Ladies and gentlemen, good day and welcome to Wheels India Limited Q2 and H1 FY 2027 earnings call hosted by ICICI Securities. 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. Please note that this call is being recorded. I now hand the conference over to Mr. Ronak Mehta from ICICI Securities. Thank you, and over to you.
Thank you. Good afternoon, everyone. On behalf of ICICI Securities, we would like to welcome you all to Wheels India's Q2 FY 2027 earnings conference call. Today we have with us from the management team, Mr. Srivats Ram, Chairman and Managing Director, and Mr. P. Ramesh, Chief Financial Officer. As always, we will start the call with a brief opening remark from the management team, and then we will proceed with the Q&A session. Thank you, and over to you, sir.
Good afternoon, everyone. I am Srivats Ram. I am the Chairman and Managing Director of Wheels India. This is a Q2 earnings call, and I am happy to say that Wheels India in the second quarter showed a 36% revenue increase from INR 1,179 crores to INR 1,598 crores, and the net profit increased from INR 27.8 crores to INR 53.4 crores on a standalone basis. In that, really, if you look at it, the quarters of major growth coming from earthmover wheels, which are largely exported. Air suspension business, which is really domestic, and of course, the domestic auto industry, which did very well in the second quarter.
Broadly speaking, looking forward, while demand for most segments remains strong, there is some concern about inflation and also the second half from the third quarter onwards, you will start seeing some growth slowing down because of the higher base effect of GST 2.0, which happened actually in the H2 of last year. But we are still seeing strong demand.
We also need to tell you that during this quarter, we also raised funds of INR 430 crores, INR 180 crores through preferential issue and INR 250 crores through QIP to reduce the debt. We also did raise the money and reduce the debt by the end of September. Demand seems strong and immediate prospects seem quite bright. With that, I would probably take you to our presentation. Ramesh, we can just go through the Q2 numbers. Do you want to move through the Q2 numbers and then reiteration of the strategy?
Sure, sir.
Yeah. If you look at the half per se, 26% growth in revenues and 66% growth in profit. While we did debt reduction, we did it in the second last day of the quarter. As a result of which none of that cost advantage has actually come through. But very strong demand across segments, and we ended up with EBITDA of 8% and a PBT of 4%. Next slide. On a consolidated basis, again, if you look at it, the revenue growth was even higher. On a quarterly basis, it was a 36% growth. PAT growth was 90%, EBITDA was 8.36% with a PBT of 4.6%. On the half year basis, again, 26% and yeah, these numbers cover the console for the H1. Next slide. Segmented reporting, auto is very strong.
In auto, let me say that we include car, truck, tractor, earthmover wheels, air suspension system is auto. There is a very strong growth of almost 40% year-on-year. I also need to tell you, the largest part of the growth came from earthmover wheels and air suspension, with also the regular wheel segment also contributing. Industrial segment had more muted growth. Here we have some sub-segments like fabrication for construction, which was very slow because construction equipment manufacturing in the country was relatively slower. Also, the windmill sector is slightly slower. It's more a seasonality, it'll pick up immediately from the third quarter onwards. These are the two things. The other point I need to mention is that the industrial component sector for us is relatively more skill-based.
Because we're expecting higher volumes in the third quarter, we need to hire people in advance. That's another reason why the EBIT is also relatively lower despite some growth, because we have to recruit people for ramp up. Next slide. This gives you a sense also of the EBIT on a half yearly basis. CapEx wise, we are looking at INR 400 crores- INR 450 crores in terms of CapEx. CapEx is both in the traditional steel wheel business of truck and tractor, and also in terms of cast aluminum wheels where we are doing fairly steep ramp up. Largely the windmills, also the windmill sector, which is also seeing some investment. Go to the strategy slide briefly. Or just go to the metrics. I'm sorry, go to the previous slide, please. As you can see, our key ratios are coming down.
Debt EBITDA is coming to reasonable levels. Debt equity also has dropped with the capital infusion. Next slide. Next. Annualized ROAS and return net were reasonably decent. Next. Just to take you through the strategy for growth for the company. We are globally leaders in both wheels for construction equipment and agriculture tractors. We continue to focus on growing these segments both in India and overseas. Second segment we are strong in is the fabrication and machining of large castings for windmill. Fabrication segment, we continue to make investments. We are a large supplier to the windmill sector globally, the non-Chinese windmill sector. Machining business is also continuing to grow. The hydraulic cylinder business, we believe, has a lot of promise.
It's a fairly low base that we have right now, so the opportunity to ramp up is significant, and we believe this will grow faster than the traditional business. Cast aluminum wheels, as I mentioned earlier, will continue to seek investment from us as we see increased conversion happening towards aluminum wheels. Air suspension business has seen significant growth, and we continue to invest to ensure that we meet our customer requirements. Lastly, the company looks at working capital optimization and managing through free cash flows. Predominantly we would look at funding CapEx through accruals and trying to keep the debt under control. There's also a lot of effort on cost optimization. We have internal meetings every two weeks to drive that.
With all this, we believe that we can continue our growth trajectory and continue to maintain the types of ROE and ROAS numbers that you see in front of you. That's the presentation. I think we are now open to any questions that you may have.
