Ladies and gentlemen, good day and welcome to Sundram Fasteners Limited Q2 FY 2027 earning conference call. As a reminder, all participant lines will be in the listen- only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Krupashankar from Avendus. Thank you, and over to you. Good afternoon, everyone. Appreciate everybody logging in for the conference call of Sundram Fasteners. From the management team, I am pleased to host Mr. Dilip Kumar, Chief Financial Officer, Mr. R Ganesh, Vice President, Finance and Projects, and Mr. S Bharathan, Executive Vice President, Marketing. I now hand over the call to Mr. Dilip Kumar for his opening remarks, after which we will begin the Q&A session. Over to you, sir. Yeah. Good afternoon to all the participants in the call. Welcome to H1 analyst call and w e are happy to inform you that the company has recorded a strong performance, about 30% growth in revenues for Q2, and it has been driven by the OE segment, as most of you may have known or heard about it. The pull has been strong, and the traction has been good and w e have also had a stellar performance in the export segment, where compared to corresponding quarter, we have recorded a 57% growth in exports and o f course, to some extent, about 10% is helped by dollar rupee. Because rupee weakness, the balance of 47% has come in volume terms and dollar terms, where our key customers like Cummins and Navistar have recorded very good revenues and schedules have improved. The raw material cost, as most of you may have known, had increased in Q1, the steel and aluminum prices, and it has continued in Q2 as well, a nd also on the indirect materials like stores and tools, which is a big line item for auto component companies because of the war. We have experienced inflation there also. As Sundram Fasteners generally recovers the RM inflation from the customers we have pass-through arrangements, especially the domestic market, so b ut we have raised the prices in the aftermarket prospectively. Also, in the export market, it is offset by rupee depreciation and a lso when the raw material prices fall, we are not under an obligation to pass back to our customers. But having said all this, the steep increase in RM prices have had an impact notwithstanding the recovery, has had an impact at the contribution level compared to corresponding quarter to almost 3%, b ut we have been able to offset that to some extent by operating leverage. Our fixed costs have been lower and also the asset utilization since it has improved substantially, the depreciation charge, not in terms of absolute amount, but in relation to revenues, have been lower. And we had reported a PBT of INR 160 crore compared to INR 140 crore for the quarter. Likewise, for the half year, INR 3,254 crore of revenues compared to INR 2,605 crore, 25% growth. Again, a strong performance of 40% in exports and the OE business has done well, a nd as I explained for the quarter, the inflationary pressures in Q1 and Q2 on both direct materials and indirect materials have had an effect in our contribution. And likewise, the fixed costs have been lower by almost a percent and the depreciation again has been lower compared to the previous corresponding quarter. And the EBITDA for the half year is just a notch below 16%, 15.9%, and for Q2 it has been 15.7%, b ut I want to assure you that the markets, the customer schedules are strong, which my colleague Bharathan will explain later a nd we are quite excited about the outlook for exports. And as our exports, in fact, had dropped due to a tariff impact last year to around 25% of our total revenues. It is back to almost 30% now a nd these are high margin products which are in excess of 20% EBITDA. So as more exports come into our book and go back to our 1/3, which used to be the case for two years back, and you will see that the margin expansion takes place automatically. And all the steel prices, which went very high post-COVID or during COVID and then was rolled back a nd likewise, now it started inching up. So once the pricing cools off, we will benefit from that also. So basically, the margin drop is more, I would say, a mathematical expression of the RM prices, which are there in the middle line, and the revenues, which are slightly inflated. If you remove that, in fact, and see the margins, of course, we have that information internally, and it is clearly about 1.5% higher than what has been reported as EBITDA. So anyway, the half-yearly performance, we have reported INR 311 crore compared to INR 278 crore, and the outlook continues to remain strong. With this, I will close my opening remarks. We are happy to take 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 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 Lakshminarayanan KG from Tunga Investments. Please go ahead. Yeah. Thank you. Just one question. We see that some of the OEs have reported drastic, actually Indian OEs have reported almost 500 basis points to 400 basis points decline in gross margins due to the material cost. So how does it pass on whether that impact on us will come retrospectively or prospectively? When you go for a pricing increase, do you take it from April 1, or do you actually have it prospectively? This particular thing of 400, 500 basis points decline in gross margin, when it will kind of flow into our thing, whether it will happen next quarter or so, and what time it will become a steady state because you mentioned that we have a mechanism where almost all the material cost will have a catch up and it will be passed through. Right. I just want