Sundaram Fasteners Ltd (BOM:500403) (Q2 2027) Earnings Call Highlights: 30% Revenue Surge on ...

Q & A Highlights

Q: With raw material costs rising sharply, how does the pass-through mechanism work with OEMs, and will margins worsen further in Q3? A: CFO R. Dilip Kumar explained that pass-through is an ongoing process, mostly recovered immediately in the OE segment, with some customers now on a one-month indexation lag (down from three months). The brunt of the RM inflation is already reflected in the current period and will not worsen unless steel prices are revised upward again; any lag benefit would only aid Q3. He noted that about 40% of the business (10% aftermarket and 30% exports) felt the RM impact without corresponding compensation, though aftermarket prices were raised prospectively.

Q: Can you quantify the raw material impact on margins and any forex gain for the quarter? A: CFO R. Dilip Kumar stated that the impact of price increases given was about 3.7% of revenues while realization from customers was around 2.5%, leaving roughly a 1% gap, which mathematically caused a contribution/gross margin dip of about 2.5%. On forex, with the rupee in a narrow range, the company recorded about INR 7 crores of exchange gain for the quarter.

Q: What is the outlook on the US EV business and the INR 4,000 crore order book, and when will it flow into revenues? A: Management noted that while the pure EV space remains in a lull phase, the plug-in hybrid and ICE portions of the Stellantis contract have started building with the customer. Revenue from this business, which was about INR 50 crores last year, is expected at INR 150175 crores this year. Peak volumes should give a clearer picture by the second half of next year, and the company is also working with other customers to leverage its investments.

Q: How is Class 8 truck demand shaping up in the US beyond CY26 given the EPA27 pre-buy scenario? A: S. Bharathan, EVP Marketing, said clarity has emerged on EPA27 normsheavy-duty engine life decisions were deferred by three years, emission parts warranty continues at five years/100,000 miles, and only NOx reduction (from 200 to 35 mg) is being enforced with a non-compliance penalty option. The order backlog is well beyond historic levels, with cumulative preliminary orders of 353,000 in the past 12 months and order books full for OEMs. Retail is down 5% year-to-date through September but is hoped to end the year up 35%, with Class 8 projections of 210,000232,000 trucks.

Q: What is driving the strong export growth, and how sustainable is it? A: CFO R. Dilip Kumar attributed the 57% export growth to strong schedules from key customers like Cummins and Navistar, with about 10% helped by rupee weakness and the balance 47% from volumes in dollar terms. Exports, which had dropped to around 25% of revenue due to tariff impacts last year, are back to almost 30% and are high-margin products with over 20% EBITDA. As exports return to over one-third of the book, margin expansion should follow automatically.

Q: Why do cash flows from operations look underwhelming, and is there stress on the balance sheet? A: CFO R. Dilip Kumar assured that cash flows are not stressed. Exports have a long cycle stretching up to nine months, so inventories and receivables have risen in line with activity. There is also a pile-up of GST input credit from raw material procurement at inflated prices, subcontracting operations, and the capital expenditure program. He said the company has sufficient banking limits and expects borrowings to moderate and cash flows to normalize going forward.

Q: What is the outlook for H2 FY27 growth and margins? A: Management stated that H2 should mirror the similar growth seen in H1, with slight improvement across OE, retail, and export segments, and full-year growth expected at almost the same level as H1. On margins, CFO R. Dilip Kumar said margins should definitely expand, driven primarily by a higher share of exports in the revenue book.

Q: How are the China and UK subsidiaries performing? A: Management said the China subsidiary grew 1012% in local currency and 2330% in rupee terms, aided by construction equipment and CV supplies, with strong numbers expected going forward. The UK subsidiary mirrors European truck market growth and posted 20%+ growth in rupee terms despite market uncertainties. Both subsidiaries are profitable and continue to post robust numbers.

Q: What is the traction and investment plan in the non-auto segment (wind, aerospace, railways)? A: Management said the third phase of wind energy investment is ongoing, targeting about INR 500 crores of annual revenue with an investment of INR 7080 crores. Aerospace, which clocked INR 50 crores last year, is targeted at INR 100 crore plus this year, with INR 3040 crores of investment in testing and equipment to reach INR 200 crores next year. Railways is being serviced with existing capacities. Non-auto is now 3537% of the overall business, moving steadily toward the 50% aspiration.

Q: What is the domestic demand outlook by segment for H2? A: S. Bharathan, EVP Marketing, said tractors may see softening in Q3 and moderate Q4 due to base effects and uneven monsoon (IMD forecast of 88112% of normal), though the segment should still be up for the full year. H1 saw MHCV grow 21% and LCV 27%, a combined CV growth of 25%; H2 numbers will be slightly higher than H1 but growth percentages will moderate to mid-teens for CVs, low double-digits for cars and SUVs, and 67% for tractors. Overall domestic performance is seen up 35% in H2.

Q: What is the CapEx outlay for FY27 and FY28? A: CFO R. Dilip Kumar said the FY27 program of INR 400 crores is on course to be completed, with INR 281 crores already spent, and may be only slightly higher depending on customer requirements. FY28 guidance is premature, but the historical broad range of INR 350450 crores should continue

For the complete transcript of the earnings call, please refer to the full earnings call transcript .