Ladies and gentlemen, good day and welcome to SKF India Limited Q2 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Cilvina Pereira. Thank you, and over to you, Ms. Pereira.
Good morning, everyone. Thank you for joining us today for SKF India Limited Investors Call for Q2 FY 2026/2027. With us, we have SKF India CFO, Mr. Mayank Holani, our Strategy and Business Development Head, Mr. Girish Kumar, and Company Secretary, Ms. Mayuri Kulkarni. Our Managing Director, Mr. Shailesh Sharma, is unable to join the call today due to some personal situation. The purpose of today's call is to share our Q2 and H1 results, talk about our performance, and answer your questions. Please note that financial information for the corresponding period of previous year, as reported in the presentation shared, has been extracted from the financial statements of erstwhile combined entities and may involve some assumptions by the management pertaining to the demerged industrial undertaking.
These were prepared in accordance with the Appendix C of Ind AS 103 Business Combinations by using the financial information maintained by the SKF India Limited. Before I turn over the call to the management, I would like to remind you that in this call, some of the remarks contain forward-looking statements which are subject to risks and uncertainties, and actual results may differ materially. Such statements are based on management belief as well as assumptions made by and on the information currently available to the management. The audience is cautioned not to place any undue reliance on these forward-looking statements and make any investment decisions. The purpose of today's call is to purely educate and bring awareness about the company's fundamental business and the financial quarter under review. Let me now turn over the call to Mr. Mayank Holani. Over to you, Mayank.
Thank you, Cilvina. Welcome everyone to our Q2 FY 2027 earnings call. I am Mayank Holani, Chief Financial Officer of SKF India Limited. Let me start with the agenda, which is on slide three. We will first cover macro key indicators, then executive summary, followed by quarterly and half-yearly results and analysis, a success story, and last but not the least, our new brand launch globally. In the end, we will take all your questions. Now, moving ahead with key macro indicators, refer slide five. GDP for last quarter is projected to have grown by about 7.35%, while the CPI is continuing its upward trend and reaching around 4.9%. On next slide six, here if you see, IIP is expected to continue the upward trend seen since last few quarters, while manufacturing PMI jumped to 55.1 in September 2026, breaking the downward trend seen from last three months.
Automotive production has also seen an upward trend during last quarter for all the categories, unlike the previous quarter where there was a jump in one category and drop in other, couple of other categories. Now, we move to slide eight, executive summary. You will see, we are glad to inform you that we had a strong year-on-year revenue growth during the last quarter, while quarter-on-quarter, it was marginally positive. Sales figures quoted in the slide do not include other operating income, and these are purely the sales numbers of the products. We have a sales growth of 16% year-on-year, while it is 2% quarter-on-quarter. EBITDA for the quarter improved by 155 basis points year-on-year, while it dropped by 255 basis points versus last quarter. Profit before tax is higher by 181 basis points year-on-year, while it dropped by 252 basis points quarter-on-quarter.
Here, I am referring to the profit before tax number without exceptional items. Further, our net working capital is at 18.8% of sales, which is 2.9% lower than the last year same period. Also, I would like to mention here that our net working capital when compared to the March end, the last financial year end, that has also seen significant improvement. Now, we move to slide 10 regarding our sales performance. Here, you will see the split of our sales performance, and you will see that both for the quarter as well as half year, our sales growth is driven primarily by volume increase with marginal impact coming due to price or mix. Now, we move to slide 11. Here you will see a bit of the mix in within the sales of different components of our business.
For this quarter, OE business accounted for 66% of our sales, while vehicle aftermarket was 19%. Exports had a 10% share, and business with SKF Industrial had about 5% share. When we look at the half year, H1 mix, OE share was 63%, aftermarket 20%, exports 9%, and industrial about 7%. This gives you a fair idea of the mix and how it compared with the previous quarters. Broadly, this mix is in line with the mix we had in the last financial year also, except for the addition of industrial business and a bit of decline in the aftermarket business. Now we move to the next slide, which is on profitability. Here you see a quarter-on-quarter movement of EBITDA and PBT for last five quarters.
