Ladies and gentlemen, good day and welcome to Sundram Fasteners Q1 FY2026 Earnings Conference Call hosted by Avendus Spark Institutional Equities Private Limited. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mukesh Saraf from Avendus Spark Institutional. Thank you, and over to you, sir. Thank you, operator. Good morning, everyone. Mukesh here from Avendus Spark. Appreciate everybody logging in to this first quarter FY2026 earnings call of Sundram 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. Yeah. Thanks, Mukesh, and good morning, and welcome to the Sundram Fasteners Q1 earnings call. So we started off well in the domestic segment, and we had growth slightly higher than the industry across all segments: commercial vehicles, engines, passenger vehicles, tractors—all segments we have performed well. As expected, because of the uncertainty in the overseas markets, exports, we have to see how it evolves in the coming quarters. We have finished the quarter at INR 1,367 crores compared to corresponding revenues of INR 1,212 crores. One of the things which has helped is the performance of the European customers and our invoicing in Europe, and as well as EUR, which have appreciated sharply against the U.S. dollar. We have benefited from foreign exchange movement. Also, the favorable raw material prices, which have remained benign, and thanks to the procurement mix, we've been able to bring the margins, we have been able to reduce the materials cost and up the gross margins. And again, due to favorable product mix, we've had a lower charge on account of stores and tools, as well as subcontract expenditure. And internationally, the freight outward costs have also come down compared to Q1 of last year. And one surprise element for us is our power procurement, again, has been favorable. The renewable energy mix has increased, and it is also cost-competitive for us. And after accounting for fixed expenses increase on account of salary revision, we have reported an EBITDA of INR 238 crores at 17.5% compared to 17% for Q1 of last year and 15.6% for Q4. The borrowings are also showing a declining trend, and not only the borrowing, the working capital components as well. The receivables are well under control, so are inventories, and we expect the capital expenditure to be around INR 300 crores this year, and we have reported a PBT of INR 186 crores, which is the highest for us, and also profit after tax of INR 138 crores, which is again the highest for the quarter, and like I said, all the balance sheet parameters are looking up, including the asset turns. Both gross asset turns and net asset turns have moved up, and the outlook, we are reasonably positive for Q2, and on the questions which may come relating to the tariff, I think most of the customers have been supportive, and we've been able to negotiate and receive reimbursements from all our customers. So we are not seeing any challenge on that front. And with these opening remarks, we are open to now questions. Thank you. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rushabh Shah from Awriga Capital. Please go ahead. Thanks for the opportunity. My first question is, how big is aftermarket an opportunity for us, and what proportion of our business comes from aftermarket? Good morning. The aftermarket business for Sundram overall is around 12%-13%. And that business, we have been steadily growing, serving the auto segment as well as the industrial segment. We see good headroom for growth in that segment, which we have been pursuing for the last three to five years. So in the automotive or the industrial segment, which is a bigger opportunity for us in the aftermarket? Is it 12%-13% you said? So industrial segment, we see across various segments. When I mean industrial segment, we serve, say, for example, the steel industry, the cement industry. So it covers a host of industries, which are machine tool manufacturers. So there we see a large headroom for further growth. Any steps are we taking to make this 12%-13% aftermarket business a bigger segment, a bigger portion of revenue for us in going ahead for the next four to five years? There is a constant endeavor, but these percentages or proportions may remain somewhere between 10%-15%. As you know, the automotive carbon business is relationship-based, and we have our commitments to the OE segment in the domestic market and our export customers. So we will be able to participate in the market, but my sense is that our proportion of the retail in the overall scheme of things may remain between these levels. Okay. So my next question is on the export market. How is that working out for us, sir? Can you give some view? I think currently the export market is. Hello? Hello? Hello? Yeah. Yes. Currently, the export market is a bit hazy. I think things are not clear. If you take North America, there's a lot of confusion regarding the emission norms that are to kick in, EPA 27 norms that are to kick in in 2027. And also, these tariff-related issues have created a demand slump in North America with some of our major customers, while some are holding on. And on the Europe side, I think we are doing slightly better. It's not as confusing as it. And Europe has also improved over the past couple of years compared to what it was two years back. I think the situation in Europe is panning out much better. So overall, I would say we are