Good afternoon, everybody. Thank you very much for joining the earnings call for Q1 FY27.

I will leave the floor open for the questions. Kindly proceed with the questions.

Thank you for the opportunity and congrats on the strong results. Firstly, the standalone powertrain has seen a very strong growth on both revenues and EBIT, if you see YoY.

Can you just help us understand what are key segments and products which are doing well, and how do you see the order book for this segment, and how one should look at the outlook going ahead?

The strong trend is not really a strong trend. I would say that it was a muted trend earlier.

It has come to a normal situation as of now in the Q1, and this is likely to continue—

—sorry, sorry, my bad, standalone aluminum parts. Sorry, my bad, sir.

Aluminum. Aluminum, we are on a growth path, and this growth journey will continue.

The aluminum segment's pace of growth or the absolute growth, and even percentage growth, all of that will beat the other segments, that is clear, because of the massive investments which has gone in the recent past, and there are capacities still coming into place, some capacities have still not matured. That is on a growth path for many more quarters.

Anything specific, which segments particularly in this aluminum, the two-wheeler or what is the other segments—

We are quite balanced. We are four-wheeler heavy, if you look at the revenue portion of it, yes, closely followed by two-wheeler.

I think the further on, both are growing as far as we are concerned, that more new orders are coming in. Some are quick order wins where it'll see the light of the day in a couple of quarters or even in the next financial year.

Some are little long drawn. These orders are in the development stage, which will come into production in FY28 and FY29.

Most of the production is coming in FY29. That will not reflect in the revenue in the coming quarters.

Whatever orders we have taken a few quarters back, some of it is already coming into production as of now.

Got it, sir. Secondly, can you just update further on this Kothavadi plant stationary engine order book from $100 million, which we crossed last quarter?

Just lastly, also on the Sunbeam transformation happening, how do you see the profitability for this entity ahead?

Kothavadi is a foundry, machining is done at I think the parent plant, Arasur, which is the biggest plant. It is split into two, one is the revenue portion coming from the casting side at Kothavadi, one is the machining side coming it from the Arasur plant.

The billing will happen only from the Arasur plant. I would say that I will reiterate that we have targeted $100 million of revenue in '29, we are on track for that.

There is a good glimpse what we are having that in the future, we're starting to get more inquiries. That means what orders or inquiries we're going to get in the next few quarters will see light of the day by FY30, '31, so that can take it beyond the $100 million whatever was initially projected.

As far as now we are concerned, we are now doing a little of the automotive, but mostly on the general engineering castings which are there, which is not significant as of now. If the capacity utilization is under build-up, I would say, we'll have two or three more quarters before we start seeing some revenue trickle in this business.

Just on the Sunbeam side, sir, how do you see the transformation and profitability ahead, sir?

On the Sunbeam side, the restructuring is more or less complete, but some restructuring we have postponed to a few months because of request from customer on this matter, there are exit customers, there are exit parts, where we had to handhold the customer for a couple of quarters more before we are able to exit that. With that, I think by December, I think 90% of the turnaround or the restructuring will be complete.

As we move on quarter-on-quarter, we'll see improved results coming from the current quarter onwards, I would say.

Got it, sir. Thank you so much for the opportunity.

Yes, sir. Good afternoon and thank you for the opportunity.

My first question is regarding this capex that you have announced for the Unit 3 at Hosur. You mentioned that we are at about 85% utilization.

Just trying to understand, we had just started the alloy wheels plant probably a couple of quarters back. Have we reached high utilizations there?

Also, what components are we looking at in this Unit 3?

Yes, the overall in the aluminum segment, the capex are happening across various locations.

Craftsman

as well as in our DRACTION subsidiary. Of course, Sunbeam is not on expansion mode, okay, per se.

Now, coming to the alloy wheel, I think whatever the installed capacity is 5.8 million, and this year, hopefully we'll be touching or crossing 4 million wheels on the current year, that is at the combined plant of Bhiwadi as well as Shoolagiri. We are not putting in capacity there.

Once we see that we are crossing this 80% threshold, we are marginally expanding the capacity. Now the Hosur facility is not for alloy wheel.

It is for the additional high-pressure die casting and to start with, high-pressure die casting only on parts which are for the automotive industry. Can be for two-wheeler, it can be for four-wheeler, but we have run out of space and capacities in our current plants, we are making an enabler.

We will fill in with the customer orders as and when they come. We are seeing good traction on inquiries, and we expect the market to grow, out of capacity, we are proactive to put up capacity.

This capacity also will put up in phases. It is not that we will be doing in one single year.

It will be spilling over to two years, maybe over five, six quarters depending on the need.

Got it. What would be our capex plan for this year, both if you could break it up into standalone and into the subsidiary businesses?

