just to talk about the half yearly numbers, it's fairly -- I mean, our quarter numbers mirrors the half yearly numbers, no big change. And just for sake of completeness, the numbers are INR 2,723 crores for the half year and the EBITDA has been at 17.7% compared to 17.2% in the corresponding period and profit after tax at INR 278 crores. And the -- from the balance sheet perspective, the balance sheet, I think, has been fairly stable. The last six months, there have been movements between hedge where there have been mark-to-market, higher credit we have taken for the fair valuation of investments, which again flows into other components of income and higher capitalization has happened and some of the capital advances have reduced. So overall, we have reduced the borrowings from close to INR 600 crores to INR 540 crores as of H1. And the consolidated numbers also are fairly okay from our perspective. And for the first time, we have crossed INR 300 crores of profit after tax in H1 and more than INR 150 crores for the quarter. And with this, I will now throw the floor open for any questions. Thank you.

[Operator Instructions] The first question is from the line of Rushabh Shah from Buglerock PMS.

Sir, my question is in the previous calls, you have mentioned that you are looking to diversify your customer base in Europe and North America. So any progress you have made on that front?

You can see from the press release also, despite the uncertainties in the global trade, we've been able to hold on to our export book to some extent because of our diversified presence as it is, and we are not present only in the U.S.A., I must emphasize here, and we have presence in Mexico and U.K., Germany, France and other parts of the world. So that will stand us in good stead going forward. And the customer acquisition, customer engagement are continuously happening, and we'll be able to probably share some good news in the coming quarters.

Okay. The next question is in the wind energy segment, which parts are we supplying to the company? I just need to know do we believe only domestically or also export and who is our competition in this business?

Yes. I think with respect to wind energy fasteners, as we have been explaining in previous conference calls as well, based on the investment that we have made and that has started giving the desired results in terms of higher revenue. So if you look at the wind energy segment per se has moved, say, 30% to 35% growth H1 to H1. And we are supplying predominantly to domestic customers and who in turn export on a consolidated basis to various locations of project execution. And if you look at competition, we have in terms of domestic customers like [ Randack is there, Coopers ]. So there are multiple players. But given Sundaram's credibility with respect to quality, reliability and scaling up with respect to investments, I think we are having a good revenue book with respect to wind energy.

Okay. So just a follow-up on this one. In terms of margin, what would be the margin difference between wind energy fastener versus auto segment fastener?

It will be more or less at the same level. But given the business is centered around domestic, we expect a better ROCE with respect to wind energy business.

Okay. Sir, my next question was on the aftermarket business. As you say that it will be in the range of 10% to 15%. I just wanted to know are we doing anything to increase that percentage as it is a higher margin business for us.

Yes. See, there's a continuous effort from our side to improve our aftermarket business. In terms of our product [Technical Issue]

[Operator Instructions]

On the aftermarket, there is a continuous effort from our side to improve the aftermarket portion of our business, both in terms of the product range as well as the reach. We are continuously engaging with our channel partners. In fact, on a wide variety of parts, we have extended our reach. And also, we are continuously onboarding new channel partners. And in terms of the portion -- content of aftermarket in our overall business, I think you should also note that a portion in some of our streams, there is a content called OE spares, which should also be considered as an aftermarket because it goes to service the aftermarket in the whole. So there is -- that will push up the aftermarket content by another 5 to 6 percentage points.

The next question is from the line of Nihaar Shah from Ikigai Asset Management.

I just wanted to check on the domestic revenue growth that we've seen. So we've obviously grown faster than the market. We've been doing that for the last couple of quarters now. Can you talk about what is leading to this higher growth and market share gains in the domestic side of the business?

See, on the domestic side, as you say, we have grown -- we have outperformed the market for mainly on account of two reasons. One, wherever we are already there, there has been some increase in our share of businesses with some key customers. That's one aspect of our improvement over the industry. The second is we've also got some new businesses in the passenger car segment and the tractor segment where we were not present earlier. And that has also led to the increase in the better performance compared to the corresponding industry numbers.

Understood. And sir, correct me if my understanding is wrong, but I think we are [Technical Issue] to the small car business, right, in terms of our market share within SUVs and small cars. So if that segment does pick up, then we would expect better market share gains going ahead, right?

Yes, definitely. And I think the indications now with this GST rates coming up is the small car segment is also expected to pick up in the near term. So I think we are expecting better times ahead.