to understand how to think about it. Second question is that, if you look at the cash flows from operations, there has been a little underwhelming. Is it because of the export being high, or can you just elaborate if you break it down between exports and domestic? Where did you see this particular strain in the cash flows? The last thing I want to understand from the domestic market OE, how does the business mix and which segment is actually propelling growth and which segment you think will actually would be underwhelming for the upcoming financial year? Thank you. Yeah. On the cash flows, which is your second question, the cash flows are not stressed. Yeah, compared to the previous period, when the exports were much lower, the cycle was much shorter. Typically, exports have a very long cycle, can stretch up to nine months. So the inventories have gone up in line with our activity. The receivables have gone up in line with our activity and t here have also been some piling up of input credit because the procurement of raw materials at inflated prices and the CapEx program of the company and typically, we have a lot of subcontracting operations, and therefore, as the material moves out and comes back, there is quite amount of GST input credit, which is piled up in our books. So these are some of the reasons why it appears as stressed, but I just want to assure you that we have sufficient banking limits, and we think, going forward, the borrowings will moderate, and cash flows will improve and come back to normal levels. That is on question number two. On question number one, it is an ongoing exercise where pass-through happens most often immediately, which varies from customer to customer. But in general, we recover the OE segment immediately. In some cases, so depending on the customer, it used to operate with a lag effect of three months. Even that has been corrected now. I think this indexation happens with a one-month lag. And it is not that these are lost because when the prices get corrected, because it happens with a three-month lag, you continue to get the benefit of higher prices from the OEM for aluminum, and then it gets reset only three months later. So it works both ways. While we have got in the OE segment most of the price increase which we have given to the steel mills, but the 40% of our businesss is up 10% is aftermarket and about 30% is export, where we have had the impact of brunt of this RM price increase, but corresponding compensation is not there. Depending on the competitive intensity, we have also raised prices in the aftermarket. So I must tell you that I think with respect to this raw material, it is accounted based on whenever the price settlement happens. So it is not prospective. It is as and when the agreement is reached between the OEM and steel mill. The steel mills also confirms it to us, and then they raise the invoices for the increment RM value. Okay. No, I am just— because last quarter you would have got some benefit of the FIFO inventory, right? Therefore, I was just thinking because the drop in the gross margin for OEs have been very significant. So whether this will actually occur in Q3 or is it already, we have got— It is already there. —the major brunt of it. It is already there. Okay. It is already there in our P&L. Okay. Fair enough. You don't see prospectively, it will not worsen? No. It will not worsen. If at all, like I said, some specific customers, there could be a one-month lag effect. We will only get the benefit of that in Q3. But the brunt is already there in our P&L. Unless— Right. —the RM prices are further revised upwards. Done. To answer your third question. Yeah. And to answer your third question with respect to the domestic, I think the propelling is happening on the car segment and M&HCV as well, and whatever we have invested as part of our wind energy growth, that is also helping, so I would say it's growth on all segments. Got it, sir. Sir, one last thing. If you start of the quarter and also end of the last financial year, you mentioned that you see good buoyancy in your order book and things are getting much better. So when we started this quarter and we have been Q1- Q2 and where we stand now, how things are looking at? Is it looking better than what it was in the start of the year, or how is it? Bharathan? Yeah. Hello, Bharathan? Hello, Mr. Bharathan. I would answer. See, for us, the OEMs in general give a one-month firm schedule and two months indicative for preparing or planning our activities so t hat way, the buoyancy still continues. And irrespective of the segment in the domestic or in exports, continued schedules are available. So that way, I think the sustenance of the turnover at this level, we do not see any number. It's only prospective growth— Got it. —that we are seeing. Okay. Thank you, sir. I'll come back in queue. Thank you. Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Krupashankar from Avendus. Please go ahead. Yeah. Sir, three questions from my side. Just wanted to get a sense of the outlook on the EV business in U.S., if you can share something on that. Any sense of timelines of the INR 4,000 crore order book, which we have. When it will be recorded in the revenues, and anything else which you can share with respect to any incremental orders, sir. I think with respect to the EV orders, while it is still in the lull phase, but as part of the overall contract, whatever we have got in terms of plug-in hybrid and the ICE portion, I think there we have started billing with the customer. So since this business is towards Stellantis, which was last year about INR 50 crore or so, I think this year we are looking at between INR 150 crore-I NR 175 crore, so that way, we are seeing momentum in it. I think with respect to reaching the peak volume, I think it would be by the second half of next year, we should be able to have a clearer picture. But as of now, with respect to the contracts, whatever is related to plug-in hybrid and ICE, I think the billing or activity is happening. That is a positive sign a nd we are also working with other customers in terms of propelling whatever investment that we have made. Understood, sir. Second part on the exports, specifically on the Class 8 demand beyond CY 2026, considering the post the pre-buy scenario coming in. Any conversations you have had with your customers and how they are looking at overall demand shaping up? Any thoughts around that, sir? Sir, just hold on for some time. We will get our Bharathan back on the line. He is the marketing chief. He would be in a better position to answer that. Sure. We will just mark that. Hello. Mr. Bharathan's line was disconnected. I'm trying to reconnect him. Just give me a moment. In the meantime, if you want to answer the question, you can, or I can turn on the music. Yeah. I've clarified saying that we will take that question later. The question is relating to marketing. We'll take it a bit later. Sure. If I may, meanwhile, can I ask on the non-auto segment side of things? Can I go ahead with that question? Okay. Can you repeat that question, please? Sorry. I just wanted to check if, meanwhile, while Mr. Bharathan's line gets connected, can I ask a question on the non-auto segment? Yeah, please. Yeah. Yeah. I just wanted to get a sense around the traction and the targets in the non-auto segment, especially on wind, aerospace, railways, and what would be the quantum of investments you are planning over here? I think with respect to the investments in wind energy, I think the third phase of investment is ongoing. That should see us cross about INR 500 crore of annual revenue with respect to wind energy. I think the investment, whatever we have indicated, was close to about INR 70 crore-INR 80 crore. That is getting executed, and that is on the wind energy side. With respect to aerospace, I think last year, whatever we have clocked at INR 50 crore, and this year we are looking at INR 100 crore plus. There again, we have looked at investments for taking it to the next level of INR 200 crore in the coming years. So there we have looked at investment of about INR 30 crore-INR 40 crore in various testing and other equipment, so that is on the aerospace. With respect to railways, I think for the tenders and orders which we are winning, we have been able to service with the existing capacity so w e have not looked at separate investment for that. But on the whole, with respect to non-auto as a segment, while the aspiration is to look at 50%, I think we have been moving steadily from the earlier years of 30, and this year we have come to 35+, so t here is a positive traction on the non-auto side. Added to further on wind energy and aero is we also service the host of fastener requirement on varied industrial applications through our aftermarket. I think that is also propelling us in terms of our non-auto growth. Got it, sir. Just checking, Sidanth, if Mr. Bharathan has joined the call. Hello. No, Mr. Bharathan is not able to join the call. In the meantime, if you are done with your question, Mr. Krupashankar, I will try to constantly reconnect him on the call itself, okay? We can continue the Q&A if you all want to. No, it is better that we reconnect him right now before moving ahead with the question- and- answer. Sure. Would you like me to turn on the music? Yes, please. Yeah. Just a moment, okay. Bharathan, connect. Hello. Mr. Bharathan's line has been reconnected. Mr. Bharathan, can you please continue? Yeah. Am I audible? Yes, you are audible. Thank you. Yeah. Yeah. Bharathan, there was one question on the export business, especially on the Class 8 demand. Beyond the CY 2026 three bike, how do you expect the demand to improve? Have you had any conversations with your customers on this space? As far as the Class 8 demand is concerned, during the beginning of the year, due to the lack of clarity on the EPA 27 norms, there was a lot of confusion. But overall, a lot of clarity has emerged now, though on the pricing front, there is still some gray area. As far as the EPA 27 norms are concerned, I think there has been a certain deferment of the decision as far as the life of the heavy-duty engine is concerned. I think it has been postponed by three years. And on the emission parts warranty also, they are continuing with the current level of five years and 100,000 mi. Level, and it is only on the NOx reduction from 200 mg per brake horsepower to 35 mg they are enforcing and I think almost all the OEMs have clarity on this. As well as there is a clause on a non-compliance penalty, so i t is a decision that every OEM can take and a buyer can take as to whether to opt for this non-compliance penalty or to go for a compliant vehicle. So to this extent, there is clarity and what indications are there is the backlog in terms of the Class 8 demand is much beyond the historic level. In fact, in the past 12 months, the cumulative preliminary orders have summed up to 353,000 numbers and so t he order book is full for the OEM. And while on the retail front, there has been a 5% drop compared to the last year- to- date September. The hope is that by the end of the year, it will