Metrics raised 1
- FY27 M&HCV industry volume outlook raised to -5% to -10% decline (from -15% to -20% decline previously), with best case flat at FY26 levels
Event Participants
Executives
3
Nagaraja Gargeshwari (President & Whole Time Director), Raman K. (Interim CFO), Kishan Kumar Udupi (Whole Time Director, Meritor HVS India)
Analysts
8
Kapil (Individual Investor), Milan Jain (Green Portfolio), N. Modi (Individual Investor), Saket Kapoor (Kapoor & Co.), Samarth Shedshale (Janak Merchant Securities), Shikha Mehta (Time and Tide Advisors), Sukrit Patel (iSight Fintrade), Unidentified Participant
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue from Operations | ₹5,168 million (₹517 crores) | Down from ₹669 crores in Q4 FY26 due to seasonally lower market; Q1 typically sees ~30% dip in industry volumes |
| Other Income | ₹103 million | Includes treasury and non-treasury income; aided by market recovery |
| Raw Material Cost | ~65% of revenue | Helped by small one-offs and favorable product mix |
| Employee Expenses | Lower QoQ | Workforce pulled back after Q4 peak volumes; prior quarter had long-term settlement impact |
| Other Expenses | ₹813 million | Largely in line with revenue; absorbed LPG cost increases and higher tools/consumables |
| EBITDA | ₹702 million (13.6%) | Highest ever EBITDA margin; up from 12.4% QoQ and 11.7% YoY |
| EBIT Margin | ~12% | ~1% improvement QoQ, ~2% improvement YoY |
| PAT | ₹455 million (₹452 million net of OCI, 8.7% margin) | Highest Q1 EPS in last 4 years |
| EPS | ~₹30 | Record for Q1 in last 4 years |
| Exports as % of Revenue | ~13% | Slightly better than traditional 8%-12% range |
Geographic & Segment Commentary
M&HCV Domestic Market: Industry volumes in Q1 FY27 came in at ~110,000 vehicles, one of the highest Q1 levels in several years despite the typical seasonally weak quarter. FY26 ended at a peak (480,000 industry volumes), close to FY19 levels. Q1 momentum carried forward from Q4 FY26, with OEMs maintaining production and sales across both retail and dealer channels. The replacement cycle (2017-18 vehicles now reaching 7-9 year service life) is driving demand, along with a shift toward heavier GVW vehicles and higher horsepower applications. The revised FY27 industry forecast is 5%-10% lower than FY26, with best case matching last year's volumes.
Export Business: Exports primarily go to Cummins Drivetrain Systems (CDBS) global entities, with ~13% of revenue in Q1. The company is deliberately evaluating where India can play a larger role in the global Cummins Drivetrain supply chain. Sea freight rates remain volatile and unpredictable, but exports are largely ex-works, providing some customer support on logistics.
Defense & Mining: Defense contributes approximately 5%-10% of revenue depending on tender awards, but requires a long gestation period (3-10 years from RFQ to SOP) and significant investment for unique products. Mining is not being actively pursued due to low volumes in India and a very different product profile from on-highway applications.
Company-Specific & Strategic Commentary
Capacity Expansion: Phase 1 and Phase 1A capex is ~40% complete, with some production already started. The capacity investment is designed to support 25%-30% capacity improvement over 2-3 years, preparing for expected Q4 FY27 peak demand and potential export opportunities.
Automation & Productivity: Management is focused on bringing in more automated lines, improving safety, quality, and productivity to strengthen both top line and bottom line performance.
New Product Launches: A new 160 tandem axle is in pilot batch and entering production mode with one of the last customers. The bus axle program is progressing through validation, with design iterations required to meet upcoming pass-by noise regulations (HTFE Phase 1B norms expected by 2030).
Regulatory Preparedness: Management assessed upcoming regulations through 2030 including ABS norms, Type II endurance braking, BS7, pass-by noise norms, and HTFE Phase 1B. While emission-related changes have minimal impact on product lines, noise regulations require product refinement. The company's product strategy is well-aligned with the industry shift toward 300+ horsepower in heavy-duty applications and the growing 4x2 tractor trailer segment.
