Sundram Fasteners Limited

Financial Performance Highlights

Q2 FY27 Standalone Performance:

  • Revenue: Growth of 30% Year-on-Year (YoY)
  • Exports: Growth of 57% YoY, with 10% attributed to rupee depreciation and 47% to volume/dollar terms
  • Profit Before Tax (PBT): INR 160 crores vs. INR 140 crores in corresponding quarter
  • EBITDA Margin: 15.7%

H1 FY27 Standalone Performance:

  • Revenue: INR 3,254 crores vs. INR 2,605 crores in H1 FY26 (25% growth)
  • Exports: 40% growth
  • EBITDA Margin: 15.9%
  • Profit: INR 311 crores vs. INR 278 crores in H1 FY26

Operational and Market Highlights

Revenue Drivers: Growth primarily driven by strong Original Equipment (OE) segment demand and exceptional export performance to key customers including Cummins and Navistar.

Margin Pressure: EBITDA margins compressed by approximately 300 basis points YoY at contribution level due to:

  • Significant increase in raw material prices (steel, aluminum) continuing from Q1
  • Inflation in indirect materials (stores and tools) attributed to geopolitical conflicts
  • Partial offset through operating leverage (lower fixed costs as % of revenue) and improved asset utilization (lower depreciation as % of revenue)

Margin Outlook: Management expressed confidence in margin expansion driven by:

  • Increasing export share (currently ~30% of revenue, targeting historical level of ~33%)
  • High-margin nature of export products (>20% EBITDA)
  • Expected cooling of raw material prices
  • Internal assessment indicates actual margins are approximately 150 basis points higher than reported when adjusting for raw material price impact

Segment-wise Performance and Outlook

Domestic Market:

  • Strong performance across car and Medium & Heavy Commercial Vehicle (M&HCV) segments
  • Wind energy investments contributing to growth
  • Pass-through arrangements for raw material costs with OEMs, typically with 1-3 month lag
  • Aftermarket prices raised prospectively to compensate for cost increases

Export Market:

  • 57% growth in Q2 FY27
  • Benefit from rupee depreciation
  • No corresponding cost pass-through mechanisms, bearing brunt of raw material inflation
  • Long cycle times (up to 9 months) affecting working capital

Non-Auto Business:

  • Current contribution: 35-37% of revenue (up from historical ~30%)
  • Wind Energy: Third phase of investment ongoing (INR 70-80 crores), targeting INR 500 crores annual revenue
  • Aerospace: FY27 target of INR 100+ crores (vs. INR 50 crores in FY26); additional investments of INR 30-40 crores for testing equipment to reach INR 200 crores capacity
  • Railways: Servicing with existing capacity; no immediate investment plans

Subsidiary Performance:

  • China Subsidiary: Local currency growth of 10-12% (25-30% in INR terms); strong performance in construction equipment and CV segments
  • UK Subsidiary: 20%+ growth in INR terms despite European market uncertainties; profitable operations

Capital Expenditure

  • FY27 Capex: INR 400 crores planned; INR 281 crores already spent in H1
  • Expected to be slightly higher than planned depending on customer requirements
  • FY28 Capex: Indicative range of INR 350-450 crores, similar to historical levels

Cash Flow and Working Capital

  • Cash flows from operations appeared stressed due to:
  • Increased export cycle (up to 9 months)
  • Higher inventories and receivables in line with increased activity
  • Piling up of GST input credit due to procurement at inflated prices
  • Capital expenditure program
  • Management assurance: Sufficient banking limits available; expect borrowings to moderate and cash flows to improve

Demand Outlook

Domestic Demand:

  • Tractors: Expected softening in Q3 FY27 and moderate demand in Q4 due to base effect and uneven monsoon predictions
  • Commercial Vehicles: M&HCV grew 21% and LCV grew 27% in H1 FY27; growth percentages to moderate but absolute numbers to remain higher than H1
  • Cars/SUVs: Entry-level and sedans may face pressure due to rural cash flow issues; growth percentages to moderate to low double digits
  • Overall domestic growth expected to be 3-5% higher in H2 vs. H1

Export Demand (Class 8 Trucks):

  • EPA '27 norms: NOx reduction from 200mg to 35mg per brake horsepower enforced
  • Life of heavy-duty engine warranty postponed by 3 years
  • Emission parts warranty continues at 5 years/100,000 miles
  • OEMs have option to pay non-compliance penalty or produce compliant vehicles
  • Strong backlog: 353,000 preliminary orders in past 12 months
  • Retail sales down 5% year-to-date September but expected to end year up 3-5%
  • Projections: 210,000-232,000 trucks (some holding to initial 232,000 projection)

EV Business (US):

  • Current focus on plug-in hybrid and ICE portions of contracts
  • FY27 target: INR 150-175 crores (vs. INR 50 crores in FY26)
  • Peak volumes expected in second half of FY28
  • Working with other customers to utilize investments

Other Key Metrics

  • Tonnage Volume Growth: Q2 FY27: 15-16% (vs. 13% in Q1 FY27)
  • Foreign Exchange: INR 7 crores gain in Q2 FY27 due to rupee realization
  • Raw Material Impact: Price revisions caused 3.7% of revenue impact; customer recoveries at ~2.5%, creating ~1% gap
  • New Product Development: Internal benchmark of 20% revenue from products developed in current year plus next 3 years; performing to target

Management Commentary

The management expressed optimism about continued strong performance in H2 FY27, expecting similar growth trends as H1. Margin expansion is anticipated from higher export share and potential cooling of raw material prices. The company remains focused on strategic investments in high-growth non-auto segments while maintaining strong relationships with key customers across domestic and export markets.