Divgi Torqtransfer Systems Limited (DIVGIITTS) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Devgit Tork Transfer Systems Ltd. Q1FI27 Earnings Conference Call, hosted by Equirious 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. Should you need assistance during this conference call, please signal an operator by pressing star and bend zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ranaq Jain from eQueria Securities. Thank you, and over to you, sir.

Yeah, am I audible? Yeah, so you are loud and clear. Please go ahead. Yeah. Good afternoon, everyone. On behalf of Aquarius Securities, I welcome you all to the Q1 F527 post results call of Divghi Talk Transfer Systems Limited. From the management side, we have Mr. Jitendra Divghi, Managing Director, Mr. Hirendra Divghi, All-Time Director, Mr. Sudhir Mirjankar, CFO, Mr. Satvinder Singh Sabrawal, Chief Growth Officer, and Mr. Deepak Wani, COO. I will now hand over the call to Jitendra, sir, for his opening remarks. Over to you, sir.

Thank you, Ramadhar. Good afternoon, everyone, and welcome to this quarterly earnings call. I'm sure you've had the opportunity to go through the financial results and the presentation, which were uploaded yesterday on the stock exchanges, and are also available on the company's website. As was mentioned, joining me on the call today is Sudhir Mirjankar, CFO, Satvinder Singh Sabharwal, our Chief Growth Officer, Deepak Vani, Chief Operating Officer, and my brother herein, Executive Director, is traveling on business in the United States right now. Our Investor Relations SGA, Advisors SGA have also joined on the call. So, let me begin by saying that As you've noticed, Q1FI27 has heralded a very strong start to this financial year for us, and we believe that this quarter marks the beginning of a new phase of our corporate journey since 2023, when we went public. The performance demonstrates that the capabilities, investments, and opportunities built over the past few years are now converging and beginning to translate into impact. We see this quarter not as an isolated strong performance but as an early indicator of significantly larger growth opportunities ahead of us. We delivered our highest ever quarterly performance with total revenue of approximately 142 crores. Thank you. Pat came in at approximately 25 crores. Importantly, return on invested capital without the cash components stood at... Almost 32% in Q1FI27, reflecting strong returns being generated on the investments made over the past few years. This performance is reflected by, or you could say driven, by a favorable product mix, increasing contribution from exports, and the operating leverage that comes from just a higher scale of business. Importantly, the benefits of this scale-up are not limited to just our financial performance. They're also enabling us to accelerate the next phase of our growth. As I've been sort of stating in previous calls, our global strategy has two clear priorities. First, to support our key OEM customers in their global expansion, and second, to build a global footprint for ourselves. And I'm pleased to share that we have made meaningful progress on both these fronts. On the first, we are successfully on track with our Indonesia program, supporting Tata and Mahindra in their work in Southeast Asia. This is an important milestone for us and demonstrates our ability to take our capabilities and partnerships beyond India. Building on this experience, we are now taking the next step in our internationalization journey. I'm pleased to introduce Project Mayflower, our initiative to establish, eventually, a manufacturing presence in the U.S. Under this initiative, we have established our wholly owned subsidiary in Greenville in South Carolina at the International Center for Automotive Research and have begun building our initial team and operations. So my brother Hiren is in the U.S. in connection with this initiative. We are already seeing encouraging customer traction, including new RFQs, for sourcing from this proposed manufacturing site in the U.S. Our focus now is to convert these opportunities into concrete revenue streams, deepen our engagement with existing customers, build relationships with new OEMs and Tier 1 customers, and also evaluate the right opportunity then. To establish local manufacturing. Together, the Indonesian or ASEAN program and Project Mayflower mark important steps in our evolution from an India-focused business to an enterprise with an increasingly global footprint. So I think the message from this quarter is not simply that we have achieved another record quarter. More importantly, we are beginning to see a fundamental transformation. In the scale and breadth of our business and the benefits of the capabilities and opportunities that we have built over the past few years, by beginning to see all of this translate into scale. Over the last few years, we have invested deliberately in technology, engineering capabilities, advanced manufacturing technology, and customer relationships. We are now at a stage where these investments are translating into multiple growth. Opportunities simultaneously. In simple terms, all the cylinders are now beginning to fire together. Transfer cases, EV transmissions, components, exports, and emerging transmission opportunities, such as automatic transmission for front wheel and rear wheel drive. This gives us a much stronger and more diversified foundation to grow better, stronger, and faster. One of the most significant changes that we are beginning to notice is the evolution of our relationship with customers. We started by improving our technology and manufacturing capabilities. Today, we are increasingly being recognized as a technology partner, working alongside OEMs to develop and commercialize new technologies at an ever-increasing and faster pace. This is an important change in the way we participate in the automotive value chain. We are no longer looking at individual product opportunities in isolation. It's all about building deeper relationships across platforms, applications, and technologies. We are strengthening our relationships with existing customers, while our capabilities are also attracting new customers and new applications at existing customers. We have already initiated discussions with several new customers across domestic as well as international markets. These include Japanese, Chinese, and Korean customers, who, as you You may have noted. Are increasingly going to play an influential role in the Indian market and Indian and global markets. The other trend we are seeing is a transition from being just a PV player, that's passenger vehicles, to a broader light vehicle and mobility player. So, in other words, the addressable market is also evolving. Historically, we were identified just passenger applications. Today, that is no longer the case. With our growing participation in pickup trucks and other light commercial truck applications, we are expanding beyond the traditional passenger vehicle opportunity. The pickup truck opportunity is particularly important because it allows us to participate in a segment that combines the scale of light vehicles with the requirements of commercial mobility. And we are not stopping here. We are actively evaluating opportunities to participate in other vehicle and transmission segments, which can further expand our addressable market over the coming years. So this is the transformation we are talking about, from a company with a strong capability in a specific product and vehicle segment, to a broader drive train and mobility enterprise. Let me... Shift gears and talk a little bit about our core transfer