Sandhar Technologies Ltd

NSE:SANDHAR

Q2-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to Sandhar Technologies Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Jain from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

[Chirag Jain, analyst]

Thank you, Hamshad. Good morning, everyone. On behalf of Emkay Global Financial Services, I would like to welcome you all to the 2Q FY '26 Earnings Conference Call of Sandhar Technologies Limited. Today, we have with us from the management team, Mr. Jayant Davar, Chairman, Managing Director and CEO; Mr. Neel Jay Davar, Director; Mr. Gurvinder Jeet Singh, Whole Time Director and Head of Corporate Strategy; and Mr. Yashpal Jain, Chief Financial Officer and Company Secretary. We'll begin the call with opening comments from the management team, followed by a Q&A session. Over to you, Mr. Davar.

[Jayant Davar, executive]

Thank you, Chirag, and thank you, Hamshad, for putting this call together. Thank you to all the investors who've joined early this morning. Let me begin by, first of all, saying that the auto industry -- the domestic auto industry grew by about 6.1% in quarter 2 of 2026, out of which the 2-wheeler segment has grown by 7.4%. The passenger vehicle segment growth -- actually witnessed a degrowth of 1.5%. In terms of how Sandhar has built on this, if you look at -- I'm going to divide this into 3 different parts. One is the Sandhar India business growth, where our revenue from operations have grown by 33%, the operational EBITDA grew by 24%, operational EBT grew by 33% and operational PAT grew by 28%.

In terms of our overseas business, if I look at it from quarter-to-quarter, the revenue of operations grew by 2%. Operational EBITDA is down by 12%. Operational EBT is down by 29%. But you have to keep into context, this was actually, as I had mentioned in the previous calls in the last quarter, if you compare it on quarter 1 basis, our losses have dropped by half, and we are very, very confident that the next half of the year will bring it back on its own to feet the way we had promised it would be.

If you look at Sandhar's consolidated business growth, our revenue from operations grew by 29%, operational EBITDA by 19%, EBT by 32% and operational PAT by 15%. In terms of our joint ventures, I'm very happy to announce, as I had in the past as well, all the 5 joint ventures have performed satisfactorily, registering a revenue of 68.57%. This is, of course, calculated on the basis of 50% of our partnership. And all of them are now PAT positive, and they are on a strong growth and recovery path.

We are constantly watching the performance and taking all necessary steps in collaboration with our joint venture partners for sustained growth and profitability. In terms of EV, the company started commercial invoicing of battery chargers and motor controllers, while the pilot lot of DC-DC converters is getting positive response from the market. The customer base is gradually increasing with more customers being added, and we generated a revenue of [ INR 6.94 crores ] in the first half of the current financial year, and we expect to do a business of around INR 15 crores for this financial year.

What I'm also happy to announce is that the auto industry per se seems to be on a good trend right now. I do believe that the second half of the year, as always, will be stronger. The lucky thing is that even in the case of December -- November and December, because of the festive season, the elongated festive season, our order books are extremely strong. So we do expect a strong third quarter and of course, as always, a very, very strong quarter 4.

With that, let me open it up for questions. We have -- on the call, like Chirag mentioned, we have GJ, Neel and Mr. Yashpal Jain, our CFO, who will answer all your questions from the financial perspective in a more detailed manner than I possibly can. So thank you. With that, I'm open to questions and answers. Thank you all very much once again for joining.

[Operator]

[Operator Instructions] The first question is from the line of AM Lodha from Sanmati Consultants.

[AM Lodha, analyst]

Sir, my question is that, sir, in first half -- you kindly refer to your presentation table 5. First half sales have grown from 25% -- 24% from INR 1,896 crores to INR 236 crores -- INR 2,360 crores, whereas EBITDA is down from -- EBITDA has been down from 9.7% to 8.5% -- EBITDA is down from 9.7% to 8.5% and the PAT also down from 3.2% to 2.3%. In spite of increase in sales by 24%, what may be the reason for the fall in EBITDA and PAT percentage?

[Jayant Davar, executive]

Okay. Thank you, Mr. Lodha, for that question. I'm glad you asked that question. If I compare quarter 2 of '26 with quarter 2 of '25, there are some exceptional items. One is the impact of the new projects. You know that we had bought over the unit of Sundaram-Clayton, and we had put up Pune and South India new projects, which have resulted in a negative case scenario or impact of 8.07% on EBITDA margins. And the other thing is the machining business, which also cost us INR 3.14 crores.

In all, the total impact on the profitability has been INR 11.21 crores. And if you were to normalize this, sir, then our EBITDA margin is 10.44% compared to what you see. So if I look at it, the new businesses of -- you are aware that Sundaram-Clayton is a business which is -- which we've just taken over. We are in the process of moving it into our new facility. And obviously, it is not generating a normalized EBITDA as of right now. Also another thing I want to -- you mentioned half year, which is H1. H1, sir, you know that the first quarter was extremely tough on us, but the second quarter has been relatively much stronger.

And the H1 figures are only taking into account the impact of that first quarter, which is being generated into the second quarter as well in terms of when you compare it from H1 to H1. So those are my comments, sir. I'm happy to take on any supplementary questions in this regard.

[AM Lodha, analyst]

In -- continuing this question, sir, but in second quarter, you had other income of that INR 34 crores, total INR 45-something crore other income that has elevated your EBITDA to 10%, not actually...

