Release Date: February 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sundaram Fasteners Ltd (BOM:500403, Financial) reported an EBITDA margin expansion from 15% to 17%, driven by favorable raw material prices and effective cost management.
- The company achieved a profit before tax of INR155 crores, up from INR142 crores in the previous year.
- The Chinese venture is performing well, particularly in the passenger vehicles and EV segments, contributing positively to the overall financials.
- The UK venture has also turned around, showing impressive performance despite high interest rates and a slowing truck market.
- Sundaram Fasteners Ltd (BOM:500403) has a strong debt-equity ratio of 0.11, indicating robust financial health.
Negative Points
- Revenues for the quarter were impacted by floods in Chennai, leading to a temporary disruption in operations.
- Exports decreased from INR364 crores to INR339 crores, partly due to the United Auto Workers strike and customer supply chain issues.
- The domestic market growth is expected to be modest, with an overall industry growth of only 3% to 4%, dragged down by the tractor segment.
- The company faced a loss of production worth INR40 crores to INR50 crores due to the floods, affecting the quarterly performance.
- There are ongoing challenges in the export market, including supply chain constraints and geopolitical issues like the Russia-Ukraine war and the Red Sea conflict.
Q & A Highlights
Q: Can you provide the mix for the nine months for our segments, both PV series, and product-wise mix?
A: This is Ganesh here. For the domestic market, the split is as follows: passenger car at 40%, HEV and LCV along with engines at 35%, tractor segment at 10%, and 2-wheeler and 3-wheeler at sub-5%. For OEM, aftermarket, and export mix: OEM is about 60%, retail 10% to 12%, and exports sub-30%.
Q: Can you clarify which products led to better margins and will that continue in the future?
A: The favorable product mix includes highly value-added parts and precision machining parts. The industry is moving towards better finishes, such as zinc-aluminum flake and nickel-chrome flake, which have helped improve margins. Additionally, subcontract costs have been kept under check.
Q: With Euro VI norms, will there be more stainless steel applications versus carbon steel?
A: Yes, stainless steel participation is more in exhaust applications due to Euro VI norms. We have started gaining traction in stainless steel and are moving into critical parts for exhaust applications, which will become significant as we move along.
Q: What is the contribution of the wind energy segment in Q3?
A: The wind energy segment contributes about 12% to 13% of the fastener domain, which is roughly one-third of our revenues. This segment is gaining traction, and we expect around INR30 crores to INR40 crores of revenue contribution for wind in Q4.
Q: How is the outlook for the EV project?
A: The EV project is on track with sample submissions and customer validation. Revenue should kick start in H2 of FY24-25, with an order book standing at around INR4,000 crores over six years.
Q: Can you explain the other income of about INR24 crores this quarter?
A: This represents sales of tools to customers and foreign exchange movements. This income may not be steady every quarter and includes insurance claims related to the flood impact.
Q: How do you see export contributing to our top line in FY25?
A: Exports will traditionally contribute to one-third of our revenues. With the new EV project coming on stream in H2 of next year, we should be back to about 35% to 40% range for FY25.
Q: How should we think of margins over the next year with advanced automotive products?
A: Our margins should improve due to investments in existing units, favorable raw material prices, and contributions from the wind energy and EV businesses. We expect margin expansion in the coming quarters.
Q: What is the impact of the Red Sea-related issue on our export traction?
A: The transit time has increased by two to three weeks, and container costs have gone up, which may put pressure on margins. However, customers have been supportive so far.
Q: How are we targeting to execute the INR4,000 crores order book over six years?
A: We have a firm indication of the life cycle monitoring and capacity requirements. We work ahead to add capacity and ensure smooth takeoff with zero issues. The government’s localization push will also help.
Q: How is the domestic market outlook, especially for CV and tractors?
A: The domestic market growth is expected to be around 3% to 4%, dragged down by the tractor segment. Our revenue growth will be driven by new products, market share gains, and aggressive sales efforts in the commercial segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