slightly down or on par with what we were last year. And hoping to improve by the Q4 of this year, that is post-October, the third quarter of this year, we see improvement. And the various subsegments in North America are also indicating that the improvements might come toward the end of the year. Okay, so my last question is, what other key risks do you see in a business like Sundram Fasteners? Can you repeat that? Key risks. Key risks. So the risks, at this point in time, we have made investments in our creating additional capacity, and we want full utilization of the asset terms to improve. And so we expect the export market schedules to improve for some of our parts, especially hybrid vehicles for our overseas customers in Q2, our Q2, and for our parts, electric vehicles to improve from Q4. And so the markets, even overseas markets, the demand pattern is not clear. It's a one way. So that export market, I would think, as our primary from this perspective, as the issue. All right. Thank you. I'll get back in with you. Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead. Yeah. Good morning, sir. And good to see the beat on the domestic side of the business. And thank you for the opportunity. First question, sir, if you can explain what's been working for us that we've delivered this outperformance on the domestic market? On the domestic market, first, our coverage is much higher. Whether it is the heavy commercial, medium commercial, light commercial, engines, passenger cars, or tractors, I think our coverage is quite big. We are participating with almost the entire industry, and almost with all our customers, we are the major stakeholders in terms of share of business. We are a major stakeholder, and when it comes to specific segments, say, for example, in the medium and high commercial, the shift to the higher-tonnage vehicles and multi-axle vehicles has helped us in the sense that our participation has become much higher, and the pack value of our parts has improved. Similarly, in the tractor segment also, the shift towards the higher HP, higher horsepower tractors has helped us in the sense that we have been the first to develop parts for this industry in this segment. And it has also helped us by way of share increase and more penetration in those segments. Same is the case with the SUV improvement, which is now 66% of the passenger car segment. There also, our participation with the SUVs has helped us. So overall, we are progressing with the industry, and we are slightly outperforming the industry because of our increased participation and share. This you said only for Fasteners or across components? Across the company for all our product groups. Okay. Secondly, sir, any kind of update or clarity on how do we see the production schedules picking up for the EV order that we've got from the American customer? On the EV orders, I think there has been a further shift in terms of Stellantis, one of our major customers. We see the EV and the EV vehicles getting shifted by one more quarter. And earlier, it was supposed to be from July, but then it's going to the end of the year. And while on the GM front, I think since they introduced the vehicles much earlier, a couple of years back, it's steady. Though it's not as per the indicative schedules, the GM EV program is going on, and we are on track with that. For the GM side, are we aiming for some INR 150-200 crores of revenue this year, or could it be lower? It will be upwards of INR 250 crores for General Motors as an individual customer. So specifically for the EV orders, the new orders that we got, I'm asking about that, not the whole business that we do with GM? I think the EV order with GM depends on the pull with respect to the specific customer. There we are meeting the required volumes in full. So that is how I would put it. Because the contract or order creation of capacity is for X level. But they have settled down, and based on the demand pull, we are servicing the customer's requirements. So fair to assume that it will take two to three years to reach the optimum annual run rate? Yeah. I think. For the EV order? One to one and a half years. That is how I would put it. Because last year, they had some technical glitches, supply chain issues. I think GM has addressed all of them, so I think it is on its course, and by next year, same time, they should be at the full house. Yeah. Again, our capacities are well established, and depending on what the customer wants, and depending on the market consumer preferences in the U.S., if the demand is for ICE vehicles, we are happy to supply, and if the demand is for plug-in hybrid, we are there. If it is EV, we are there, so we have no choice in terms of controlling that, but depending on the consumer preference, we are well positioned. Got it. Got it, and just two more questions. One, we alluded in the opening remarks that the product mix was better. Can you throw some more light on that? I mean, which components or how do you define that improved product mix? Again, as I said in my response to your earlier question, this higher-tonnage, the required. Higher-tonnage. Okay. Vehicles are on the higher-tonnage, and the SUVs and the high HP tractors, these give us a. These are the reasons. Okay. Advantage compared to the normal mix. Got it. The normal mix, wind and the fasteners, compared to the last year, same quarter, I think with