EBITDA for this quarter is higher year-on-year, primarily due to contribution from higher volumes, cost leverage, and other income as well. However, when compared to previous quarter, there is a drop primarily because of the high cost of goods sold, contributed by steel price inflation as well as price increase given to suppliers towards value addition. Profit before tax is also impacted due to the same reason by around the similar range. In spite of higher COGS during current quarter, both EBITDA and PBT for H1 are higher than the corresponding period of previous year. This is also one point I would like to highlight that there is a kind of timing gap with the impacting the profitability.
While the price increase or value addition increase has been given to the vendor for suppliers, the same for with our customers is under negotiation and could not be concluded last quarter, which is giving this impact, and we expect that to be corrected in subsequent quarter. This brings us to the end of financials part of the presentation, and now I will request Mr. Girish Kumar to talk about the success story which we have for you, as well as our new brand launch. Over to you, Girish.
Thank you, Mayank.
Thank you.
Thank you, Mayank. So, I am in slide number 14. We have had several success, customer wins, and customer acquisitions during quarter two. The significant one is actually what you hear from me on the driveline business win, which is a major India OEM introducing the hybrid transmission technology for the first time. And we are chosen partners to develop the bearings for the transmission applications there. And the significance of this win is primarily the new technology that we have introduced there by the way of offering the ceramic bearings and also the conductive brush, which are primarily our electric vehicle offerings. And these are some of the high technology, high precision, high speed bearings which are providing insulation solutions, conductor solutions to the electric motor. The key win here is primarily due to our ability to provide technical solutions from the near shore, partnering with customer development in India.
And also, this is also providing a portfolio expansion into our offering for the new products that we have introduced globally, and more specifically in India as well. This business is at the most position that we have about 100% business on the bearing position, and the new technology solutions, we are roughly about 50% share that we have. This is putting us very strongly into the forefront of the electric vehicle offering that we are releasing into the product. This particular business will have the start of production sometime in quarter two 2028, and we look forward to expanding this business win into more wins as well. Now on the brand launch, slide number 16. Few days back, we officially launched the new identity and the brand across the organization, customers, and the stakeholders.
For us, as you can appreciate, the brand launch is much more than a visual identity. The brand is the face of our company, and it shows our personality essentially, a new identity, a new personality, which represents what we stand for, what we are passionate about, and what our customers can really expect from us. We are building our identity based on our contribution into the automotive innovations for decades, coming from more than 70 years of our association with Ferrari. All the technologies that we put in here are primarily coming from our legacy as well, and that's why we basically keep our connection on our long heritage and the expertise, which for the future signal our ambition to help accelerate the future of mobility, co-creating with our customers.
This is the essence of the brand launch that we did, and the new identity is to really futuristic while anchoring our values to the legacy brand identity that we already have. That's it from my side. Over to you, Cilvina.
Thank you. Now we would come to the close of the presentation. I will request to open the forum for question and answer session. Moderator, let us know who's first in the queue.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue assembles. The first question is from the line of Varun Jain from Dolat Capital. Please go ahead. Mr. Jain, your line has been unmuted. Please go ahead with your question.
Am I audible now? Hello?
Yes.
Hello, hello. Yeah. My first question was on margin. We have previously indicated 15% as the sustainable EBITDA margins, but this quarter it fell to 9.6%. What happened in this quarter on the EBITDA margin? Secondly, other income was elevated. These two
Hi, Varun. Thanks for your question, and I touched upon it in my presentation. You see, EBITDA margin is impacted by the cost inflation, which is coming from the steel price as well as the inflation on value addition, which has been given to the vendors. Now what happens is some of them was effective April also, those which were negotiations were going on, and the impact has come in July to September quarter. On the other side, our negotiations or discussions with the customers are also continuing, and some had even been concluded, but the purchase request of, you could say, purchase orders were not yet received, so we could not bill them. Those are expected in current quarter, in October to December quarter.
Once those purchase amendments come, and some of them will be from the arrears for covering the arrears part also, effective from July or maybe earlier period. That will get covered in December quarter, and we should see the impact in the next quarter. Primarily, it is a timing gap between the two quarters in terms of the cost impact coming and the pricing part coming. Other income had a couple of one-off items, like the Forex gain was there, plus one or two scrap sales, so those kind of items. Nothing extraordinary unusual as such. But from last year, if you see other income since last couple of quarters is up, because we have this the contractual manufacturing with the industrial and also the rental and those kind of things are also appearing in the P&L.
