Uniparts India Limited (UNIPARTS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Uniparts India Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kanav Khanna. Thank you, and over to you, sir.

Thanks, Anushka. Good afternoon, everyone, and welcome to the Q1 FY '27 Earnings Call of Uniparts India Limited. We have on the call from the management side, Mr. Gurdeep Soni, Chairman and Managing Director; Ms. Tanushree Bagrodia, Whole-Time Director and Group CEO; Mr. Sandeep Taneja, Group CFO; and Mr. Himanshu Sharma, Head, IR and FP&A. We must remind you that the discussion in today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risks that the company may face. I will now hand over the call to Mr. Soni to take us through the financial and business update, subsequent to which we can open the floor for Q&A. Thank you, and over to you, sir.

Thanks a lot. Good afternoon, everyone, and thank you for joining us. It is indeed a pleasure to welcome you all to the Uniparts Q1 FY '27 Earnings Call. The first quarter of FY '27 reflects the divergent dynamics currently shaping our end markets and importantly, how we are navigating them. Central to this is the operational rigor our teams have demonstrated in ensuring we continue to meet customer expectations without exception. On that note, the restoration of the finishing shop at our Ludhiana facility is progressing well and on schedule. And I'm pleased to report that customer supply has remained uninterrupted throughout. Equally, our Mexico operations are on track with first customer deliveries from the warehouse expected in Q3 of this year. This is a meaningful milestone in our journey as a global supply partner. Turning to the Q1 FY '27 performance. We are pleased to report revenue growth of 27% year-on-year EBITDA growth of 55% year-on-year and a PAT growth of 64% year-on-year. This performance is in line with the quarter-on-quarter guidance we had shared, but better than the annual guidance we had given and reflects the quality of execution by the team across a quarter that was not without its challenges. The ongoing West Asia situation has continued to exert pressure on input costs and supply chains. Our teams have navigated this with discipline, working closely with vendors and ensuring that our delivery commitments were met without disruption. On a trailing 12-month basis, our earnings per share stand at INR 39.97, and our ROCE is north of 27%, with ROE at 20%. Our net cash position at the end of quarter 1 stands at INR 190 crores, reflecting the continued strength of our cash generation. Just to put this in context, when we declared the special dividend of INR 101 crores in October of '25, our cash balance was approximately INR 210 crores. Therefore, in just 10 months through focused operations and business growth, we have rebuilt to that level. Our balance sheet is in excellent health, and we continue to actively evaluate acquisition opportunities that can accelerate our strategic agenda. On the business development front, our trailing 12-month new business order book remains robust at over INR 225 crores with a healthy pipeline. These wins span segments and geographies and reflect continued customer confidence in our capabilities across our 3 product platforms, which are the 3-point linkage for agricultural and PMP and fabrications. We are continuing to invest in growing our construction and large agricultural equipment businesses, given that the small ag is already a segment where we hold significant global market share. The new business momentum is structural, and we intend to build on it. Let me talk about some of the industry segments that we work on. On the construction equipment, the momentum that started in the second half of calendar year 2025 has continued into Q1 of FY '27. Infrastructure-led spending, particularly under the technology investments in the U.S. and the government-led investments in Europe, is sustaining healthy customer schedules and order visibility. This segment is performing well, and we are growing with it, supported by both market recovery and new business additions. Coming to the large agricultural equipment, conditions remain subdued as has been widely acknowledged across the industry. Leading OEMs have indicated that current year 2026 represents the cyclical bottom with a more meaningful recovery expected through calendar year 2027. Our growth in this segment is therefore not market-driven. It is entirely the result of new business wins, with particular momentum in Europe. This is a natural extension of our core competency and a segment we are investing in with a long-term view. In the small agriculture equipment, India continues to perform well, supported by government subsidy programs and rising adoption across the mid-to-higher horsepower categories. New business wins in India in the small ag segment have been particularly strong. In the Western market, small ag growth remains more measured. Consumer appetite for big-ticket equipment purchases has been tempered by the economic uncertainty and volatility, leading to continued deferral of buying decisions. That said, the bottom appears to be behind us. After 3 consecutive years of volume decline, we are beginning to see some recovery in unit volumes and the direction of growth is encouraging. Driven by our share position and continued new business additions, our business growth remains strong in this segment. Finally, our aftermarket business represents approximately 12% of revenue in Q1 of FY '27 and was flat year-on-year in absolute terms. The tariff-driven price volatility has led to some demand skewing, as higher prices caused customers and channel partners to moderate their purchasing. With tariffs have since come down, we expect this to normalize and the segment to return to growth. In the meantime, our OEM business has grown strongly, which has naturally reduced aftermarket as a proportion of overall revenues. Aftermarket remains a strong and strategically important pillar of our business and a continued area of focus. With these remarks, let me hand over to our CFO, Mr. Sandeep Taneja, for a detailed walk-through of the financials of our company. Thanks.