[Jayant Davar, executive]

No, no, no, sir. Our EBITDA -- see, I'm talking of the India business normalized revenue. Our normalized India business revenue is INR 1,153 crores versus INR 868 crores in quarter 2 versus quarter 2. Operational EBITDA is INR 109 crores versus INR 84 crores, which is 9.47% versus 10.6%. If I was to look at this, then the EBT margin is exactly the same as 5.5% to 5.5%. If I look at the impact that I gave you of 11.21%, our EBITDA is 10.44% versus 10.16%, in fact, higher than the quarter 2 of 2025. I'll ask Yashpalji to please explain this a little further. Yashpalji, if you can come in and explain this, please?

[Yashpal Jain, executive]

Sure, sir. So basically, may I answer the question, other income, sir? While doing the presentation for investors, we haven't included other income for calculating the effective EBITDA and margin, sir. Although in the published accounts, it's together because the SEBI format is combined on the total PAT level and EBITDA level. But the reason -- the exact reason for the downfall is because of the INR 11.21 crores that we have analyzed, and that is out of the 5 major projects internally that we identified. Out of them, 3 are totally new projects, sir, relating to 2 of them for the die casting and for the sheet metal one, which will -- which are going to turn around from April '26.

Before that, they will continue with the same, I would say, margin base. But yes, quarter 2 would be more better for them, and we are reviewing them. So -- sorry, quarter 3 and half year 2. They are going to be better compared to this half 1 and quarter 2 of the current year, but we have not included the same into calculations. We have removed. If you see Slide #4 of our investor presentation, there we have shown on the top side of the left-hand side is the operational performance, and there is other income breakup. If you add together both of them, they will simply tally with the results that we have submitted to the stock exchanges.

Right side is the major reasons why we have seen a downfall in the margins. And we have just tried to reflect that these are the 5 projects which are hitting. Had they not been in the place, we would have been on the same trajectory that we -- I mean, at the beginning of the year that we have presented before the investor community.

[Jayant Davar, executive]

Yes. So Lodhaji, I think Yashpalji has explained it. We haven't taken those extraordinary incomes into the presentations that have been given. We've only taken the operational sir for clarity for all of you.

[Yashpal Jain, executive]

That's the reason in the Slide #5, also the margins are shown us down with the red marker.

[Operator]

The next question is from the line of Abhishek Kumar Jain from AlfAccurate

[Abhishek Kumar Jain, analyst]

Congrats for a strong set of numbers, sir. Sir, in overseas business, we have seen a very strong recovery in this quarter despite that muted growth in the top line. So if you can throw some light on the -- what are the reasons behind this? And the second that how the growth will start to come in overseas business?

[Jayant Davar, executive]

Can you repeat that question one second? [Foreign Language].

[Abhishek Kumar Jain, analyst]

Sir, my question is on that overseas business, what is the reason for the expansion in the margin in the quarter-on-quarter basis? And what would be the key growth levers in the top line growth in the coming quarter?

[Jayant Davar, executive]

Okay. My quick answers to this is, one, the European market had gone down dramatically. It has become very volatile with whatever was happening with the Trump administration and the overall industry going down. So Europe was actually losing its orders. We, in the meantime, got orders for newer products. Those have started to ramp up, and we are very, very hopeful that the second half of the year, while we put a major control on our expenses in quarter 2 compared to quarter 1. We do believe that now with that having been taken care of, both in terms of financial costs and operational costs, where optimization has been brought in.

With new orders kicking in and production starts, we do believe that, as we have said, we will try and remove the losses that we've had so far in the second part of the year. Yashpal ji, do you want to come in and add something to this?

[Yashpal Jain, executive]

Yes, sir. So Abhishek, like as we discussed in the earlier quarters during the con call that we are striving our best to turn around the overseas operations. And if you see the Slide #6 of the investor presentation, we have given a comparison of the 4 quarters, starting with quarter 2 of FY '25, which happens to the corresponding quarter. Although you can see a downfall in the revenue, but exactly if you see the margins, they are substantially improving compared to quarter 1 of the current year.

And I think quarter 3 and quarter 4 will be more better because, as sir has told, the operational cost also we have tried to plug in and as well as the financial decisions -- some of the new financial decisions we have taken, which will effectively bring down the borrowing cost also.

[Abhishek Kumar Jain, analyst]

Okay. Got it. And sir, in this quarter, we have seen a very high employee expenses. So what are the key reasons of that? And is there any one-offs in employee expenses?

[Yashpal Jain, executive]

Employee -- can you repeat? Employee?

[Abhishek Kumar Jain, analyst]

So what -- is there any one-offs in employee expenses?

[Yashpal Jain, executive]

Actually, the increments of the staff were finalized during this quarter. Although we have been taking provisions in the first quarter itself, but you know when the actual increments are finalized, then only we are in a position to know what has been the actual cost. And secondly, if you see this time, we had an all-time high production also in the revenue in terms of our core businesses like the die casting and the sheet metal, which happens to be a capital as well as labor intensive in some reasons. So that's the reason the cost of labor has also gone up because we have to supply and there was all of a sudden demand from the customer side.

So the more manpower was deployed and the machines are also running for all the 3 shifts in many of the months. That's the reason. Otherwise, it's going to be normalized in the coming quarter 3. But yes, the increments were finalized in quarter 2. So always, there is a gap between the actual performance based and the provisioning that we are carrying in the books.

[Abhishek Kumar Jain, analyst]

Okay. Got it. And sir, depreciation has gone down in this quarter versus the last quarter. So what is the reason of the fall in depreciation?