Sure, sir. Sir, secondly, BS-VII is expected to be implemented by April 1, 2029. When will we be getting the BS-VII-related demands? Are there any new four-wheeler programs where we can enter because we have the BS-VII-compliant product, whereas earlier the other supplier does not have?
Girish, you would like to answer that?
See, Varun, currently the passenger vehicle market is dealing with the CAFE-III norms, which will be a bit more nearer launch implementation, I would say, rather than the BS-VII. There are various programs that we are dealing with on the low-friction, high-performance products, which are already validated and already under implementation. BS-VII discussions are more relevant and more, let us say, at a development stage with the commercial vehicle customers. Our offering essentially on the high-efficiency, fuel-efficient products are ongoing, and that will come or rather accelerate towards businesses nominations and other things probably end of quarter two next year, not earlier than that. Clearly, the focus is on the passenger vehicle, on the CAFE-III. BS-VII comes after that in our view, as we see in the market.
Sure, sir. Lastly on your CapEx part, we have guided for INR 140 crore of CapEx. This is a part of, I think, the INR 500 crore you had earlier guided for FY 2026 to FY 2028.
Yeah. Varun, see, there is, as I think you had attended the earlier call, we had announced the CapEx in our current fiscal of about INR 200 crore, right? That stands true even as of now. What you see is this INR 140 crore as per the SEBI requirement. There are certain thresholds. Any CapEx, any capacity addition, not CapEx, anything, any capacity addition where the cost is above the certain threshold, which is a mix of your turnover, your net worth, and for last, those kind of things for last three years, that has to be announced and informed to the stock exchange. This announcement we have done in compliance to that overall CapEx during current year is going to be close to INR 200 crore. But yeah, now going forward from this quarter, and this is part of that larger INR 500+ crore CapEx we had announced.
Starting from December quarter, we will have these channels coming in production and getting commissioned, which will add to the capacity.
Sure, sir. A couple of-
Hope this clarified.
Sorry to interrupt, Mr. Jain. May we request you return to the question queue for a follow-up question?
Sure.
Thank you. The next question is from the line of Krupas hankar NJ from Avendus Spark. Please go ahead.
Good morning, and thank you for the opportunity. Sir, first question is a bookkeeping question. Just wanted to get a sense of what would be the breakup of passenger vehicles, two-wheelers, and CVs in the OEM segment?
Can Girish share it with us?
Yeah. The revenue breakup is what you're asking, Krupashankar , isn't it?
Correct. Yes.
Yeah. So roughly about 45%-50%. I'm just saying this at a ballpark, 45%-50% of our revenue comes from two-wheeler, about 30% from passenger vehicle, 25%-30%, and then about 15%-20% from commercial vehicle. These number quarter on quarter do vary, but rather what I just mentioned is how the trending has been on an average.
Understood. Couple of aspects I noted in the result. First was on the export side of things, where the second quarter, the growth has been quite reversed. Now, in the previous call, we had indicated that exports is not a great focus area. Just wanted to get a sense of whether this momentum will continue or is there any one-offs which one has to account for?
See, Krupas hankar, as we, or as I think we have earlier also informed, overall exports are around 10% of the sales mix, of the revenue mix, right, which we look at. And that's the range which we expect it to be remain. Now, quarter- on- quarter, sometimes you may have, could have one-off transactions, or even if the baseline is a little bit up or down, the growth numbers may vary. But we expect it to be around in the range of 10%.
Understood. Last question from my side. I did note that, congrats on the new branding. Just a rebrand change the brand fee or a royalty fee, which is usually charged for us, or does it remain the same?
No, that doesn't change. That doesn't change. So there is this, when this automotive and industrial business separation happens, this is going from top to bottom all across the board. So even the parent company has also got split, and that is going to be listed in the Stockholm from 1st December. So this royalty trademark, those kind of things remain the same as the percentage, whatever is applicable today will remain applicable.
Got it. I will get back in the queue, sir. Thank you.