case business. So this business continues to be a key growth driver. The global market for transfer cases is in the region of about 14 to 15 million units. And as you can see, we are still quite modest. The Indonesia program has significantly increased volumes for us, and we expect further momentum through FI27. Including incremental volumes from the pickup truck program, new platforms, and facelift programs. Importantly, while the Indonesia program has required immediate execution and has influenced the timing of some other orders, we do not view the resulting revenue as entirely one-off. More than 50% of the business has the potential to become recurring in nature. Some other opportunities that would otherwise have entered the pipeline were pushed out temporarily because of the immediate execution load both at our end and on capacities at the OEMs. These opportunities have not disappeared. They remain part of the overall pipeline and will come back as the current program concludes its execution phase. At the same time, our OEM customers are establishing manufacturing footprints outside India and are looking to expand their own exports. This creates a much larger opportunity for us to participate in global platforms beyond the current Indonesia program. And one such program, we expect, will start in FY28. So our opportunity in transfer cases is not simply about executing what is on hand. It is about using this program as a springboard for sustaining the global nature of this business. Another significant transformation has been our export business. There was a period when our export revenues had become almost negligible because of external factors. Rather than accept this situation, we reworked our strategy and within just two to three years, we have We have rebuilt a substantial order pipeline. And business that is very tangible and visible to all of you. Our manufacturing, our technology is at par with international players and meets stringent European, American and Japanese requirements. Therefore, our opportunity is not restricted to any one geography. If an opportunity moves away from Indonesia, our capabilities can be deployed. A case in point is a Japanese OEM who is targeting applications in the Gulf region. So, the Gulf region, as you know, is sort of in the vicinity, geographically of India, and Japanese OEM wishes to take advantage of its cost structure in... India to service these markets. So this is just one example. We are therefore building exports as a structural growth engine rather than treating them as mere transactional opportunities. A word about our EV transmission, which continues to be a very critical pillar, despite showing a little bit of a dent in Q1. So while the transition from imported platforms to localized production at one of our key OEMs has taken longer than initially anticipated, the underlying opportunity remains intact. And as a matter of fact, For the remaining quarters of this year, we are seeing extremely strong schedules coming in. Our customer programs continue to progress, and we have already demonstrated our capabilities through prototypes, proof of concept work, and the approval we have received from OEMs for mass production of new programs at the customer. In particular, the SIGMA program is progressing towards commercialization, while localization and validation activities continue across other programs. Significantly, we are building this capability not merely for one EV program, but with the objective of creating a technology platform that can address multiple EV hybrid and emerging transmission applications. So, I think the takeaway is that the assets Both in terms of hardware and the intellectual capital that's being created, both at product design and manufacturing process level, is all very fungible and can be taken across the verticals that we have. Components and exports are also become increasingly important. We are seeing greater acceptance. Thank you. We have not lost sight of the next set of growth engines that will drive the business over the next 10 to 15 years. With our established businesses, with great deliberation, we are building the next generation of opportunities. We are evaluating and working across automatic transmissions, manual transmissions, hybrid technologies. Thank you. Then it was a few years ago. And in the last four to six months, we have added two new applications. One is a front-wheel drive-based, all-wheel drive application, where the content is upwards of 30,000 per vehicle. And the second one is transfer case for a Japanese OEM, which is Japan's oldest and fairly renowned Now, looking ahead. That we have a vision of a company that is fundamentally different from where it was a few years ago, and how do we see this evolving? So, we no longer have to prove ourselves as a technology player. We are increasingly partnering with OEMs on technology development, and very active R&D programs that we are doing are a clear evidence of that. So, the second point is from a predominantly passenger application to broader light vehicle, commercial applications, and I would even go to the extent of saying mobile construction equipment manufacturing. From a predominantly domestic business to an increasingly global opportunity, although there is much work to be done in this direction. And from individual product opportunities to multiple technology and product platforms. In other words, from one primary growth engine to multiple growth pillars. The first thing is the development of these opportunities is coming all together, so the opportunity also therefore presents challenges in terms of execution bandwidth and that is what continues to preoccupy us. In short, transfer case business is scaling, component exports are gaining traction, The component business in India is growing. Our customers, EV transmissions increasingly moving towards commercialization. Our three-wheeler product now is also ready, the EV reducer. And I think what makes us very distinctive is that we are not building to print. We come with our technology and our products with which We can solve problems. This enables us to optimize upfront tooling cost, upfront engineering cost, and bring a very high level of assurance very early on in the vehicle development program. What we are also doing is now working on the next set of opportunities which I have mentioned earlier, automatic transmissions, manual transmissions. With our customers, some of them going back more than 60 years, are creating these, enabling us to create these insights. Our technology is the, I think, differentiator, and the expanding addressable market is bringing us more and more opportunities. We now have multiple strong pillars supporting the business, and all of them, as I said, are beginning to fire together. So, where do we go from here? I think the idea is that we convert this expanding opportunity pipeline into sustainable, profitable, and increasingly global growth. And that is where I think the timing of Project Mayflower couldn't be better. We believe the opportunity ahead for the company, for your company, is significantly larger than the business we have today, and we are building the organization, technology, and manufacturing capabilities to capture that opportunity. So, this is a historic crossroad that we are at, and we believe that the VTTS is leading the revolution in India to create India's first generation of genuine Tier 1 companies. To conclude my remarks, we will have a Q&A session after my colleague Sudhir Mirjanka has had a chance to talk about the financials. So let me hand over the proceedings to Sudhir, and then we'll have a Q&A session. Thank you very much.