the added capacity which has come on stream, that has also helped in generating additional revenue from that segment. Got it. Got it. And lastly, sir, what will be the proportion of the power that we are generating from renewables right now versus, say, a year back? Renewable energy, it's about 51%-52%, and we are aiming for the year at 55% plus. 55% plus. Yes. Yes. What was this number last year, sir? Last year, we closed at around 51%. Today, we are hovering at 52%. I think with the additional inflow of renewable energy, which generally kicks in from July, so we should see better numbers. Got it. That some of our plants, four of them are located outside Tamil Nadu, where the renewable energy policy is not well established. So therefore, 98% of the procurement in non-Tamil Nadu, outside Tamil Nadu, is from the grid, where the power cost is very high. So maybe roughly around 75% of our revenues or production is from Tamil Nadu. Therefore, you have to see this 55 or 60% in the context of 75%. Sure. Got it, sir. Got it. Thank you. Thank you so much. Thank you. Before we take the next question, we would like to remind participants, you may press star and one to ask a question. The next question is from the line of Nihar Shah from Ikigai Asset Manager. Please go ahead. Yeah. Thank you for giving me the opportunity. My question is on the growth. Can you just help us understand from where we are in the next couple of years, how you are seeing growth coming back, and what are the drivers both on non-auto as well as auto side? The order is taking time to ramp up. We have capacity that we have utilized. Sorry to interrupt. Mr. Nihar, can you please bring your device closer to you and speak louder? Yeah. It's very close. Yeah. Can you hear me now? Yes. Now it's better. Yeah. No. So from a growth side, sir, can you help us understand from both the US ramp-up on the auto side and on the non-industrial side, how should we look at growth coming back? And if you can help us quantify on the non-auto side, how is the growth spanning out from both defense, aerospace, railways, and the other industrial side? So that will be helpful because growth has been a little subdued as we speak over the last few years. Yeah. Let's start with the domestic front. If we look at the auto, I think we are currently outperforming the auto segment. And also, that has been our own. Even earlier, we've been doing this, and we are participating in all the new platforms, and we are there. As far as the non-auto side in the domestic is concerned, I think wind energy, we started quite some years back. And last year and this year, we've seen good push in the wind energy segment, and the growth, it has aided our growth. And we are participating in all the new platforms as far as the EV segment is concerned. Though it is a bit early today in India, we are there. In many of our product lines, we are there. Similarly, on the railways also, we made forays. It's still early days, but still on railways and also as defense, we are looking at good opportunities coming our way. And we have a roadmap for that, which will definitely help achieve our better mix in terms of the auto, non-auto mix that we are targeting. And coming to the retail segment, as explained by Mr. Ganesh also earlier, the industrial segment, we have huge headroom and. Hello? I think we have lost them. Hello? Yeah. I think we have lost them. Just a second. I'm connecting them back. Ladies and gentlemen, the line for the management is on hold. Please wait while we reconnect them. Ladies and gentlemen, thank you for being on hold. The line for management is now reconnected. Thank you. And over to you, sir. Thank you. I think I have explained the domestic only actions that are in place for the growth. I'll now continue with the actions on the retail side, wherein we are constantly looking at range improvement and also diversification, plus continuous dealer onboarding by all our teams on the ground, and as I said, in the industrial segment, we have good headroom, and we are looking at all opportunities to leverage on that, and on the export side, while the scene looks a bit muted now, we are ready with all the new platforms with all our OEMs, with the current OEMs that we are participating with, and so going forward, we should be seeing good opportunities. Other than that, we are also looking at increasing our customer base in the regions of not only North America, but diversifying it with other geographies in Europe and other places. So I think overall, we are trying to diversify in terms of geography, in terms of products, and in terms of ranges. This is what we are looking at from a growth perspective. On the wind energy portion, while you had asked for growth drivers, while the initial phase of expansion was over, which has helped us to move from INR 200-odd crores per annum to now INR 350-plus crores, I think we are in for the third phase of expansion, where already we have committed INR 75 crore plus with respect to the expansion. So I think that will help the wind energy segment to grow. And with respect to railways and defense, while we have been supplying, I think it's still more in the startup phase, and probably in the next two to three years, it should help in adding a sizable amount of revenue. In terms of the aerospace, while we were doing, say, $2-$3 million, I think with the drive and presence in the