Sure. Thank you.
Thank you. The next question is from the line of Aman from Negen Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, firstly, I mean, our new lines are coming up in FY 2028. So what is our guidance for traded goods? Can you give some figure there?
Aman, new lines are starting to come from this quarter itself, not in FY 2028. You will see this, the one line starting in December quarter itself, right? And then we will have it coming in the subsequent quarters also. The one line is coming in this quarter itself, December quarter. On traded goods, you see, on traded goods, and there is rather one more is expected to be commissioned in March 2027, and then followed by subsequent year in the next financial year. As far as traded goods are concerned, the exports, imports are anyway very few here, and the trading for SKF Industrial, which has started after this demerger, that we expect to over the next couple of years to reduce it to the minimum level, minimal or negligible level. And that is what, so I mean, both are the sales both in that.
All right, sir. Sir, secondly, I mean, our cost pass-through can happen through FY 2028. If we can assume some EBITDA margin, I mean, some ballpark figures for FY 2028.
You mean cost pass-through for what?
Cost pass-through that is happening across customers. I mean, can we revert to normal EBITDA margin levels?
No. We expect not FY 2028. We expect to revert to the guidance which we had given earlier within this financial year itself. The discussions with the customers continue. I won't speak about the next quarter as such on the numbers specifically, but you will see the impact in the subsequent, these two quarters of the current financial year.
All right.
That is already going to happen and not delaying to the next financial year.
Okay. Thank you so much, sir.
Thank you. The next question is from the line of Lakshminarayanan from Tunga Investments. Please go ahead.
Thank you. I have a few questions. First is that the other expenses actually had gone up, and I think this is attributable to the demerger expenses. Can you just quantify it, and when do you think this would actually water down? That is my first question. The second question is that, you gave a split between the different type of industries you serve. I just want to look at from an application point of view and also from a system point of view, because there are certain bearings which would be sold as just a part, whereas some of them would be sold as a system, correct? Now, in our scheme of things, I think we always want to move towards more system-driven and not just part-driven thing.
On that journey, where we are as a percentage of revenues or the way in which the management is thinking, if you can just outline which are the segments where we have a pole position in terms of the differentiated product or a solution we offer, what percentage of revenues it is, and how we intend to scale up. That's the second question. The third question is that you mentioned that you are discussing with your customers in terms of price, pass-through, et cetera, and I believe always all these things will happen retrospective from April onwards. Now, I want to understand from your entire customer point of view, the revenue pool point of view, what percentage of your customers have, I mean, not named customer, I mean, I'm talking about total attribution of the entire revenues of whatever you're getting from OEs.
How much of that have been agreed to for a price increase from April, and what percentage are still in negotiation, and what percentage is something which they will not do? I think these are the three things which I want to know.
Okay. Maybe I will answer first on the other expenses. Other expenses, when you see, these other expenses are not all fixed. You have certain fixed costs, certain variable costs, and certain semi-variable costs, right? As far as the demerger-related expenses is concerned, we announced earlier in the last call also, our demerger-related expenses are over. I mean, some petty expense here and there, they may be there, but those are not significant as such. Now, what happens in other expenses, we have a lot of variable expenses. Like to name a few, consumption of stores and spares, power and fuel. When you are seeing a volume increase of about 20%, that straightaway gets increased. Even if you see royalty and trademark fees or a lot of these kind of things.
That is impacted, and that's where you see the increase, because from last quarter to current quarter, there is not much difference in the other expenses, but yes, from previous year, there is a movement. Now, coming to the price increase part, not all customers will be from April. There are price increase, some could be from July, some could be from April. It's not like financial year basis, so it depends on customer to customer, right? I won't put a number as such at this stage because still everything is not concluded. Probably that we will speak when we do the next quarter's call. But yeah, discussions are continuing, and you rightly said there would be arrears billing in most of the cases, right? It could be from July, it could be from April, depending on customer to customer.
There are even cases where some customers, even for the period before July, already some customers, we had got some price increase effective January as well. That is a continuous process. We expect to materialize large part of it in December quarter. Now, Girish, maybe you can answer the second question now.