Thank you, sir. Good afternoon to everyone on the call. Before presenting the financial numbers for Q1 of F527, I would like to highlight a few key points. I am pleased to say that we have started F527 on a very strong note, delivering another record quarter across revenue, Evita and Pat. Following the strong performance in Q4 of FY26, the momentum has continued into Q1 of FY27, reflecting sustained growth in the underlying business. The transfer case business delivered strong growth during the quarter, supported by higher volumes from key OEM customers and sustained demand across upgraded platforms. We also continue to strengthen our presence in export markets. Our eager drive business remained relatively subdued during the quarter. However, we continue to see opportunities for the business to scale up, supported by approves for new platforms and programs in the pipeline. Meanwhile, the components business continued its strong growth trajectory, supported by a higher contribution from precision components and continued growth in exports. We remain focused on expanding into new geographies and deepening our engagement with global OEM customers. At the same time, we are building opportunities for the next phase of growth through. New platforms, export opportunities, and expansion into adjacent transmission products. We continue to work on opportunities in automatic transmission, manual transmission, and hybrid transmission, which will further strengthen our product portfolio over the longer term. Speaking of the financial performance of Q1 FY27, In Q1 of FY21, we delivered our highest-ever quarterly revenue of Rs. 141.8 crores, registering a strong 85% year-on-year growth from Rs. 76.8 crores in Q1 of FY26, and a 25% sequential growth from Rs. 113.8 crores in Q4 of FY26. On revenue mix, the transfer case segment delivered strong growth during the quarter, with revenue increasing 93% year-on-year to Rs.76 crores compared to Rs.39.3 crores in Q1 of FY26. As mentioned, the growth was driven by strong transfer case volumes and healthy demand from existing OEM programs. The segment contributed around 53% of total revenue during the call. The Eagle Drive segment reported revenue of Rs. 5.7 crores with the business position for a gradual ramp-up as existing platforms scale and new programs move towards production. The component segment continues its strong performance with revenue increasing. 83% year-on-year to Rs. 34.4 crores compared to Rs. 18.8 crores in Q1 of FY26. The growth was supported by improved realizations, a higher mix of precision components, and continued growth in export business. Exports continued to strengthen during the quarter, contributing around 16% of the geographic revenue mix. Other business also recorded strong growth with revenue increasing to Rs 21.4 crores compared to Rs 6.5 crores in Q1 of FY26. This includes contribution from Nextag, ALH, Synchro, Aftermarket and other operating income. Gross profit for Q1 FY27 stood at Rs. 88.6 crores compared to Rs. 48.3 crores in Q1 of FY26, representing an 83% year-on-year growth. Gross profit margin stood at 62.5%, broadly stable compared to 62.9% in Q1 of FY26. EBITDA for the quarter stood at Rs 41.6 crores, raising a strong 118% year-on-year growth from Rs 19.1 crores in Q1 of FY26, and a 50% sequential growth from Rs 27.8 crores in Q4 of FY26. EBITDA margin improved to 29.4% compared to 24.9% in Q1 of FY26 and 24.5% in Q4 of FY26, supported by a favorable product mix, higher contribution from the sports and better margins from the 4x4 products. Profit after tax for Q1 of FY27 stood at Rs. 25.2 crores, reflecting a strong 183% year-on-year growth from Rs. 8.9 crores in Q1 of FY26 and a 63% sequential growth from Rs. 15.5 crores in Q4 of FY26. Pat margins stood at 17.8% compared to 11.6% in Q1 of FY26. And 13.6% in Q4 of FY26. Overall, Q1 of FY27 reflects the continued strengthening of our business momentum with higher volumes from key OEM programs, growing contribution from components and experts, and a healthy pipeline of new opportunities. With the visibility we currently have across existing programs and upcoming platforms, we remain confident in sustaining this growth momentum in the coming quarters. So, that's it from my side. Now, I would like to open the floor for questions and answers. Thank you.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Mahesh Pendre with LIC Mutual Fund. Please go ahead.

