Revenue
Margin
Demand
Guidance
Tone
Shanthi Gears Ltd - FY2025-26 (Annual) Annual General Meeting Conference Wednesday, July 29, 2026, 4:30 PM IST
Event Participants
Executives
10
M.A.M. Arunachalam, A. Venkatramani, Arna Tangraj, Arun Venkatachalam, K. Irango, K. Karunakaran, Mukesh Ahuja, S.K. Sundararaman, Sukantha Kumar Panigrahi, Walterson P.J.
Analysts (Shareholders)
7
Henil Bagadia, Himanshu Trivedi, Jay Abhishek, Manoj Bagadia, Pooja Vardarajan, Rangan Venkataraman, Rohit Vinod Kumar
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue from Operations | ₹518.72 crores | Down 14% YoY from ~₹603 crores; weak demand across steel, cement, and power end-markets, delayed customer capex, and pricing pressures |
| EBITDA | ₹123.54 crores | Declined in line with revenue; margin ~23.8% supported by disciplined cost management and operational excellence |
| Profit After Tax | ₹76.66 crores | Down YoY; PBT dropped 21% due to revenue decline and lower capacity utilization |
| Order Book | ₹638 crores | Up 24% YoY from ₹515 crores; momentum recovered sharply in Q4 after flat Q1-Q3 (~₹150 crores quarterly); unexecuted order book as of 31 Mar 2026: ₹350 crores |
| Capital Expenditure | ₹64 crores | Highest-ever annual capex; new machinery expected to improve productivity by 30-50% across areas |
| Free Cash Flow | ₹30 crores | FCF-to-PAT conversion at 39% |
| ROIC | 39% | Registered despite dilution from higher capital investment base |
| EPS | ₹8.32 | — |
| ROE | 16.93% | — |
| Dividend | ₹5.00 per share | Comprising ₹3 interim already paid plus ₹2 final dividend recommended |
Geographic & Segment Commentary
- Exports: Export contribution remains negligible as a percentage of sales; management is building a route-to-export strategy anchored on OEM credentials. Won "best partner" awards from Voith (western India; railway gears and couplings) and Plasser India (largest railway equipment manufacturer in India) — both European manufacturers, positioning the company to push products into Europe once India credentials are established. Management guided exports to reach 13% of sales.
- Legacy vs. Emerging Segments: Traditional revenue base from steel, cement, and power was the primary drag in FY26. Focus is shifting to construction, renewable power, process chemical, and machine tools. New product development worth ₹120 crores was completed during the year — ~30% of the product pipeline now derives from new products. Potential revenue from newly developed products is ₹50 crores over two years, with cement/construction product groups offering a combined ₹120 crores revenue potential.
- Wind Energy: Industry migrating to 3-5 MW turbines with offshore wind expected; company has core capability in large planetary gears and wind gearbox servicing, but no publicly validated proofs-of-concept for 3-5 MW or offshore platforms. OEM qualification required to participate in next-generation wind projects.
Company-Specific & Strategic Commentary
- Capacity & Capability Expansion: Commissioned a new 13,000 sq ft bay enabling gearbox manufacturing up to 80 tons (up from 40 tons previously); gear manufacturing capability extended to 3.2-meter diameter. New machinery installed under FY26 capex delivers 30-50% productivity gains. FY26 capex of ₹64 crores is part of ~₹120 crores invested over the last few years.
- Shanti Rebuild (Aftermarket): Launched OEM-certified refurbishment, multi-brand service capability, AMCs, condition monitoring, spares, and retrofit solutions targeting India's estimated ₹800 crores in customer self-serviced repairs. Converting even 10-15% of this market over 3-5 years could add ₹80-120 crores of high-value service revenue. Gearbox lifecycle aftermarket spend is typically 1.3-2x original equipment value.
- Product Development Pipeline: Developed ₹120 crores worth of new products targeting construction, renewable power, process chemical, and machine tools sectors. New products expected to constitute ~30% of the product portfolio.
- Defense & Aerospace Certification: Holds AS9100D and IRIS certifications; India has an estimated 80-120 AS9100D-certified companies but only a limited number with advanced precision gear manufacturing capabilities, positioning Shanti as a niche player.
- EV Ecosystem: Actively evaluating opportunities in gearing and transmission for EVs; focus on strategically aligned and commercially viable programs, leveraging existing engineering and manufacturing capabilities. Collaboration with group companies (TI, CG Power) continues to be evaluated.