Thank you, Mayank. Lakshminarayanan, around the business lines that we pursue are two basically. One is the driveline and another is the wheel ends. The two-wheeler is purely driveline, and for the passenger vehicle and commercial vehicle, both driveline as well as wheel end apply. Now, as a strategy, we are going to be only component suppliers. We will not play the system game at all. That is the current management thinking on how we go to market with our product lines. Currently, there are no, let's say, system-level sub-assemblies or subsystem as a product offering that we are giving it to any of the market. But what we do is, we basically do business for the customer outcomes, not just product as a standalone performance, but rather what product will create system-level performance outcomes for the customers.
That is our by far strategy that we will pursue in the near future. By virtue of that, all our revenues are actually coming from the component sales that we actually do to our OE customers. I hope that answers the question, Lakshminarayanan.
Yeah, just to engage on that further. How do you ensure that you are bringing the best innovation products and instead of more an output-driven instead of just like a product-based, how do you kind of elevate yourself as a company, as an innovation partner with some of your OEMs? How is that taking place? I just want to understand it.
Let's take an example. All the vehicle manufacturers, they are driven by providing efficient vehicles to the market. Less fuel efficient, longer range is therefore the competitive advantage for the OEMs comes from this kind of pursuit while they are complying with the regulatory requirements on the environment or the fuel efficiency regulations. All our engineering, technology development, and also manufacturing process investments that we are doing on the innovation side is to really reduce friction continuously to the barest minimum that can be done within the packaging that we have for the application. Which means, you have vehicle weight coming. As a sub-example, let's say, an OEM wants to make a 100 kg lower car. By way of budget, the chassis or the transmission weight can come down by about 20%-30%. That means you need to really have a product which is compact.
That means a very high power delivery packaging with friction equally reduced. We basically developed technologies not only on the product side, but also on the manufacturing precision to really deliver those products to the customers who are pursuing those kind of bigger objectives. That is our, let's say, go-to-market strategy across the three vehicle segments that I just mentioned.
Got it. Just one more question, sir. There is a path towards ceramic bearings, et cetera, that is taking place, which I see. Is it too futuristic for India or is it that something which you are also working where you can actually offer to your end clients? Second, on the margin front, I just want to understand what kind of margin you can actually recoup, either the gross margin level or at the contribution level. Whatever, how much there has been an increase by X percentage. Of that, how much you can actually recoup, whether it is like 70%, 80% of it or 90% or even 100%? I think these are the two questions. Ceramic bearings and the margin recoup.
I will answer the ceramic bearing part, and then I will ask Mayank to answer the second one. We are already offering ceramic bearings in the market. In fact, the customer success that we just showcased is our maiden win with this particular product for the hybrid transmission. It is currently a niche application, primarily because the failure mode related to electric current leakages that might reduce the life of the transmission or the drive systems that electric vehicles or the hybrid vehicles that they have. The nicheness is actually coming from the supply chain for the ceramics. I think once the volume picks up in the market in the next three to four years, we will have that more competitive than what it is today. But the OEMs pursuing high performance in the premium segment, mainly SUVs and the MPVs, do prefer this for the value that this bearing offers.
So that is my, let us say, articulation of the question that you actually asked. Mayank?
Yeah. Can you repeat your question on the margin exactly? The line was not clear.
Yeah. The thing, we see it as a gross margin and the EBITDA margin, that's how it is reported. But I think that you look at from a contribution point because there is some other expenses which is also variable, which is fixed. While I don't have access to what is the contribution margin because that's how you actually wouldn't do it. Want to understand from your point of view, how much of contribution margin you have lost because of all these external events, which is prices going up, et cetera. How much of that, let's say, your margins drop has been, let's say, 100 basis points, or whatever.
How much you think you can recoup by this, get back, claw back by negotiating, whether it will be 80%, 90% of whatever you have lost, or is it that you can actually push up to almost 100%? Because while there are material costs out there are also indirect costs which has actually gone up, which could be maybe gas cost or maybe labor cost or freight cost, et cetera.
Yeah.
I just want to understand your point of view on that.
Sure. See, as I already mentioned, right, so there was one was the steel price, and then there is a value addition component also, which is with the suppliers as well. So now, if you look at our margin as such, we expect largely to recover entire part of it. Maybe there could be a slight marginal spillover from current quarter to next quarter, but largely we expect to recover in the December quarter.