In Sunbeam, it will be maintenance capex and some maybe capacity balance capex, nothing more. In DRACTION, it's quite substantial capex is there.

Of course, the land has been purchased last year itself. This year, when we start with the project, we have a few orders in hand.

Now we have got more orders, and we are seeing also more orders coming in. Some of the orders are start of production in '29, and some are starting in production in 2030 in general.

There will be capacity utilizations, we'll be pacing the capex. It will not be full capex on one year.

If you see more traction coming in from quick-win orders, then we may accelerate the capex. We have to do a wait-and-watch sort of capex.

The approved plan is around ₹430 crore capex for DR.

On Craftsman— The ₹430 is for two-year period, sir, or—

We have taken approval for this year, but I think we'll see whether we'll be spending this year or some of it may spill over to next year. Depends on the demand.

Sure, yeah,

yes, because you cannot really cut off exactly on March 31st. Ongoing capex will not be a cutoff line, really speaking.

Sure. You were mentioning about standalone, sorry.

Standalone, we have been averaging more than ₹1,000 crore, I think, capex,

and

that will continue. Everything depends on the next two quarters, what growth we see on the standalone.

We have shown reasonable growth on Q1, and this growth rate, if the traction continues to grow from Q1 level higher level,

then

we may have to accelerate some of the capex which is meant for last year towards Q4. As of now, we don't see the much need to react very quickly because still we have global problems.

Right.

We are in a wait-to-watch mode.

Got it. Just lastly, material costs have obviously been moving up quite a bit, and probably now we've seen some correction there.

How are we placed in terms of passing through some of these costs that we've already faced last quarter, and how much more is there for us to kind of offset any of these hikes?

This is different for different customers. Yes, some of the customers are fair.

Some of the customers are taking their own time to make this adjustments which is having global. We are confident all customers will need to align to the new reality that this sort of a situation, suppliers have to be fairly compensated for the alloy prices, which should be a pass-through.

Beyond that, I would not like to make any specific observation here.

All right. Thank you, sir.

I'll get back in the queue.

Hi, good evening and thank you for taking my questions. My first question is just around the heavy horsepower engines opportunity.

Related to some of the opportunities you mentioned, you've had more customer inquiries beyond the supplies that you're currently doing, just want to understand typically how long is the sort of prove-out and low volume batch certification time frame, after which you typically get into full production on slightly larger contracts with some of these customers? Just want to understand how long that period is before you could potentially get into full production on some of those customer orders and inquiries that are coming through.

Let us give a number to it on the number of customers we are. These are all large customers.

We have five customers. Four customers, the orders have been received, or five customers' order has to be received.

One customer, we are receiving the order shortly. With the first four customers itself, we have filled in the first $100 million sort of revenue target which we had set up for '29, '30.

This is casting and machining, of course. Two customers, we already started pilot lot machining, and it's being used by our customers for production.

The casting validation is a little longer, we will need for these two products which we are already machining and supplying, which castings coming from across the globe and going back to the customer, we will need another one year to productionize these current parts. I would say 30% of the production will be productionized by FY28 Q4, and another 50% will come into FY29, I would say.

FY30 will be the first year of seeing that full revenue. What comes along the way, since we established communication channels, established the exchange of information with their engineering divisions where a lot of in-house manufacturing has been done, it has been a very difficult long passage to get all the data and the two teams to work together, which we are working for the last 3.5, 4 years now totally.

Now the exchange of information is faster, approvals are getting faster, for the second set of inquiries or the incremental new order wins for new product lines, it will come from the same customers, it will not take the four-year timeline which we initially we have gone through, and already we have almost four years from that time we started, I would say. What we get now, I think within two years it'll come into production, we may see that what new orders we are going to get in the near future will see productionizing by 2030 or 2031 itself.

The biggest challenge about the customers accepting as a supplier, first of all, and because their product quality depends on us, so that phase has been passed, I would say, we have passed that phase. It is more likely that we will accelerate from now on.

Got it, that's helpful. Second question is just related to this same incremental business opportunity on heavy horsepower engines, just want to understand what the typical margin profile and opportunity could be for Craftsman here?

Just clarifying that this is likely to sit within the powertrain segment. Just want to understand relative to the powertrain margins, how the margin profile of this business could shift once it hits steady state?

Is there any startup costs that you think will have to be absorbed before which the margin starts to approach steady state? Just want to understand that aspect as well.

The current EBIT margins of the current powertrain business is having a weightage of more than 70%, 78% on investments made on the conventional powertrain, I would say. The new powertrain weightage or the large stationary engines, the weightage will be lower.

I would not know the exact number, but I'm just giving you an headline, I would say. Frankly speaking, the depreciation is already happening for the large engine investments done.