- CSR Initiatives: Planted 36,000 trees across ~60 acres in FY26 (target: 100,000 trees by 2030); constructed two classrooms (1,650 sq ft) benefiting ~120 students; installed an X-ray machine in a nearby village.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | Double-digit growth in FY27 | Driven by industrial infrastructure and manufacturing investments; increasing demand for high-precision gears from core industries; healthy order book up 24% |
| Capital Expenditure | ~₹150 crores planned | Continues capability-building program; management expects investments to translate into output as utilization on standard product lines improves |
| Export Mix | 13% of sales | Anchored on OEM credentials with European manufacturers (Voith, Plasser) and route-to-export strategy |
| Aftermarket Revenue (Shanti Rebuild) | ₹80-120 crores over 3-5 years | Assumes conversion of 10-15% of the ~₹800 crores customer self-repair market |
| Margin Improvement | Management committed | Via value engineering, cost optimization, productivity enhancement, lean manufacturing, and better procurement |
Risks & Constraints
| Risk | Context |
|---|---|
| Sustained Demand Weakness | First revenue decline since COVID; lower inflows in first three quarters of FY26 drove the 14% top-line drop. Q1 FY27 continues the trend — revenue down 15% YoY and profitability down 54%, with higher input prices compounding pressure. Management expects recovery, but near-term demand visibility remains uncertain. |
| Competitive & Pricing Pressure | Pressing pricing pressures in the market and competition from Chinese imports in low-value gearboxes. No government protection barriers were mentioned; management must defend share while maintaining margins. |
| Capex Payback / Utilization Risk | ~₹120 crores invested over 4 years with revenue moving from ₹450 crores to ₹518 crores (after a ₹600 crore peak). Standard gear lines are operating at significantly lower utilization than critical/high-precision lines, creating near-term absorption risk before new products generate returns. |
| Export Execution Risk | Exports have historically remained negligible despite repeated emphasis; the strategy depends on translating OEM credentials (Voith, Plasser) into European order flows. |
| Wind/Offshore Qualification Gap | No publicly validated POCs for 3-5 MW or offshore wind gearbox platforms; OEM qualification timelines could delay entry into India's next-generation wind projects. |
Q&A Highlights
Revenue Decline & Shareholder Communication
- Question: Share price has fallen from ₹600 to ₹440; what is the three-year growth plan, and why did profitability decline so sharply? Also requesting more frequent shareholder communication beyond the annual report. (Rangan Venkataraman, Rohit Vinod Kumar)
- Answer: Management attributed the decline to weak end-user demand (steel, cement, power), delayed customer capex, lower capacity utilization, and pricing pressure. On communication, shareholders requested a one-pager at end of each quarter explaining performance drivers. Management committed to improving engagement, including plant visits arranged through the company secretary. (Management)
Capex Payback & Growth Trajectory
- Question: With ~₹120 crores cumulative capex over four years, why has revenue moved only from ₹450 crores to ₹518 crores after peaking at ₹600 crores? What is the gestation period and split between volume vs. capability capex? (Henil Bagadia)
- Answer: Management reiterated demand headwinds as the key bottleneck; capex is aimed at positioning for long-term growth. Capacity utilization is not disclosed product-line-wise for competitive reasons — critical/high-precision lines operate at significantly higher utilization than standard lines. Immediate focus is on raising utilization of standard lines through market expansion. Double-digit FY27 growth is guided on the back of a 24% higher order book. (Management)
Shanti Rebuild & Aftermarket Opportunity
- Question: What is the target market and current revenue for gearbox retrofit/repair, and how does it compare with the ₹800 crores industry self-repair market? (Henil Bagadia)
- Answer: India's customer self-serviced repair market is estimated at ~₹800 crores. Converting even 10-15% of this over 3-5 years could add ₹80-120 crores of high-margin service revenue. Gearbox aftermarket spend over lifecycle is typically 1.3-2x original equipment value, making services a high-margin recurring opportunity. Shanti Rebuild is scaling via OEM-certified refurbishment, multi-brand service, AMCs, condition monitoring, and retrofit solutions. (Management)
Growth Limitations & Group Synergy
- Question: With strong promoters (Murugappa) and no capital constraints, what has limited growth? What group synergies exist, and when will the company cross ₹1,000 crores revenue? (Manoj Bagadia, Rohit Vinod Kumar)
- Answer: Management acknowledged the company is among the smallest in the Murugappa group and pointed to capability building and market development as the core path forward. The 2026 plan of ₹150 crores capex and new product development (~₹120 crores developed in FY26 with ~₹170 crores revenue potential over 2-3 years) are the primary growth levers. No explicit timeline was given for the ₹1,000 crore milestone. (Management)
Market Share, Competition, and EV Strategy
- Question: What is domestic/international market share, who is the best competitor, what is the projected profit margin, and what are EV plans? (Himanshu Trivedi, Pooja Vardarajan)
- Answer: Market share figures were not disclosed. Management continues to evaluate EV opportunities in gearing and transmission, pursuing only strategically aligned and commercially viable programs. Exports remain an important growth area with focus on strengthening presence in existing international markets and expanding customer engagement. Bharat Gears was referenced by a shareholder as a peer doing well. (Management)
Defense/Aerospace, Wind, and Rail Opportunities
- Question: How many Indian companies hold AS9100D certification, what is Shanti's defense market share, what is the wind opportunity at 3-5 MW, and what is the rail order pipeline? (Henil Bagadia)
- Answer: India has an estimated 80-120 AS9100D-certified companies, but only a limited number with advanced precision gear capabilities; Shanti is uniquely positioned with AS9100D and IRIS certifications. For wind, the company has core capability in large planetary gears and wind gearbox servicing, but no publicly validated POCs for 3-5 MW or offshore platforms — OEM qualification is required to unlock next-generation wind projects. (Management)
Key Takeaway
Shanthi Gears posted a difficult FY26 with revenue of ₹518.72 crores, down 14% YoY — its first decline since COVID — due to weak demand across steel, cement, and power, delayed customer capex, and pricing pressure. EBITDA of ₹123.54 crores and PAT of ₹76.66 crores declined in tandem, with Q1 FY27 continuing the slide (revenue -15%, profit -54%). Despite this, the company executed its highest-ever capex of ₹64 crores, expanded capacity from 40 to 80 tons (new 13,000 sq ft bay, 3.2-meter gears), and developed ₹120 crores worth of new products targeting construction, renewable, process chemical, and machine tool sectors. Order book grew 24% to ₹638 crores, underpinning management's double-digit growth guidance for FY27 supported by a planned ₹150 crores capex. Key strategic levers include exports targeting 13% of sales (anchored on Voith and Plasser OEM credentials), the Shanti Rebuild aftermarket play (₹80-120 crores potential), and defense/aerospace positioning via AS9100D and IRIS certifications. Watch factors: sustained Q1 weakness, standard-line capacity utilization, Chinese import competition, and wind/EV qualification timelines as the company executes its "revive, rebuild, and grow" agenda.