[Yashpal Jain, executive]

So -- exactly. If you remember, like we have said in earlier calls also, we regularly revisit our depreciation policy and the effective life of the assets. And the reasons like the intangibles, et cetera, which we have projected earlier, now they have started going out of the books in the sense they have depreciated to the full extent. So that's the reason in the coming period of time, the depreciation will be in the similar pattern.

Initially, we have quoted higher because we assume because normally for intangibles, we amortize over a period of 3 to 5 years, depending on their effectiveness and the product penetration in the market. So gradually, once the intangibles are written off, the depreciation will be in the normal course. That's the reason -- and we are regularly revisiting the effective life of the assets in consultation with the technical valuers and the statutory auditors. And basis that, we are reevaluating the life of the assets. So that's the only change. Apart from that, it continues to be the same.

[Abhishek Kumar Jain, analyst]

And sir, in ADC revenue growth in this quarter that remained strong in the domestic side. So how is the revenue trajectory of the Sundaram-Clayton? And basically, what is the EBITDA margin in this quarter and how that margin will improve in the coming quarters?

[Yashpal Jain, executive]

So like Abhishek, if you see the ADC share has gone up even in the overseas and domestic. So overseas, if we negate from the half year, glass remains to be the domestic share. So roughly in this quarter, the ADC business has been above 32%, right? So -- yes, which includes a revenue of INR 198 crores from Sundaram-Clayton business, despite that India business stand-alone in quarter 2 has given INR 177 crores of revenue to us, which is up versus INR 130 crores in the corresponding Q2 of FY '25.

So this growth will continue to come as we expand our lines. But as for the margin profile, the Sundaram business has given us a margin of 4.48% only for the half year, but it was near to 5% for quarter 2, which means an improvement over quarter 1. So -- but as we shared our plans earlier, like along with the machining, we expect something 11%, 12%. And in terms of S-cast, the margins are expected to be around 9.5% to 10%, 10.15%, that's all.

[Abhishek Kumar Jain, analyst]

So this is INR 198 crores in the first half or in the second quarter?

[Yashpal Jain, executive]

It is a half year -- INR 198 crores is half year. So second quarter is INR 102 crores, remaining was quarter 1, but the margins have improved. We are close to 5% in quarter 2 for the Sundaram business.

[Abhishek Kumar Jain, analyst]

Okay. And how would be the margin in the coming quarter?

[Yashpal Jain, executive]

So coming quarter, we had a discussion with the business, but yes, the relocation cost of the plant will also be coming in the coming half year. Also, our premises rental will be coming up. Our new premises is a much bigger one compared to the existing because new set of machines are going to be deployed. So this year, we expect it to be around 5%. But yes, from the next year onwards, as the business team has indicated, they will be going back to around 9% or something so that we are generating from other businesses -- or other parallel business.

[Operator]

The next question is from the line of Sailesh Raja from B&K Securities.

[Sailesh Raja, analyst]

Sir, this quarter, on the absolute amount basis, we witnessed significant drop in assemblies business on both Y-o-Y and Q-o-Q. Is there any reclassification here or any other reason for drop in sales?

[Yashpal Jain, executive]

Assembly business, Sailesh ji?

[Sailesh Raja, analyst]

Yes, yes, correct. Yes, sir.

[Yashpal Jain, executive]

Yes. So assembly business, if you recall, we are into the spokes wheel. We are not into the alloy wheels. And one of the reasons is that the premium segment is now being replaced by the alloy wheels. So there's no much reclassification. It continues to be the same. If we see the assemblies volume in half year against 10.5%, it is 9.6%, right, sir? That's what we have -- yes. So it's a normal 1% something down 0.9%, I would say, because...

[Sailesh Raja, analyst]

At this amount, it will come down a lot actually, if you look at it...

[Yashpal Jain, executive]

Yes, absolutely, it has come down a lot...

[Sailesh Raja, analyst]

Yes. Last quarter, it was INR 104 crores. Now this quarter, it is INR 64 crores.

[Yashpal Jain, executive]

Exactly. But we have not done any reclassification because likely you say -- if you see the assembly business, major of the components are coming from the customer side itself. So while everything is dependent on how the volume will be performing, otherwise -- I mean, with the passage of time, the spokes will be largely replaced by the alloy wheels in the coming period of time.

As of now, the mopeds and some segment of the bikes are being run on the spokes wheel. So that's the reason it is going down. But nevertheless, we are not idle space because we have combined the assembly and sheet metal businesses. So everything will be, I would say, adjusted with the sheet metal business in place of assembly business in the coming period of time.

[Sailesh Raja, analyst]

Okay. Okay. Sir, for the past year, we have been waiting for quarterly revenue run rate to reach around INR 1,200 crores, and we have touched that number. But if you see the margins only, again, bottom line, still we have not achieved it. With this high scale, still we have not crossed 10%. Can you help us understand what specific cost continue to crop up and by when we should expect the margins to improve meaningfully? Again, you are saying in the -- there will be a rental cost. Some of the costs are coming -- keep cropping up. So can you please explain on that by when we can start seeing 11% EBITDA that we have guided earlier?

And also, can you please discuss about the overseas business, which geography is currently dragging the overall performance? And what are all the measures we are taking to turn around the operation? And also recently, I came across an article highlighting a sharp increase in power cost in Romania. So how is company planning to mitigate these challenges and start reporting 11 percentage plus of EBITDA at this INR 1,200-plus crores of top line?