Got it. Thank you, sir, for this explanation. I will come back to you.
Thank you. The next question is from the line of Varun Jain from Dolat Capital. Please go ahead.
Yeah. Sir, a couple of follow-ups on my previous questions. Sir, firstly, on the cost part, how much have we recovered back? How much price pass-on have we done? What is the aftermarket? Has it resolved now?
Resolved in what sense?
That the pricing was an issue because of hyper-competitive behavior of other players. Has that abated?
See, as far as cost, this margin is concerned, I answered it in response to the earlier question also. We expect to recover largely, almost or most of it. Maybe there could be marginal spillover from current quarter to the next quarter, but largely we expect to recover, and discussions are ongoing with customers as we speak. Now, on the VA business part, aftermarket, if you see, the difference between from last year to this year is sort of stabilized. Current quarter also you see about 7% degrowth. Last quarter was also about 7% degrowth. And the numbers for current quarter versus last quarter is almost in the same range, just about less than 2% drop from the last quarter. That volume part is stabilized. Margin, yes, slowly it's kind of stabilizing, I would say, not going upward, but it is stabilizing.
But see, VA is a very dynamic and market is scattered market, right? It's not a few customers where you can manage or control, right? Hundreds of customers are there. But largely it's now bit stabilized from the major variances what you were seeing till a few quarters back. Now it's a bit of stabilizing, but yes, work remains to be done on that. I won't say it's completely the work is done and we don't need to do anything more. It requires further actions.
Sure, sir. And sir, on the CapEx front, as I was looking at your schedule, I think most of your CapEx, all of it is being scheduled, going live in July 2027. Is it possible to do a 15%-18% revenue growth in FY 2028 and 15% in FY 2029? Would that be a reasonable assumption?
No, all is not going live. What you see in the announcement, which is made day before yesterday, one channel December 2026, one channel going live in March 2027 at Haridwar, and then one channel's capacity enhancement going live in March 2027, and then the third new channel is coming from July 2027. That is what is announced. Then there are further plans also, what we have seen is in the larger INR 500 crore capacity. As far as the volume increases, it is, I think 15% kind of growth or upward of 15% would be reasonable to expect in the next quarter, that we should see. What will happen, some of these channels, when we look at it will also replace the trading volumes. Some part of it will end up replacing the trading volumes.
When we look at revenue, again, some revenue increase will also come from the price increase which we are getting, right? That way, 15% would be a reasonable number or a little bit upward of 15% is what we should be looking at.
Sure, sir. Just the last one, sir. On this new hybrid transmission win. Just the last one, sir. On this new hybrid transmission win. Sir, how is the content per vehicle different?
Girish.
The ceramic bearings have high technology, high valued component within that. In a conventional bearing, you have the steel balls, and then here you have the ceramic balls. To that extent, the premium on the pricing will be there. Right now, the volumes are quite modest, I would say. It is just entering the production in India. We need to really see how does it really progresses beyond that.
Okay, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Shagun Beria, Anand Rathi. Please go ahead.
Hello?
Yeah, you are audible.
Yeah. Thank you for this opportunity. Just a clarification question. I think in the last quarter, you had indicated that a 15% EBITDA margin is your normal range. I think you mentioned in this call that you would be returning to the normal range in this year itself. Is it 15%, around 15% what we are expecting to return to?
No, I think we are already at close to 15%, right? We are about 14.5%, and definitely we would be expecting to return to above 15%, not 15% actually. It should be above that , right?
Okay. Thank you, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Vipul Shah from Sumangal Investments. Please go ahead.
Hi, thanks for the opportunity. My question relates to the service business which we used to do in erstwhile SKF Limited before the demerger, for maintenance of bearings. That business has gone to SKF Industrial or it is still housed within SKF Limited also? If it is there, what is the progress and if you can share any numbers? Thank you.
No, the service business is part of the industrial entity now. We do not handle in automotive the service business, what you are referring to.
Okay. Thank you, sir.
Thank you. The next question is from the line of Lakshminarayanan from Tunga Investments. Please go ahead.
