Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sharda Motor Industries Ltd (BOM:535602, Financial) reported a 5% growth in consolidated revenues for Q1 FY25 compared to Q1 FY24, amounting to INR685 crores.
- The company's gross profit margin expanded to 26.3% in Q1 FY25 from 20.90% in Q1 FY24.
- EBITDA grew by 40% YoY, reaching INR96 crores in Q1 FY25 from INR68 crores in Q1 FY24.
- The EBITDA margin for the quarter increased from 10.4% in Q1 FY24 to 14% in Q1 FY25.
- Profit after tax for Q1 FY25 amounted to INR77 crores, marking a notable growth of 39% compared to Q1 FY24.
Negative Points
- Revenue growth has been sequentially in the range of 4% to 5% over the last few quarters, indicating a potential plateau.
- The company has a high cash balance, raising questions about its capital allocation strategy beyond buybacks.
- There is uncertainty regarding the timing and execution of potential M&A activities, which could impact future growth.
- The TREM5 norms, expected to kick in by April 1, 2026, may delay significant growth in the tractor segment.
- The lightweighting vertical is still in its early stages, and the company has not provided specific guidance on its revenue potential.
Q & A Highlights
Highlights from Sharda Motor Industries Ltd (BOM:535602) Q1 FY25 Earnings Call
Q: We've seen revenue growth in the range of 4% to 5% over the last few quarters. Is this trend expected to continue, or can we expect a boost in revenue?
A: (Aashim Relan, CEO) We focus on absolute gross profit growth as an indicator of value-added sales. Our gross profit growth has been strong, and we expect to continue outperforming the industry in the long term.
Q: With a high cash balance even after the buyback, what is the capital allocation strategy? Are there plans for M&A or special dividends?
A: (Aashim Relan, CEO) Our first preference is M&A focused on powertrain agnostic products, but we are conservative and will wait for the right deal and valuation. We will continue returning excess cash to shareholders through dividends or buybacks.
Q: What is the growth strategy going forward, especially in terms of increasing market share?
A: (Aashim Relan, CEO) Our focus is on the TREM5 market, commercial vehicles, and exports. We expect significant growth in these areas over the next five years. Additionally, we are investing in our lightweighting vertical, with a new plant coming up in Pune.
Q: Can you provide more details on the expected impact of TREM5 norms and the timeline for implementation?
A: (Aashim Relan, CEO) TREM5 norms are set for April 1, 2026. We are on track with product development and expect to see significant market share in this segment.
Q: What is the current status and future outlook for your export business?
A: (Aashim Relan, CEO) Exports currently contribute less than 2% of sales, but we see a huge opportunity, especially in the US and European markets. We are focusing on commercial vehicle emission components, off-highway market adjacencies, small genset emission systems, and smaller tractors.
Q: Are the terms of business in exports as lucrative as the Indian market?
A: (Aashim Relan, CEO) Export margins are higher, but working capital requirements are also higher. Overall, from a return on capital perspective, exports are similar or slightly better than the Indian market.
Q: What is the status of your joint venture with Kinetic on the EV side?
A: (Aashim Relan, CEO) The two-wheeler EV market has evolved, and the attractiveness of battery packs has diminished due to competition and regulatory changes. We remain invested but are cautious about deploying significant capital.
Q: Can you elaborate on the lightweighting vertical and its potential?
A: (Aashim Relan, CEO) Lightweighting is a mega trend for both EVs and ICE vehicles. We are currently focused on control arms and suspension systems, with a new plant coming up in Pune. This vertical has significant growth potential.
Q: What is the expected impact of the CEV5 norms coming in January 2025?
A: (Aashim Relan, CEO) We have business in the CEV market, especially in adjacencies, but it is smaller compared to the tractor and export markets.
Q: What is the market size and opportunity in the 3- to 4-liter engine segment?
A: (Aashim Relan, CEO) We currently have no market share in this segment but have developed the technology and products. The opportunity is significant, and we are looking to capture market share.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