[Yashpal Jain, executive]

Sailesh ji like -- sir, you want to answer something?

[Jayant Davar, executive]

No, no. I just want to answer -- I'm not going to answer on the numbers. I think Mr. Raja would -- you would be able to answer the numbers better. I just wanted to give the supplement of a comment that was made in Romania and for the overseas business. The overseas business, Mr. Raja, is now in a mode of consolidation. I don't know where we've got this information about power costs going up in Romania.

Actually, the European power costs have started to come down. During the time of the pandemic and post that, power costs had gone up dramatically. In fact, gas costs had gone up 8x -- 800% especially with the war between Russia and Ukraine. Gradually it started to come down. It is still not at the levels at what was there before the war, but it has come down dramatically. The cost of operations in Romania are lower than those in Spain by a significant margin.

We do want to take advantage of the new facility that has been set up there. You are aware that the regular production there also got suffered on account of the war, but I think the worst is behind us. It has now been established, gradually by the month, Romania is going up. We are trying to shift some business. In fact, some of the new projects that are coming in into the overseas business are being routed through Romania. And it's on that basis that we do believe that margins will go up as was projected.

In fact, if you look at our overseas business in the past, our margins there are higher than those of the Indian business. They were at about 12.5%, 13%-odd margins. We expect those margins to come back very, very shortly. I don't think the margins are going to be an issue. The European business -- you also have to consider the fact that with the depreciation of the rupee and the euro becoming stronger, we've had translation losses. And when the overall business is in a loss, in the Indian context and in translation to the Indian rupee, that has a double whammy impact.

And that's what has happened. But going forward, I do believe that the overseas business will come back to its normal peak. And we are very, very hopeful that in the second half of the year, we will be able to mitigate any losses that have been there in the previous quarters. So that is the impact on the margins in the overseas business. In terms of the Indian business, you did mention, but I think if you actually calculate the Indian business on a normalized revenue, then on an EBT platform, we are exactly the same margin as we were in quarter 2 of financial year '25.

But if you were to add to it, the impact on profit on account of the new business that has been taken in, which is the Sundaram-Clayton business and 2 new plants in Pune and South India, we are actually at a margin of 10.44% vis-a-vis 10.16%, which was there in the last year. So if you ask me, we are on a very, very healthy scenario. Now obviously, growth sometimes does mitigate and take away some of the margin growth, and that has happened with the growth coming in from the acquisition, whereas Mr. Yashpalji said, our margins are about 4.5% right now.

We do believe by the end of the year, despite the rentals and despite all of that and during the year translation and transition that has happened, we will still end up at 4.5%, 5%. But from next year onwards, we will go back to being a normalized die casting business that we run with margins in the other businesses that we have. So we are very hopeful and very happy that things will normalize very, very quickly. And therefore, that's the reason we have subjugated and have given you a feed on the normalized versus the revenue that would have been impacted or affected otherwise. I hope that answers your question. In case...

[Sailesh Raja, analyst]

Clear, sir. Yes, very clear, sir. Sir, actually, with improvement in second half in India business, margin improvement and also you are guiding overseas also, there will be improvement in margins. So by year-end, what ROCE that you are targeting, sir, this year and next year?

[Jayant Davar, executive]

Sir, again, in terms of -- yes, yes. You asked me about the ROCE. If you look at, sir, the India business, if you look at as on 30th September, if I was to look at adjusted capital employed and ROCE, we are on an annualized number this year at 16.09%. Now -- so this is compared to 15.5% of last year. We have given a call and we have mentioned in the past that our aspiration is to reach a level of 18% as soon as possible. So we are working hard, and that is our target. Yashpalji, you want to say more on this?

[Yashpal Jain, executive]

Yes, absolutely, sir. I echo what you have said because initially in the first phase, we have given a target of 15% going to 18%. This would be pretax and subsequently for the post-tax one, sir. So bearing 3 projects, as we discussed earlier also, 2 of the die casting businesses and one of the cabins and fabrication, these 3 are the new projects, which are giving us a little tough time this year. But as we have discussed with the business teams, they are expecting to start full production in this by April '26.

In the Pune die casting, we have received now the customer consent also. And from next year, April, the volumes will gradually start. So that's the reason this new business, which is dragging us down would again be in the same profit trajectory. So hopefully, we will be able to achieve what we have promised to the market.

[Operator]

The next question is from the line of Rajit Aggarwal from Nilgiri Investment Managers.

[Rajit Aggarwal, analyst]

Congratulations for a good set of results in this tough environment. I have a few questions. Some of the questions pertain to some of the things we discussed in the Q1 call. So one was we had mentioned that the smart locks production will begin in Q2. Has that started? And what is the kind of volumes we are seeing there?

[Jayant Davar, executive]

Okay. Smart locks has started, sir. The volumes are small. We did get a review from some of the customers. We have 2 main customers. One project has been delayed a little bit. So they are in a stage where we've shipped out some. But we do expect that the last quarter, there will be a little bit of smoothening of operations there where we will be supplying smart locks more on a daily basis than a weekly kind of basis, which is being done now. But yes, to answer your question, yes, we've started smart locks already.

[Rajit Aggarwal, analyst]

Okay. Wonderful, sir. And we have taken an approval for a QIP of INR 500 crores. Can you update the status? And in the same context, there is a news of a sheet metal fabrication company being put up for acquisition. It's an Italian group. I don't know if you have heard of it, but are we considering any such possibility in near future?

