Sundram Fasteners Limited (SUNDRMFAST.BO) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sundaram Fasteners Q3 FY '26 Earnings Conference Call. [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, Subham. Good morning, everyone. Mukesh Saraf here from Avendus Spark. Appreciate everybody logging into this 3Q 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 the Q&A. Over to you, sir.

Thank you, Mukesh. Good morning to all. Welcome to a discussion on the 9 months and Q3 results of Sundaram Fasteners. Are you experiencing any disturbance, Mukesh?

Yes, sir, there is a little bit of disturbance from the mic.

I think right now, it's not there.

Yes, sir.

So we've had a reasonably good quarter. The domestic performance has been very strong. We registered 18% growth in the domestic segment in both our OE and aftermarket business put together. The exports have moderated a bit as expected because of the tariff pressures. The overall revenue for the quarter has come in at INR 1,359 crores and the raw material costs have been stable. And our gross margins are up compared to the earlier quarters, but after adjusting for inventory movements, it's slightly lower, but at the RMC stage, the gross margin is above 60%. We've had a reasonably good control over both variable costs and fixed costs. The only element which, as expected, is the tariff and the full brunt of the tariffs has started impacting. And some of our products are at 25%, some of them are at 50% depending on the iron and steel content. And that has had an impact at the contribution stage. Our fixed costs remained stable, have been consistent across the quarters. The borrowings have come down because of better working capital management, lower inventory -- relatively lower inventory. And the depreciation impact has slightly come down because of lesser capitalization. And you may have noticed that like all companies which have provided for the labor code impact, we have also taken an exceptional hit of INR 11 crores. And the profit before tax before the exceptional item was INR 174 crores compared to INR 186 crores the previous quarter. The difference of INR 10 crores to INR 12 crores is primarily arises out of tariff. And after adjusting for the onetime impact, we have reported INR 162 crores of PBT and after tax INR 122 crores compared to INR 120 crores in the comparable quarter. But like I said, while it appears to be a flat number, but one should see it in the context of PBT before exceptional item where the growth has been from INR 153 crores in corresponding quarter to INR 173 crores. The half -- the 9-month number somewhat mirrors the quarterly performance with a strong domestic performance and moderating exports. Our contribution has been better for the 9-month period, about almost 1% higher than for the quarter. And the EBITDA is at 17.3% for the 9-month period. Directionally, in the earlier calls we discussed whether we would touch 18%, but I think we are on that way, in that journey. And after adjusting for exceptional items and the taxes, we have reported INR 400 crore -- INR 401 crore profit after tax for the 9-month period compared to INR 382 crores. And these are some of the highlights of our performance, and we're happy to take any questions which you may have.

[Operator Instructions] The first question comes from the line of Varun Arora from Emkay Global Financial Services.

Sir, just want your view on the long-term perspective going forward, how much of the growth you are looking forward in the next 2 to 3 years? First. Second. Now going forward, how much exports we are looking for, I mean, in terms of USD and about the margin, too? So these are two first questions, and I'll fall back in the queue.

Mukesh, are you there?

Yes, sir. There is no response from the participant.

Yes, maybe we can go to the next participant.

Yes, sir. The next question comes from the line of Sahil Sanghvi from Monarch Network Capital.

Yes. Am I audible?

Can you issue the connectivity?

Just a moment, sir. I'm checking.

Am I audible?

Operator, is there any issue in connectivity?

Sir, we can't hear the participant. Just a moment.

Am I audible?

Ladies and gentlemen, please stay on hold while we correct the issue. Just a moment. [Technical Difficulty]

Yes. Am I audible?

Yes, sir, you are audible now.

Congratulations for your numbers on the domestic front. That's pretty solid numbers. Sir, on the export front, I wanted to understand, with the tariff-related issues and the demand, what is our strategy now to work on the exports? Because we are now seeing exports as a percent of revenue coming to 23%. I think one time we were at good 30%, 33%. So just wanted the management's understanding on how it will try to mitigate this environment.

On the exports front, North America is in a bit of a strain now and going forward also, there's the indications...

Sorry to interrupt, sir. There is a disturbance from your line.

Are you able to hear us well?

Yes, I can hear.

Is it clear now?

Yes, sir.

On the exports front, as you rightly said, North America is in a bit of a strain now. And even the indications going forward are that there will be sort of a gradual quarter-over-quarter improvement. But that said, from our perspective, we are trying to also expand and derisk the portfolio. And we are in touch and working with a lot of customers in Europe, like, say, Poland, Romania, Sweden, we've got good RFQs, and we are working. Some are in the final stages of conclusion. Some are early yet. And even with the existing customers, we are trying to expand and work on areas like U.K. where there would not be much of a demand contraction on account of the tariffs. So this is a broad approach that we have taken, and we are trying to see hope there because we've got a lot of inquiries from customers.