Thank you very much. We will now begin the question and answer session. To ask a question, please click on the raise hand icon tab available on your toolbar or on the QA tab available on your screen. Kindly turn on your microphone when the operator announces your name. You may also pose text questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from Rajesh Kothari from AlfAccurate Advisors. Please go ahead.
Oh, thank you, ma'am. Thanks for this opportunity. Good afternoon, sir, and congrats for improvement in your profitability. Good to see that.
Thank you.
When you look at from the next two years perspective, just wanted to, the brief guideline from your side, how do you look at the one, both the business revenue growth and very importantly, how do you see the margins trajectory, from current year to improve to that target double-digit margins? What are the various steps which are required and where are we in that cycle? Thank you, sir.
Yeah. Thank you, Rajesh. As you are aware, you are right, we are looking at double-digit EBITDA margins. We are around 8% at the moment. Really the way that we look at it is that we have certain businesses which are now operating at subscale or where the capacity utilization is relatively low. For us, if I can name the businesses, cast aluminum wheels, hydraulic cylinders, also if I look at it, some of the tractor businesses, we have also relatively underutilized capacity. Air suspension also is something where we are looking at adding. Essentially when you take subscale businesses and scale them up, you will see a EBITDA positive, PBT positive, so the switch around becomes much faster. Our strategy is, as I mentioned earlier, is also basically to grow these five different business areas and everything else depends on the market.
When you talk about growth and growth of the market going forward, there is inherent market growth which is honestly not within our control. All we can do is to look at servicing the customers when they have the demand growth. I do not have a visibility on how the Indian auto market is going to grow honestly, even beyond the third quarter. Third quarter, I have visibility. Beyond that, I am not sure how it is going to grow, but how much ever it grows, we will grow along with it. The question is really how do we grow faster than the market? That is why we have this strategy. In this strategy, we have detailed plans of how we can ramp it up, and we believe that we just focus on this strategy for the next at least three years.
You will see substantial improvement in both the margin profile, as you mentioned, as well as in terms of the top line. I hope I have answered the question suitably.
Rajesh, are you through with your question?
No. Thanks for that answer of one part of question, but one part is still unanswered in terms of when you look at the growth, one is of course the market link growth, but the higher content per vehicle, the export growth opportunities, particularly on the industrial side of the business, on the windmill hubs side of the business, and also the alloy wheels. If I look at the most of their competitors, they are also reporting exceptionally strong numbers. Keeping that in mind, what kind of growth you think would be reasonable to assume over next one to two years?
So let me go category-wise. Yes, the construction, the industrial side wheel demand, we will continue to grow. It will probably grow over a two-year period, but we are growing. Even now we are growing quite fast, and we will continue to grow that. The windmill business also, we are winning new orders, but again, it is an export-oriented business, so for the next one to two years it will grow.
Aluminum wheel business, you are right, it is growing fast. To give you an idea that whatever we did in the second quarter, we will definitely look at doubling that probably by the fourth quarter. So we are seeing also a fairly steep ramp up, but for us it is happening more in the fourth quarter as opposed to immediately. Immediately there is some buildup, but major volumes will come in at that period of time, and we see this also going forward.
As a matter of fact, that business, while we already have CapEx, which is approved, we have even gone ahead for the next phase of CapEx, so we are extremely bullish there. Other business which has grown substantially and grown ahead of capacity is air suspension business, where we are seeing volume growth at 50% over the previous year, and we see this continuing, so we will continuously look at increasing capacity both at our end and supplier end. So really I would say that these are the areas where, if you ask me strategically on industry, maybe to some extent on the windmill side, but really demand growth where we are seeing increasing volume coming this year itself, leave alone next year, is cast aluminum wheels and air suspension.
Sure. Great, sir. Thank you so much, and wish you all the best. Thank you, sir.
Thank you, Rajesh.
Thank you. Next question is from Ronak Mehta, from ICICI Securities. Please go ahead.
Yeah, thank you for this opportunity. I have two questions. One is on the price pass-through side. I believe the last time you mentioned about your negotiation with the customers for inflationary cost pass-through. Where are we in that journey, and by when can we expect those inflationary costs to reflect in the numbers? That is first question.
Okay. Raw material costs happen almost immediately, worst case, a quarter away from the actual escalation. There is a pass-through, there is an agreement with the customer, that pass-through on RM happens automatically. This year, of course, with the West Asia crisis, fuel costs have also increased substantially, and claims have been made with customers. Some customers have settled, some are in the process of settling. That exercise is already well underway, we expect to get closure on that probably by the third quarter. We do not see any major impact there. It is not really impacted our results in terms of profitability in Q2 and will not in Q3 either.
Is it fair to assume that from third quarter, the overall margins can improve because of those pass-throughs, which are not there in the current margin?
Yes and no, because it also depends on which segment grows as relative profitability across segments. Broadly speaking, what you say is right.
Perfect. Okay. On the break-even side, I believe you mentioned last time that in the cast aluminum wheel segment, with the ramp-up in the volume, there could be break-even on the EBITDA as well as on the PAT level, which is not the case as of now. By when can we expect that break-even to happen? At what scale? Maybe timeline?