[Jayant Davar, executive]

Well, Rajit, all I want to say here is that there are various opportunities that are brought up on the table. We are much more careful with any kind of inorganic growth. We would want to pursue it. In fact, the point that you mentioned, the QIP was to be kept as a watchlist in case any such opportunities were to arise. We still haven't finalized on any so far. There are several that one keeps on looking. But we are very, very mindful that any inorganic growth that we consider whether from M&A or from any new projects has the potential in the medium term to be able to reward the stakeholders with an appropriate return on capital employed.

I think Yashpalji also mentioned that we are looking at an 18% pretax to begin with and then post-tax return to the shareholders. Keeping that in mind, if we come across opportunities where we can deliver and it's a part of our strategy and core competence, we will go ahead for that. At this point of time, I do not have anything to report. As and when if something were to come about, obviously, you will be amongst all the investors who will be the first ones to know.

[Rajit Aggarwal, analyst]

So may I ask a few more questions? So do we have HMSI as a customer? And what is their share of business? And how has the performance been of that business in Q2?

[Jayant Davar, executive]

So Rajit, we were -- you're aware that a few years ago, HMSI was not a part of the business, was not a customer, largely on account of the fact that we were at one point of time associated as being a Hero supplier and there were some tensions between the 2 of them. But for the past few years, we've started business. We have now started in every category of their supply and what we hold a core competence in.

So whether it is sheet metal, whether it is castings, whether it is locks, whether it is mirrors, we are in all those businesses now. You're aware that the latest technologies in terms of smart locks and so on have been awarded to us. They have become a strong customer for us. Going forward, I do believe that, that number of -- or a percentage of our revenue will grow dramatically with HMSI. In front of me -- I don't know if Yashpalji has a number of what percentage we do right now, but it's been growing constantly, and it's been growing quite aggressively.

There are some new projects that are starting with HMSI as we speak. In fact, HMSI also is a customer for our helmets. So they cover a large part of the dimensions of all that we do. Yashpalji, if you have the number or percentage is what we did last year?

[Yashpal Jain, executive]

Yes. For current quarter -- I mean, quarter 2, the HMSI share is 4.2%. And for half year also, it is 4.2%. Whereas in the corresponding year, it was 3.7%. So 0.5% we have gained. But as sir has said, the new projects are in the pipeline. So in the coming period of time, especially in the FY '26, '27, the HMSI share will go up with the new products giving us a revenue.

[Jayant Davar, executive]

So Rajit, just to answer that and add to this, it was 3.7%, it is 4.2%. If you look at pure revenue, obviously, that number is much higher on account of the fact that the overall company has grown by 30%. So if the 30% growth in the company means 3.7% to 4.2%, adds and supplements to even that growth that has happened. I hope you understand that, right?

[Rajit Aggarwal, analyst]

Right, absolutely. Sir, just one clarification on Sundaram-Clayton's numbers. So last quarter, I think during the call, it was mentioned we did INR 103 crores of sales. And this quarter is same. Is it correct? Or did I get the numbers wrong?

[Jayant Davar, executive]

Yashpalji can you answer that?

[Yashpal Jain, executive]

Yes, I'll just answer, sir. So Sundaram-Clayton, the effective sale is now INR 198 crores for the half year. So yes, it was around INR 95 crores last quarter, INR 102 crores, INR 103 crores roughly -- I mean, INR 92.5 crores and INR 102.5 crores. This is how the breakup is quarter 1 and quarter 2 between.

[Rajit Aggarwal, analyst]

Okay. Okay. So I think there was some miscommunication in the Q1 numbers. Maybe I'll get back to you on that. And just -- have you added any customer in Europe in the last 1 or 2 quarters, any new customers?

[Yashpal Jain, executive]

Yes, in the new -- I mean, there is a process to add a customer like RFQs and the quotes, et cetera, that process started. There are 4, 5 new customers coming in the pipeline. So as sir has also answered previously in this session, we are going to see a new customer base also, starting might be quarter 4 of our financial year and quarter 1 of their financial year, which is effective Jan '26.

[Operator]

The next question is from the line of Chirag Jain from Emkay Global Financial Services Limited.

[Chirag Jain, analyst]

Yes. Sir, just a few questions. I think you did touch upon the JV performance, which has improved significantly over the past few years. Any thoughts you want to share in terms of over the next 2, 3 years, how we should see all JVs put together or maybe any 1 or 2 JVs, which you would like to highlight in terms of, let's say, which can contribute significantly. As of now, I think PAT contribution is about 6% to 7% in terms of our overall contribution. How do we see, let's say, over the next 2, 3 years, JVs doing for us in terms of numbers?

[Jayant Davar, executive]

Well, Chirag, thank you for that question. It's a good question in terms of JV performance. Obviously, the JV revenues don't show up in consolidation or in stand-alone, and therefore, we report it separately. See, JVs are a way for us to keep relevant in terms of newer technologies. And it keeps us in the international domain of customers, who want to buy and set up things in India where we become the local suppliers of some. So that is the large intent.

What we are interested in is that the operations of these JVs give a good return in terms of aggregate to the investments that have been put in. So if you look at it from a perspective of return on capital employed, if you look at in terms of return on equity, of course, the capital employed has become larger with the previous losses. But going forward, like I said, all our joint ventures are profitable. Each one of them gives us an opportunity of breaking into newer technologies that are still not being used in India.