Thank you so much for the opportunity and congratulations, fantastic results. Sir, you spoke about the setting of the facility in the U.S., so what kind of investment you required? And overall level, if we have to look for next three years, what kind of resources we require in terms of the growth we are talking about, both capital as well as any new set of factories that we need to set up?

Thank you, Mahesh, and thank you for your compliment. Very relevant question. I think it comes straight out of the remarks that I made. So there are two areas we are looking at. One is RFQs on new programs that we are working on, and the feedback in that regard is very, very positive. The challenge, of course, is to now convert this into awards and awards into revenue streams. On the new RSQs, the SOPs are towards...

Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect the line for the management. Ladies and gentlemen, we have the line for the management reconnected, so please go ahead.

Yeah, apologies for that little disturbance and interruption. I was answering Mahesh Benre's question on what the outlook on our investment is, and what I was explaining was there are two types of opportunities, new RFQs and existing work going on in plants where we can quickly play a role by bringing proximity and cost reduction to ongoing business. And we are looking at both opportunities. Essentially, the initial feedback that we have is that there is the possibility of an opportunity of arbitrage with the application of technology, manufacturing technology, and the intelligence that we have uncovered is in the process of being verified in interactions by now our program interests in the U.S. And if that is borne out, then in the first phase, now this is directional numbers I'm putting out. This, please don't hold me to this, this could evolve. But the figure that we're looking at is about $5 million in the first phase. So the idea is to build a small compact facility in South Carolina, near the city of Greenville. In the general vicinity of our current largest customer in the United States, which is Bogwana, and there are opportunities there that we're looking at supporting their plant, which is North America's and therefore the world's largest plant for transfer cases in the U.S. The other point I wish to make relevant point Is that the United States government now, in working with the automotive industry, is mandating a certain minimum local content produced in what they call the U.S., Mexico, Canada, North American region. So, to qualify for this cluster of opportunities, you absolutely need a manufacturing location locally. So, that in and of itself presents... So, this is a quick, concise answer to the question that Mahesh asked.

I spoke about, you know, opportunity, I mean, company is on the verge of, you know, in terms of business, we are in a breakout stage. So, in that context, do we require to invest more in Indian facilities?

Yes. The Indian, you know, what we are seeing is perhaps for the first time in history, a certain global, it's still not global volumes, but in the direction of global volumes. Of upwards of 5,000 units a month. Such opportunities will come in mainstream transmission products, which is what we are working on. And these opportunities, we believe, will come in the area of manual transmissions and automatic transmissions. Automatic transmissions then become the foundation to go and evolve into more sophisticated hybrids. And even further, dedicated hybrid transmissions. So, but that will take some time. As we have mentioned in previous calls, we are actively working on automatic transmissions. The complexity of a program like this... It means that, you know, a transfer case will have 80 to 90 line items in its bill of materials, and automatic transmission has upwards of 250. And we have to have a very systematic, coherent, phase-wise localization program to deliver cost savings relative to imports. We believe we have the... Formula and the recipe to do that. We have the assets, and if I may say so, the financial resources to pull this off. And that's what we are now engaged in, in figuring out how to help our OEM customers. The imperative for our OEMs in India is pretty clear. They have to upgrade their powertrains with localized. Automatic transmission offerings, otherwise they risk losing market share in the years to come. And given the diversification of the prime mover, you know, in terms of having petrol, diesel, hybrid, pure electric, plus vehicle segments, the complexity of the automotive business is growing. And therefore, OEMs need fast, agile tier 1 companies like ourselves to work with them, which is why I said in my opening remarks that we are seeing our evolution from just being a transactional supplier to a technology partner who is like an influencer of not just the product. But the manner in which you curate the introduction of that technology into the vehicle portfolio of the company. And unless one is willing to walk up to the line in this manner, I don't think you can have a sustainable formula. All this is going to require investment in India. The reality is that the investments within India will definitely be more than overseas because it is the Indian market that will give us the better opportunities of much higher technology and value addition compared to overseas markets. But given the exchange rate and the regime of India... Two, one simply cannot neglect exports and globalization. Otherwise, you run the risk of this macroeconomics somewhat kind of causing problems to the business model. So, this is how we see it. Thank you very much. 25% to 40% of our business, as I see it, will continue to be either exports or global operations, and the remaining, you know, 60% to 70% will be domestic. And increasingly, domestic will mean proprietary products, because it's pretty clear to us now that it is very, very difficult to scale up doing just components and build-to-print. It will work if you are doing... You know, just components, commodity components with a little bit of automation, but then the attendant factor then is going to be relatively more modest EBITDA margins. If you want to remain a distinctive company, tier one, a product leader, it will come with its risks, but the promise of much better EBITDA margins. So taking all this into consideration, the investment in India is going to take primacy, if I may say so.

Sure, sir. Thank you so much for answering my question in detail and wishing you the best.

Thank you. The next question comes from the line of Vimal Gohil with Alchemy Capital Management. Please go ahead. Mr. Vimal Gohil, your line is unmuted. Please proceed with your question. Yeah, am I audible?

