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Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '25 Earnings Conference Call of Sandhar Technologies Limited, hosted by Dolat Capital Markets Private Limited. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Ms. Shailly Jain from Dolat Capital. Thank you, and over to you, ma'am.
Thanks, Steve. Good morning, everyone. On behalf of Dolat Capital, I welcome you all in Third Quarter and 9 Months FY '25 Conference Call of Sandhar Technologies.
From the management side, we have with us Mr. Jayant Davar, Chairman, Managing Director, and CEO; and Mr. Yashpal Jain, Chief Financial Officer and Company Secretary of the company. We thank the management for providing us with the opportunity to host the call.
Now I hand over the call to the management for their opening remarks, followed by the question-and-answer session. Over to you, Jayant, sir.
Yes. Thank you. Well, good morning, ladies and gentlemen. I welcome you all to the quarter 3 and 9 months earnings con call of Sandhar Technologies Limited. Talking from a broad conceptual point of India, India had initially projected a growth rate of 6.5% to 7% for FY '24-'25. I think it's now been revised to 6.4% for the year ending March '25. It is the slowest in 4 years and below the lower end of the government's initial projection. This obviously has come in also because of the weaker manufacturing sector and slower corporate investments.
Last month, of course, the Reserve Bank of India lowered its growth forecast for the year ending March 2025 to 6.6% from its earlier forecast of 7.2% after India reported lower-than-expected growth of 5.4% in the July to September quarter.
The forecast by the National Statistics Office follows several disappointing economic indicators in the second half of 2024, including low growth, high inflation, anemic capital flows, and record trade gap that cast doubt on the robustness of the country's growth. Manufacturing, which accounts for about 17% of GDP is projected to expand at 5.3% year-on-year in '24-'25 compared to 9.9% a year ago. Let me bring you to some good news, which is Sandhar's performance.
Despite all the above, Sandhar's total income growth of 2.7% in quarter 3, where most of our peers actually could not grow, and 10.34% compared to the last 9 months at a consolidated level have been pleasant. We anticipate that we will sustain and grow this momentum even further, of course, subject to geopolitical conditions, market demand and so on and so forth.
In terms of consolidated EBITDA, we registered a growth of 0.5%, which is 500 basis points improvement in the margins to 10.34% compared to 9 months of the last year. Last year, it was 10.1% compared to 9.6% in the 9 months of the financial year 2024.
In the 2-wheeler segment, the industry recorded a growth of 13%. Sandhar outperformed with 17.58% increase on a 9-month year-on-year basis. In the 4-wheeler segment, the industry grew by 2.72%, where Sandhar did see a decline. In the OHV segment, the industry grew by 5.3%, but Sandhar grew at 6.9% on a 9-month year-on-year basis.
In terms of joint ventures, we'd be very happy to note, and I'm very pleased to share that all of our joint ventures are experiencing strong growth and consistently improving performance. Further pleased to share that all our joint ventures are PAT positive in quarter 3 and 9 months of financial year 2025. This success has been driven by focused cost control, localization efforts, enhanced business synergies. We remain confident that the growth trajectory will continue.
Collectively, our joint ventures have recorded a total income of INR 270 crores with an average EBITDA of 12.5%. The list has already, I think, been shared with you in the presentation. The drag for Sandhar has been the overseas business in quarter 3 as well as 9 months and the operations sustained losses marked by low demand and slowdown in Europe. We are closely watching the situation over there. And as we look at it, the preliminary indicators are that volumes should see growth in the financial year 2026.
The company's expansion projects in Pune for cabins and fabrication and die casting are expected to commence commercial production by the end of March 2025. In EVs, the company has started commercial production of battery chargers and is getting positive response from the market. The customer base is also gradually increasing with more and more customers that are being added.
On CSR, over the years, we've dedicated ourselves to sustainable business practices that tackle economic, environmental, and social challenges. Our efforts go beyond near-business concerns, creating positive effects on the communities we serve. Our CSR activities focus on key areas through health care, which is through the Sandhar Healthcare Center, which is in Village Begumpur, Khatola, Gurgaon.