Right, sir. That's happy to hear. Secondly, sir, if you can show some -- I mean, if you can throw some traction on whatever the new projects are we looking at? Any kind of new product addition or any kind of new end user industry we are targeting? Any kind of that perspective if you can give?

Yes, I think with respect to the new projects and new products, as part of our non-auto diversification...

Sorry to interrupt, sir. There is still a disturbance from your line.

As part of our diversification into non-auto, we are expanding on the wind energy fasteners where -- am I audible?

Yes, sir.

Yes, sir.

Okay. With respect to the wind energy, where we have had the first phase of expansion and moved the numbers from INR 200-odd crores to INR 350 crores on an annualized basis. With the further expansion of the wind energy business, we are looking to take it up to close to INR 500 crores on an annualized basis. And it has grown about 30% from the current level. So that is one expansion and activities are on core. The second one is with respect to our aerospace fasteners, where we have been hovering around -- so on a monthly basis, about INR 2.5 crores to INR 3 crores, we have seen a jump of -- it's, I think, close to INR 5 crores, which is witnessing a 50% to 60% growth. So that is another area where we are seeing traction. And on the railway fasteners, where we have been working through our dealer distributor network, we see a lot of opportunities coming up on account of all this Vande Bharat and modernization of tracks. So those are the lines which we are pushing as part of our growth strategy.

Sure, sir. This is helpful. My last question is, sir, on the EV related orders that we received from North America, any kind of statistic, if you can provide on the time line on the ramp up, what do you expect on that front?

With respect to the EV project, as expected or required from the customers, we have had the capacities in place. And during the last quarter or so, some amount of pull has been there. But predominantly, it is on the ICE segment. Out of the projects that we have worked out, which comprise both EV, PHEV and ICE, we are seeing some amount of trickle happening on the ICE segment with EV expected to pick up probably in the second half of next year. That is a broad indication that we have. But while the project is already completed, we are also working with putting for alternative use. While we are working closely with the customer in terms of servicing their ICE requirements, but we are also working with alternate customers for better capacity utilization because these equipments are interchangeable between ICE, PHEV and EV.

[Operator Instructions] The next question comes from the line of Varun Arora from Emkay Global Financial Services.

Am I audible?

Yes, sir. Now you're audible.

Sir, just a clarification on what you said on EV. So you're suggesting that EV will start to pick up in second half of FY '27. Is my assumptions right or wrong?

Yes, yes. But it's in line with the original projects or assumptions, but we'll see a trickle with respect to EVs.

Yes, we are expecting a trickle in the second half of last year because the programs, by and large, have been postponed. So it would start with a trickle and then maybe mature later.

Okay, sir. Sir, I have three questions, just give it to you. So what sort of growth you're targeting in FY '27 in terms of revenue? And what's the planned CapEx in FY '27? And on the margin front, so you are pretty range bound in terms of margin. And by what time line we can see you to break this range and inching towards the 19% to 20% of margin, sir?

On the margin front...

Sir, there is a lot of disturbance.

On the margins front, we have already moved from the 16%-odd to 17%-plus. And like I said in my opening remarks, directionally going towards 18%. That's a broad guidance I can give you at this point. And like we have said many times in the past calls, margins, which were over 19% to 20% got impacted by the steel prices and RM prices. While they have moderated, they have not moderated to the extend that we would have wanted and our intermediate target...

Sir, we can't hear you. Sorry to interrupt, sir. We can't hear you properly. There is a disturbance from your side. Am I audible, sir?

Yes, you are audible.

Sir, are you there?

Yes, yes, we are there, we are there. We're just trying to figure out how to make call smooth. Anyway, so like I said, we are in the direction of 18%. That's our intermediate target. We look forward to achieve that. And we had dropped to below 17%, and we were more closer to 16% than 17%. That has improved. And once the export business recovers, you will see us achieving that 18% or crossing that 18%. As far as capital expenditure is concerned, roughly, we would have about INR 250 crores of capital expenditure in any year. And some of it, about 30% of it could be replacement CapEx. And we may look to add new lines wherever our capacity utilization has already touched 70% to 75%. That's the broad guidance on capital expenditure. On the growth, we would aim, endeavor to achieve a 2-digit growth, and our business plans are based on market feedback and discussions with customers. While it's slightly premature, maybe in the next call, I'll be able to give you a better indication. But I would think optimistically that we will not look at anything lower than 10%.