To give you an idea, we have two things. Earlier, I had also mentioned that around 40,000 a month level is our break-even level. We are already at that level. Even this month we are kind of at that level. The only other issue is we are also sitting on some older stock of material, which during the West Asia crisis they couldn't ship. That's just landed at our locations. We believe that probably post-November onwards, from December onwards, we should be PBT positive, leave alone EBITDA. EBITDA positive, we are already there. We are really talking about PBT positive in that business, which should happen from December onwards.
Perfect. Thank you. Thank you, sir. Okay, that's all from my side.
Thank you. Next question is from Pranjal Soni, an individual investor. Please go ahead.
Hello, am I audible?
Yes, please go ahead.
My question is related to the alloy wheel business. I just wanted to understand what CapEx is required to add 1 lakh wheels of alloy capacity, and also what asset turnover can we expect from this business at optimal utilization?
Basically, if you look at it now, we are adding. We have a capacity currently at 80,000 a month. We are adding capacity up to 130,000 a month by end of March. Ramesh, what is the CapEx for 80,000- 130,000, which is a previous July board meeting number? Do you have that number?
Sir, it is about INR 200 crore, sir.
So roughly INR 200 crore. So INR 200 crore is what we feel is required for about 1 lakh. So this is basically 80,000- 130,000. The 80,000- 130,000 is 2 lakh or you are talking about including the 170,000, Ramesh?
Including 170,000, sir.
Yeah. Basically, just to answer your question, for adding about 90,000 Wheels India wheels a month, we need INR 200 crores. 90,000 Wheels India wheels is more than 1 million. Assuming that it is not a greenfield site and it is talking about adding an existing site, that is probably the equation.
Okay, understood.
In terms of asset turnover, you had asked the question. The asset turnover is INR 5,000 a wheel, so 90,000 into INR 5,000 into 12.
Okay. My next question.
Full format.
My next question is related to the technical agreement with Topy Industries. Is it a royalty-based arrangement linked to sales or is it a one-time technology transfer fee?
I understand it is a royalty-based agreement, based on what they are doing. Ramesh, you can correct me if I am wrong. It is a royalty-based agreement.
Yes.
Based on improvements they are suggesting.
Yes.
We have monthly review meetings and all that, so all that is moving forward.
Okay. My last question is, can you shed some light on the industrial business? Because actually industrial business is currently your lowest margin segment, which is around 3%. I just wanted to understand. If we are doing out of INR 450, INR 100 crore of CapEx for FY 2027, 50% of the CapEx we are doing for the industrial business, which I believe if I take INR 200 for the alloy wheels, rest is for the industrial business. I just wanted to understand the rationale. What growth and margin trajectory do you see in the industrial business if we compare it with the alloy business?
Pranjal, first of all, that assumption is incorrect. Ramesh, if you look at industrial sector as defined, which is the windmill hydraulics and fabrication business, what is the CapEx that we have planned out of the INR 400 crores for that?
It would be about INR 70 crores.
INR 100 crores, something like that?
Yes, sir. Close to INR 100 crores, sir.
First of all, Pranjal, just to correct you, out of the INR 400 crores-INR 450 crores, we have about INR 100 crores, which is for industrial business. On industrial business and why it's not profitable, that question was asked. Industrial business, if I look at it, I break it up into three segments. The first segment is actually the windmill business, which is profitable even today. It's a double-digit EBITDA margin. We don't have any issues there. The second business that we have is the hydraulic cylinder business, which is right now a low single-digit business, but that scaling up will happen from the fourth quarter. We're just doing some layout changes. From January onwards, we'll be in a position, A, to increase our output, and B, we also believe that we'll start supplies to some of the international partners that we've signed on.
That business will definitely grow and become more profitable. The third business, which is related to the industrial segment, is the fabrication for construction industry. Construction industry in India has been on a low ebb, and also typically construction doesn't happen during the monsoon season. Now monsoon season is over, so the customers are coming back with new models, and we are seeing an increase in that business. That should become profitable in the third and fourth quarter. With that, you'll start to see industrial segment also showing improvement in profits.
So, what margins do you expect from this industrial business going forward after three, four quarters?
Yeah, I would expect it to be a double-digit margins.
Okay, understood. Where is the rest of the CapEx being taken? If we see from INR 450 crore, INR 100 is for the industrial business, INR 200 is for the alloy wheel. So remaining INR 150-
Balance is the conventional business of steel wheels for cars, trucks, tractors, construction equipment, and a little bit for air suspension. That's where the CapEx is going.
Okay.
It is all the existing business ramp-up. You asked me which segments. It is for car, it is for truck, it is for tractor, it is for construction equipment, and it is for air suspension. For all of them.
Okay, understood.
That is the balance of INR 450. So about INR 100-INR 150 crores is going into the traditional conventional business.
Okay. Just one more question. Could you share your current market share in India in alloy wheels and in steel wheels? How you see it moving over the next two to three years?
Yes. Steel wheels, Ramesh or Mukunda, can you talk about steel wheel market share?
Yeah. Sir, our SOB is close to 50% on the steel wheels, sir, if you look CV and tractor put together.