But as and when they become a significant part of the component pack in India, we would be way ahead with our joint venture partners to be able to offer it to the industry. So there is a strategic intent to these joint ventures. But at the same time, we are also very conscious that whatever investments there are in the joint ventures give us an adequate return that justifies the financial impact of what we are doing. I do believe that each of the 5 joint ventures that you see here are important. Each one of them have a new take.

If you look at our joint ventures, whether they be in the area of rear parking sensors, whether they be in the area of shark fin antennas, whether they be in the area of new kind of cables, whether you look at special electronics, small componentry, I think each one of them has a much higher level of potential, not only in terms of the auto industry, but in some cases, even the non-auto industry, which could become very important into the future. Thank you.

[Chirag Jain, analyst]

Just a couple of more questions. So I think in 2 of our businesses, so one is vision systems, we have more or less doubled our revenues. In fact, even in the first quarter, we had almost 30% sort of growth. Can you please elaborate in terms of what is driving this? And how do we see the outlook for second half and probably going ahead?

[Jayant Davar, executive]

I do believe -- I will not give any special outlook for the vision systems in the second half. I do believe that the growth that you are seeing will continue even in the second half and beyond. Some of it is coming from features that have been added into these mirrors. Some of it is do -- coming from volumes. And in the next quarters, we do see some growth on account of addition of new customers. So if I look at it, the entire wallet from market share to premiumization will take impact and growth, which will then help us in a faster growth in the vision system business.

[Chirag Jain, analyst]

And just lastly, on the cabins and fabrication business, I think this business has been somewhat subdued for the past 3 quarters, largely because of the emission norm changes in the construction equipment industry. So what are the, let's say, outlook for this business now going ahead? Are we largely through with the emission norm changes on the ground and the price increases has been largely absorbed? Any thoughts on that? And then I'll come back in the queue.

[Jayant Davar, executive]

Yes. To a large extent, yes, we've started green shoots of new orders coming in. The cabin and fabrication business, like you said, was affected a lot with the change in the emission norms. There was a lot of inventory lying with the customers. I do believe that the new orders that I see in quarter 3 and quarter 4 of this financial year seem to be much more solid compared to what we had in the first half of the year.

Our fingers crossed, but that's the information that I have. So we ourselves are conservative in our approach even for the second half of the year, but I do believe it is definitely better than what was there in the first half.

[Operator]

The next question is from the line of from Disha from Sapphire Capital.

[Unknown Analyst]

So sir, we've seen like other income go up very sharply in Q1 and Q2. So what is the kind of trajectory we expect for other income to stay going ahead?

[Jayant Davar, executive]

Yashpalji, do you want to comment? I don't know if he's been disconnected. So let me answer this question.

[Yashpal Jain, executive]

Am I audible, sir?

[Jayant Davar, executive]

Yes, you're audible.

[Yashpal Jain, executive]

So I will just answer the question. So other income has been exceptional in nature. That's the reason we have presented it separately in our investor presentation on Slide #4. And the biggest other income came from one of the plants that we did the consolidation in cabins and fabrication in Bangalore, where we got a profit of INR 34 crores in the disposal of the land. That's the reason. Otherwise, there is no as such planning to increase other income. More or less, it will continue as a casual income coming exceptionally. That is all because we are more focused on the operational business. So there is no other source of other income.

[Unknown Analyst]

All right, all right. And sir, we just mentioned that we started -- smart locks production has just started. So what sort of EBITDA margins do we see for that segment?

[Jayant Davar, executive]

I do believe that, Disha, smart locks business is as appropriate as any other locks business. At this point of time, we do believe that the margins will be probably better because the volumes are smaller. But as you -- as the volumes go up, there will be a shrinkage in terms of the overall price of the smart locks. But at any point of time, as our locks business is, that gives us a margin of 12% to 14%. That's the kind of an EBITDA margin that we consider also in the smart lock business.

[Unknown Analyst]

All right. All right. And sir, like going ahead, just like a bit of your comment on the product mix because we've seen the segment of ADC rise up very sharply. So what are like the 2, 3 major products that we see dominating the product mix going ahead?

[Jayant Davar, executive]

Well, Visa, the way I look at it, we look at ourselves as 4 basic verticals. There are times when one is kicked up ahead of the others. You saw casting business grow. In the last 1.5 years, you have seen that our business of sheet metal has grown significantly, and that is on a very, very aggressive path as well where we set up new businesses from a business only a few years ago, which was less than INR 200 crores.

We are now looking at crossing INR 1,000 crores of the same business in sheet metal. The same aggressiveness has been in die casting. At this point of time -- I think Chirag asked that question, and I said that the cabin fabrication is a business which is muted for the moment. But I think going ahead and in the next few years, that could also take an aggressive shape. Let's not forget the main business, which has been the automotive business of locks and mirrors and so on and so forth.

I think with smart locks and with a few other technologies that are in the pipeline, that will have a dramatic impact of growth in the coming years to come. So I'm not saying what is happening. I do believe that each one of these verticals has a strong momentum coming ahead. Some years, we'll see one racing ahead. Some years, we'll see the other racing ahead. But our belief is in all these 4 businesses, keeping up to the level of growth that we've anticipated for the entire company, which is, like I've said in the past, we would want to grow at least double of what the industry is growing at.

[Operator]

The next question is from the line of Aryan Jain from Arie Capital. We seem to have lost the participant. The next question is from the line of Vidhi Shah from CRK.