We do education for girls side largely in Sandhar ki Beti and the Sandhar Center of Learning at Devli Sangam Vihar. We have skilling and vocational training done through the Swabhimaan program, senior care through the Adopt a Gran program, and for the environment, we Go Green through Peenya Industrial Park Bangalore. We are looking to focus on diversity and creating equal opportunities for gender neutrality.
As we go forward, our focus areas will be toward ESG and SGD, which are sustainable development goals to attain carbon neutrality in the coming years. We continuously work on diversification of our product portfolio, expanding our customer base, and increasing content per vehicle. We are focused on improving both the return on capital employed and the return on investment. We are consolidating operations and the idea is to generate more free cash flows and deleveraging of the balance sheet.
With those initial comments, I am happy. With me today is Mr. Yashpal Jain, the CFO of the company. We'd be very happy to take your questions on anything that you might have. Thank you.
[Operator Instructions] The first question is from the line of Aditya Kondawar from Complete Circle.
I just wanted to ask you about the debt situation. Are we on track as per the last con call guidance on reduction of debt?
Aditya, we are at a net debt of INR 673 crores. And if you remember last time, as we said we will be finishing up some projects, especially the 2 ones which are going in Pune. So there can be intermittent ups and downs in the debt. But we are on track because there have been some outflows on account of capital payments for finishing up these projects and the remaining payments will be done in quarter 4. So as far as the regular operations are concerned, I think we are in the sustainable level, and we are continuing at a net debt of below INR 70.
The second question was that any further inquiries or updates on the smart lock side of the business? Any new inquiries or any new customer conversations that we are having?
The team is consistently in follow-ups with the OEMs because the product has already been developed. Now it's all the adoption by the OEs. So we are waiting for some good news.
Very happy to announce that we have already started production and supplies to 2 of the biggest names. As we speak now, traction is being built with some other customers, and the existing supplies that have started will pick up much larger volumes in the coming months.
[Operator Instructions] The next question is from the line of [indiscernible], an individual investor.
A couple of questions. The first one being, I think a year or so back, you had guided clearly that you see a 25% plus sort of growth for a 3- to 5-year period. In the last few quarters, to our understanding, should we take it as an exception and nothing changes structurally on that guidance? So that's my first question. The second is there's a lot of media news around tariffs and how it's going to impact the auto ancillary thing. So if you can take a couple of minutes and sort of let us know if at all it plays out, how would it impact us in any which way?
Well, thank you for that question. Very interesting question. Suffice to say that whatever guidance we had given in the past or forecast we've given in the past, keeping the economic condition of the country and how the growth is and geopolitical situations aside, we continue to build our pipelines towards the kind of growth that we had declared in the past. I don't see any reason why if you've seen a little lower growth in the last quarter or in the 9 months gone by, yes, it is an exception. And I do believe that this should accelerate quite rapidly as we go forward. So that's the answer to question one. What was your second question, sorry?
It was more around the tariffs in the U.S. How would it impact us, if at all, it plays out?
Well, the direct tariff thing that would have affected us was Mexico because we have a plant in Mexico and a lot of our supplies go to North America, while on a like-to-like basis because most of our supplies go to companies like Bosch and TRW who are located within Mexico. So it is not as if we would have a direct impact. But in case those people have an impact selling into the U.S., we would obviously be affected. At this point of time, while we have spoken to our immediate customers, they seem to be quite positive that there is likely to be no impact. However, we'll have to wait and see as to how -- in case there is any impact, how much it is going to be and how we will have to take it or mitigate it in the future.
The next question is from the line of Jai [indiscernible] from Dolat Capital. [Operator Instructions]
Sir, my first question would be what are your thoughts on demand revival on the export side?
On the export side?
Yes, sir.
Well, I do believe that our customers are looking to buy more from India. This continues in the overall policy of most multinational companies looking at China Plus One. India falls into that sweet spot, and I see no reason why exports from India will not grow. However, having said that, you know that the demand right now in Europe is weak. So it's not as if we are losing market share in exports. In fact, we are gaining market share.