I mean, sorry, on the margins, the way in which I understood is that you talked about the EBITDA margins. Right? Till 14.5% or so. But when we look at excluding the other income, the margins are different. What is the right way as investors we should look at it, and the right way in which it has to be aligned to the way in which you look at your own KPIs or KRAs or scorecard? Can you just throw some light on what is the margin as investors we should look at? Is it as a PBT or an EBITDA or a gross margin, which is including other income or excluding other income? Just help us understand.
See, you are very good question. See, when we look at gross margin, obviously, we should be looking at without other income. This quarter also, if you see, your gross margin is impacted by almost 5%, right? Excluding other incomes with the revenue from operations. From the entity or company perspective, other income is also significant not to be ignored, because what is happening, other income, a big part is related to the services or the space given to the industrial, right? As and when that gets occurred, one way to look at it, you may think, once, say, SKF Industrial moves out, we will lose that income. But then we will be utilizing that space or those facilities for our own business, and that could be much more productive commercially, right?
It won't be the right way assessment. Because you have your capital, you have your assets in place. So, we need to look at it including other income, in my view. That's how we look at it.
In that INR 29 crore, how much is actually this rental or the usage income we get, and how much is actually treasury income?
Treasury income is not very significant. As you see, we are cash in hand at the end of this quarter is about INR 100 crore, right? It is largely because there are multiple things. One is the income from SKF Industrial. Another is we also host a lot of these people who are on global roles, right? Like finance shared services, which serves other countries in southeastern region. Then there are certain other resources also which work on global roles, and their cost gets charged to the parent company or to the respective countries. As per the transfer pricing rules on the cost, these are invoiced at cost plus markup, as per the transfer pricing guidelines. So, they also give income to the legal entity, right? So, more and more people we are hosting here in India, Indian legal entity, that is also providing us income.
Okay. So, INR 100 crore. That means because, for example, I mean, I see that some of the large multinational companies also take this other income as operating income, and they actually give rental, and I think Bosch does it. The rental income-
Yeah
They take it as part of an operating income. As a management, what do you look at, sir? So that we can also understand-
No, that is what. See, if you look at our P&L, so you have these sales, you have revenue from operations, right? And you get revenue from operations, you get also include other operating income, right? So, you have a sales part, and then there is an other operating income. So, other income is separate, and then you have other operating income is considered in revenue from operations only. So, there are two parts in that, yeah? So, revenue from operations has pure this product sales, and then other operating income as well.
Okay. This INR 29 crore which you talked about,
Sorry to interrupt, sir.
This is a continuation of that. I just want to get clarification. This INR 29 crore which you talked about, right? That has less of treasury and more of all these other operating income, right? Which is rental and all.
It is treasury income, it is rental income, it is exchange, forex exchange difference kind of things also. It is miscellaneous income, it is like asset sales also. There are multiple items. Some quarter it may happen, like you have some asset sales, scrap or old asset sales. Those kind of things also come into it.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Sachin Maniar from 3P Investment Managers. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question.
Hi.
First one is continuation with the previous question. Sir, can you spell out what are the related party transaction with SKF Industrial? Apart from the sales, there is another income Interim Service Agreement . What would be there in the part of it?
No, see-
The expense or in all the P&L item, if you can highlight, that would be helpful.
See-
Which would be taper off in next two years, I am supposed to-
One is your product sales and purchase, right? We both have trading with each other. There are certain products which we are producing and selling to Industrial, and we are buying from Industrial. Then you have I cannot cover each and the entire thing, but broadly I will give you an idea. They are operating from SKF India plant, right? So, certain part of premises are leased to them. That part is rental is charged to them. Then there are other certain common services, right? Certain common services, be it say, security, canteen, electric power, and all. Those kind of things are also invoiced to them. You have a cost on one hand, and then the invoice, it is billed to the other entity. There are multiple kind of these things which are part of it.