There is also the costs we are incurring during this development phase, which is already factored in the powertrain results in the last few quarters also. This is, as a percentage, will not increase because what is coming to production in the next few quarters will offset the new incremental developmental cost which will happen for new products which are still not developed yet.

I think the worst part of that is over that we had to absorb some startup costs, which is already in the past history, and our results are in spite of that. We find that the return ratios are in similar lines, but we have to understand when a new capacity is coming up with a larger capacity and capacity utilization is lesser, the EBIT margins may look depressed on that particular portion for some time until capacity utilization and operating leverage sets up.

Our confidence is that the return ratios will be among similar lines of the current powertrain within a couple of years. Today, as it grows, I don't think it's going to distort the powertrain business.

It is in the same business model what we built up. Only thing, we added the casting portion to the business, that is the only change is there.

Got it, that's helpful. Just last question is on the industrial segment, and so a smaller part of the total business for us, but I think this quarter there's been a spike in what the performance has been versus the normal quarterly range we've observed in the recent past.

Just want to understand what are some of the drivers of why the industrial segment has sort of inflected this quarter versus the recent run rates?

Broadly speaking, we have the very long history with the contract manufacturing, that is quite steady. Nothing has much as changed there.

Our product lines, both in the material handling system as well as storage division, they're seeing upswing on demand, I would say. It's not capex-intensive business, as so the operating leverage is helping us to increase the margins.

The capex cycle has started in India, and we are seeing a lot of traction both on the material handling lifting equipment as well as on the storage. Our orders are increasing quarter-on-quarter, I would say.

This will keep the margins intact going forward. This is not a one spike what we see in the industrial engine side.

Got it, that's very helpful. Thank you very much and all the best.

Thank you.

Hi, sir. Just a couple of questions.

One is on Sunbeam, you mentioned that you might give off or discontinue some of the maybe low-margin businesses. Wanted to understand how big is that in terms of scale down, and corollary, what will be the positive impact it will have on your overall Sunbeam margins?

The revenue per se, as we are exiting some of the business, we are replacing some of the business from some other customers directly or indirectly, I would say, with support from the parent company, Craftsman, where we are also overflowing with orders. That way, we are capacities not getting underutilized in general.

The exit sort of a business are legacy businesses, which are more than a decade old or even in some cases two decades old, and some of it is also partly was outsourced to tiny-scale industries. This is where we're exiting.

It is a negative margin profile which these products we are exiting. When you're exiting this, I think surely the margins will pick up with the better operating leverage from new customers which are coming in.

Exit rate, I'm very confident about Q4 mid-teens sort of an EBITDA margin for Sunbeam. I said there is a delay in the exit because we need to handhold or support the customer during the exit period, most customers have requested us.

I think as a matter of goodwill, we stand by them while we exit. Q4, mid-teens will be the margin in line with the Craftsman business.

Revenue, there may be a 10%, 20% sort of a reduction in the top line, but there will be an increase in the gross margin or value addition. That is a realistic situation that the top line is more governed in the current case with aluminum, predominantly aluminum and less of machining and less of value addition.

That profile will change, so that is what also is going to lead to the increased margin expansion.

Understood, sir. Just one more question on the capex.

You listed down capex for each of the entities. Sunbeam, you said maintenance, DRACTION you said ₹430 crore, standalone approximately ₹1,000 crore.

On a consolidated basis for this year, should we work with about ₹1,500 crore of capex, subject to obviously revisions depending on capacity utilization in the second half? For now, 1,500 sounds okay, right, as a sum of the three pieces?

Conservatively, yes. We thought because of Iran crisis, everything will slow down and stop, that was when the capex plans were made.

Suppose this Q2 whatever is going to happen in the Indian market and global market, if we see the same traction going on, manufacturing globally is increasing across the world, I would say, in general. Maybe for different fields and different end-uses, but still if this higher traction going to happen in Q2, Q3, our board will decide in Q3 or in Q4 to increase capex.

We may see at the tail end some revision in capex if things go better than what we expect.

Understood, sir. Thank you, that's all I had.

Thank you.

Hi. Am I audible?

Yes, please. You are audible.

Can I know the current capacity utilization for the business segments?

Yes, powertrain is averaging around 70 odd percent. Of course, in the festive season, it will go beyond 75%, maybe closer to 80%, but that will be for a short period.

After that, again, if the capacity utilization during Q3 will come down, Q4 again it's likely to rise. On an annualized basis, anywhere between 80% is wishful thinking.

I think beyond 75% is very difficult because of the seasonal nature of the business and the risk of stopping customer lines. I would say that we are operating around I think 10% lesser than the optimum capacity.

The 10% hopefully we will able to bridge the gap in this Q2 or Q4 as we stand on the powertrain. Aluminum, we are already operating at more than 80 odd percent, I would say.