I think she means passenger cars. Passenger car-
Yeah.
What would be-
Passenger car, it would be about 35%, sir, on the steel wheels.
The 35% takes into account the fact that 40% of the market is aluminum. Including that 40%, we are 35% market share on steel wheels, steel wheel passenger car. If you look at aluminum wheels, we are a late entrant, so we are a negligible player at the moment. We do believe that we can get to about 10%, 10%-15% market share from the current levels, which are probably in the low single digits. We believe that we can get to this level by the same time next year based on businesses that we have done.
Okay, sir. That answers my question, yeah.
Thank you.
Next question is from Sahil Jain from Ashwi India Holdings. Please go ahead.
Yeah. Hi. Am I audible?
Yes, please go ahead, sir.
Yes. Hi. Thank you for the opportunity. Just wanted to ask, sir, considering that half, I think, if I am thinking correct, majority of business is a conversion sort of a business that we have, except for the products that we are selling. Is there some sort of an EBITDA per ton metric that you are tracking or could provide us with that, sir? Or is my understanding not correct with this?
No, our business is very varied because it includes different products, different sectors. The products that we make, the variety is huge. So tracking it on a per metric ton basis doesn't make sense.
Understood, sir.
That basically answers it. We don't track that. What is the first half of your question? I'm sorry, could you repeat?
No, I thought that majority of the business might be conversion business, right, sir? Like creating aluminum wheels-
No, no.
-for passenger vehicles.
No, no. We buy steel, we buy aluminum, and we convert it. The only business of ours which is a conversion business in that sense is where we do machining of windmill hubs. That's something like a INR 10 crore a month type of business at the moment.
Understood, sir. Is my thinking correct, sir, you mentioned you sell one aluminum wheel for INR 5,000 on average, like you mentioned earlier.
Correct.
Considering even if you do 100,000 wheels a month, which is close to 1.2 million wheels a year, which is at INR 600 crore, if I am thinking correct.
Correct.
Then, I guess, sir, with this company being EBITDA break even right now, maybe PBT break even. What is the optimal amount of EBITDA can this one alloy wheel business can give us, sir, aluminum wheel business?
I think 10%-12% is a reasonable number to look at.
Okay.
Post reaching that, when it reaches that scale, it should be at that level, is what I would imagine.
Understood, sir. It is like 130 a month, but I am just considering 100,000. With that, and this being a 10% of revenue share, and I guess by that time it might be lesser. How much margin accretive can this business become for us? Could it at least give us 1% on a consolidated level, above 1%?
I imagine that it would become a INR 600 crore business. It also depends how the rest of the business grows. This business will become double-digit EBITDA, as you say, at that point of time, which is probably in our minds sometime in the first quarter of next year, we will be at this 100,000 level, and we should definitely be looking at numbers closer to that. What it is as a percentage of the rest of the business is relative, but let me also tell you that the largest growth opportunity that we see from now to Q1 of next year is possibly this area. It will be a big share of the growth that we see.
Understood, sir. The margin accretive business that I am thinking right now is, sir, cast aluminum wheels and is the machining business, is the hydraulic cylinder business, the air suspension business. All of these business are-
The earthmover wheels business, which is a global business, is very profitable.
Okay, construction wheel business. Does that also require aluminum, sir, or is it some other sort of a metal?
No, it is steel. It is steel.
Steel. Okay. The capacities that we have, sir, are they fungible in dimensions? Like that same machine can create for a passenger vehicle and for a construction vehicle?
The passenger vehicle, to some extent, can extend to a light commercial vehicle, small commercial vehicle, maybe a small tractor to that extent, but nothing beyond that. The other wheels are much more heavier duty and cannot be made on the same equipment.
Okay. And by any chance, sir, can we just-
I request you to rejoin the queue, please, as we have participants waiting for their turn. Thank you.
Understood, ma'am. Thank you. Thank you.
Next question is from the line of Rajkumar Vaidyanathan from V. Rajakumar. Please go ahead.
Yeah, good evening. Can you hear me?
Yes.
Yes, Rajkumar, please go ahead.
Yeah. Thanks for the opportunity and congrats for the good set of numbers. Sir, I have three questions. The first question-
Sure
-is on the Bosch JV. Just want to know what is the stake, because the press release says that TSF Group will hold 50% stake. I just want to know what would be the stake of Wheels India, and also if you could give some more color in terms of what is the investment proposed and some other details, that would be helpful.
Yeah. We signed a memorandum of understanding to have a joint venture. Joint venture is just going through competition committee clearances in Europe, after which it can be announced. But broadly speaking, you're looking at about INR 100 crore investment. Wheels India's stake out will be 20%. 20% Wheels India, 30% Brakes India, and 50% Bosch India. That's kind of the JV setup. We're largely looking at making air management systems in commercial vehicles for European and North American markets. And Wheels India's product in this joint venture is electronic air suspension.
And is any of those products currently being produced? Because the reason is, will you be contributing any of the existing business into the JV?
No. It'll only be fresh business. We've made it clear that prior knowledge and prior products will not be included. This is, we're looking at just fresh products.