Yes, sir, you're audible. Thank you. Thank you so much for the opportunity. Congratulations on a very strong quarter and the outlook as well. Sir, what I wanted to understand is basically on the domestic business, how has the traction been in the transfer casing piece? If you take out our top customer. So that is one data point that I required. The same thing for our, I missed out on the export pieces, how much was the export revenues this quarter, and the kind of performance we have seen, you know, X of the order that we are executing in Indonesia. If you can give me these two numbers, sir.

So, you know, the principal customer is Mahindra, the number two customer right now, and sort of in close step behind Mahindra is Stada Motors, because Stada Motors is also exporting the Zenon or the Yodha pickup truck to Indonesia. So, that, I think, is the answer to the first part of your question. As far as exports are concerned, because... Well, let's put it this way. The Indonesia order through our OEM customers in India is a kind of export order because 70,000 of our transfer cases are going to land up in Indonesia in the next 10 to 12 months. But right now it is not showing up as an export order on our books. But this domestic business has kind of a little bit eclipsed. Our exports in terms of percentage. In absolute terms, the export has grown. I think it's almost 34 crores to... Yes. For the quarter, it is around 23 crores. So if you annualize it, you can see it is 92 crores. Considering that just two years ago, it was down to almost zero. It tells you, and with the tariff war, with all the geopolitics going on, this kind of scale-up in exports tells you that India as a source... And Divki, as a participant in this market, cannot be wished away. Many of these, in fact, not many, all of these contracts that we are executing, that are contributing this 23 per quarter or almost 90 per year, are all exclusive contracts. We are the only supplier on these components into the North American market. So this is the second part, I think, of your question. Does that answer the question?

Yes, sir. On the exports, it does. Just trying to understand better on the traction transfer casing piece, you know, apart from M&M and Tata Motors, you know, which other customers are looking to adopt, you know, all-wheel drive or four-by-four transfer casings or that technology into the business at this point in time? Why am I asking this question is that domestically, most of the OEMs are right now contemplating EV drivelines versus ICE within petrol and diesel and also looking at hybrid. So, given this scenario, how do you see the acceptance or the adoption of four-wheel drive for the longer term in India going forward?

So, I think four-wheel drive cannot be wished away because the commercial truck... The market will continue to be diesel, and we have done prototypes, development work with Force Motors, Aishar, Ashok Leyland, and of course, Tata and Mahindra. Our applications in these commercial trucks have a huge potential for globalization, and it is to be noted because this information is now public domain. You are aware that Tata Motors has acquired Iveco in Italy. And Iveco has a really global footprint. And one of the markets that Iveco is extremely strong in is South America, the entire South American continent, with sort of Brazil and Argentina, you know, as the center of gravity. So, we believe that the opportunity truly is global. The products are ready with us. Maybe manufacturing capacity, a little bit of extra localization in some instances is needed, nothing is beyond us. We have to prioritize our work because the volume of work is so much that we have to sort of sequence it and prioritize it a little bit, but it is all extremely doable. Having said that, you know, at the end of the day, the largest truck maker in India is Stata Motors. They operate from small commercial vehicles all the way to big trucks. So the segment is pretty dense as you go from, let's say, one and a half, two tons to something like 12 to 14 tons. And it's in this space that four-wheel drive is needed. The numbers obviously are much more in the lighter range. But in the medium to slightly heavier range, the margin realisation and the unit prices are significantly higher. Applications include, you know, general utility, off-road, forestry, mining, defence, construction. These are the application areas where four-wheel drive is needed. And it's not going away. India is a huge three and a half million square kilometers. There's tremendous amount of geographic diversity. So if we meet Indian conditions, we can pretty much take care of anything around the world. So I'll just give you a very quick example. At 16,000 feet in the Himalayas, where the army operates, the temperatures can go minus 20 Celsius. This is the temperature you might see in Siberia, in Russia, or the Canadian prairies. But it is also there in India. Plus, you go to the deserts, we have sand and heat going to 45 to 50 Celsius. So we have to design products that can handle this kind of a climatic range. And that's what we are doing, which is why our transfer cases, two of our transfer case models, are extensively used by the Indian Army, which, as you know, is the world's third largest standing army. And that in and of itself gives us a certain brand. So, four-wheel drive is not going anywhere. It continues to require a lot of attention. And let me say the incumbents, like Mahindra and Tata, We are investing heavily in capacity building. This Indonesian order, you could say, is a foretaste of things to come. Because the competition in Indonesia was from the mighty Japanese, Toyota, Nissan, Mitsubishi, Isuzu, and two Chinese companies, Great Wall and Photon, against six formidable global competitors, much bigger than Tara and Mindra. Our compatriots have won this prestigious order and swept it clean. One of them probably would have taken everything, but none of them individually had the capacity. Now, ask yourself, what do you think the leadership in these companies is thinking? Having proven this, do you think they are just going to rest on their laurels? I think not. ASEAN is a huge region. It is bigger than the Indian subcontinent. It goes from Burma till Vietnam and from Laos till the islands of Indonesia, which is touching Australia. It's a huge region. And the Indian companies are not going to stop. We have the Indo-ASEAN free trade agreement. The governments are...

