Sundram Fasteners Limited (SUNDRMFAST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Sundram Fasteners' Q4 FY '25 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. Thank you. And over to you, sir.

Thank you, Avirat. Good morning, everyone. [ Mukesh here ] from Avendus Spark. I appreciate everybody logging in. From the management team, I'm pleased to host Mr. Dilip Kumar, Chief Financial Officer; Mr. S. Bharathan, Executive Vice President, Marketing; Mr. R. Ganesh, Vice President, Finance and Projects. I'll now hand over the call to Mr. Dilip for his opening remarks, post which we'll begin the Q&A. Over to you, sir.

Yes. Thank you, Mukesh. Good morning to all and welcome to our discussion of -- on our annual results for the financial year ended 31st March '25. First, the good news, we have crossed this milestone of INR 5,000 crores in history of the company. We closed the year at INR 5,231 crores. The other major item I would pick, which you have noticed in the results also, is the inventory buildup which we have made in anticipation of the U.S. demand from our key customers. Notwithstanding the tariff, things are not bad. And we have built quite a bit of inventory in anticipation of that demand, which has also pushed up some of our cost conversion costs. And as you also know, that at any point in time, we have a large number of new products under development. And we've also had a significant capital expenditure this year. So a lot of [indiscernible] incurred by way of expenditure. And we've closed the year with a profit before tax of INR 668 crores. And after accounting for the exceptional income of INR 12.5 crores which arose out of testing the performance of the overseas subsidiaries for impairment, for which we have got a provision in the earlier years, we have reversed some of those provisions. And we finished the year at INR 680 crores. And after the -- effective tax rates have slightly come down because of the favorable tax assessments. And the profit after tax at INR 517 crores, with 8% growth in the EPS, is the highest in history of the company. Now coming to the quarterly performance. Again, we have registered INR 1,362 crores, which is highest for us for the quarter. And like I explained, there has been the significant inventory buildup, which has increased some of the conversion costs. And as inventories get liquidated, we expect this to get corrected and the -- both the contribution and EBITDA margin to resume its normal trend. And the fixed costs, good news for us, have been stable across the quarters. And the borrowings have gone up because of the working capital buildup which we made in terms of inventory and receivables and also the higher capital expenditure. And we finished the quarter with -- after accounting for the exceptional income, at INR 134 crores, which again is the highest in history of the company. With this -- and I think, again both -- all our subsidiaries have done reasonably well. Like I said, the overseas subsidiaries, impairment testing was done; and therefore, the valuation [ came ] very positive. And we took a credit for the exceptional income. And on our -- both our domestic subsidiaries have done reasonably well. With this, I bring my opening remarks to an end. We are happy to take questions from the analysts. Yes, we are happy to take the questions now.

Okay. Sir, I would request you to speak a bit louder. You're not very audible.

[ Yes. I'm as ] loud as possible, as close as possible to the phone. So I will do my best. I finished my opening remarks and...

Okay, we will start with the Q&A, sir, yes, sir.

Yes.

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

Congratulations on the great set of numbers, sir. In the previous call, you mentioned that, just by offering a lower price, I mean, a customer would not switch the business. So in a business like Sundram Fasteners, when does a -- like a customer never ever switching his business. So what are the switching costs for a business like Sundram Fasteners?

Yes. Switching cost is not an easy proposition for the customer because it requires product validation. And typically it takes more than a year and also a considerable amount of money. And so the customers are always wary of switching from one customer -- one supplier to another supplier for a few cents here and there. They would rather work with the existing supplier [ if it's some ] commercial reason. So it is not easy, especially for a product like ours where there's a lot of design and engineering and value addition and -- for customers to simply switch. It may happen in the aftermarket but not in the OE business.

And just a follow-up on that one. In the aftermarket segment, how good [indiscernible]?

Sir, can you repeat your question, please?

In the aftermarket segment, how good are we in the industry?

How good are we in the industry?

So I think we have done well last year as expected. And March was a very good month. So as expected, April was a bit down, but on the aftermarket, by and large, we've been expanding our network distribution. As well as, on the direct industries, we are having a good growth.

Okay. So my second question is in the previous call you mentioned that you have entered into spaces like aerospace and defense, mainly to upgrade in terms of quality and global competitiveness. So how is that space working out for us, sir?

I think, with respect to aerospace, we have presence through fasteners. And we supply materials to customers like either General Electric or HAL. And these predominantly form part of usage of exotic materials, so -- and in that space, we are able to penetrate and gain share and grow the business. So from a current level of approximately 3 million, we will be looking at close to 6 million in the coming year. And we have plans to grow that to 8 million to 12 million. With respect to defense, I will say that we are still in the start-up phase with respect to development of parts and validation at customer end.

Okay. Sir, my last question is what are the top 3 or 4 priorities you will have for the next 3 to 4 year.

I think -- with respect to the top priorities, I think growing with our existing key customers, gaining share of business; and working with them on their new platforms, either the conventional ICE or the EV or whatever new models that are planned by the customer. We will work with them. Apart from that, we are focusing on non-auto segment, especially in the areas of wind energy, railways and aerospace. So these are the broad sectors or areas in which we will be working in the next 3 to 4 years.

The next question is from the line of Abhishek Jain from AlfAccurate.

Sir, how was the revenue mix in export versus domestic in this quarter?

With respect to the revenue split...

[indiscernible]

It's about 70% coming from domestic and 30% from exports. So that has been the quarterly mix for the current year.