Okay. Got it, sir. Sir, the second question is on the tractor wheel segment. Given the El Niño situation, both domestic and globally, I just want to know what is the demand outlook, and what is the outlook for Wheels India with respect to this segment?
Let me say that I asked the same question of our largest tractor customer earlier this year, and he said, "Boss, if I'm able to sell the tractors, I'll continue to make the tractors." It's taken us a bit by surprise that the tractor market saw such a good growth in the first half. That said, the monsoons have been poor in areas such as Maharashtra, Rajasthan, Karnataka, Andhra Pradesh, and at least three of them are substantial tractor markets. We do believe that, the Q4, when the season will return, there will be some impact of that. That said, the northern part of the country has seen decent rains. So there, the demand may continue to be high, but some kind of moderation may be there, but still on a year-on-year basis, we don't expect it to decline. We just expect it to slow down.
Globally also?
Globally, it's very different because globally it's a commodity that follows commodity cycles, and the cycle right now globally is down. It's all dependent on how the commodities move globally. We are not seeing any upswing there. We're just getting into that market, and as we add products when the upswing happens, we should definitely benefit. But nothing positive at the moment globally other than the fact that we're winning business. Domestically, I do feel that it'll taper off a little bit. The growth will get subdued, but we have to wait and see. January, March will give us an idea of where the market is headed.
Okay. Sir, the last question is on the cash flows. I see that the money that you have raised, it has predominantly gone into funding your working capital. Just-
Right
-I want to know any reason we are having a negative cash flow for this first half. Is it an aberration or do you expect the pressure on working capital to remain for some more time?
No, just to answer your question, it is slightly an oddity because September saw a sudden increase in sales, substantial increase in sales. Because there is a substantial increase in sales, suddenly, we had to order a lot of materials and things like that. So the working capital requirements shot up because of the asymmetric growth towards the latter part of the quarter. This is one point. The other thing is there is also not insignificant, INR 90 crores worth of CapEx which took place during the quarter.
Do you expect this cash to fund the repayment of debt or it will remain predominantly in working capital?
No. See, working capital is also debt. You are borrowing money, so when you reduce your borrowing is borrowing, cash is cash. Interest hits, your interest burden should come down going forward.
Okay. No, no. My question is, sorry, to labor on this. My question is, once the cash flow becomes positive, will you use that money to repay the working capital debt or it will remain to fund your increased, whatever the expansion, further the working capital will be required, so that money will be used for that?
Ramesh, you want to give it a shot?
Yes, sir. Yes, sir. Sir, right now we have applied this money for the repayment of debt, sir. Okay. What we have done is that we have predominantly repaid bill discounting limits, and we have also partially paid the working capital demand loan. It was something like INR 282 crores of bill discounting, about INR 142 crores of the working capital demand loan has been repaid out of the issue proceeds. So now we are seeing a negative cash flow. Your question is saying why we are seeing a negative working capital is basically because, as our CMD said, the spurt in the sales resulted in a higher receivables and higher inventory, and because of which the working capital has become negative. Going forward, since the debt is already reduced using the issue proceeds.
Going forward, given the present level of activity, we don't expect further investment in the working capital. So the cash accruals which we may be generating in the next, let us say, two quarters will be available for applying to our capital requirements, CapEx requirements. If at all, if there is additional amount, we can always draw down on the loan. If you see the debt from INR 1,167 crores in March, it has dropped to something like INR 910 crores, including the bill discount requirements.
Okay, got it. Thank you so much.
Thank you.
All the very best.
Thank you.
Thank you.
Next question is from Agam Shah from Agam Investments. Please go ahead. Agam, please unmute your connection and go ahead with your question, please. Since there is no response, we will move on to the next question from Niraj Thacker from Profit Tantra Financial Services LLP. Please go ahead. Niraj, please unmute your microphone. Niraj, we are not able to hear you clearly.
Yeah. Can you hear me now?
Yeah, we can hear you.
The volume is very low.
Yeah. Thank you for checking my volume. Sir, I am just-
Niraj, your volume is very low. Can you increase the volume, please?
Yeah. Can you hear me now?
Yes.
Yes.
Please go ahead.
Yes.
Yeah. So sir, my question is regarding that margin. So this, what we are aspiring for the double digit margin. In next one or two years, if we reach the double digit margin, how much free cash flow, approximately, ballpark figure, how much we can expect, sir?
No, it depends on what our investment plans are at that time, how much we are expanding. So the free cash flows will depend on the CapEx that is there. It also depends on how the industries and the various segments are growing. So it is very difficult to say what our free cash flows are going to be there, because it depends on what is the business cycle at that point of time. But needless to say, my broad belief is that next five years is a good time for us to grow as a country in terms of manufacturing, and we will continue to make investments that give us an opportunity to grow.
Operating cash flows, sir. If you can give any idea, sir, operating cash flows.
I don't have any idea what my operating cash flow is two years from now.
Okay. And sir, regarding this windmill machining business, like as you-
Yeah
-mentioned in the previous conference call that much doesn't come into the top line, but it is more of a what, because it's a job work.
Yeah.
More flows into the bottom line.
Yeah.