aerospace segment, and where we have also got accreditation from Nadcap, that has helped us in terms of moving it to, say, $6-$7 million. So we are working in that direction, and we should see that growing to INR 100 crore plus in the next two to three years. These are the growth drivers we are working on. Great. Thank you. Thank you. And quite helpful. And just quickly, this quarter was just 2.5% top-line growth. For the whole year, what's your sense? Should we move into double digits, or what's the outlook of the remainder of the year? You know, we have reported 4% growth in Q1, and largely arising out of the domestic market. But should the exports also revive and conditions improve, definitely 8%-9% is the direction. For the whole year? For the whole year, yes. Thank you, and all the best. Thank you. Thank you. A reminder to participants, if you wish to ask a question, you may press star and one on your touch-tone phone. The next question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead. Yes, I'll just ask a couple of questions until we have people in the queue. First up, sir, you had mentioned about tariffs and the fact that most of the customers have been accommodative. But could you give some more sense? Are there any customers where we have to bear some portion of the tariff? Could you just give more color on that, sir? No. At this point in time, there are no cases where we've been asked to bear. And customers have been supportive. And while understandably, they are not giving a clear commitment in terms of saying that they will bear 100%. The position also keeps changing depending on the situation emerging there month on month. But in Q1, so far, we have been good with all our customers. Understood. Understood. And also, you had mentioned about Europe. I think historically, Europe was not a large portion of our overall exports. Any sense, what is it now? I mean, how much of our overall exports is now non-U.S.? So with respect to Europe, Mukesh, it would be about 15% of our overall exports. And the U.K. would be another 5%. So between the larger Europe combining with U.K., we should be looking at more 20%. Okay. And are we kind of in terms of looking at further new business here, specifically from Europe, U.K., these kind of geographies as a longer-term goal? Are we seeing any traction there? There's also the U.K. FTA. So any clarity or any visibility there that this business could grow significantly for us? Yeah. See, as far as the UK FTA is concerned, I think it's too early to talk on that. But definitely, we see opportunities there. I don't discount that. But on Europe side, yes, we are looking at new customers and expansion in our Europe geography. Okay. But it's not—I mean, this year, is it like a near-term benefit they can see, or is it more longer-term? I would say it is medium-term because given the nature of our products, the time to start up production from the development, from the word go, is a bit high, as you know. So I think it would be. I would call it a medium-term and a sustainable. Sure. Understood. And on the domestic business, I think in one of the answers you had mentioned about product mix being better and the fact that we are also now with more SUVs vis-à-vis historically being with more hatchbacks. So is this a trend we can expect to continue? And the reason I'm asking is in the last couple of years, we have underperformed the domestic market. This quarter, we have started outperforming it. So should we say that some of your efforts are already yielding results, and from here on, we can continue to outperform the domestic market with more SUVs and maybe more business with some of the customers which are seeing growing market share? Yes, Mukesh. That is our sense too. Yeah. Okay. So we can expect this to continue. We can expect this to continue where the industry shifts towards the higher-end in all the subsegments, so we hope to make benefits of that. Understood, and in continuation with domestic business itself, we are also seeing a lot of domestic OEMs launching EVs: Mahindra, Tata, Hyundai, all of them, so because we already have some of these products on the shafts and on the differentials, etc., are we seeing any traction in terms of supplying these driveline products for domestic passenger vehicle EVs as well? Yes. I think in quite a few of our product ranges, we are looking at opportunities in EVs where the product nature is also not very much different from that needed for the IC engines. And in some product ranges where it has to be distinctly different, also we are working, but that is a bit of a slower process. Got it. Got it. Understood. So I'll get back in the queue. I think we have one more person in the queue. Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead. Yeah. Thank you for the opportunity again. My question was largely on the margin front. So I appreciate the reasons that you've highlighted in the opening remark for better margins also this year. But I wanted to understand what would be those factors that will help us reach that 17%-18% mark that we used to have, say, a couple of years back? Do we still believe that we can reach that mark in, say, a year or two? And what will be the factors contributing to that? Once the traction improves in the export segment and where the realizations have been historically higher, the margins will definitely grow. The second factor for margin expansion is the stability or further reduction in raw material prices, and as we have said several times, the raw material prices, especially steel rods and bars which were around INR 45,000-INR 50,000 two years back, had moved up to INR 85,000-INR 90,000, and now they have stabilized around INR 70,000, so until they roll back, this further expansion is unlikely. The third driver is, of course, the operational efficiency, which is our constant endeavor with yield improvements and changing the procurement mix, depending on the segment mix also. As we sell more in the aftermarket, the cost of raw material tends to be lower. And also, again, depending on the product mix, the indirect material and the subcontracting operations may also undergo a change depending on the product actually. So there are many considerations. So operationally, we have room for margin expansion and the revival of the exports. The one significant piece is, of course, the raw material cost, which I explained. So these are the three drivers. And getting back to 19% or 19.5% may be a challenge, but definitely, there is room for another 1% up. Thank you, sir. And thank you, sir, that's good. Secondly, sir, on the other income, we have a big number this quarter. So if you can help me understand, is it what is the composition over there, and is it something which is a little one-off or, I mean, one-off in the sense not recurring? Yeah. Partly, yes. There have been settlements towards insurance claims. And also, the higher realization from our euro revenues and GBP revenues may not be there in subsequent quarters. But having said that, the euro-INR and GBP-INR are steadily weak, and our revenues are accruing at the current level. So there may be a bit of pressure, but not as high as what we report. Got it, sir. And I believe the program that you had on CapEx is something that will maybe end this year or partly next year. So FY 2028, do we see any major CapEx, or would it be largely maintenance? No. We will have growth. It's a combination of both. Typically, we have seen from experience about 25% of our capital expenditure replacement. So that will continue, and selectively, for specific customer requirements, we expand capacity over. Sure, sir. Thank you so much, sir. Thank you. The next question is from the line of Nihar Shah from Ikigai Asset Manager. Please go ahead. Hi, sir. Thanks for the opportunity. Just continuing on the previous question on the margins front, we've kind of gone back to closer to the 60% gross margin that we used to do a couple of years back. But there seems to be a drag in terms of our operating structure. I know while you mentioned that we are kind of focusing on operational efficiency and yield improvement. Could you just call out the factor which is leading to this deterioration of cost structure between gross margin and EBITDA? So between gross margin and EBITDA, we have three or four major elements. The stores and tools, our indirect materials, which is a major component. Subcontract expenditure is another major component. And we have repairs and maintenance. We have power cost and freight cost. Like I explained, the repairs and maintenance have been a bit lower this quarter because sometimes these are need-based. And apart from routine maintenance, some of the overhaul or inspections may not happen every quarter unless there is a need, which was there in Q4, and it is not there now. And like I explained, the international freight cost compared to June 2024 have dropped by more than $1,000 if you are exporting from Chennai to Michigan. And also, the favorable supply of renewable energy in the power exchange this year, hydropower supply has increased. Therefore, the costs have fallen in the exchange. So all of this has helped. And apart from this, the product mix has played a role in lower consumption of indirect materials and our subcontracting operations. So all this has helped to expand the margin of the contribution level. And our fixed costs have remained fairly stable. And whatever expansion in the contribution level which we have seen have completely passed through to the EBITDA. Okay. Because if I just compare it to your performance last year or even the same time last year, the same quarter, while we've seen improvement in gross margins this quarter, that doesn't seem to be flowing through to the EBITDA. And we've had the benefit of better freight rates. Can you speak a bit louder or come near the speaker? We're not able to hear you. Hello? Yeah. So while we've seen benefits on freight and, like you mentioned, on power as well, the benefits of improvement in gross margins aren't seeming to flow through to EBITDA. So just was wondering if there is anything that is a drag in case in the cost structure here? I think specifically, like I explained, the contribution as far as which we were not able to see probably for the financial sense has improved by 2%. And that is the improvement we are seeing in EBITDA compared to Q4. I'm comparing it with Q4, not corresponding. Okay. Sure. All right. Thank you. Thank you. As there are no further questions, I now hand over the conference to management for closing comments. Yes. No further comments. Nothing specific. Thank you. On behalf of Avendus Spark Institutional Equities Private Limited, concludes this conference. Thank you for joining us. Now you may disconnect your lines.