Okay. And in export, if you can throw some light what kind of the tariff charges imposed on your product. And how do you see the challenges over there and the current situation? If you can throw some light...

As far as tariff is concerned, I think it's still work in progress. Most of our customers, especially the major customers, have not yet firmed up their responses, as the tariffs on their specific parts are not very clear as yet. And they are working on their responses. In fact, most of them have not even approached us for any, with any proposal, but that said, we are definitely expecting customers to come to us on tariffs going forward. As of now, only some -- and customers we don't have much of an exposure have approached us for any tariff-related issues. And the major customers are still assessing the situation.

I think -- just to supplement my colleague. I think the OEMs are bracing themselves for their profits to take a hit because, I think, they are looking to bear the significant portion of the tariffs. And I think we've also been hearing, seeing in the media [indiscernible] prices, retail prices, consumer prices, are going up. I think they have been -- always been supportive of the supply chain. And that's the positive statement which has emanated from the global OEMs, so far.

Great. And my next question, on this non-auto segment as you are quite focused on the expanding business in wind and aerospace, if you can throw the light. What is the current revenue contribution from the non-auto segment? And what's your medium- to long-term guidance for the revenue from non-auto segment?

[indiscernible]

See. I think, with respect to non-auto, at the moment, we will be close to 1/3 of the revenue comes from the non-auto segment. And while the aspiration is to take it up to 50%, but -- the immediate focus is on growing the wind energy business, where in our earlier calls we had mentioned about -- close to an investment of 85 crores to 90 crores. That project is up and running and we have been able to meet the customer requirements. And based on the performance, customers have come back. And we are on the negotiation table for furthering the revenues and taking the next phase of actions.

[indiscernible]

And with respect to next phase of actions, we are also planning for further investments to grow the business, so from a current level of 300-and-odd crores, aspiration is to take it to 600 crores in the wind energy space.

Okay. And sir, my last question, on the product-wise stand-alone numbers, like fasteners, pumps and assemblies; and which segment you are more positive in terms of the growth in the next 2 years.

I think, with respect to growth, we will be working on all the engines of the Sundram product range, where -- be it fasteners, be it pumps and assemblies. So we will be growing in each of the segments, along with the customer growth, in terms of organic as well as growing the share of business. So it is not that we will be growing only one particular segment. That has not been our strategy, so we would work with the customer in all the product segments. And if you look at fasteners, where we are at present 35% to 40% of the total revenue, followed by caps and machine assemblies at 30% -- so we will continue to work with the customer.

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

Sir, am I audible?

Yes, yes.

Yes. So sir, my first question is with respect to whatever developments have happened on the tariff front and overall demand in the U.S. I just wanted understanding on are we still targeting the 200 crores, 250 crores of revenue from the EV business in FY '26. And will that meaningfully scale up to its full potential, 450 crores, in the next year? How should we see this scale up?

See. I think, at this point in time, it's anybody's guess, but however, even prior to these tariff concerns, on the EV side, we're just hoping that things will happen. There is -- there were some pushbacks. And things have started moving now, but with these tariff issues coming up, there seems to be some delay and some slowdown in the EV side as well. But then, from next quarter at least, we are hoping that things would improve, but still the last word is [ not centered on that ].

So you expect the commercial sales to start from 2Q FY '26. Is that understanding correct?

Can you repeat the question, please?

You expect commercial sales to start from 2Q FY '26. Is this understanding correct?

So see. I think, with respect to commercial sales, it has already started. So the product development, approval and commercial sales have started. I think the question from your end was whether it would be at the...

Targeted levels.

Targeted levels. There we are seeing a little bit of slowdown in view of the Trump and tariff effects, but it will pick up, as indicated by customers, starting from Q2 and Q3 of current year.

One other point is that, when -- for capacity planning and capital expenditure purpose, we have a program life of 5 years, but some of our -- based on past experience, we know that some of the products have much longer lives, [ something like ] more than 10 years in some of the cases where we've been supplying products, so we don't have to worry about the predefined time frame of 4 years or 5 years. These will have fairly long cycles. [ There may be ] temporary turbulence in the market. Once these trade tensions abate, the long-term indications and projection trend will continue.

And sir, any kind of budgeted target for exports in this year, FY '26?

I think, the current year budget, we will be looking at close to, say 200 million. So that's the number which we are looking at.

The next question is from the line of Rajeev Bhansali from Omkara Capital.

Sir, my question is regarding the CapEx [ plan ] this year which is around somewhere 396 crores. And can you throw some light on the next year CapEx plans?

So we'll -- yes. So I mean, based on the current indications and the internal plans which we have made, we should be incurring another 300 crores of capital expenditure, minimum.

And what about the current CapEx plan this year? Like, did we improve the current capacities? Or it was regarding the new non-auto segments of aerospace and others, wind energy, you mentioned.

This will be broad-based, sir. This has been for our traditional fastener business, aerospace and also for the wind energy fasteners. This will be spent across all our businesses.

Okay, sir. And coming back to the inventory buildup you mentioned. So are you seeing some traction from the current clients? Or is it regarding the domestic market or regarding the exports [ you are saying ]?

We have built a bit of inventories while keeping the overseas market in mind.

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

Yes. So we have nothing further to add. And we thank all the analysts for having joined the call. And we look forward to interacting with them, investor conferences and in the coming quarterly calls.

Thank you.

Thank you.

Thank you.

Thanks.

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

Thank you.

Thank you.