Thank you, sir.

Hi, sir. Am I audible?

Yes, please.

Yeah. Sir, just on the confirmation of this heavy HP opportunity, I think 30% will come from FY28 and 50% '29.

Is my understanding correct?

No, FY30 will test that $100 million whatever the first initial target. We may see that increasing if new order wins are there with the same customers and similar product lines where the developmental time and the time for testing is lower.

This revenue will start from FY28, sir, just to understand?

Yes,

FY28.

Now it is FY27, really speaking, it's too small to talk about it. From FY28 onwards, we'll see a decent

number.

Yeah.

Just on the standalone capex, can I know where are we spending this ₹1,000 crore, anything particular?

Oh, okay. That's a very important question.

Just to understand where are we so particular,

yeah,

sorry. See,

let us talk about powertrain and let us also talk about aluminum. The infrastructure required for a new aluminum project is quite high, and also on the powertrain today.

When we go for new locations and new campuses, the base itself is quite high. Two earnings calls away, I think I had mentioned that the land alone for DRACTION plant costed us around ₹150 crore, which is around 50 acres of land.

To put up a basic infrastructure without any production equipment will easily cost another ₹75 to ₹80 crore. When you want to go for a plant of a decent size, not mega size, I think the land and building and infrastructure, the ETP, HTP, the power connections, and the infrastructure there will touch around 150 to 250 depending on the plant size.

Then only comes the production equipment. We have been holding back these sort of activity for a long time.

We are also seeing that just like our customers have been announcing greenfield facilities with 1,500 acres and ₹3,000 crore, ₹20,000 crore, something—

Thank you. Sorry for the disturbance which has happened in the disconnection.

I was just answering on the capex, where the capex is going. Fundamentally, during the IPO, we were around ₹1,500-odd crore only on the revenue side, and when we are quantum growing almost say on revenue, we need more plants, more locations.

Our decision to put up a plant will decide whether the customer is going to support us in the long term, and we have to follow our customers across India. Most of the customers have announced greenfield projects and are looking forward to us also investing.

Any greenfield project, anywhere between ₹100 to ₹250 crore will be the basic infrastructure without the production equipment to have a plant ready in a stock, to accept equipment. Unless we fill up the plant with a decent amount of production capacity, operating leverage will not set in.

That is the reason for the jump in capex, but also we see big increment in the revenue growth. Revenue growth, even after adjusting the aluminum cost, we are seeing higher traction in the growth.

Our return ratios will not get affected even though this capex are took in place, because the base capex is quite high now for gross block and net block. Further on, I think our EBITDA itself will carry the day for us.

Sir,

thanks for the information, sir. Just to understand, this mostly will be towards aluminum side, sir?

No,

it will be for both powertrain and aluminum in the right proportion, depending on the growth opportunities. Powertrain, of course, the stationary engines are a little new, so that there will be some capex.

Yes, there is a foundry also there, so that will take more than 50% of the powertrain. The powertrain per se is a large amount of capacity installed.

You may recall that our depreciation is close to around ₹500 crore now, currently, and to replace those machinery, the replacement costs are high. Even with a lot of planning and a lot of adjustments, reconditioning of old machines, still I think ₹250, ₹300 crore maintenance capex itself is required, as we speak.

You understand that the dollar, euro, all that has undergone change, the same capex is going to be very costly. We did a small exercise for internal and for our board.

We found that the capex what we did in 2016, we want to have the same capacity and exactly put up, the capex is around 5 to 7 times more, because the land has increased 8, 9 times, the construction cost has increased 3, 4 times, all infrastructure cost has increased. Machinery also has more or less in rupee terms close to double, totally over a period of time.

The incremental capex is quite difficult, I would say.

Thank you, sir. Thanks for that.

Just on the capex point, we are saying we are putting ₹1,500 crore, funding should be from internal accruals, sir?

Year after it will be only internal accruals. Of course, the cash mismatch will be there.

See, as I mentioned, there's no ever need to come to the public markets per se, that is clear. At the EBITDA level of whatever we have projected initially on the growth on EBITDA numbers, not the absolute numbers, I don't want to talk about it, but I think it is to keep an good net-debt-to-EBITDA, I think we are on track.

Sir. Last thing on the land, any update, sir?

Yes, it is gaining traction. I think something is happening, I think we are close to signing a deal, I would say.

That's all.

Sir. Thank you, that's it from my side.

Thank you.

Thank you very much for all of you to join the conference. I have some closing remarks.

The capex cycle has started in India, and I think this capex cycle is going to continue quite for a long time, I would say, in general. Not only the OEMs, but also Tier-1, Tier-2 companies.

India is moving towards an manufacturing economy, and I think we have very bright prospects to continue to grow in the coming years. With this closing remarks, I would thank you all once again.