be plus by around 3%- 5% compared to last year. The initial projection of 232,000 trucks for Class 8, while some are holding on to it, some say it will be between around 210- 220. So this is on the Class 8 trucks. So the on-road demand overall is good. That is the message from our customers as well. Understood, sir. Understood. I will call back in a queue. Thank you. Thank you. The next question comes from the line of Gaurav Ashok Bhansali from Augmont Enterprises. Please go ahead. Good afternoon, sir, and congratulations on a good set of numbers. Sir, I wanted to ask, our other expenses have gone up by 32% year-on-year. So what has led to that? The other expenses are in line with the operations. If you see 25% growth for H1 and 33% growth for the quarter, it only reflects the operations. Okay, sir. And earlier we outlined a CapEx outlay of INR 400 crore for the current FY, and we have already done INR 280 crore, INR 281 crore. Is there an increase in CapEx outlay for FY 2027 from the earlier communicated number, and what would the CapEx outlay look like for FY 2028? FY 2027, we are on course to complete the program, and we do not see a. If at all, it may be only slightly on the higher side, depending on customer requirements. As far as FY 2028, it is slightly premature, and as you would have seen in the past, it has been entering around INR 350 crore- INR 450 crore is a broad range. At that level it should continue, but I will be able to give you a better answer after our Q3. Because by then, the business plan for the company would have taken shape. As of now, you can take these as indicative numbers. Okay, sir. On a consolidated level, we grew by 25% versus H1 FY 2026. Will H2 echo the same growth? What should we expect? I am not asking for any guidance, but a rough estimate. Given the current market indications, I think H2 would also mirror similar growth. Okay, sir. Thank you so much. Any guidance on FY 2028? No, it is premature given the volatile situation. Okay, sir. Thank you. Thank you. Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Himanshu Singh from Baroda BNP Paribas Mutual Fund. Please go ahead. Hi, sir. Thank you for the opportunity and congratulations on good set of numbers. Sir, just last quarter you indicated the tonnage volume growth was around 13%. Can you just give the number for this quarter? I think the current quarter mirrors 15%-16% in terms of tonnage. Okay. Sir, last quarter you had highlighted that the run rate of 20% growth should continue for the full year. Now we have grown by almost 32% on the standalone basis, consolidated basis also around more than 30%. So how should we see this growth going ahead, let's say for the full year? I think our 30% indicated Sorry, Bharathan, go ahead. I just want to assure that the growth for the overall year compared to H1 will also be almost at the same level. On all these segments, our business segments of OE retail as well as exports, we are seeing a slight improvement over the H1. Okay. On the margin side, margins have fallen. You also explained it that it is arithmetic, but do you see the 150 basis point coming back in the second half? Yeah, the margin should definitely expand, and that optimism is primarily from the higher share of exports in our revenue book. The margin should expand. Okay. And sir, the non-auto business for this quarter was how much? The non-auto— 37% —as a percentage to overall, hovers between 35%-37%. Okay. Sure. Thank you so much, sir. That's it from my side. Thank you. Thank you. The next question comes from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead. Hi, sir. A huge set of congratulations for— Thank you, sir. —giving me a good set of numbers. My first question is, can you give me some details on how the subsidiaries have performed, especially China and the other one overseas? No, I think with respect to China, while it had grown in terms of the local currency at 10%-12%, in terms of Indian rupees, the overall growth is 25%-30% level and t he activity with respect to China subsidiary has continued to do well on the backdrop of our presence or participation with the construction equipment segment and our supplies to CV. So we see strong numbers going forward with respect to China subsidiary. On the other subsidiary in U.K., it mirrors the truck market growth in Europe because our supplies are to European customers and t here again, in rupee terms, we have posted a 20%+ growth despite the uncertainties in the market. I think both the subsidiaries have done reasonably well. And sir, on the profitability, have we seen improvements for these subsidiaries? Yeah. Both the subsidiaries are profitable and continue to post robust numbers. Okay. Understood. Now, just for the domestic demand that we foresee for the second half, the momentum continues to be the same as first half because we move to a higher base, which is more of an optical phenomenon. But with respect to ground level activity, how do you see that? As far as the domestic demand is concerned, except for the tractor segment where we see some softening of demand is going to happen, especially in Q3, that is this quarter which we are in. Maybe a slightly moderate demand in Q4 due to the base effect as well as the uneven monsoon that is predicted. I think the IMD prediction is somewhere between 88%-112% of the normal average level. So there is some concern on the demand side on the tractor segment, and it is only this segment where we see, in absolute terms, maybe there might be a fall in numbers compared to H1. However, overall, for the year, I think