Sundram Fasteners Limited Q1 FY27 Earnings Conference Call

Disclosure Reference: Regulation 30 of SEBI (LODR) Regulations, 2015

Financial Performance Overview

Sundram Fasteners reported strong Q1 FY27 results with consolidated revenue growing 20% Year-on-Year from INR1,367 crores to INR1,618 crores. This growth was achieved across all three key segments: Original Equipment (OE), aftermarket, and exports. At the standalone level, profit grew from INR138 crores to INR150 crores, representing approximately 10% growth, achieved through fixed cost control measures.

Segment-wise Performance

Exports: Demonstrated strong performance with growth in dollar terms. The company reported 13% volume growth in tonnage terms, with raw material inflation contributing INR20-25 crores to the top line. Export revenue share has increased back to 30% of total revenues.

Domestic Business: Grew approximately 16% YoY, matching industry growth rates across most segments including Heavy Commercial Vehicles (matching 20% industry growth), passenger cars (matching 23% industry growth), and tractors (matching 14-15% industry growth).

Subsidiaries: All subsidiaries performed well with China leading due to strong construction and commercial vehicle segments, expected to deliver 20% growth in FY27. UK subsidiary serves European truck market while TVS Upasana serves two-wheeler segment with customers including Bajaj, Royal Enfield and TVS Motors.

Margin Performance and Cost Structure

EBITDA margin stood at 16.1% for the quarter. The company faced margin pressures due to inflation in direct and indirect materials, primarily attributed to West Asia conflict impacting energy-related costs (LPG gas, etc.). The company has pass-through arrangements with domestic OEM customers for direct materials and raises prices in aftermarket segment. For indirect materials, negotiations are ongoing with customers for price compensation. Management expects margins to expand to around 16.5% as these negotiations conclude.

Growth Drivers and Business Development

New Customer Acquisition: The company has added new customers including Hyundai and Kia for fasteners (targeting INR100+ crores business), Garrett Motion for machined parts for turbochargers, and continues to work with ZF. The company has over INR1,000 crores pipeline of new projects with equal magnitude under discussion.

EV Business: Scaling up significantly with General Motors EV business expected to reach INR200-250 crores in FY27 (from less than INR50 crores in FY26), with potential to reach INR750 crores at peak. Stellantis business also showing uptick in ICE and PHEV platforms.

Non-Auto Business Expansion: Pursuing growth in wind energy fasteners, aerospace fasteners, and industrial applications to counter auto cyclicality. Aerospace business targeting INR100+ crores in FY27 (from INR50 crores base) and INR500 crores in 2-3 years. Wind energy fasteners expanding from INR350 crores annualized to INR500 crores with INR100 crores investment.

Capital Allocation and Projects

Capital expenditure of approximately INR400 crores planned for FY27, with 30% for replacement and balance for growth. The company is investing in digital transformation (IoT across all facilities) which has delivered 5-10% productivity improvement and 0.2-0.5% margin improvement. The company continues to scan for inorganic opportunities in Europe to shorten procurement timelines.

Balance Sheet and Working Capital

Debt-equity ratio remains strong at 0.1-0.2. Working capital increase is in line with operations, with inventory and receivable days actually reducing. Cash conversion cycle is expected to stabilize at 140-150 days due to higher export share (30% of revenue) which naturally has longer operating cycles.

Outlook and Guidance

Management expressed strong optimism for Q2 and Q3 outlook. Export demand remains robust particularly in North American class 8 trucks (order levels 20-25% higher YoY, backlogs at 38-month high) driven by construction demand, fleet replacement, and EPA27 norm pre-buying. European market also showing improvement. The company maintains its growth guidance of CV 8%, PV 10%, tractor 7% despite high base effect in H2 FY26.

Risk Factors

Primary risks include raw material cost volatility, though mitigated through pass-through arrangements. Imported machinery procurement is being monitored case-by-case due to West Asia crisis to ensure project timelines are maintained. No significant financing concerns identified.