Understood. And the market share gains that you spoke about, were those in the PV business in the small car or were those in the SUV segment?

No, both. See, we are present almost equally in all the segments. And the SUV increase has definitely helped -- kept us in good stead all along in the past four, five years. And now as you know, the SUV content is about 60% of the passenger segment. And now the small cars are looking up. And this is also -- and we have -- we enjoy dominant market share in the small car segment as well. So going up, we should see traction in that segment.

Got it. Got it. Sir, the export segment, while we've seen a decline this quarter and the trade war also would have impacted, could you just throw some light on where we are on the EV order execution and if we've incrementally signed any new orders on the export EV side?

See, on the EV segment, I would say there is a cost for the moment. I think most of the EV programs from our major customers are getting deferred depending on the -- and that's based on the market conditions primarily in North America. So as of now, I think beyond what we had signed earlier, the industry itself has not moved much, and we've also not signed any new orders. But the investments are in place, both at our end and as well as the customer end. So it's not a lost game as yet. So they are hopeful of it, but it's getting postponed to the next year. And once that comes -- once we see traction in that, I think we can move on further orders on that front.

So also just to add to what my colleague said, some of these schedules changes also varies from customer to customer. So the investments have been made taking into account not only the EV business, overseas market, also in the domestic market as well. And as you know, our facilities are fully fungible. And so as we speak, there are signs of schedules improving. And Q4 and further in Q1 of next year, there are early indications from the customer for improvement in schedules, and we are gearing up. So we hope to see a much better year, next year even for products. However, that varies from customer-to-customer.

The next question is from the line of Lakshminarayanan KG from Tunga Investments.

Just want to understand how the decision-making among your OEs relationships outside India, how that has actually trended in the last couple of months given so much of noise around the tariff. [Technical Issue] Am I audible.

You are audible. Can you just repeat your question, sir?

My question is that in the last couple of months, given a lot of noise about the geopolitical issues, how the decision-making in our key customers, especially outside India, how that has shaped up? Is there a pause? Is there -- is it business as usual? Can you just elaborate on that?

See, you want a short answer, it is business as usual, but let me elaborate on that. Definitely, they are expressing their concerns, and we are expressing our concerns depending on whichever it is on the tariffs, everybody has had an impact on this. So that's a given. And it is only on a very friendly negotiating approach that the customers are approaching as of now. And they also inform us as to what sort of the movements can happen. And so it's from a point of view of not transferring the business or taking away the business, but how to smoothen it and leverage on that. That is how the approach has been till now. And I think we are fairly confident that it will continue the way.

Got it. And can you just give the mix of your domestic business between various business segments as well as the vehicle segments?

With respect to the revenue pie, broadly 58% would come from OE and 12% to 13% from aftermarket and 26% to 27% from export segment. That is the overall pie. And within the pie of domestic segment, if you look at approximately 35% to 40% would come from CV plus engine segment. When I say CV, the CV plus M&HCV, LCV and engines, Similarly, car segment would constitute about 40%, with 10% to 12% coming from tractors and sub-5% from the two-wheeler segment. That has been the broad revenue split up with respect to segment-wise.

But wind, how much is wind now for us in that domestic thing?

Wind today is about 4% of the overall revenue of the domestic sales. And the bulk of the wind energy revenue comes from domestic segment.

Okay. Okay. And in exports, can you just give the breakup of geography as well as the vehicle types?

With respect to exports, the exposure to North America would be 65%. And between Europe, U.K., 20% to 25% and Asia Pacific and MENA countries would be balanced. And within North America, if I look at 40% will be on the CV side and 40% on the passenger car, balance towards off-road application as well as our aftermarket.

Just to clarify, when my colleague said 65%, within that America is less than 50%, and we have Mexico and other countries on that side.

Got it, sir. And in terms of cold forge versus fasteners, what is the mix as we speak? I mean, at a company aggregate level.

At a company aggregate level, if you look at fasteners would be 35% to 40% of overall revenue, followed by pumps and assemblies between 25% to 28% and cold extruded and center metal would be about 15%. Hard forging would constitute about 10% to 12%, radiator caps about 3%. This is a broad technology or product group-wise, our revenue mix.

Got it. And in terms of our expansion, I assume that the last 2, 3 segments you mentioned, that's where the expansion has been there in the last couple of years. Can you just explain that a little more in terms of how you are -- how the last 6 months have progressed in terms of these sinter/cold forged or warm forged products, et cetera?

