Sundram Fasteners Ltd (SUNDRMFAST) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Sundram Fasteners Limited Q2 FY27 earnings 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 sorry, after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kripashankar from Avendus. Thank you and over to you.
Kripashankar (Avendus): Thank 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. Baradhan, 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.
Dilip Kumar (Sundram Fasteners Ltd): Yeah. Good afternoon to all the participants in the call. Welcome to H1 analyst call and we're happy to inform you that company has recorded a strong performance, about 30% growth in revenues for Q2. And it's 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 we have also had a stellar performance in the export segment where compared to corresponding quarter, we have recorded 57% growth in exports. And, of course, to some extent about 10% is helped by dollar-rupee, and because of rupee weakness. The balance 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, and because of the and 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. And as Sundram Fasteners generally recovers the RM inflation from the customers, we have pass-through arrangements, especially in the domestic market, but we have raised the prices in the aftermarket prospectively. Also the in the export market, it is offset by rupee depreciation and also when 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, almost 3%. But we've 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 in not in terms of absolute amount, but in relation to revenues have been lower. And we had reported a PBT of 160 crores compared to 140 crores for the quarter. Likewise in the for the half year, 3,254 crores of revenues compared to 2,605, 25% growth. Again, a strong performance of 40% in exports. And the OE business has done well. And as I explained for the quarter, the inflationary pressures in Q1 and Q2 on both indirect materials and direct materials have had an effect in our contribution. And likewise, the fixed costs have been lower by almost 1%. And the depreciation again has been lower compared to last the previous quarter, corresponding quarter. And the EBITDA
Dilip Kumar (Sundram Fasteners Ltd): for the half year just notch below 16%, 15.9% and for the Q2, it has been 15.7%. But, I want to assure you that the markets the customer schedules are strong, which my colleague Barathan will explain later. And, we are quite excited about the outlook for exports, and as if our exports in fact had dropped due to a tariff when other impact due to last year to around 25% of the total revenues. It's back to almost 30% now. And, and this these are high margin products, and which are in the, you know, in the in excess of 20% EBITDA. So as more exports come into our book and go back to our 1/3rd, which which used to be the case, about two years back, and you will see that the margin expansion takes place automatically, and/or the steel prices, which went very high post COVID or during COVID, and then was rolled back and likewise now it started inching up. So, once it the pricing cools off, hey you will, we will benefit from that also. So, basically the margin drop is more a I would say a mathematical expression of the RM prices, which are there in the middle line and the revenues which are which are slightly inflated. If you remove that impact and see the margins. Of course, we have that information internally and it is clearly about 1.5% higher than the what has been reported as EBITDA. So, anyway, the half-yearly performance, we have reported ₹311 crores compared to ₹278 crores and the outlook continues to remain strong. With this, I will close my opening remarks. We're happy to take questions. Thank you.
Moderator: 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 touchtone 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.
Lakshminarayanan KG (Tunga Investments): Yeah. Thank you. Just one question. So, 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 in in gross margin which is in the material cost. So, how does it pass on, whether that impact on us will come retrospectively or prospectively? I mean when when you when you go for a pricing increase do you take it from April 1, or do you actually have it prospectively? And, this particular thing of 400-500 basis points decline in gross margin, when it will kind of flow into our thing, whether, you know, it will happen next quarter or so and when when what time it will become a steady state? Because you mentioned that there is a, we have a mechanism where almost all the material cost will 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 you know, little underwhelming. Is it because of the export being high, or can you just elaborate if you break it down between exports and domestic, why do you where did you see this particular strain in the cash flows? And 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 will actually would be under underwhelming for the upcoming financial year? Thank you.
Dilip Kumar (Sundram Fasteners Ltd): Yeah. 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 the activity. And, there have also been
Dilip Kumar (Sundram Fasteners Ltd): and typically we have a lot of subcontracting operations, and therefore, as the material moves out and comes back, there is quite a amount of GST input credit, which is piled up in our books. So, these are some of the reasons why it appears as a stress, but I can just want to assure you that we have sufficient banking limits, and we are and we think going forward, the, 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, the OE segment immediately, and the in some cases, it's, depending on the customer, it used to operate with a lag effect of three months. And even that has been corrected now. I think these, 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 the 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, and the while we have got in the OE segment most of the price increases which we have given to the steel mills, but the 40% of our business is, you know, 10% is aftermarket and about 30% is export where we have felt the benefit of where we have had the impact of brunt of this RM price increase, but corresponding compensation is not there. And depending on the competitive intensity, we have also raised prices in the aftermarket. So, I must tell you that
R. Ganesh (Sundram Fasteners Ltd): Yeah. So, I think with respect to this raw material, it's accounted based on whenever the price settlement happens. So, it's not prospective. It's 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 invoices for the increment RM value.
Lakshminarayanan KG (Tunga Investments): Okay. Okay. No, I'm I'm just because the last quarter we have got some benefit of the FIFO inventory, right? Therefore, I was just thinking because the the drop in the gross margin for OEs have been very significant. So, whether this will actually occur in Q3, or is it already you know we have got It's already the major brunt of it
Dilip Kumar (Sundram Fasteners Ltd): is already there. It is already there in our P&L.
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