Thank you, sir. Good evening, everyone. I'll briefly take you through the key financial highlights for the quarter ended 30th June 2026. Our revenue from operations for Q1 FY '27 stood at INR 347 (sic) [ 3474 ] crores, representing 27% year-over-year growth and remaining broadly in line with the guidance we had shared earlier. EBITDA for the quarter was INR 90 crores, registering strong 55% growth year-on-year and 10% growth sequentially, reflecting healthy operating leverage and disciplined cost management across the business. Profit after tax stood at INR 57 (sic) [ 566 ] crores, up 64% year-over-year and 11% quarter-over-quarter, demonstrating strength of our operating performance and profitability profile. We generated INR 44 crores of operating cash during the quarter, and our 12-month trailing EPS stands at INR 39.97, reflecting sustained improvement in earnings over the past year. Net working capital stands at 139 days of trailing 12 months revenue as of 30th June, reflecting our near-shoring and warehousing-led business model while remaining broadly under control. We ended quarter with net cash position of approximately INR 190 crores, underlying the strength of our cash generation capabilities and financial discipline. Capital expenditure during the quarter was INR 12 crores, in line with ongoing investment plans focused on capacity enhancement, productivity improvement and customer-led growth initiatives. With that, I will hand over the call back to the moderator for question and answers.

[Operator Instructions] We will take the first question from the line of Ashutosh Tiwari from Equirus.

Congrats on a very good set of numbers. Firstly, we have seen very strong growth in the construction equipment segment for us. Do you think that structurally the segment share in revenue will go up from here, like say, what it is right now? Can this be maintained?

Ashutosh, Tanushree Bagrodia here. Ashutosh, you are right that in Q1 FY '27, the business has really seen a good growth in the construction business, which is today 45% of our total revenue. The structural drivers of this, which is the new business wins, the construction industry recovery and the wallet expansion are all multi-quarter in nature. And this momentum is going to be here, right? But we also have to bear in mind that we play in 2 other industries, which is the small ag and the large ag. And as the cycle broadens and the ag recovery builds through it, at that point in time, we will not only see the ag industry growth coming in, we will also see the product and the geographic mix getting rebalanced. This is actually expected and it's very, very healthy.

Okay. Okay. And I think if I remember correctly, almost 10 years back, we have seen a similar turnaround tractor industry globally after 4 years around '16, 2016 basically. So that...

Yes. Sorry, you were saying something.

No, no, I'm saying that exactly 10 years back, I think '12 to '16 again was a bottom, let's say, declining years for tractor industry globally. And we saw a turnaround in that in '17. So I think similar thing can happen again now after 10 years almost.

Absolutely.

Okay. And is the construction equipment segment for us higher margin than tractors as a whole as of now?

So Ashutosh, our margins actually across products are fairly similar. I think where we have a differentiated margin profile is our delivery channel. So the locally made and locally sold is our least margin profile. Our direct exports is our base margin of what we say 20%. And then the warehouse sales is our highest margin product. And what you will also see is both in Q4 FY '26 and Q1 FY '27, our warehouse-led sales have been higher, and this is also reflected very positively in our EBITDA margin percentages.