Ladies and gentlemen, we have the line for the management disconnected. Please stay connected while we reconnect the line for the management. Ladies and gentlemen, we have the line for the management reconnected. Yes, sir, please go ahead.

Yeah, I apologize. I... I kept talking, not realizing that the line had disconnected. Let me just rephrase in a very short way. The Indian OEMs are also going global. We are not just working with our customary traditional OEMs, but as I said, we are widening the footprint to include companies like Force Motors, Ashok Leland. And also now companies like JSW that are coming into the automotive industry. So our own work with American-Japanese OEMs, our OEMs going global, and just a wider cross-section of the Indian market means that there are enough opportunities out there. But also remember that when we do transfer case development with these OEMs, We bring a lot of credibility as a tier one, and using that channel, we can give them offerings in manual transmissions, in DVs, and also automatic transmissions. I do believe that we are bringing absolutely state-of-the-art automatic transmission technology. I know it's taking time, but please bear with us. We will have announcements later this year.

Right, sir. Sir, last question is, what is the timeline for our USA plant? Any timelines that you are looking at to set it up?

Yeah, right now the thinking is that we will do this in the second half of calendar 28, the earliest. So that's about two years from now.

Fair enough. So, the commissioning will take some time. I mean, we're looking at a possible commissioning in 2019.

Yeah, we did look at the possibility of acquiring a going business, but what we realized is the companies that we are capable of acquiring are smaller, private-limited companies, and the accounting standards of these companies in the U.S. is quite lax because audits are not statutory for small companies in the U.S. As a listed company, if you go after them, if there are red flags coming up, there are all kinds of minefields. So we now feel that the best way to do this, it will be a little slower, but we'll be able to take our culture of quality, of manufacturing technology, the innovativeness we have in our management, that culture to a greenfield site. So it is going to be a greenfield plant, but let's look at it this way. We will start small, but we will engineer the system so that we can move very fast.

And thank you so much. I'll drop back in the queue. Thank you. Thank you.

Thank you. The next question comes from the line of Raj Agarwal with Niveshai Asset Management. Please go ahead.

Oh, hi. Hello, sir. Thank you so much for the opportunity and congratulations on the set of numbers.

Thank you.

Like we mentioned, you know, I had an opportunity to basically meet the team a couple of times in the last six months. Like we mentioned, you know, that we are adding this large growth pillars, automatic transmissions, this transfer cases, we are taking it abroad. So if you can, you know, to the best of your understanding, if you can put a small timeline into each of the verticals, basically after Indonesia order, when can we win a next order for transfer cases, or basically manual and automatic transmission, When they can start, you know, contributing to revenue, not asking for any specific, you know, specific date, but just a general timeline to it, that would be very helpful.

Yeah, directionally, I can tell you, sometime next year, which means from April 28th to March of 29th, we are expecting shipments to start to South Africa.

Wow.

Okay, that's one indication. Around the same time, we are looking forward to commercializing an LCV manual transmission. Okay? Okay. And remember, about a year ago, we had announced the global Pickup truck coming from Mahindra and Mahindra. So that operation will start also later this year and then continue in the out years, next three to five years. So this is as far as the transfer cases are concerned. On the EVs, I do want to take some time to emphasize this particular product vertical. We have ready designs. From the lower end of the range, which is 10 to 15 kilowatts, all the way up to 150 kilowatts, we have ready-made designs, and our recent interactions with customers, that includes Japanese, Korean, Chinese, Indian, tells us that our designs are extremely cost-effective, and I personally am of the opinion. That this particular product line can deliver much better margins in the global markets rather than India. So if you ask me, I am going to pay a lot of attention to the globalization of our EV transmission products. The markets, you know, to us are essentially Western Europe and the United States because these countries are a little cagey and leery, if I may say so, about overwhelming dependence on China. So they will want to temper their Chinese imports with a significant dose of maybe Indian content. And I think we are in a position to do that for them. Now, this is where our offices, sales office in Cologne in Germany, and now this new office in South Carolina will be of great help. I just want to make the point that the U.S. office... He's sitting right inside the International Center for Automotive Research, a world-class university campus. In the southern part of the United States, where Mercedes, Isuzu, BMW, all make cars out there. So, that gives us a lot of visibility and really access to people, contacts in the United States ecosystem. We also have a lot of active help from the local state government of South Carolina in promoting our name and access to, because the local state government wants investors to succeed in that region. Right? So this is how I see this playing out.

It's very heartening to you, sir. Can you put a similar kind of directional timeline on manual and automatics as well?

Yeah, I told you manual next year. We'll see light commercial vehicle. And this is highly strict. This particular contract is a little modest, but it is thus a beachhead to go after business opportunities in India, which we believe will be anywhere from 100 to 150 crores and above. So, the initial... I'm calling it the beachhead contract. We'll start earning revenue next year. As far as automatics are concerned, the earliest now that we see is second half of 28. Essentially, we have the technology, we have the product. We have to work with OEMs and their cycle plans and sort of dovetail into their overall timelines, project timelines and vehicle project timelines. So, this is where the work is going on. We think that automatic transmission programs, at a minimum, will deliver 300 to 400 crores. So, at the end of the day, if you have to hit that holy grail, Of that benchmark of 1,000 crores, it's the automatic transmission which will give us the afterburner thrust, if I can use that aviation analogy, to get to that point.