See, with respect to those product segments, the expansion or investments take place based on the customer requirement. And as we work closely with the customer and we pick up signals and accordingly, we proceed with the investment decision. But with respect to wind energy fasteners, as we have been explaining in our earlier conference calls as well, we have already executed the project worth close to INR 100 crores of expansion. And with -- given the revenue uptick, we have also taken a further expansion of close to about -- investment of about INR 80 crores, which should see revenues for wind energy business kicking in additional volume from next financial year.

The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

So if you can give me the number of the exports this quarter from the stand-alone pie, how much would that be?

INR 338 crores.

INR 338 crores. Okay. So that's about a 13% Y-o-Y decline. So would this be largely attributed to the tariff-related issues or I mean, the demand itself is something which is worrisome. And how do you expect things to improve here on? What kind of period do you expect for the improvement?

I won't say it's entirely on account of tariffs. And there have been -- it's not because of demand reduction contraction for our products in a broader sense. But I think it is a market by itself in -- especially in America for heavy-duty trucks, vintage trucks and it is not entirely due to tariff. And like I said, tariff has also had an impact in moderation. But it is the truck market, especially the heavy-duty truck, the Class 8 trucks, which have been, I think, performing -- underperformed, which has had an impact. See overall, apart from the tariff impact, there has been a lot of ambiguity on the EPA 27 emission norms that are to kick in. And that has also caused some dampening in the demand. And apart from that, the overall economic situation, even the occasional trucks which used to be a good market has seen some softening this year. In fact, last year, despite the drop in the Class 8 segment, the occasional trucks kept the momentum. Here now even there because of the construction activity getting slowed down, the occasional trucks have dropped and it is now propped up by government -- the federal expenditure on infrastructure. So a combination of these circumstances is what has caused the drop.

And with respect to recovery, how do you see that? I mean, at least a 6 months period or any ground developments over there?

You said it. I think in the next 6-month period, we should see some recovery. Some recovery is also reported by some customers in the next quarter -- next quarter. But then in 6 months, I think things should improve.

Like I said in the earlier part of the call to one of the analysts, we are already getting an indication from the customers to prepare ourselves for a bit of a ramp-up in Q1 and some have indicated Q2 and in truck market probably from H2.

The next question is from the line of Himanshu Singh from [ Baroda BPN Paribas Mutual Fund ].

Sir, I just wanted to understand your perspective on the non-auto segment, so which has been growing faster for us. So what is the mix this quarter? And what is the growth? And how do you see this trending going ahead? And what are -- like which products are driving this faster growth for us?

With respect to non-auto, today, we are at 37% of overall revenue. And this 37% includes tractors because as it gets classified as farm equipment. And apart from that, we have strong growth coming in the form of wind energy fasteners, then aerospace fasteners, in terms of fasteners for industrial applications. So these are the 3 growth engines where we have seen uptick, which has happened in H1 of '25, '26 compared to last year. And we see that strong momentum to continue further.

Okay. And sir, any new segments which we plan to enter like which we are working on and might see some announcements coming in the next, let's say, 8 to 12 months -- 9 to 12 months?

While we are working on, say, areas like stainless steel fasteners and the railway fasteners, we have been supplying in terms of small batches. But with a lot of efforts and continued customer engagement, we see those areas or segments as potential revenue earners in the next, say, 12 months or so.

Okay. And sir, last question. So on the new BIS announcements and the norms, which the government announced this year, did you see any benefit from there? Or should we see that in coming quarters?

No, there is nothing specific, sir. And the one area where potential benefit could be if Chinese companies are granted license and where we have sourced some of the alloy steel, [indiscernible] steel also from them. But at the moment, they have not got any license. On the fastener products, yes, we will benefit if they tighten the import of fasteners. And we have already seen the benefit of that because we made entry to the Korean major here. And so that's how things are evolving.

The next question is from the line of Mukesh Saraf from Avendus Spark.

Yes, sir. I mean as the question queue builds, I'll just ask a couple of questions from my side. Firstly, to begin with on the margins, you had mentioned that there were some benefits from both ForEx as well as weaker raw material costs. So would we have to -- over the, say, next quarter or so, would we have to pass on some of those benefits? And is this like just a short-term margin uptick that we have seen or we'll kind of be able to retain some of those?