How do we see this business growing, sir? Because you are already a double digit margin business. Next two, three years-
Yeah
How we see this?
Yeah, so-
You are seeing considerable CapEx also in this.
Yeah. If you allow me to answer, essentially, we are machining products which are made by a casting manufacturer. That casting manufacturer is recently, they are doing about 3,000-3,500 tons a month. They have recently expanded from 3,500 to 5,000 tons a month, which we should start seeing from December, January onwards. That is step one. And step two is they will look at maybe a year, a year and a half down the road, increasing that from 5,000 tons a month to say something like 6,500 tons a month. So they will do 1,500 tons at a time. From that, you can see that, next two years, we should look at doubling what we are doing currently in that business.
I think INR 20 crore per month revenue will be there.
Yeah.
Thank you, sir. Thank you for answering my question.
Thank you.
Thank you. Next question is from Anand Darshan from 361 Capital. Please go ahead.
Hello, can you hear me?
Yes.
Yes, Anand. Please go ahead.
Sir, this is Shailesh Raja, Anand's colleague.
Yes, Shailesh.
Sir, I have two questions to ask. One is, we have achieved exports revenue of approximately INR 760 crore in first half. What is our full year revenue guidance for FY 2027? Could you also provide the breakup of exports between auto and industrial segment? Then within that, also several auto ancillary companies are witnessing strong demand from overseas market, driven by this cost competitiveness, then product quality, and we are also adding capacities. Against this backdrop, I just want to know what is your exports, the growth that you are expecting for the next two years?
Yeah. Our strategy kind of, when you look at our strategy, some of the windows in the strategy, notably the industrial wheel demand, where we are already a leader, will be very export oriented. Hydraulic cylinders will also be export oriented. Cast aluminum and air suspension, of course, will be domestic, and the windmill sector will be also export oriented. Yes, our export showed substantial growth, and large part of that growth actually happened in the U.S. So our U.S. business grew 50%, largely driven by earthmover wheels and windmill-related products. As you said, INR 760 crore, it doesn't take too much to extrapolate that to doubling from that level for the full year. Our focus in this year is actually more towards winning new export business and executing on domestic business right now.
We take from now to March, we are really looking at how we can ramp up our domestic business in terms of production to meet schedules and new businesses that are won. But in the next year, we will definitely be looking at how we ramp up our export business as well. We are having a number of discussion with customers who are looking at schedules and how we are entering new customers and stuff like that. That will slowly pan out more in the next year as opposed to the current year, at least next calendar year, at the very least.
Okay, sir. Sir, that is great to hear. And, sir, second, you previously indicated that we are targeting 10%-12% market share in passenger car alloy wheels. Based on my back calculation, it would imply increasing monthly volume from current 35,000-40,000 to 1 lakh wheel rims, right, sir?
Correct.
Per month. Yeah. At this volume-
Yes
-what EBITDA margin that we can expect, sir?
Yeah, like previous colleague had asked, we are looking at something like 10%-12% at this level.
Within a year, sir?
10%-12% once you reach 100,000. We will probably reach 100,000 by Q1. That is kind of what we are expecting.
Sir, I am asking about the margin, sir.
Yes, I said 10%-12%.
Yeah. Okay, sir. Yeah, got it. Thanks.
When we reach 100,000 wheels, we will have 10%-12% EBITDA, and we expect to reach-
Yeah
-that level in Q1 of next year.
Yeah. Okay, great, sir. Thank you, sir. Thanks.
Thank you. Next question is from Samarth Ashok from Janak Merchant Securities. Please go ahead.
Am I audible?
Yes.
Yes, Samarth. Please go ahead.
Sir, two questions from my side. First is, in our alloy wheel, we are predominantly, we make LPDC alloy wheels, while the Japanese still work on GDC wheels. Do you see any acceptance of Japanese OEMs for LPDC wheels? Second, in the air suspension business, now buses has reached a decent amount of penetration for air suspensions, and one of the truck OEMs has also launched a truck for air suspension. How do you see the penetration improving for trucks also in the air suspension? Any view on that?
Yeah.
Thank you.
Okay, sure. One is, yes, we make wheels using the LPDC technology, and yes, Japanese predominantly are using gravity die casting. The fact of the matter is Japanese customers are also buying low-pressure die casting wheels from a lot of the existing manufacturers. I do not think that low-pressure die casting will preclude us from the Japanese customers in India. This is step number one. As a matter of fact, our joint venture partner, which is a technical collaborator for aluminum wheels, is a Japanese company which uses low-pressure die casting. Second question is related to air suspension. On air suspension, you are right. Buses have got fair amount of penetration. Just to give you an idea, our air suspension business in the first half grew by around, or rather second quarter grew by around 50%. There is 50% growth, so substantial growth in this segment.
You are right that one of the OEMs introduced a truck suspension, but that is really a fairly low-margin business and we are not interested in entering any new business which will show visibility of less than double-digit EBITDA. We are not entering the truck air suspension business. Bus business, which also requires servicing and other such capabilities that we built up over the decades, is what we want to service.
Sir, thank you. Just a follow-up question on the first question.
Yeah.