Okay. Okay. And lastly, guidance for this year for sales growth remains the same or there's some uptick in that?

So I think if you look at our Q1 performance, this is in line with what we had guided. And I think Q2 is also remaining robust. I think overall on an annual basis, what we are seeing is that the growth of the construction industry is faster than what was envisaged at the start of the year. And keeping that in mind and the visibility that we have, our FY '27 growth will be a couple of percentage points bigger than the growth that we had in FY '26 on a year-on-year basis.

We take the next question from the line of Saishivam Shah from Avendus Spark.

Congratulations for a very good quarter. Just a quick question. The company has been highlighting regarding the acquisition and [adjacent] opportunities of PTO and fabrication from 2023. When can we see it actually materializing and meaningfully contributing to revenue?

Saishivam, I think we acknowledge that this has been talked about for a long time and investors and analysts all want an update. The truth of the matter is that we have evaluated about a dozen targets in [indiscernible] across hydraulic fabrication and PTO. And on a few occasions, we've been very close to making the acquisition, but the deal fell through for different reasons. The main reason for that is as management and as responsible people, we don't want to make an acquisition unless we are confident that it will be value accretive for all stakeholders. We are not in a hurry to do something just to say that we've done it. And I think with that background, we continue to evaluate acquisitions. I think today, we have about half a dozen opportunities that we are closely looking at. So the effort, the intensity and the intention are all in that direction. And we will come back to our investors and to our stakeholders with more information as and when we have it.

Just a follow-up question. Post acquisition, when will it get reflected in revenue? What will be the time frame? And what will be the percentage increase or growth?

So I think at this point in time, given that we are not talking about a particular opportunity, I'll tell you how we think about this structurally, right? And what do we look at in acquisitions. So first of all, like I said, the global industry has decided, it has to be something where we can go back to our customers add value, where we can use our current processes, product knowledge, competencies to grow the new business. We're also looking at something which is ROCE and ROE accretive to us within, let's say, an 18- to 30-months span. We also want to ensure that we are looking at hydraulics, PTOs and fabrications to add a meaningful platform, right, to our current business. And at the same time, the size has to be such that it has to be manageable by the current team. We do not want to bite more than we can chew. The one thing we are not looking at is deeply distressed assets. We will not to do an acquisition of that nature.

We take the next question from the line of Viraj Kacharia from SIMPL.

Congratulations on good set of numbers in such a challenging environment. A couple of questions. First, if you can give the contribution from FX and inventory gain in the quarter, what will be that contribution, if you can quantify?

So Viraj, if you look at it, our cost of materials this time is about 33.3%, right? And I think it's coming at 33.3% largely because there's been a product mix change. There has been a small inventory gain that you will see on the face of the financials, and that's roughly about INR 1 crore. But the larger cost of materials at 33.3% is due to the product mix change.

Can you elaborate what you mean by product mix? Because see, if you look at historical also our communication has been that it's more about the channel mix rather than the segment or the product per se, which really drives the margin lever for us. So when you say product mix, what exactly you mean by it? And similarly, for channel mix, if you can give the number for Q1 versus last year?

So when I say product mix, I mean exactly a bifurcation of three point linkage, precision machine parts and our fabrication business. While they have similar margins, they may have different material consumption percentages. And that's what drives the material consumption percentage that I'm talking about. And like we've said, on our channel margins, right, our base margin of 20% is where our direct exports are. Our locally made locally sold is lower than that and our warehouse sales is higher margin than that.

So again, on the margins, so if I look at my operating margins also, I understand there will be a good amount of operating leverage.. -- but if I look at operating margin...

Sorry to interrupt Mr. Viraj. Your voice is breaking. Could you please fix that?

Is it better now?

Yes. Now it's much better. You may continue.

[indiscernible]

Mr. Viraj, I would request you to join back the queue again then we'll proceed with the next question. We take the next question from the line of Sunil Jain from Nirmal Bang Securities Private Limited.