The only thing is because the overall demand is down, there is an impact on India, not so much on Sandhar because Sandhar largely, as you are aware, supplies within Europe from Europe. So from a foreign exchange perspective, we are not affected. But from a local demand perspective, I do see that there is -- and I already mentioned that our overseas business has been a drag with some losses in the 9 months and in the quarter. We are now being told that there are green shoots being seen and the future looks a little better.
So a follow-up question on that. So what would be your order book from the overseas side and expected order book from the overseas?
I didn't get that question. Can you repeat that question, sir?
So what would be your order book coming into FY '26? What are your order book expectations or any new orders?
What is happening is we were using -- you remember, we had put up a plant in Romania. The Romanian plant could not build up and got delayed on account of the Ukraine war. It has now stabilized, and we do expect that we will have a much larger percentage of manufacturing capability being consumed in the coming year. We are very, very bullish on the next year. And we do feel that the loss that we have had in this current year will not continue into the next year, and we will be back in profit.
Sir, just one bookkeeping question. Out of INR 700 crores of debt you mentioned previously, could you quantify what would be the debt in your JV?
Yes. This does not include the JV debt. This is because JVs are not consolidated as per the Ind AS. So this is the debt at the consol level with the subsidiaries and the stand-alone company. JV debt is separate, which is not accounted in our books, but I can tell you the amount, it is barely around INR 8.5 crores as of December in 2 of the JVs combined together.
Pali, you also want to break it up and give it to them in terms of our foreign exchange debt and here.
Yes, sure. So out of our gross debt of INR 708 crores, INR 284 crores pertains to stand-alone, INR 100 crores for Indian subsidiaries and INR 324 crores for overseas subsidiaries. The cash balance of INR 35 crores to make it a net debt stands at India level.
The next question is from the line of Saket Kapoor from Kapoor.
Sir, as you alluded to in your opening remarks the path ahead would be the improvement in the EBITDA margin and the deleveraging exercise. So if you could give some more color on what steps would be toward deleveraging? And what are we eyeing in terms of lowering the net debt levels from the current? And what have been the 9-month CapEx that we have done?
Yashpal, can you give the numbers?
Yes, sure. So basically, in 9 months, we have done a CapEx of around INR 173 crores to finish up the regular CapEx as well as our ongoing projects, so this is the CapEx for 9 months. As far as deleveraging of the balance sheet is concerned, as we said in our opening remarks this year, we'll be finishing up some projects. So as far as the debt is concerned, it is within our estimated figures. But yes, in quarter 4, there might be some increase in the debt to repay our commitments to finish up the project. But next year, yes, we will be generating the cash flows, which will be used to repay the borrowings that will be taken in the current financial year. So I think on an average basis, INR 100 crores would be our repayment in terms of the, I would say, terms and conditions of the term loans, which we have secured from various lenders.
So on a peak debt of whatever we will be hitting for Q4, there will be a reduction of INR 100 crores for the next financial year. This should be the idea.
Around INR 100 crores is the normal payment that has been projected as per [indiscernible]. If we generate further surplus to be invested, then we can pay more also.
And sir, earlier call, you did guide about the EBITDA margin increasing or inching up to the 11.5% mark for the next financial year, that is '25-'26. Correct me there, sir, and the top line of INR 4,500 crores on a consolidated level. So taking into account our Q3 numbers, does that trajectory hold currently? Or would you like to revise it?
Here, I would like to correct you slightly because the EBITDA margin that we have projected for this year was a 50-basis-point improvement, which is something around 10.45% of the upper gap. For next year, another 50-basis-point improvement has been projected. So that was around 10.95%. 11.5% for '25-'26, we haven't projected. And I remember that we have not shared on the call also. But yes, we see that 11% is a healthy margin, looking at a diversified business and the industry as well as the global scenario. INR 4,500 crores of turnover, yes, that we have projected for FY [indiscernible].
As far as turnover is concerned, INR 4,500 crores. I think there is no reason that we should not achieve it. We can achieve it in FY '25, '26, subject to things moving in the right direction. As far as EBITDA is concerned, we haven't projected 11.5%. For next year, we have kept a correction of 50 basis points from 10.45%, which was the upper range for this financial year. So that was around 10.95%, and we have projected that will be between 10.5% to 10.9% in FY '25, '26.
