Revenue growth masks margin pressure; FX headwinds outweigh operational gains

Reported PBT ₹140.1 Cr; ex-FX ₹140.8 Cr vs prior ₹120.5 Cr implies 16.9% growth

Management confirmed 8.6% domestic growth vs 8.4% industry, outperformance marginal

Quarterly aftermarket ₹158.4 Cr (+15.6% YoY); monthly peak of ₹63.06 Cr is verifiable claim

Export revenues ₹271.4 Cr (+9.7% YoY); management cautious on double-digit guidance due to geopolitical uncertainty

Industry-wide headwinds confirmed; OEM growth 8.6% shows resilience despite constraints

July volumes 40-42k vs typical 30-32k (monsoon months); management now sees 'good rebound' vs prior caution on April-May labor shortages.

Nominations from 3 major OEMs now in hand; manufacturing starts Q3 FY27 with 40-50% localization, >75% by SOP. Prior call was exploratory; this is actionable.

Aluminum prices falling (₹360→₹335/kg in July) but recovery timeline unclear. Management said 'typically 2-quarter lag' for OEM cost recovery, now taking longer due to conflict.

Prior call expressed confidence; now management refuses to quantify double-digit growth, citing geopolitical uncertainty. Tone shifted from optimistic to cautious.

ESC win is pneumatic-domain only. 12V is intermediate CV segment (pneumatic ESC). Content per vehicle remains same. Company working on LCV expansion via advanced braking; already in hydraulic ESC supply for key OEMs; targeting broader presence in braking segment.

LCV focus on advanced braking first (hydraulic ESC already in supply). ECAS already present with key bus OEMs; potential legislation on ultra-low entry buses. Truck tractor-trailer segment may see ECAS adoption. Software: telematics already available; trailer EBS, PULSE for load monitoring in use; software-defined vehicle at conceptual stage, OEM partnerships being explored.

Yes, nominated with most major OEMs; will retain majority position. Will work with OEMs on ABS plus ESC solutions across Indian market.

Market now offers disconnected AEBS/ADAS from braking (many vendors). ZF is majority player in ABS+ESC; ADAS has many competitors as standalone. In e-bus domain, nominated by few key bus OEMs; offering full EBS+ESC suite as in European market. AEBS supply TBD; must wait for further nominations.

Already 40-50% localization with local EMS partners (ECU and other products localizable). By SOP, >75% localization.

Current quarter shows momentum recovering post-tariff. Actuation products from North America and air compressor portfolio driving growth (produced at Chennai SEZ). Outlook positive but cannot predict double-digit growth due to geopolitical uncertainty. Will be 'definitely looking at a strong rebound.'

Domestic YoY 8.6% (vehicle growth ~8.5%). U.S. and Europe saw ~10% degrowth vs prior year; U.S. bigger decline than Europe. Overall export sales still better than market.

July-Sept typically slow due to monsoon (vehicle production down). This time seeing growth: July 40-42k vehicles (vs typical 30-32k), almost 10k higher. Aug-Sept also at par levels. Good OEM rebound this quarter, growth sector expected.

Aluminum shortage and price spike: ₹260/kg → ₹360/kg (started prior quarter, coming back in July to ~₹335/kg). LPG and oil price increases. Chemical, rubber, plastic price increases. Geopolitical drivers. Started improving July onwards.

FX gain ₹39 Cr (8% favorable forex on service billing). Actuarial valuation one-timers. Total ₹43.7 Cr. Current Q1 only ₹1.98 Cr FX loss + ₹1.2 Cr one-time income = net ₹0.78 Cr FX loss. Delta ~₹40 Cr YoY.

Q1 services ~7.5% growth vs prior quarter. Should remain at this level in coming months. Services from vehicle solutions, integrated brake controls, ops/performance improvements, advanced products, cybersecurity services from India.

Increments across board. Export services recovery ₹8.4 Cr shown as employee cost increase, but also shown as recovery ₹8.5 Cr. Net impact ~₹17 Cr increase in India.

Pass-throughs related to RM commodity inflation and West Asia crisis (LPG, crude-based products). Already recovered one portion; others under ongoing OEM negotiation as they recalibrate books. Typically 2-quarter lag, longer this time due to conflict. Will be secured next quarter.

Already reflected in Q1.

QoQ vs Q4: FX loss ₹2 Cr, CSR expenses up, consultancy and IT costs up, directors' commission, rental expenses for service locations. Total delta ~₹12.4 Cr.

July-Sept volumes tracking 40-42k vs typical 30-32k; Aug-Sept also expected strong. Domestic demand rebound seen as 'good' and growth-supporting for the quarter ahead.

Aluminum, LPG, crude-based commodities are 'key inflation drivers.' Partial recovery realized; balance 'under active discussion' with OEMs. Typically 2-quarter lag, extended this cycle.

New assembly lines for brake actuators, valves commissioned. Oragadam facility scaling ASP cartridge, vacuum pump, e-compressor, brake signal transmitter production.

Aluminum ₹260→₹360/kg (now ₹335/kg), LPG and crude-based products inflated. OEM pass-through partial and ongoing; recovery timeline extended beyond normal 2-quarter lag.

Q1 FY25-26 benefited from ₹39 Cr FX gain (favorable service billing forex); Q1 FY26-27 hit by ₹1.98 Cr FX loss. Rupee weakness could further impact export margins and headline profitability.

West Asia crisis driving commodity spikes (LPG, crude byproducts). U.S. tariff environment remains uncertain; management declines to quantify export growth due to 'geopolitical uncertainties.' Monsoon disruptions affecting trailer demand.

3 major OEM nominations secured; manufacturing begins Q3 FY27. However, volumes, margin contribution, and competitive response from other tier-1s (other OEMs developing ESC in-house or via rivals) are TBD.

OEM cost recovery discussions ongoing; management admits timeline extended due to conflict. No guarantee of full recovery; if OEMs resist, ZF margins could remain compressed.