this will also be plus compared to last year, even the tractor segment. Coming to the other segment, say, the M&HCV and the LCV, the first half has done exceedingly well. The M&HCV growing 21% growth and the LCV at 27%. So both together at a commercial vehicle segment at a 25% growth in the H1. While we do not see, because of the high base effect, we do not see a similar growth percentage. The activity levels are not going to be down. The numbers will be slightly higher than the first half. Even in the car and SUV segment, due to the small setback that might be seen in the rural segment because of the uneven monsoon again and the cash flows getting affected due to the agricultural outputs. While the entry-level car and the sedans might face some pressure, we feel that the second half would be slightly down in terms of percentage, but in terms of numbers, it will still be higher than the first half. So overall, while the growth percentages will moderate, maybe to low double digits for cars and SUV and the mid-teens for the commercial vehicles. Tractors will be around less than 10%, maybe 6%, 7%, with a bias towards 5%, say 6%, 7%. Overall, there will be a growth and w e see in all somewhere around 3%-5% up in the domestic performance as well in H2. Sure. This is very detailed understanding. Thank you so much. Lastly, on the new product development or from the perspective of new customer additions, is there anything incremental to add over and above what we have already discussed on the wind side, the aerospace side, or the non-auto side? Anything incremental to add? I think we have covered whatever is the incremental or new businesses which we have been working on. I think nothing more to cover. Sure. Thank you, sir. And all the best. Thank you. Thank you. The next question comes from the line of Lakshminarayanan KG from Tunga Investments. Please go ahead. Yeah, thanks again. Sir, I think somewhere on the call you mentioned that there are material cost increases and there is also indirect cost increases like gas, etc. Can you just quantify as to what percentage of increase you found there in the gas and other fuel costs, which actually has materially picked up, I guess, in the first half, and what that impacted your margins? That is one question. The second question is that, has there been any foreign exchange gain or loss for the first half? And the third, in terms of new product development, is there a metric you actually track, and in that metric, how we have performed? Is there new products or new clients? If you can just give some quantifiable numbers on new product development. These are my three questions. Yeah. I think on the new product, I think we have a benchmark of whatever parts that we have developed in a particular year. And over a period of the development plus the next three years, it should generate a 20% revenue. That is the internal guideline that we use. And as against that, I think we are fairly performing to the target. So that is one of the reasons where you see an uptick in terms of revenue basis, the new products that have been developed over the years. So it is as per plan. That is how I would put it. On IDM and FX gain, our CFO would respond. Sir, on foreign exchange, rupee realization, since rupee has been in a narrow range this quarter, we have certainly benefited. As you know from the accounting status perspective, we accrue the revenues based on the exchange rates prevailing on the date of raising invoice, and subsequently, the exchange difference are adjusted. So it is about INR 7 crore of exchange gain we have recorded for the quarter. On— For the first half? No, this is for the quarter. Quarter. Okay. On the raw material prices, what has happened is that the impact of price revision, which we have given is about 3.7% of the revenues, and the realization from customers have been around 2.5%, roughly. So we have about 1% gap, b ut mathematically, if you add these two in the respective line items, it has caused a dip in the contribution or the gross margin around 2.5%. Got it. Did you also see a significant increase in gas-related costs? There is a lot of sintering which you do, and that would require a substantial amount of gas. So what has been the increase, and can you just quantify that, sir? See, with respect to gas, prior to this geopolitical, I think it was sub INR 100 with respect to either HSD or other petroleum-related products. I think it went to a peak of about INR 200+, and now it has moderated around INR 150. So that way, we have seen more than 100% increase in some of the items, but now it has come down, but still not yet to the pre-March 26 level. And my question is, if you quantify it, because this entire cost increase or the EBITDA margin drop, how much would be on account of this increase, which may look like a one-off thing? So that will be very negligible, sir. The overall scheme of things, it is the raw material prices which cause an impact and t he direct materials, well, they are not significant, but it is not going to materially alter the— Got it. —margin. Yeah. Okay. Thank you. Thank you. Ladies and gentlemen, as there are no further questions, we have reached the end of question- and- answer session and I will hand the conference over to management for closing comments. Thank you, and over to you. There's nothing specific to add. We have answered the questions as it is, and the outlook looks promising. I want to conclude on an optimistic note. Thank you, sir. Thank you. Thank you. On behalf of Avendus, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.