[Unknown Analyst]

I wanted to know what kind of margin trends can we expect in Sundaram and what is the time line that we can expect this?

[Yashpal Jain, executive]

So Sundaram-Clayton, as we discussed earlier during the call also, we are expecting the margins to be in the normal die casting -- I mean, at par with our other die casting business, which runs around a margin of 9% to 10% in between as cast. So the same margin we are expecting for Sundaram-Clayton going forward. But yes, that will start coming up from April '26 once we are into our own premises and also we add 2 new machines that we have set up the entire plant. So that's coming -- going to come from April '26 only.

[Unknown Analyst]

Okay. And for the overall business, what is the kind of margin trend that we can expect ahead? And what will be the growth levers for the same?

[Yashpal Jain, executive]

So basically, as we promised and we discussed with the market in earlier calls, we want to go up to a margin of 11% in the next 2 years of time with an improvement of around 50 bps -- I mean, 10 bps to 50 bps every year. Unfortunately, quarter 1, as we discussed earlier, was not so well for us. That's the reason in overall half year, the margins have been down, but we expect to go around 11% of a healthy margin from operations.

And the growth drivers would be all business segments because sometimes, as sir has just said, some business is up, some are down. So that's how the -- it goes like a family, all the business verticals. If one of the vertical is facing a tough time, other one supports it. But yes, the revenue expectations, as we mentioned, that we want all the 4 business verticals to be a big business verticals with an average profit margin of -- EBITDA margin of 11% and ROCE, we intend to achieve 18% pretax in the first phase and then later on followed by 18% post tax in the coming period of time.

[Unknown Analyst]

Okay, sir. And just one last question. As you mentioned, Europe, the sales were down because of the volatile market. So what is the outlook on that?

[Yashpal Jain, executive]

So basically, yes, overseas, we are working on 3 different legs. One is increasing the operational efficiency over there. At the same time, cutting down the operational costs. Second is we are trying to increase the customer base also from a traditional set of customers. We are moving to new customers also and just trying to tie up them from our existing facilities itself. And the third one is that we are doing a financial reengineering also in terms of borrowings and other product mix also.

So these are 3 set of -- I mean, the areas where we are concentrating. So even though the revenues might be in the same range because till the time we see a final arrangement between the European Union and U.S. markets and other markets, but at least plan is that we should not incur the losses and we turn around to a breakeven in the first phase and go back to our earlier margins in the coming period of time. So in overseas, what is important for us to sustain a business to have margins in the business despite the volumes might remain constant if the market conditions doesn't improve, but thing is that the return should come and there should not be any losses in the project. This is our first and prime task over there.

[Operator]

Okay. And by how much time do you think you can move in that direction, near breakeven?

[Yashpal Jain, executive]

Yes. So like in Europe, we are following the calendar year of the financial year. I mean, the update that we are getting from the overseas businesses quarter 3 will be better compared to quarter 2. As you have seen in the presentation also, the quarter 2 was better than quarter 1 of the current financial year. So we are expecting our quarter 3 to be better, followed by quarter 4 to be neutral in terms of margins and losses. We expect to be in greener. This is our prime desire.

[Operator]

The next question is from the line of Shiladitya, an individual investor.

[Unknown Attendee]

So a question on the margin side, right, you mentioned that there were costs associated with these new businesses. We understand. But at a consolidated level for FY '26 and let's say, FY '27, what sort of overall margins we can expect? Can we expect to hit 11% margins by FY '27?

[Yashpal Jain, executive]

Well, if you see the guidance that we have been giving to the market was that that current year, we would like to something between 9.9% to 10.40% and another 50 bps in FY '26, '27. So going by that, it is around 10.90% or, I mean, sub-11%. But since in the current year, the quarter 1, as you all know, we have given the reasons also was -- has not fairly well. But yes, for the next year, we intend to be about 10.5%. That's how we are working and all these 3 new projects as expected to go live in the full volumes, which happens to be 2 die casting businesses and one is the cabins and plus the overseas business going into the old flare. Eventually, we should go to that margin in the coming period of time.

[Unknown Attendee]

Okay. So for the current financial year, will we be able to hit at least double-digit margins?

[Yashpal Jain, executive]

Yes, our efforts are toward a double-digit margin. At least we close at double-digit margin by March '26. So as sir has said in the beginning of the call, the quarter 3 and 4 would be -- have -- I mean, backup of a strong demand. So proportionately, we are working on the same that at least these 2 quarters run over 10% so that our average margin should land something beyond 10%. That is a prime task, but let's see how quarter 3 goes. Everything will be dependent on quarter 3. And that time, we'll come back to all investor community how we are going to do in this current financial year.

[Unknown Attendee]

Okay. And from a growth outlook perspective, consolidated basis for this year and the coming couple of years, like do you want to share some outlook there?

[Yashpal Jain, executive]

Like in terms of revenue, the volumes, the market is going well. And the customer base that we are having in terms of the OEs, they are also performing well. So keeping their growth in line, I think our growth should continue the guidance that we gave in the beginning of the year that at least 15% of the normal business and the rest is the Sundaram guidance also, the additional revenue. So I think we should be able to meet that by the end of this year because quarter 2 this year...

[Unknown Attendee]

Sorry, Sundaram is around INR 400 crores annual business?