And sir, there were some new lines which were to be on stream for January '25. So are we done with that, and will that be contributing towards Q4?
Yes, the lines are ready, but I think the volumes will be coming in Q1 of FY '25, '26 because some testing is going on from the customer side. So there's a little bit of delay from the customer side. But from our side, we are ready with the line. So I think the volumes will hit in Q1 of FY '26.
And sir, lastly, on the overseas subsidiary losses, can you give the absolute number for this quarter and the 9 months? How has the contribution from the overseas subsidiary been?
At the PBT level for overseas subsidiaries combined, we have sustained a loss of INR 17.35 crores. And for Q3 at a consolidated level, it is INR 10.78 crores.
Taking into account the current environment, should this trend continue for Q4 also?
Q4 also, we had discussions with the overseas team. They are seeing that the volumes are rebounding. So I think there should be an improvement in the numbers once the Q4 numbers are in front of us. The losses should reduce, but let's see how Q4 is and how the volume depends on what policy the U.S. adopts in the coming period.
Sir, a small point to conclude, the way the 9-month growth numbers, should we be looking to end the year on the same pace in terms of the revenue trajectory for the current financial year? We are already halfway through the quarter.
So taking that into account, we should achieve INR 4,000 crores of revenue for this current financial year that we are projecting on.
And should margins improve for Q4, or will it follow the same trajectory as Q3?
There should be an improvement in margins in Q4 because if you see for this quarter, the major drag has been due to overseas business in terms of revenue and profitability. As far as the Indian operations are concerned, they have shown a very good improvement in terms of margins and turnover. So for the fourth quarter, even if overseas business improves, the margins should be better compared to Q3.
And sir, two points; firstly, on RM. What are the key constituents of RM? And secondly, last time, you mentioned we are creating a presence in some products in their nascent stage. That market will grow. I think you were referring to the EV space. In terms of the breakthrough and the EV ecosystem currently, what we are hearing from Europe and other economies regarding EV adoption taking a backseat and hybrid gaining ground, [indiscernible]?
Would you like to answer this question?
All right. Where EVs are concerned, while there is a little bit of a slowdown in the EV space, the fortunate thing for us is that because we have a completely localized solution, the dependence on China being brought down, we are gaining traction more than some of the others. Therefore, we see an improvement in our traction towards more growth in the EV sector. However, EV has always been a question mark and will remain a question mark. Today, we are listening to a lot of things where they say that hydrogen may be the fuel of the future. We will have to wait and see. I understand that companies like BMW have stopped working on battery technologies for the future and are concentrating on hydrogen. So we will have to wait and see. But for us, the investment that we have made in the EV space, which is largely for two-wheelers in the form of battery chargers and motor controllers, we have traction and you will see growth there on a regular basis.
And lastly, sir, in your presentation, if we can provide the debt number breakup also, which Yashpal answered for the previous participant?
Sure, we can do that. If you want, we can repeat it again. [indiscernible] working capital term loan. But in the presentation, yes, sure, Yashpal, we would be happy to give you that. Do you want the breakup of the debt?
You gave, sir. You gave it, and I have noted it down. Only one more suggestion was there, sir.
If we can arrange this conference call for the investors and the analyst community in the second half of the day, I think so we can have better participation than the very early morning hours of 10 a.m. It's a basic suggestion I have since now we are at the fag end of the earnings call. We have ample space. If the management can suffice with that request at 4:00 p.m. or 3:30.
We'll explore that. We'll explore with our research agency as well as the Chorus team also, how that works.
[Operator Instructions] The next question is from the line of Jyoti Singh from Arihant Capital Markets.
Sir, my question is on the sheet metal side. As earlier last Q2, we have seen double growth in this segment. So going forward, what are our expectations? And earlier we were current utilization around 55% to 82%. So what's the current utilization and any additional CapEx on that side?
Yashpal, do you want to comment?