And just one last clarification, you mentioned that we will fly into South Africa very soon. South Africa and the global pickup trucks, these are not two subset contracts, they are the one and the same.

You are in the same. So, there is an India portion of it and there is a South African portion of it.

Got it. Thank you so much for the opportunity and wish you good luck, sir.

Thank you very much. Thank you.

Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, we request you to limit to one question each and we join the queue for further follow-ups. The next question comes from the line of Sumit Ambekar with Parami. Please go ahead.

Am I audible?

Yes, sir.

Thank you for the opportunity. Congratulations on great results. Regarding a transfer case out of 70,000 units, how many were dispatched in first quarter and what is the balance to be exhibited over a period of this year? And second, can you quantify the monthly dispatch run rate for EV platform?

Yeah, so I think roughly you could say some 30% of the total contract has been... Roughly broadly in that range. The remaining will get executed over the remaining months because the OEMs also need the capacity to absorb what we are supplying them. So I think right now the good news is that the Biggie TTS manufacturing line and system is two steps ahead of the OEM. So on account of us, the customer should not have any complaints of quality or delivery. So, Durgi DTS has done a good job in supporting the OEMs. I can very categorically tell you that. But because of their impediments in the rest of the supply chain and all that, some of this contract may spill over into the one or two months of the next year. So, this is as far as the transfer case is concerned. What was the other question?

The second is on dispatch of EV transmission system.

Ah, easy, easy, yeah. So, uh... I don't know, call it the effect of the Iran war and the general scare created in the market, we are seeing scheduled releases that are coming from the customer which are significantly higher. And the shock to the system has reinforced the importance of a local supply chain. Now, I have to tell you that the Indian EV market is highly competitive. There are incumbents, and the new entrants are from the clutch of multinationals in America and Europe, but also Japanese, Korean, and Chinese. So the market is beginning to look crowded, but not all, very few of these have any significant extent of localization. The one company that is a market leader in terms of localization, I have to say, is Tata, TataGo. And we are their primary transmission supplier. And because of this, call it the scare of the Iran war and its ripple effect in the marketplace on petroleum products, we are seeing a distinct impact on the schedules. And the new program that we have, I think given their preoccupation with product development, the vehicle testing got delayed. But interestingly, we are sitting with a production, you know, part approval process. It's a protocol that is followed, quality protocol that's followed in the automotive industry. And we have a PPAP approval today from Tata. But because of the, we are waiting for them to finish their testing as soon as that happens. I can tell you that if you look at the... I'll give you a directional feel for this. We were averaging 7 to 8 crores of water on the EV products. Our forecasts now are in the region of 10 to crores. So there is a distinct uplift that we are seeing in the schedules. As with anything else, whether the market holds or not, time will tell. But I think, tactically speaking, over the next three quarters, we think it will hold. And there is a lot of... We have a focus from Tata Motors, you know, on this. So that's where we are. Interestingly, because of our success, primarily with Tata and a little bit with Mahingo on the commercial side, this has attracted attention of Chinese, Vietnamese, Korean companies, and we are in active conversation with the Koreans as well. So, which we think is a very significant, because, you know, otherwise the Korean market is very, very difficult to prize open without an active association and a partnership with a Korean firm. But the way things are going, we are looking forward to getting a first, it will be a little modest, but it will be a path-breaking event, winning an order from a Korean EV for an EV application. So, this is broadly where we are.

Just can I please one more question?

Oh, quickly.

You said 30% of contract, that means around 21,000 of transfer cases we have given. So, remaining, if I strip away Indonesia, how much domestic transfer case we have done?

I don't have the numbers off the top of my head, but broadly, on a revenue basis, you can see the transfer case business, I think we have given a comparison, is at an all-time high of almost 75 crores. If you were to annualize that, that will come to 300 crores. All right. So, that tells you where the business is at and what the potential over the next several quarters is.

Good. Thank you. Thank you, sir.

Thank you. We request participants to limit themselves to one question only, please. There are several other participants waiting for their turn. We have a next question coming from Karan Gupta with Asit C. Mehta Investment. Please go ahead.

Yeah, hi. So, my question on the capacity utilization side, and the number of volumes we've done on the transfer case, and what's the capacity that we are, you know, increasing over the next one or two years. So, just to understand the volume-wise capacity for transfer case, and then e-gear drive. So just to understand, you know, as you said, the 40 to 50 million transfer cases, the global demand, is it right? And maybe in the range of 4 to 5 million, right? If you just...

No, in India will not be 4 to 5 million transfer cases. India will be significantly lower.

Okay, okay. So, I can just share these numbers.