It is not definitely one-off. And whatever the margin which you have seen is after considering the [indiscernible] so therefore, this will stay and the indications what we have so far is that this softening trend will continue.

Okay. Got it. Got it. So -- and I mean, if there is a further depreciation in currency and we've seen steel prices fall further, we can see more benefits is what you're saying?

100%. And I think even if rupee does not depreciate, even if it were to stay at this level and the last quarter or first H1 average rupee realization has been only INR 86.5. It is only -- this is rear ended. And therefore, we will definitely benefit from rupee depreciation in the coming quarters also.

Got it. Got it. Got it. That explains. And on the export side, I mean, we have seen a lot of OEMs talk about pushing back on some of their new EV platforms, but we have seen some announcements of new ICE platforms as well. So if you could give some sense on are we in discussions? Are we getting new RFQs for new ICE platforms, especially on the PV side of the business in the export segment?

See, while -- with specific OEMs, I'm not in a position to confirm anything. With a major engine maker, we are under discussion for their global program, which is an ICE program, which will also be compatible with, say, hydrogen or what is called the fuel-agnostic platform. So, they are in development for such engine platform, probably the last ICE platform they are building. But that will come into effect in '29 in one region and then '30 in India and in other regions in '31. So that's how, but we are participating with them. We have got RFQs and we are fairly certain of businesses in certain areas with that platform.

Sure, sure. So some of these new platforms is probably at least 2, 3 years away is what you see?

Yes, yes, yes. In fact, sometime back, maybe 3, 4 years back, we were hearing many of them were building the last IC engine. But now [Technical Issue] platforms are getting onboard.

Got it. Got it. That's helpful. And just lastly from my side on your subsidiaries, if you could give some sense, a couple of points on maybe each of the subsidiaries, how things are there, sir?

With respect to the subsidiaries, the first one will be on China, where we are seeing recovery in the construction segment. With respect to passenger and the CV, we are seeing the market a little stable. So the construction segment is back, and we are seeing uptick in the revenue numbers. So that should keep the China subsidiary on a growth path in the coming quarters. And with respect to CPFL that is Cramlington, it is predominantly based on the truck segment. And in Europe, the truck segment is going through a sluggish phase on account of the tariff impact and the demand. But despite that, the subsidiaries are continuing to be profitable and showing a growth. So that is how the subsidiary performance for this quarter and H1.

I think that's helpful. We have more questions in the queue, Sayesha if you could take them.

The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Request if you can give us some more information about the domestic growth that we have done. You've already told us that it's because of the improving business in the existing customers and some new business that you have signed up. So just from the point of the components, is this just fasteners with some other components and which segment especially is it PV, CV, if you can give some more understanding on this?

In terms of the share increase with existing customers, what I spoke about, I would categorize it predominantly from the commercial vehicle segment. And from the entry into new customers, I would primarily the drive from the passenger car segment. And the overall increase in the tractor segment has helped us because our participation in the tractor segment is also high. And wherever we are present, we are almost 80% to 90% share, and that has also helped us in this growth. So overall, for existing share of business, commercial vehicle and tractor and for new business categories, passenger car as the main driver.

Got it. Got it. And does this also mean is it largely fasteners? Or is it other component also?

All -- in the passenger car segment, I would say, mostly fasteners. And in the tractor segment and truck segment, I would say, pumps and assemblies so it is all things put together.

Got it. Got it. Got it. And this will still scale up in the coming quarters? You're expecting some more additions or largely we have for now achieved the expectation?

No, no. Hopefully, yes. I think the momentum is expected to continue. And definitely, our performance with respect to the industry is also -- will also be outperforming the industry.

The outlook for domestic industry is being quite strong in Q3 and Q4. And if exports also revive based on the indications we have in Q4 and Q1, I think we are quite excited about the next 6 months.

And CV is showing equally good signs of recovery from how it performed in the last 2 years, domestic CV?

Yes. On the CV, I would rather divide it to some micro segment. While the HCV segment has not shown great improvement, this year's growth has come predominantly from the light and the medium commercial vehicles, mainly due to the economic activity, the last [ mile ] connectivity and things like that. But given this GST reduction, the heavy commercial segment is also expecting a good increase. And overall, if you look at the track record, maybe in the commercial segment, the first half will be 45% and the second half will be 50% of the volume that they make for a year. So that in itself would give some improvement in the second half. Plus the GST reduction, many OEMs feel that would have an impact on this -- positive impact on the SUV demand as well. But by and large, the SUV demand has been muted because of the overall truck productivity improvement.