Yes. So like in sheet metal, as you can see that we have been doing we set up new facilities over the last 4 years, we have set up 4 new manufacturing facilities in sheet metal. And the customer response has been good. This time also in 3 months quarter 3, the share is 15%, sheet metal 14%. As of now, we are in the process of developing some new more products because there has been some slowdown from the customer side in some of the models.
So on a continuous basis, we see a growth of sheet metal and it's operating presently at 80%, 85% in between [indiscernible] and there is no major project coming up in sheet metal, which requires a heavy CapEx. It's a routine CapEx like adding 1 or 2 machines or adding 2 facilities -- I mean, not facilities within the -- I mean, set of plant and assets. That is how. But we are not expecting any major organic CapEx to be pumped into the sheet metal business.
Yes. We need to optimize the facilities that have already been put into place. And as Yashpal Jain said, all we will need is probably some balancing equipment, which will open up the capacity even further more for utilization as we go forward. The traction is good. The growth is good and the double-digit growth that we are looking at in the sheet metal business so far will continue as we go forward.
Ms. Jyoti, does that answer your question?
Yes. So I'm asking another question on the product pipeline side. Sir, if you can explain like last quarter, you mentioned multiple parts were under development and that come in 2026. So if you can comment on that side?
Yashpal, you have a list of the sheet metal parts coming in, right? [indiscernible] or all parts?
Sheet metal side, sir.
Yes. Actually, the list is very lengthy. But in a nutshell, I can say that the parts are under development and more parts around 18 to 20 new parts will be added in the pipeline to our business. Some of them will be in this quarter, in quarter 4, and the remaining will be in Q1 of FY '26. Just to point out here the development of part is consistent to the business. It is a continuous process as and when the customer asks us. So 18 to 20 new parts will be added over a period of next 3, 4 months. And that will be added up in a turnover in the coming period of time. And that keeps on going up. It's not that the activity stops at some point of time. It is a regular activity.
But if you want a little more details, I can only add that a large part of it has to do with bodies, frames, and so on and so forth. There are large parts which are being fabricated.
And sir, just last question on the overall industry basis because most of the auto ancillary companies, they are facing issue to not getting more orders and issues on the European and U.S. sides. So when we are seeing -- we are expecting and seeing the recovery on that side?
Well, right now, Jyoti, you'd be happy to know we don't have a shortage of orders per se. Yes, the industry slowed down a little bit. But despite the industry slowing down, we are outperforming the market on account of the addition in our wallet share of new components that are being given to us. We are very hopeful that this trend will continue. We are seeing that the industry itself is also picking up. So if the industry picks up, quarter 3 was not a good quarter for the industry. But despite that, we seem to have done well. We will continue our outperformance, and that is our plan, and that is what seems to be on the table as we sit today.
If I can squeeze one more question. On the Hyundai side, what's the update on that side that we started scheduled on March and originally in numbers?
Yes. So Hyundai, the mirrors are ready. They are now being tested as we speak. That project was a little delayed by Hyundai because this was import substitution completely. It has now been agreed that the products that we have supplied are being tested right now in Korea and also in the Endurance test in India. So this whole project got delayed, and I understand now the SOPs now begin somewhere in the month of July or August. That is when the full-fledged thing will get converted into our products being supplied locally.
[Operator Instructions] The next question is from the line of [indiscernible], an individual investor.
I want to ask how much of margin improvement can be seen on account of the smart lock production. I guess in the last con call, you spoke about the smart locks are going to be manufactured from the month of Jan. My question is, has the supply started for that bit? And also, are we going to see a good improvement in margins because of this part?
Yes. So the quick answer is yes. We started our supplies to Suzuki motorcycles, for example, that started, but the volumes were low. We have now been -- these are now being ramped up to a level of almost 20,000 a month, which should happen as we speak, starting from March. And for the next year, the volumes look very, very healthy. In terms of the margins of the business, yes, the margins are higher, both in terms of percentage, but because the product value itself is about 10x higher than the regular locks that we do, we expect the volume of profit would be much higher. Does that answer your question, sir?
So that is going to reflect in the Q4 results?
Some part of it, a small part will, but most part of it will reflect in the next year from the first quarters of the next financial year.
The next question is from the line of Shailly Jain from Dolat Capital.