Is this a recent change of the Japanese buying LPDC wheels, or it has been there in the past as well? Also, what is the size of wheels that we will be selling, sir?
Typically, the aluminum wheels tend to be between 14 in in diameter to, OEM I am saying, 14- 19 in in diameter is the range, is roughly size that we are making. Change? Yes. People do not necessarily prescribe LPDC or gravity die casting, but they look at certain characteristics which a process is able to build in the wheel, and there are ways in which you can improve the process even using LPDC and still achieve the characteristics which are required.
Right, sir. Thank you.
Thank you.
Thank you. Next question is from Lala Ram from Sabre Edge. Please go ahead.
Good evening, sir. Am I audible?
Yes. Please go ahead.
Yes, Lala. Please go ahead.
Thank you. Sir, first question is, as of today, by when do you think we will be able to touch double-digit EBITDA margin?
Two years.
Three?
Two years.
Two years. Okay.
Yeah.
Second question is, if I look at the main levers that you have right now, it looks like cast aluminum wheels is, I think, the biggest lever, I believe, given you expected business to grow significantly fast. Beyond that, which business do you think the second and third in the pecking order, which will help you in bridging this gap?
Our industrial wheel business will also kind of help bridge that gap, but it may be slow to accrete because the variety is huge. So you have to add one product at a time. The other thing is flipping some of the businesses which are low margin. Once they reach scale, they become double-digit margins. So notably, I would say that the hydraulic cylinder business, which is right now a low margin business for us, can become quite profitable once we scale and we also get into higher value categories. So that's definitely one that I believe can help us. The windmill hubs business, the machining business, of course, as you scale that business, that's also going to improve your margins. And on air suspension, again, I think once you reach scale, and by scale I mean global scale.
Once you reach global scale, then suddenly your costs become better, your efficiencies, your additional costs for additional sales becomes relatively less. So really scaling our business is the biggest opportunity outside of aluminum. And I believe that we have prospects to do that in some of our industrial tractor-related components, the machining business, the hydraulic cylinder business, and the air suspension business.
Got it. If I just want to understand that your industrial business, today it is fairly small. How big that it can become in the next three years according to you? Three to four years.
Yeah. Our industrial wheel business is construction wheels and agriculture tractor wheels, which is INR 1,500 crores. It is not a small business.
Okay. My bad. I was referring to-
Yeah. This is overall, but the tractor part of it is largely domestic. As that export type of business increases, then the margin improvement there will be not unsubstantial. But I will still agree with you. I think aluminum wheel, because of the quick ramp-up, will be the first one to accrete to the margins, followed by probably air suspension, followed by hydraulics cylinder, followed by the agriculture tractor exports.
Thank you for that. One more question is, given you have a lot of businesses, and within each business, beyond just the product variety, there is domestic market, there is export market. If I were to take a step back as a shareholder, and I want to understand that if Wheels India has to become a INR 10,000 crore revenue company, what will drive that growth? Is it becoming more of a global company and exporting more, or is it more driving the domestic business? If you can help us understand.
Yeah. No, I think it will be both. India will continue to grow, and we are growing faster than most other large economies. Related to that, all the segments in India will also continue to grow. But we do want to be a global supplier as opposed to being purely a local supplier. So we will also look at growing the businesses. If you are talking about the INR 10,000 crore level, outside of these current product categories, if at a later date we look at another category also, we may look at that. But at the moment, this will get us pretty close to that level. The current strategy, which is there in the slide in front of you, which is basically this industrial wheels, windmill, hydraulic cylinder, cast aluminum wheels, air suspension. That itself should take you quite fast.
Okay. At that scale, what do you think our margins could look like? Will it be at 10% or closer to 12%, 13%? What is the opportunity there?
Right now, when you are down looking up, you look at only what is the next level, which for me, double digit for me at the moment means 10%. After crossing 10%, we can definitely look at more than that. First, it should be 10%.
Got it. One last question, if I can pitch in.
Yeah.
Given whatever core capabilities we have as a manufacturer, which are the adjacent areas that we can enter beyond what we have today?
Yeah. On the industrial side, we can definitely look at whether we can start making modules, because some cases we do fabrications, we also do cylinders. So whether module expansion is possible is definitely something we can look at. We are also trying to examine whether there is an opportunity for us to get into components for gas turbines. It is still very early stages of investigation, but we are looking at that. We work along with our customers, and as and when they open these opportunities for us, we should be ready to take them.
Thank you so much. Wishing all the best.
Thank you.
Thank you. Next question is from Rajkumar Vaidyanathan from V. Rajakumar. Please go ahead.
Rajkumar, go ahead.
Thanks for the follow-up, sir. Sir, this is a generic question. I just want to know, do you use AI and AI-related solutions in your manufacturing and your day-to-day working? Just wondering.
Well-
-what is your current usage, or do you expect the usage to go up in the months to come?
Rajkumar , you seem to think similar to my board. I answered the same question in my board earlier today. Broadly speaking, we look at it, we are using AI already in terms of basically quality inspection. We are using it in terms of capture and recalibration related to improving OEE preventive maintenance. We are examining how we can do better sale forecasting. These are some of the areas that we are looking at AI, and we are examining whether we can use it to speed up the product testing and validation process. These are some areas we are looking at.