Congratulations on great set of numbers. My question is more on an industry perspective. You are seeing very good traction in construction industry now, and we are seeing good revenue growth coming up in the current year, and you are guiding for a good growth. Next year, FY '28, we will see agri coming back, at least large agri, which is degrowing over there in the U.S. and all, and that is likely to come back. And small agri also, which is just started positive will continue in next year. So next year, again, we will have a second lever, which will be running and we can have a good growth. Is that the right perception?

So Mr. Jain, thank you. So I think this year's growth, absolutely, construction industry has been doing well globally. It's driven by different underlying levers in the U.S. and in Europe. In U.S., we've said it's driven by the AI and the smart manufacturing investment and the government spends in Europe and infrastructure. You're absolutely right that the small agriculture industry after 3 years of downturn has started seeing some uptick. But the growth in the small ag industry is going to come in calendar year '27. Large ag in '26 is facing its trough. We expect mid-teens decline in the large ag industry this year. And again, the growth will come in FY '28. Keeping this in mind, there will be growth in FY '28. Remember, we are coming off from a 3-year very, very deep cycle that construction and ag industries have faced, and these are very deep cycles that potentially the industry didn't see in the last 30 years. So once the growth is coming back, we will see the uptick, and this will be a good growth cycle for both industries.

So considering good growth for next 2 years, you had guided cycle EBITDA margin of 21%. So do you see that moving up because you are already at almost around 23% and there is still 2 more years for the leveraging benefit to come?

So Mr. Jain, when we talk about 20% margins, we are talking about 20% margins over a cycle which is peak to trough. We maintain that. I think what we started seeing is, of course, we started seeing the margins of 20% play out. We are going to deliver FY '27 also very comfortably over the 20% plus margin, right? Where they stack up, obviously depends on how the industry recovery happens, how much of warehousing sale is there and how the currency plays out. We, at [ Chewy ] are confident that 20% plus is what we will deliver. We are focusing on executing with that what is in our control.

And gross margin at current level...

Sorry to interrupt, Mr. Sunil. I would request you to join back the queue as there are several participants waiting for the turn. We take the next question from the line of Anubhav Mukherjee from Prescient Capital.

Am I audible?

You are audible Anubhav but there is an echo.

Is this better?

Yes. This is better.

Ma'am, congrats on a good set of numbers. Ma'am, historically, like our market share in large ag has been lower and now we are trying to gain market share. So can you share some perspective on like why is the market share lower in large ag? Is it that the competition is more capable? Or does it require a different set of capabilities? And what are we doing now to like increase our market share? That will be very helpful.

Okay. So Anubhav, if you see the ag market globally, the large ag market is in the Western countries and in our home market in India, we are a small ag country. India is the largest producer of tractors in the world. 50% of the tractors are produced in India. And all of this is small ag. This is our home market advantage. So as we started out, we built on our home market advantage, expanded that globally and then got a meaningful share in the small ag segment. In the large ag segment, we have been -- we have a share, we have a lower share because now growing this is -- it also takes time. There is a validation and a testing process that every OEM has. And as we build the product for OEM put them through testing and validation, the awards come through and then the revenue comes through, this is a cycle. We've been putting in concerted efforts into that. And that's how what you've seen is that in FY '26, we actually won some very good new large ag business awards, which have now started flowing into our P&L. They have also meant that customers are now getting more excited about working us on the large ag opportunities and our focus on growing this segment continues. We are in discussions -- in deep discussions with customers on a multiple number of opportunities in this segment.

And ma'am, my second question is that in the CFM segment, it seems like over the years, our growth has mainly come from OEMs in North America. Even in this quarter, the growth from North America and CFM segment was very strong. But you were mentioning that CFM is doing well in Europe as well. So are they -- like are we in talks with or like do we see some opportunity to break into new OEMs in Europe? Some perspective on that will be useful.