Sir, the tax rate was really higher for this quarter. So what kind of tax rate are we looking for the whole year and FY '26?
[indiscernible].
Yes, yes.
The taxation rate [indiscernible] is 25.17%. 27% was a deferred tax impact also.
[Indiscernible]. So the standard rate of taxation is 25% for our company, right? And the changes in the tax rate many times happen because of the changes in the overseas because we are consolidating along with the overseas accounts. But on an overall basis, it remains to be 25% for us. And there's always an impact of deferred tax. So sometimes it increases the tax content, and sometimes it decreases the tax content. This is a change. Otherwise, the standard rate remains the same.
And one more question was there could you please run me through your JV performance, how is Sandhar Amkin doing? And what sort of revenue did they make for this quarter?
Yes, sure. So I can give you a revenue for quarter 3 also. And if you want 9 months, I can provide 9 months' figures also. While Sandhar Amkin is back into the profits from the last couple of quarters. And as far as another entity, Winnercom you have asked?
Yes, [indiscernible].
Winnercom is again in profits. So if you ask me for quarter 3, Sandhar Amkin has done a profit of INR 95 lakhs, and Winnercom has made INR 75 lakhs. And this company has made a profit of INR 1.6 crores. And for 9 months, the profit of Sandhar Amkin has been INR 3.29 crores. Winnercom has been INR 2.2 crores Sandhar Amkin has been INR 3.31 crores. [indiscernible] Sandhar has done a turnover of INR 5 crores, Winnercom INR 4 crores and INR 2 crores has been [Indiscernible]
And how are we doing on our vision and locking system?
Which one? Can you repeat the question?
How are we doing with our locking system and vision systems?
Yes. The locking and vision system is going well as usual. We have around 25% of revenue contribution from locking and vision combined together. And they are at better margins this year compared to the last year, except the 4-wheelers where we are facing some down volumes from Honda side. 2-wheeler is doing better.
So how are we planning to let's say, revise this for 4-wheelers? Is this trend going to be on a similar side? Or do you think this trend needs to be changed?
There are new models coming in, and those new models are going to be launched. And we are very hopeful that this thing will change. We're also aware of the Hyundai business, which we spoke about in the previous question. With all the new businesses being added, which are better margin businesses, we will see a reversal in the next year in the 4-wheeler business.
The next question is from the line of Pritesh Chheda from Lucky Investments.
Sir, the South-based OE or 2-wheeler OE, what is the percentage of your sales?
When you say South-based, are we talking about TVS? Are we talking about Royal Enfield? Are we talking about Honda?
TVS.
TVS I think in all our businesses put together, including the new sheet metal business, which has also been added, I think we are close to about 30%. What is the number, Yashpal?
32%, sir.
32%.
And what was the growth in 9 months for this OE for us?
So 9 months or year-on-year, you want to say?
Yes, 9 months this year versus 9 months last year.
The business [indiscernible] over revenue last year was 30% of our revenue. So the OE has grown 20%.
And the sheet metal, what is the total investment that you had done in sheet metal?
Sheet metal total investment, you want the combined total business, including North?
Yes. Whatever plants you have put for sheet metal in the recent--
We have put up 4 plants in recent times in the last 3 years in sheet metal. The total investment has been between INR 280 crores to INR 290 crores in the sheet metal business in the last 3 years.
And the asset turn on this?
What is the revenue out of this so far?
So the asset turn is close to 2.5x as of now. 2.5x.
Actually, there are no further participants. I now hand the conference over to the management for closing comments.
Sure. All right. In that case, let me thank all the participants who joined us this morning. We will also keep into consideration the request that this be done in the afternoon. We'll see in case that is possible today, keeping all the aligned parties in check. We do, like Yashpal Jain said, the forecast for this quarter seems to be better than what it was last year. We are also quite confident of achieving what we had set out to achieve in terms of our business plan at the end of this financial year.
Once again, I want to thank Dolat Capital and everyone who put this call together. We, as a company, are open to taking your questions even individually whenever you want any more information, and we'll revert to you in the shortest period of time. With that, I want to thank you all once again, and all the best.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.