The next question comes from the line of [ Aditya ] from Happy2Investt.

Am I audible?

Yes.

Yes.

Yes. So, sir, my question is on non-auto segment. Like we aggressively have a goal to 50% of total revenue as target. So, sir, is the margin profile on the wind and aerospace segment currently higher than traditional automotive fasteners business? So how you are planning to take it forward in 12 to 18 months? And what is the total revenue coming from the non-auto segment in end of quarter 3?

Non-auto currently -- non-audio comprises of aerospace -- are you able to hear me?

Yes, sir, but there is a disturbance. Earlier you were speaking -- that was clear. Just speak a little louder. That will be better, sir.

The aerospace, railways and wind energy, tractors, aftermarket segment comprise 38% roughly of our revenues today. From about 30%-odd it has moved to 38%. That's because of the drop in export revenues. And the aerospace division and wind energy businesses, which since wind energy has scaled up nicely and considerably, and they've been quite profitable in terms of operations as well as the returns. And the aftermarket has been growing at a steady pace. And this year, we have had very strong performance in the tractor segment. These will continue to do well because our wind energy is poised for next round of expansion. And aerospace today is less than INR 100 crores. So on that low base, we will continue to see robust growth in the coming quarters also. I hope I have answered your question.

Okay. And sir, my second question is on our content per vehicle. So we are shifting from SUVs to traditional hatchback, right, which is a higher horsepower businesses. Am I understanding correct, sir? And is a more premium segment, right? So is content per vehicle is increasing for our businesses?

Can you repeat the question?

He is asking content per vehicle between SUV and this one, whether there is more or less content.

No, on the SUVs, it will be more than the small cars or the lower category segment. In all segments, we see a movement towards the higher end and the premiumization, and so concomitant content per vehicle increase is there for all parts in our portfolio as well.

[Operator Instructions] The next question comes from the line of [ Aman Maurya ] from Lucky Investments.

Sir, in terms of your domestic growth, what would be -- I mean, what will be the mix between the fasteners versus non-fasteners into this? And how the mix would be in the CV and PV for the domestic market?

No, I think in the domestic market, the pickup or growth, it centers around cars, M&HCV segment for us and with a strong presence in tractors. So those are the three segments which is driving the growth in domestic segment.

Okay, okay. So basically, commercial vehicle and tractors are driving the growth, right?

Yes, commercial vehicles -- so it's all the three segments, that is how I would put it, between commercial M&HCV, LCV combined with cars and multi-utility vehicles and tractors. So this is what is driving the growth of domestic segment. And with respect to fasteners as well as others, I think we have been witnessing growth across all our product segments in the domestic market.

Okay, okay. And currently, what would be the mix of fastener in the overall domestic revenue?

In the overall domestic revenue, fasteners would be about 40% to 45%, sir.

[Operator Instructions] The next question comes from the line of [ Amar Ahil ] from Raedan Capital.

Am I audible, sir?

Yes, sir.

Yes.

I'm so sorry, I just -- I might have missed out on the [ CapEx ]. So I just wanted to ask that you have done INR 217 crores of CapEx for the 9-month period. So will that start contributing to the revenues? And second thing, what are the further CapEx plans for the year ending FY '26? And any plans of CapEx for FY '27? That's it.

Sir, as far as capital expenditure is concerned, we will probably finish the year FY '26, but around INR 350 crores. And I expect...

Sorry interrupt, sir. There is a disturbance.

I expect our CapEx to be around INR 250 crores next year. And the CapEx will start contributing. And like I said, about 25% to 30% based on past experience is replacement capital expenditure, which improves the productivity and be replaced with state-of-the-art machine. The remaining 60% to 65% would be adding directly to the revenue. And these are -- investments are made with clear indications from customers. So we have kind of agreement with the customers basis which we further make investments or expand our facility.

Okay. So you mean that when your CapEx is done, it will directly start contributing?

Yes. So typically, the capital expenditures in auto, where some of the furnaces or machines have to be imported, and typically it takes 6 to 9 months' time. So the number which you see as an expenditure would remain in capital work in progress for some time. And then the volumes to mature or ramp-up may take further time. But initially, in the first 6 months or so after the machines are installed, probably we'll have 1:1 kind of a growth.

Okay. And how much will that contribute to the revenue?

Like I said, if we are incurring about INR 300 crores, about INR 100 crores would be for replacement, the balance INR 200 crores would be for revenue. And like I said, 1:1 is a safe bet to assume.

Okay. And what are your utilization right now, sir?