Sure, Anubhav. I think if you look at the top 3 construction equipment suppliers in the world, we actually work with them across geographies and across different product segments. That effort from our side has been growing. Of course, today, as you're coming out of the cycle, there is a little bit of how different geographies and different industry segments are performing impacting what our revenue contribution is looking like. But now coming to our new order wins book, if you see, our new order win book is pretty much similar across Europe and the U.S. So as the cycle follows through and as our new business comes through in our revenue, you should see that playing out in the revenue contribution as well, both from a segment and a geography point of view.

And my last question is...

Sorry to interrupt Mr. Anubhav I would request you to join back the queue as there are several participants waiting for the turn. We take the next question from the line of Resham Jain from VVD Asset Managers.

Congratulations on good set of numbers. So I have one question on the overall capital allocation. Like you have been looking out for inorganic and it's good that you have been very prudent about it. But let's say, if inorganic doesn't happen, then are there any other plans in terms of organic capital allocation in terms of getting into new segments or new areas?

Resham, thank you for that question. Resham, 2.5 years ago, we actually invested in a new facility for small and medium-sized fabrication. This is a business that we are now developing. So the idea really was that while we are waiting for acquisitions to happen, wherever we have the opportunity, can we actually start investing on our own and go to the market to get -- to work with our customers and partner with them more deeply. And I think that actually has worked out quite well because today, on the fabrication space, we are in deep discussion with our OEM customers to be able to now start supplying fabrications to them in addition to PMP and 3PL. I think overall, if you see, even after having done that, today, our CapEx requirements as a business are roughly about 2.5 to 3.5 percentage of our total revenue. That remains fairly constant. And so we have a war chest to be able to help us with acquisitions. And I think we demonstrated that in October 2025 that we gave out a special dividend because at that point in time, we didn't have a line of sight for an investment in an inorganic opportunity. So we said we would return that capital to the shareholders. And I think that capital allocation decisions are constantly mulled at the Board level, considered deeply, and we take the right call that we believe will serve our customers, our employees, our vendors and all our stakeholders.

Okay. So the follow-up question here is on the fabrication business... Don't see that to scale up on a low base over the next few years and becoming a meaningful vertical over the next few years?

We do believe that the fabrication vertical will become a meaningful vertical. In the next 18 to 24 months, we believe this vertical will be a meaningful vertical. But even as this vertical grows, the capital requirement is not going to be to the tune of being able to use our cash balances. When I gave you that 2.5% to 3.5% of capital required, it includes considering all the growth opportunities that we can see inorganic -- sorry, organically across three point linkage, precision machine parts and fabrication and across OEM and after markets.

We take the next question from the line of Nishita Shanklesha from Sapphire Capital.

Am I Audible?

Nishita, your voice is little muffled.

Is it better now?

Yes, please.

So I am joining the call for the first time. So apologies if my question is repetitive. But if you can just reiterate the revenue and margin guidance for next 2 years, that would be great.

So Nishita, what we are saying is that we are coming out -- the industry has seen 3 years of a down cycle. The construction industry started recovering mid of last calendar year, and that is flowing through this year. In that backdrop, what we are saying is FY '26 saw a year-on-year top line increase of 21%. FY '27 will see a top line increase, which is a few percentage points better than that. And as the growth comes through in FY '28, this sort of trajectory of growth should continue. On the margin profile, we say that our trough to peak or peak to trough, our cycle EBITDA margins are about 20%. Given that we are in the recovery mode, we have seen our margins doing better. Last quarter, it was at about 24%. This quarter, it's at about 25%. And that obviously is because operating leverage is now playing in our favor. We also have our channel mix, which is playing. So we deliver to customers. So we make locally and sell locally. We directly export from India, and we also do warehouse sales. So our highest margin is warehouse sales. And as that proportion goes up, our EBITDA goes up, and that's what's been happening in the last few quarters. If you need a little more color on this, the team will really be happy to take you through and explain this to you.

Okay. Okay. Understood. That is great. And just a clarification question. So the capital requirement of 2.5% to 3%, that includes both the inorganic and organic growth opportunities, right?