[Yashpal Jain, executive]

Yes, annual is INR 400 crores. It is INR 198 crores for the half year. So we have given up to 15% of the revenue growth in the existing business plus INR 400 crores of the Sundaram so that's the reason we are on the track. I think we should be able -- because INR 2,370 crores something -- INR 2,360 crores is the revenue that we have placed in the half year. So we are well on the track and the quarter 2 has been good in terms of volumes because the festival are also there, then there was a GST realignment by the government also, which helped to push the demand. So I think 3 and 4 should also be good, especially in the fourth quarter with the new models coming in. So the OEs are trying all best to increase the volumes. Let's see how it goes.

[Unknown Attendee]

Okay. And anything on the CapEx side, like -- and also the debt position and the plans to reduce and all, can you share something there?

[Yashpal Jain, executive]

Yes, sure. So like on the CapEx side, in the beginning of the year, we have said that around INR 300 crores of CapEx would be there, including the Sundaram one also. So -- and the debt is around INR 858 crores in the month of September. But yes, our working capital requirement has increased. That is the reason that the debt has gone up. Earlier, we were having some favorable payment terms from some of the customers, which has been now rolled back to the earlier levels.

But it's a part of the business, it's a part of the arrangement that we already factored. And in terms of the debt, I think it should be around INR 850 crores to INR 900 crores something. Keeping in with the working capital requirements as the business is going up, we need to maintain inventories also and the receivables also. The collection period is 45 days, while suppliers in some of the cases is 30 days also or 45 days also. This is how we need to maintain. CapEx -- I mean -- yes, can you hear me?

[Unknown Attendee]

Yes, yes. I can hear you.

[Yashpal Jain, executive]

Yes, sure. So the INR 300 crores of CapEx we have planned for this year, including some overseas and remaining for the India.

[Unknown Attendee]

So debt, are you planning to reduce or it continue at this kind of a...

[Yashpal Jain, executive]

So basically, like for debt, like 3 of the unfinished projects are in the pipeline that we have mentioned the Sundaram and also, we are doing some additional CapEx of INR 40 crores to INR 50 crores. So majority of the same will be coming up by the month of March, while we shift to our premises. And then there's another die casting coming up in Pune and cabins and fabrication again in Pune. So we have to complete the same.

With this, we will be through with all the CapEx in terms of new projects. So that's the reason repayment is going continuously in terms of term loans. So if you see term loans, we have already repaid around installment of INR 45 crores in the first half. Similar will be coming in the next half also. As I said, the requirement of working capital is going on. So the debt portion, the breakup of working capital is going up in the overall debt compared to the term borrowing. So working capital is directly dependent on the business. So nothing to worry about that. That's what I can say.

[Unknown Attendee]

So FY '27 CapEx will be less like because we have been doing a lot of CapEx like in the last few years, right? So is it like going to reduce the CapEx intensity going forward?

[Yashpal Jain, executive]

So like we have done a CapEx in last 3 years, there has been huge because you see we had a very negligible presence in die casting and sheet metal. So the revenues are also now started coming up from those businesses. As far as those businesses are concerned, I think they are through the same. But yes, the business expansion, it is a continuous process. If the customers are reaching out and we don't have the capacities of the facilities, that obviously, the CapEx will be coming.

But last 4 years has been a major CapEx because we did a major expansion in these 2 of the verticals. Now going forward, we have a presence. We have the facilities. If something will be coming up, that will be in the range of INR 40 crores to INR 50 crores per project, if something new comes up, that to add the customer requirement with assured volumes and margin base to us. And I think this year, we are through with the major CapExes, but yes, we are now focusing on increasing our base in our main property, I would say, the automotive business, which is the vision and locking system.

So you could see something coming up over there -- I mean, new over there. With new technologies coming in, we might have to seek a new technology partners and all those sort of investments might come in the coming period of time. And safety and environmental CapExes are also there, which government is putting us. So all these things -- I mean, INR 150 crores to INR 200 crores is a normal CapEx for an industry like us, which includes the environmental norms, also the safety CapEx is also, the growth CapEx is also, and there is a replacement, renovation of our old manufacturing facilities also. So this is all.

[Jayant Davar, executive]

Well, just to supplement and clarify, I don't see anything which is happening on the basis of inorganic right now. What will be required will be incremental CapEx on incremental growth basis. Right now, with the additions that have been done in CapEx in the last couple of years, we do have a lot of capacities that will be utilized. So in short, there doesn't seem to be any major requirement of CapEx in the next 12 months at least.

We are well within our framework to grow at the rate at what you've been seeing us grow without further CapEx required on a large basis. Like Yashpalji said, there is always incremental and maintenance CapEx that is required. But beyond that, nothing.

[Operator]

Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to the management for closing comments.

[Jayant Davar, executive]

Well, let me once again thank all the investors, who took out time to meet us this morning. I want to thank Emkay, Chirag, Hamshad, who put this entire thing together. Thank you for your patience, ladies and gentlemen. All I can say is that your company seems to be on a good growth path with a team that's working very, very hard to ensure that our stakeholders are kept happy. I'm also happy to report that your customers, both new and old are happy. I'm also happy to report that the quality products that we supply are very well accepted and I look forward to in terms of new developments of similar parts.

We are also very happy to report that we have a good set of energetic employees, who are working also extremely hard to deliver what is required in the market. We are guided by a very good set of our Board of Directors and our senior leadership teams and management group teams. Once again, thank you all. And although a little early, let me take this opportunity of wishing each one of you a very, very happy new year and God bless in every way. Thank you all very much.

[Operator]

Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.