So we have many businesses, and it varies from business to business, line to line, assembly to assembly. So while it's difficult to put a number across the company, [Technical Difficulty] number, but each unit will have its own capacity utilization and equipment effectiveness. So broadly, just to make it easy for you, I would say probably around we are at 60% capacity utilization.

Okay. And the guidance for FY '27 was double-digit growth in revenue and 18% margin guidance, right, sir?

Margin, definitely yes. And like I said, slightly premature to discuss about the business -- I mean, revenue guidance for next year. And I said we would not look at anything lower than two-digit growth.

I'm sorry, I missed out on the revenue guidance. Could you repeat it, sir?

We would not be looking at any growth -- any number which is lower than a double-digit growth. That's what I said. And it's slightly premature to give you a guidance. Maybe in the next call, I'll be able to indicate with certainty.

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

Yes, sir. As the question queue builds, I just had some basic questions. First is, if you could just kind of give us the revenue mix that you usually give across different cuts? So one is the OEM aftermarket exports and then within that domestic, if you could give the breakup of CV engines, all of that, that you usually give?

Yes. I think with respect to the segment-wise revenue, exports today stands at about 25%, followed by 60% to 62% coming from OE and 12% to 13% from aftermarket. That is on the segment. With respect to the -- in the domestic segment, whatever M&HCV, CV plus engines that would constitute about 35%, followed by cars and MUV at 40% and the tractors between 10% to 12%. So these are the major segment-wise split for domestic sales.

Okay. So the mix hasn't changed much as such. So the fact that we're seeing an improvement in CVs, probably I was expecting some kind of a change there. What's the outlook for MHCV, sir, domestically? And how should that kind of go for you guys?

Mukesh, see, I think the mix from business, OE domestic, OE retail export perspective has changed a bit. But within the domestic segment, as you pointed out, the mix has not changed much because all segments have grown. So that said, see, next year, going forward, the rough indications coming for the commercial vehicle segment is roughly 8% to 10% growth over this year. And on the pass car segment also, it's around 8% to 10%. And on the tractors, upwards of 10% is what is being indicated right now. We are yet to receive the full year projections from all the customers, but the overall sentiment is towards this.

Understood, understood. And just again on the domestic business, I think last couple of quarters, you had kind of indicated that you're working on a lot of new RFQs, especially for the SUV segment and that something should materialize in the next few months -- I mean, next couple of quarters or so is what you had indicated. Where do we stand in those new businesses? Obviously, I mean just setting aside the industry growth, just trying to assess what we can do over and above the industry growth in terms of new business or wallet share probably that we are looking at with certain OEMs.

Yes. See, it's always our endeavor to keep increasing our share within the pie irrespective of the external environment. As we said last time, those RFQs, some of them are matured and some are in the final stages of discussion. And on the existing customers' share, with quite a few customers, we have increased share of business also, both on the commercial vehicle side as well as on the tractor side.

Okay. So fair to assume -- I mean, because there are some questions around next year growth. So fair to assume we should be well ahead of the industry growth. So if industry, say, is going to grow 10%, how much would you want to say, outgrow the underlying industry?

See, if it is -- industry grows by 10%, I think we'll be outperforming them by, say, from 10%, we will be at 12%.

Okay, okay, okay. Right, right. And a question on the subsidiary businesses. Any update there? The performance there has been just about average in line with previous quarters. You haven't seen too much change. So any update there?

With respect to subsidiaries, I'll address the Cramlington, that mirrors more or less European truck market where we have seen a degrowth in 2025 compared to '24. So that mirrors the truck segment. And the positive thing is the subsidiary is cash -- generating cash and managing the requirement on its own. With respect to China, I think we have seen some uptick in construction equipment segment and CV. So that is pushing up the revenue within the China market because almost 80% of the revenue is generated within China. So the revival of construction and CV segment is helping in its momentum of growth. But the only point with respect to China, the price pressure on account of capacity available, so that is one area which we are working on. Otherwise, I think the business has done reasonably well given the market conditions there.

Right, right, right. And lastly, from my side, I mean, you did kind of mention that margins should be around the 18% mark, which is like close to maybe more than 100 basis points improvement in the coming year. So any specific triggers for this? Is there some new export business because export is probably a better margin business, especially with the way ForEx is moving or any higher value-add business that we are seeing coming through? Any kind of drivers for this? Because capacity utilization remains low at about 60-odd percent. So just trying to understand what could be the drivers for this margin?