Okay, and thanks for this, sir. Do you use your in-house resources or do you work with any IT vendors on this initiative?
Well, as you probably can see from our margin profile, we can't afford those people so we end up working with vendors. We end up working with vendors, startups. There's a large motley crew of people who provide services in each of these subsegments of AI.
Okay. Do you expect this to help you improve your margins in the days to come, given the impact it can provide?
I think in terms of improving your efficiencies, it can definitely help. Probably more so in some sectors as opposed to others. But we do feel it can help. Is it absolutely game changing that it transforms the products that we make and all that? Very unlikely. If I can put it very crudely, we are in the metal bashing industry and we still need to bash metal.
Okay. Got it, sir.
Thank you.
Sir, two more housekeeping questions, if you permit me, can I ask?
Okay.
The first one is, given that you have significant exports, I just want to know, what is your current hedging policy. Do you hedge or you don't hedge? Because last call, I think, the CFO mentioned you also import raw materials.
Just want to know, do you just leave it open or?
No, we look at the net exports. Yes, you're right, we also import, so we look at net exports, and the net export level, we see whether we need to take covers. It's a dynamic-
But do you cover.
It's a dynamic situation. The extent of cover also depends. We work closely with consultants, such as Rajwade and all that, and then based on the advice, we make the cover.
So you take only short-term covers, no long-term hedging, right?
No.
Okay. Got it, sir.
Maybe three to six.
Last question is, on the other current assets have gone up by almost INR 100 crores between March and September. The CFO could answer that question.
Ramesh?
Yeah, sure. See, after the introduction of GST 2.0, the GST structure has become inverted.
Okay
We are applying for refund and getting the refund. As of now, there is a bit of funds which are blocked up in terms of the GST.
Okay. Do you think this will be prolongated or it will get Because there was some relaxation given the last
Yeah. See, the relaxation is given in terms of services. You can also ask for a refund in terms of services, so we are working, and we collect refund through the export route and through this inverted duty section route. But still, we have a challenge of about INR 130 crores- INR 140 crores, which ideally should be converted into cash, but we are a bit struggling on that. We are working on various options on how we can reduce it. Hopefully, we should be able to make some improvement in the next two quarters on this.
But there is no provisioning required for this in the event of not being able to collect that sum.
No. It is a 100% balance in the GST portal, so it is only thing that your usage is being delayed, your refund is getting delayed. We are getting refunds
Okay. Got it.
It is getting delayed.
Thank you so much.
Thank you. Our last question is from Rakesh Toba. Rakesh, please go ahead.
Can you hear me?
Audio is not clear.
Yeah. Now can you hear me, please?
Yes.
Yeah, we can hear you, Rakesh. Go ahead.
I think I have already got two question answers on profitability and future growth from other people. My question is on exports revenue.
Yeah.
Your exports revenue has strongly grown for this quarter, which is primarily led by construction equipment base. Given the recent setup of your U.S. and Europe subsidiaries, could you please share the export order pipeline in the second half of this fiscal year, and are there any specific risk margins which the company is monitoring?
Okay. There's no risk margins to the best of my knowledge that we're monitoring, but we continue to see exports as being strong. Whatever we've done in the first half, we should only improve in the second half of the year. Order books looks reasonably strong. Typically, we work on customer schedules. Customers give monthly schedules, and that's kind of what we work on, but they give us some visibility based on an S&OP. A lot of these customers are customers we've been dealing for 10 years, 20 years, 30 years even. It's more an ongoing business wherein, you do a new product development, and you get additional business from that. We don't really track our order book per se, we just track our monthly schedules. Schedules remain strong and at least in the near future, I don't see things slowing down.
We'll wait and watch because this is a very volatile world that we live in. Despite all the tariff tantrums that we saw last year, we were able to manage the last year, having substantial exports to the U.S. We did it decently well.
Is there any challenges due to this geopolitical, sir, for your exports?
[ Non-English content ] Because they keep changing the duties, then they give the refunds, then the customer wants a refund.
Tariffs are not there.
All that is there, but still, it's a business that we're committed to. See, we want to be global suppliers in some of the product categories. We are global suppliers in some of the categories. Really, we don't look at it as export and domestic. [ Non-English content ] How do we service him the best? How do we do the best job of meeting his requirements? Some of them are saying, "We only want people who are global suppliers." How do we meet that is kind of now what we look at. But prospects are quite good. I think people are much more open to Indian products now compared to what they were five years ago.
Thank you, sir. Thank you very much.
Thank you.
Thank you. I would now like to hand the conference over to management for closing comments. Over to you.
Thank you. Thank you all for joining the investor call, the earnings call. We continue to work on our key strategy along the points which I have shown in this slide, and we will continue to interact with you. We do thank you for all your best wishes and your queries. Some of your queries also make us think and act differently from time to time. We will definitely continue to engage with you, and thank you so much for your interest in our company, and look forward to future interactions with you. Thank you.
Thank you.
Thank you.
On behalf of ICICI Securities, that concludes this conference. Thank you all for your participation, and you may now exit the meeting.
Thank you.