Okay. When this taper off, what would be the margins or anything, number impact would be there in next two years? Suppose how it will impact when there is-
No, I do not think, see, I do not think it will be an impact on margin as such, because once this goes off, see this space, suppose if you take, right? The space, when it goes off, we will replace it with our own channels, that space and that channels would be, I would say it would be much more productive. Because today you are charging a rental for that space alone, right? There is no other. But then when you are doing production on that space and selling that in the market, that is going to give much more value. And certain other parts, like say the cost charge off to them. The cost which you are incurring, say security, now it is say, or say power and fuel, there it is straightaway goes to them because as per the transfer pricing guidelines, markup is hardly anything.
It is not very big number that you are charging 20% markup or 15% markup on the cost. That would be, I would say it will be much more positive because we will be generating operationally better revenue from it.
Correct. Okay. Lastly, sir, you have few business wins in the EV side. Just previous one mentioned, how is the content for vehicle would change in EV versus ICE for you in next couple of years?
Girish.
With this new business win.
Yeah. Obviously, there will be a marginal reduction in number of bearing positions compared to the internal combustion engine. What we see is due to the high performance requirements for the bearings that goes into EV. Ceramic bearings is one example that we talked about. Conductive brush is another example, which is offsetting the reduction in the value content of the ICE engine bearings. So, we see a marginal increase in the value per EV vehicle compared to the other ICE, I would say.
Okay. So it's marginal increase only, no reduction in terms of the
No reduction. We don't-
Okay.
Absolutely. No reduction in value, but rather it will be marginal increase.
But that would be traded goods currently for next few years, versus manufacture goods.
It was manufactured. It is manufactured.
The ceramic bearings, you know?
Ceramic bearings are manufactured in India plants. The component which I mentioned, the ceramic ball, is a purchased part, not the complete bearing.
Sure, sir. Got it. Thank you, sir. Thanks a lot.
Thank you. The next question is from the line of Pankaj Agarwal an Individual Investor. Please go ahead.
Hi. I have two questions. One is with respect to the ambition of transitioning into specialized high-performance EV platform architecture that was supposed to happen by late 2028, and its current impact on current depreciation or interest outgo or current margin pressure, et cetera. The second question is with respect to the Haridwar component backward integration, current status, and how much it is going to contribute to our top line or bottom line as of now. Thank you.
Yeah. Girish, your first one you can answer.
No, I didn't get the question. Maybe-
Can you repeat?
Please put the question.
The first question is with respect to our development towards the EV platform architecture or related components, which we do have ambition of getting by late 2028, so two years, three years down the line. And the exchange or to mitigate the local manufacturing, let's say, at Haridwar, or backward integration, any development in that direction?
Not sure I fully understood, but let me make an attempt.
Your voice is not coming clearly.
See, let me try to answer and see if we move forward there. The EV products, I mean, the EV two-wheelers and passenger vehicles are being manufactured. It is not that all of them will start producing in 2028. We are in the business of EV product portfolio. Some of the high technology new products that we are introducing, ceramic bearings, conductive brushes that we mentioned, is the one that will get into mainstream market around 2028 is what I mentioned. That is the status of EV business that we have. There are revenue streams coming into the books as we speak in this quarter as well. EV bearings goes into driveline as well as in the wheel ends. All three factories are involved.
But very specifically, we have called out in the previous calls about Haridwar anchoring a bit more a lead role in the two-wheeler traction motor bearings per se. But that we wouldn't call it as backward integration. It is just the capacity expansion and the investment specifically for producing electric vehicle kind of specific bearings there. That is how-
Yeah, yeah. I think we are-
Does that answer your question?
Yeah, yeah. The only thing to extend that-
Sorry.
It is an extension of the same thing. Regarding EV platform, there is one minor question. Are we on track along with the competitive scenario of the market, or are we delayed?
Yeah, we are in line, and we are ahead in few high-technology products. No reason to really believe that we are behind.
Thank you.
Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question for the day. Now I would like to hand over the conference to Mr. Mayank for closing comments.
This brings us to the close of today's call, and I am very happy to see the excitement and the engagement from all of you. If any of your questions remain unanswered or we were not able to provide clarification, feel free to write to our investor relations email ID. You can send your queries, and we will be happy to respond to that. Look forward to the next quarter's call to again speak to all of you. Thanks once again for all your engagement and enthusiasm in joining this call. Thank you.
Thank you. On behalf of SKF India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you.