Meritor/Cummins Collaboration: Continued support from Meritor via technology licensing, India-specific product testing, application analysis, customer engagement support, and product strategy formulation. The service agreement extends through 2027 and beyond.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| FY27 Industry Volumes (M&HCV) | 5%-10% lower than FY26; best case flat | Revised from initial 15%-20% degrowth forecast; delayed monsoon helping freight movement; Q4 expected to be peak quarter |
| PAT Margin (Near-term quarters) | 7.5%-8.5% range | Management expects to operate within this band for the next few quarters |
| PAT Margin (2030 horizon) | Upward trajectory | Market growth plus additional capacity expected to bring economies of scale benefits |
| Capacity | 25%-30% improvement | Phase 1 and 1A capex ~40% complete; designed to handle peak volumes and export opportunities |
| Exports | 8%-12% of revenue range for full year | Q1 came in at 13%; could fare better if opportunities arise |
| Bus Axle Launch | In pipeline; validation ongoing | Additional design iterations required for noise regulation compliance; management emphasizes long-term presence over short-term market share gain |
Risks & Constraints
| Risk | Context |
|---|---|
| Monsoon Impact | Delayed monsoon currently helping freight movement, but management flagged monsoon as a key headwind to watch. Poor monsoon could dampen rural demand and freight activity in H2 FY27. |
| Geopolitical Tension | Energy prices (LPG) and freight costs impacted by geopolitical situation; management absorbed cost increases in Q1 but is in negotiations with customers for offsets in future quarters. |
| Competitive Pressure (American Axles) | Bharat Forge's acquisition of American Axles India business noted as potential competitive factor. Management views overlap as minimal today with different product focus areas, and sees existing product strategy and manufacturing capability as key defense. |
| Regulatory Changes | Upcoming pass-by noise norms require design iterations on bus axles; BS7, ABS norms, and Type II endurance braking anticipated through 2030 but expected to have minimal impact on product lines. |
| Freight/Logistics Volatility | Sea freight rates remain unpredictable; company planning ahead and leveraging ex-works terms with customers to mitigate. |
| Demand Cyclicality | M&HCV industry is cyclical with seasonal peaks (Q4) and troughs (Q1). |
Q&A Highlights
Capex and Capacity Strategy
- Question: What's the split between genuine growth capacity versus equipment replacement, given industry volumes are expected to remain broadly flat till FY30? (Milan Jain, Green Portfolio)
- Answer: Challenging to split precisely; capex is for upgrading existing lines and replacing with automated equipment. Aiming for 25%-30% overall capacity improvement to handle peak volumes, market growth over next 2-3 years, and export opportunities. (Nagaraja Gargeshwari)
Competitive Positioning with American Axles
- Question: How are export and OEM opportunities allocated between American Axles and Automotive Axles, following Bharat Forge's acquisition? (Milan Jain, Green Portfolio)
- Answer: American Axles and Automotive Axles are competitors; company has no information on competitor plans. Focus remains on existing customers, increasing share of business, and acquiring new customers within CDBS global entities. Overlap in product portfolios is minimal today. (Nagaraja Gargeshwari; Kishan Kumar Udupi)
Margin Outlook
- Question: Is the margin expansion due to a price hike, and what's the sustainable EBITDA/PAT margin going forward? (Saket Kapoor, Kapoor & Co.)
- Answer: PAT margin range of 7.5%-8.5% is the broad band for near-term quarters. By 2030, market growth and capacity addition should bring economies of scale, moving margins up. Steel prices are passed through to customers on a back-to-back basis; conversion cost increases were absorbed in Q1, with negotiations ongoing for future offsets. (Raman K.)
Industry Volume Forecast Revisions
- Question: What led to the revision from 15%-20% degrowth to 5%-10% lower? (Saket Kapoor, Kapoor & Co.)
- Answer: Initial projection was based on FY26 ending at peak (480,000 units) with geopolitical headwinds. Revised forecast reflects delayed monsoon supporting freight movement, festive season expectations, and strong Q4 outlook. Best case: industry matches last year's volumes. (Kishan Kumar Udupi)
Market Share with Ashok Leyland
- Question: Did the company lose market share with Ashok Leyland in Q1, and is the sole supplier position of 30%-50% still intact? (Samarth Shedshale, Janak Merchant Securities; Shikha Mehta, Time and Tide Advisors)
- Answer: Sales dip is due to product mix and seasonal shifts, not loss of share of business. "Broadly, yes, we have maintained our market share with Ashok Leyland." The company aims for single-source status on new product launches, though OEMs have dual sourcing strategies. Revenue decline of 5% vs. industry decline of 30% indicates strong relative performance. (Kishan Kumar Udupi)
Bus Axle Regulatory Status
- Question: Is the low-floor bus regulation issue resolved, and what's the product launch roadmap? (Saket Kapoor, Kapoor & Co.; Shikha Mehta)
- Answer: The floor height regulation ambiguity is behind us; OEMs now have different approaches, most not requiring a completely different product. However, the company is re-evaluating product spec for upcoming pass-by noise regulations. Additional design iteration needed on gears and components; validation in progress. (Kishan Kumar Udupi)
Defense Sector Strategy
- Question: What percentage of products are in defense and mining, and is there a plan to increase share? (Kapil, Individual Investor)
- Answer: Defense contributes 5%-10% of revenue depending on tender awards. Long gestation (3-10 years from RFQ to SOP) and unique investment requirements make it a careful consideration. Mining not actively pursued due to low volumes and distinct product requirements. Focus remains on M&HCV without compromising that business. (Kishan Kumar Udupi)
Meritor Support and Collaboration
- Question: What support is Meritor providing, and how does the collaboration work? (Kapil, Individual Investor)
- Answer: Meritor provides new product licensing, testing for India-specific applications, design updates, endurance testing, application analysis, customer engagement support, and product strategy formulation. Continued under service agreement through 2027 and foreseeable future. (Kishan Kumar Udupi)
Export Mix and Logistics
- Question: What's the Meritor vs. non-Meritor export mix, and are there logistics issues? (Unidentified Participant)
- Answer: Exports go exclusively to CDBS global entities. Sea freight rates are unpredictable and challenging; company plans ahead, especially for imports, and benefits from ex-works terms on exports. No major hurdles currently. (Nagaraja Gargeshwari)
Key Takeaway
Automotive Axles reported its highest-ever EBITDA margin of 13.6% in Q1 FY27 (revenue ₹517 crores, PAT ₹45.5 crores, EPS ₹30), despite a seasonally weak quarter and M&HCV industry volumes declining ~30% QoQ, driven by favorable product mix, lower employee costs, and one-off raw material benefits. Management maintained share of business with Ashok Leyland and strong export performance at 13% of revenue. The company's Phase 1/1A capex is 40% complete, targeting 25%-30% capacity improvement, positioning for a strong Q4 FY27 peak and export growth. Management revised FY27 industry volume outlook from -15%-20% to -5%-10%, with best case flat at 480,000 units, citing delayed monsoon support and replacement-cycle demand. Near-term PAT margin guidance of 7.5%-8.5% is expected to improve by 2030 with scale benefits. Key watch points include monsoon developments, geopolitical cost headwinds (LPG, freight), bus axle launch timeline pending noise regulation compliance, and competitive dynamics with American Axles in the heavy-duty segment.