There are three levers. One is the aerospace business, which is a high-margin business for us. While it is not a substantial part of the pie, it's definitely the trickles are making a small difference. And it pushes the margins from 17.3% to 17.4%, we are happy to take that. The second is the wind energy business, where we've had a 30% growth, and that is poised for further expansion. It is scaled up nicely and the operating leverage is kicking in there. And the third, like you rightly said, is the exports. We've had high-margin businesses, which have moderated a bit. And like we also explained, now whether EV or ICE, we have the capacity, marketing efforts have intensified in Europe as well, not only depending on America. And I think we are no longer dependent on America as much as before. And so as we settle -- enter the contract, settle new businesses, enter new businesses with higher margins, and we see that's also percolating down to much higher EBITDA.

Right, right, right. No, this makes sense. Great. I think we have one question in the queue. Subham, if you could just take that.

The next question comes from the line of Aditya from Happy2Investt.

My second question is on Sri City facility plant. So the capacity utilization level, sir, could you please share the current installed capacity of this plant in tonnage or unit size? And what is the current utilization level are here? And on a margin profile, sir, given that this facility is focused on more specialized EV components and export markets, right? So is the EBITDA margin profile of this specific plant is attractive to the blended company margin of 18%? If so, sir, how many basis points can we expect more EBITDA margin from this plant? Yes.

With respect to capacity utilization, I think already it was explained saying that we have each lines of business and given the market conditions, a few of them would be operating at about 70% plus. And wherever with respect to EV or powertrain components, that may be operating, say, sub-50%. So it's a mixed bag for us. And with respect to the margins, as we had explained, once the export business, which has now moderated, if it comes back, whether it is in terms of ICE business or PHEV or EV, we should see an uptick in the overall EBITDA margin of Sundaram Fasteners.

The next question comes from the line of Anuj Sehgal from Manas Capital.

I just wanted to understand on the export side, can you give a breakup of the geographical mix both for this year 9 months and how does it compare to last year 9 months?

I think with respect to the geographical presence with respect to exports, while there has been some contraction in the North American markets comprising of U.S., Mexico and Canada, which generally used to be at about 70% or so, now we are seeing that, say, between 60% to 62%. So that is on the North American market. And the presence in Europe, which used to be about 20%, now we are seeing that inching up to 25%. So broadly, the shift is say 3% to 5% drop in North America, followed by increase in Europe and the Asian region. That's the broad geographical segment with respect to exports.

Right. And then is the margin profile for the export business similar, whether it is to North America or to Europe or other regions?

Yes, the margin profiles are comparable. It depends on the product group which we are exporting. So -- but it mirrors more or less whether it is to America or to Europe.

The next question comes from the line of Parikshit Gujarati from Niveshaay.

Am I audible?

Yes, yes, you are audible.

So I wanted to ask on the side of BIS, has the BIS been implementing by the government? So the government was to implement the BIS norm for the fastener imports we are doing. So I wanted to ask on that side.

I think with respect to -- I think you're talking about the Quality Control Order, QCO.

Yes, yes, yes. Yes, BIS.

Yes. While the government has been pushing, I think still some amount of imports are happening based on the representation from the OEMs to the government. But nevertheless, we are also seeing some amount of business shifting on account of this QCO and these OEMs have started interacting with us for sourcing fasteners.

Okay, okay. And my second question was how much revenue of Sundaram Fasteners come from the auto sector?

Today, the automotive segment is close to about 62%, with non-auto comprising 38%.

And sir, my last question was again on the BIS side only that -- so all the OEMs which are MNCs such as Kia, Hyundai and Maruti, right, all these OEMs, so they import an approximate of INR 1,100 crores, INR 1,200 crores of fasteners every year for their automobile segment. So what is your view on that? Can this market come to India if the BIS norms are implemented as an import substitution thing?

So it is potentially possible, and that is why the QCOs have been issued to encourage domestic sourcing. But many of them also may not justify investment or scaling up for what sake because there could be low volume, and there could be for certain luxury segment. And the OEMs may be also be reluctant because it is part of the -- the supplies are part of their global supply chain. So there are many considerations in this and one could be the quality, other could be the low volume, third could be the rigorous testing requirements. So yes, it is an opportunity which we are eyeing. And as policy constraints are eased, and government is also reviewing some of these imports at the HSN level, each code that it's coming from China, which geography it is getting imported, the quantum. And they are also contemplating many policy measures. And so therefore, it is an opportunity, but it will take some time.

Ladies and gentlemen, as there are no further questions, I now hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Nothing specific. And like I said, we are looking forward to a reasonably good Q4. I think the January month has started well, and we expect the domestic market is robust and the export pipeline is also expected to improve this quarter. We hope to report good numbers as far as Q4 is concerned.

Thank you. On behalf of Sundaram Fasteners, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.