AUTOAXLES - Automotive Axles Ltd. Share Price

Automotive Axles Limited provided an outlook indicating a cautious but optimistic approach as they navigate a softened market. Despite challenges from a declining domestic and export market, management expects to improve both top-line and profitability through strategic initiatives and product development.

For FY26, they anticipate that the Medium and Heavy Commercial Vehicle (MHCV) market may contract by about 3-4% in unit terms, signaling a challenging environment ahead. However, they project that their EBITDA margins will improve modestly compared to the current year, driven by better product mix, operational efficiencies, and cost optimization strategies. Management aims for a top-line growth with a goal of reaching INR5,000 crores in revenue within five years, focusing on developing high horsepower vehicles and enhancing their offerings in the bus market.

Key highlights include:

• FY25 total income was INR 2,104 crores, down 6.2% from the previous year; EBITDA was 11.9%, slightly improving from 11.8% last year.
• The company will invest INR 120 crores in capex to modernize manufacturing infrastructure, impacting the growth trajectory.
• They are set to introduce new products, including the MS 185 axle and a bus axle designed for higher tonnage applications, which are already in the testing phase.
• Management indicated that a strategic partnership with Meritor for technical and management services will support their product offerings and market intelligence.
• They expect the shift towards electric buses to be a gradual process and are positioning their products to meet future demands.

Overall, while the outlook reflects sobering market conditions, the strategic focus on efficiency, new product launches, and the adaptation to evolving transport trends provide a framework for potential growth.

Here are the major questions asked during the Q&A session, along with their detailed answers:

Question 1: "Can you broadly give some more color in terms of what is the service fee which is agreed upon with Meritor HVS? Is it a percentage of sales? What proportion was OE and what proportion was export and aftermarket to them?"

Answer: We signed an agreement with Meritor HVS where a technical and management fee is involved, which we will finalize soon and will be reflective of the fair market value. As for the second part, the revenue will predominantly come from domestic OEM sales, with exports and aftermarket making up a smaller proportion of our previous sales model.

Question 2: "How much of the FY '25 capex was dedicated to R&D or EV-specific product development?"

Answer: Currently, our capex is focused mainly on manufacturing infrastructure and tooling for products like MS185. We haven't allocated significant funds specifically for e-Axle development as our emphasis remains on enhancing manufacturing excellence.

Question 3: "Can you share any productivity improvements or cost savings achieved from the new Industry 4.0 enabled axle assembly line?"

Answer: Our Industry 4.0 initiative is a long-term strategy aimed at reducing throughput times and boosting both productivity and capacity through automation. While we see gradual improvements, tangible benefits in financial statements will depend on market volume recovery.

Question 4: "Could you outline the business environment in terms of the ICV market and bus market?"

Answer: The economic indicators suggest a soft environment. The MHCV market is projected at around 400,000 units for FY '26, down from the previous years due to recovery cycles reset post-COVID. We are positioning ourselves to address gaps with new product developments.

Question 5: "How should investors factor in the EBITDA trajectory for the current financial year?"

Answer: Expectations for FY '26 EBITDA show marginal improvement despite soft market conditions. Initiatives in new product development and operational efficiencies will enhance our bottom line, although substantial growth won't be seen unless overall market volumes improve.

Question 6: "How do you foresee electrification impacting your sales, especially concerning new bus orders due to state-level pushes?"

Answer: The electrification trend presents opportunities, especially in buses, with our current products already suited for electric applications. While large volumes may take time to emerge, we anticipate that by 2028, nearly 25-30% of state transport will shift to electric, benefiting us.

These responses provide a comprehensive view of Automotive Axles Limited's current business status, challenges, and growth prospects as discussed in the Q&A.