Got it. Got it. And PV -- domestic PV has been maintaining the festive season momentum even after -- I mean, the festive season is completed. I mean do you see the same or equally good momentum continuing on the passenger vehicle side, domestic?

I will not answer I guess now. I think we would need some time to see how it pans out. But as of now, it has been great going.

The next question is from the line of Himanshu Singh from Baroda BNP Paribas Mutual Fund.

So sir, just a couple of questions on the EV side. So do we have like equal or equal market share on the electric vehicle side also in the domestic market? And what is the revenue percentage currently we drive from EVs?

With respect to the overall EV, I think today, we are at about close to 5% to 6% of the revenue. And it has both components of export as well as domestic. I think the domestic penetration into EV is progressing as the customers also move into more EV vehicles.

As of now, to add to what my colleague said, as of now, the share might not be on par with the ICE engine share that we are having for the simple reason that majority of the EV platforms in India have just dovetailed into the existing platforms itself and try to use whatever parts are available readily amenable to this. Only now de novo designs have started for the EV for the past 2 years. So going forward, we will definitely reach a stage where we are on par with our IC share. But as of now, it's not.

The line for the participant is disconnected. We'll move to the next question. The next question is from the line of Lakshminarayanan KG from Tunga Investments.

Sir, you talked about this EV and non-EV. Let's take -- you take a passenger car ICE and a passenger car electric, which could be a born EV also. The value capture which you can actually do, if it is indexed to 100 in a regular passenger car, the similar -- what would be the value capture you can actually do in an EV as a company for you?

As a company, it would be about 80 on a scale of 100 for ICE versus EV, it would be 80.

Got it. Got it. And second, if I just look at our business and in the last 6 months, what percentage of our business has come from the same customers and the same lines which we did last year versus the same customers and the new lines or new products we actually had for those customers?

See, I think generally, as a measure of performance, we use new product revenue picking in based on product developed in the last 3 years. That as a measure, we are hovering about 20% plus. So that trend takes into account whether the revenue comes from existing or new customer or existing line or new line. That is the measure of performance that we follow internally.

Got it. Got it. Sir, and with respect to our Sri City facility, what is the potential there because we have been investing in that. Has it been fully operational now or a few more lines will be added.

No, no. The facility is fully operational. And as envisaged in the project, we are serving one of the biggest European customer out of the Sri City facility. And whatever expansion that we have made for EV for serving the North American customer, that expansion is also in place. And as explained earlier, based on the market conditions and the improvement, we should see better numbers coming for Sri City plant.

Got it. Sir, and last question, from a revenue certainty point of view over the next 3 years, what kind of book size we actually have, not necessarily an order book, but you have some MOUs or something would sign. So how are you looking at what is the revenue certainty you anticipate in the next 3 years, keeping this year at 100.

See, I think our internal estimate is we are working on a double-digit CAGR year-on-year. So we should position ourselves towards that number, taking a base of 100.

Got it. But this is -- because your revenues are also linked to the metal prices, right? So can you say CAGR, how do you look at it? Is it on a constant metal price? Or how do you look at that?

See, with respect to metal prices, if there is an upward indication, customer compensates us to that extent, the raw material cost also gets inflated. And similarly, when there is a reduction, we pass it on. So that way, we don't really factor in the cost escalation on account of metal prices.

Because you talked about the CAGR in growth. So I'm just wondering because this is keeping the metal prices same without any changes?

May not be significant, okay? If you take an entire year, it may be about INR 10 crores to INR 20 crores depending on the quantum of price reduction or price increase which happens in the market. So it will not be significant. Do not move it -- move the numbers.

The next question is from the line of Rushabh Shah from Buglerock PMS.

Sir, just a small question. Who are the top 5 customers for us? And how much are they contributing to our revenue?

With respect to the top customers of Sundaram, it's Cummins, General Motors, Maruti, Mahindra and Tata Motors. Amongst them, they would constitute, say, 35% of the overall revenue.

As there are no further questions, I would now like to hand the conference over to management for closing comments.

We thank everyone for attending this Q2 conference call. We look forward to meeting you and discussing with you in Q3. And those of you who could not attend this call, we are there in Mumbai attending the Avendus Spark conference on 18th. So we look forward to meeting you there.

Thank you very much. On behalf of Avendus Spark, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.