Yeah, so the Indian market is anchored by Mahindra, but to some extent also by the Japanese, Toyota and Isuzu. There is also a requirement for what are called front-wheel drive-based all-wheel drive devices. Because a large portion of the SUVs are front-wheel drive. The transfer case is used in a rear-wheel drive-based all-wheel drive vehicle or four-wheel drive vehicle. Now, an example of a front-wheel drive-based four-wheel drive or all-wheel drive is the Mahindra XUV70, the Tata Harrier, the Tata Safari, the Tata Sierra. Right? So, we have the XUV70 contract, and we're currently working on the equivalent of a transfer case for the front-wheel drive vehicle, which is the Tata Sierra, and that whole family at Tata. So... But even so, India being a tropical country and most of our metropolitan regions, which are demand centers for SUVs, being within the tropics and the slow pace of speed in our metropolitan areas, the demand for four-wheel drive will never be very significant. And this is precisely why we are diversifying. A way from, while working on the opportunities in four-wheel drive, we also want to work in areas like manual transmissions, automatic, and EV, because the investments and the methods of designing and manufacturing are very similar. These are competencies that are laterally deployable. So, the demand for four-wheel drive within India, unless our companies go global, I don't think we'll ever exceed 100 to 100 of that order of magnitude. But the global potential for these companies is enormous. I mean, our intelligence says that the Indonesian government seems to have saved upwards of 500 million dollars on this tender by coming to India. So the economic argument was so very compelling. This should set, according to me, alarm bells ringing in the Japanese companies. We also know in our conversations with Japanese OEMs that they see India as a springboard for entry into the Arabian Peninsula, the Gulf region, and the Middle East, not Africa, because what the Japanese are telling us is that Indonesia and Thailand cannot compete with India on costs. So it was a pleasant sort of surprise to hear that from them, which means we can expect that the Japanese will be concentrating on investing and building their capabilities on the Indian subcontinent to not just the Middle East, but eventually, I think, the global marketplace. So the demand for four-wheel drive will come indirectly and directly, and my sense is the indirect channel is going to be much bigger and will sort of eclipse the direct local demand. It's clear, and it's clear, and it's clear.

Okay, okay. So, our volume numbers in terms of capacity and capacity utilization, if you can share, and the future plan to grow this number.

Yeah, so right now we are, I think, we have two assembly lines. We are in the process of modernizing because these assembly lines go back more than 20 years. And we have a modernization project going on, which will put our, hopefully, when the line is installed, we will publish photographs, we'll be able to see it. It will absolutely be world-class, second to none. We have a German automation company working with us to upgrade. So, I believe we will have capacity on that line of... 400,000 a day. About 120,000 a year on that new line, which will go into our Shirwal facility. So I don't think capacity is an issue for us. And as the Indian market throws up opportunities, we believe we will be well equipped. Between our assets in Sirsi, Karnataka, where we have 25 acres of land and 10 acres of land at Shirwal, I think for now we are well placed. To cash in on opportunities that will come by for us.

Okay, okay, sure, and how...

Sorry to interrupt, Karan, sir, we request you to return to the queue for follow-up questions, please. Thank you. The next question comes from the line of, sorry, before we take the next question, we request participants to please limit to one questions only. The next question comes from Roshit Shukla with Nexus Equity. Please go ahead.

Yes, good afternoon, sir, and congratulations for a great set of numbers. A couple of questions from my side. For the effort 27, obviously, we'll see this abnormal growth due to Indonesia order. But going forward to effort 28 and 29, and eventually our target of 2,000 crores of revenue. We seem to be quite early. I think we can achieve in 28 or maybe 29 because of all the initiatives and the new Japanese customers that we can do business with. And second is on the margins run, like we have hit our peak margins, which we used to do like five, four to five years back. So, what about the sustainability of margins and is there any room of further improvement eventually, not going for this by quarter of order, but like on directional basis, can margins improve further?

I don't want to sound unreasonably optimistic on the margin front. I think all of you have a very good idea of the range of EBITDA margins where the automotive industry is. Maybe a more reasonable expectation to have is scale the business in a sustainable manner, be constantly future ready. And sustain reasonable margins, because this is like a one-off opportunity that has come. We should not get carried away by this. What we can assure you, and which we will, even in the relatively bad year that we had last year, when we were down to 240 for the whole year, we still maintain an EBITDA above 20%. So that is the sort of promise we have. If it surges higher, it will be because of, you know, a certain unforeseen opportunity, you know, that has come about. But to the substance of your question, I think, you know, what is sustainability? What I've experienced in my career of close to 40 years is that it's really figuring out how to manage risk. And if you do that, then your business becomes sustainable. It is resilient with respect to the risks which are out there, which eventually do catch up with you. So the kick is have, as the Americans say, many irons in the fire. Have options worked out, and be prepared. I mean, strategy is not just about fancy jargon and words. It is making choices, taking decisions, and putting stuff on the ground in terms of resources. And then you can say you are strategically ready. Which is what we are doing. And if you see, we have, let me just sort of remind you that the mantra that we are following is actually very simple to describe. It is technology-led innovation. Okay? It is product and application diversity. And customer and geographic diversity. So these two pieces of creating diversity and plurality sit behind the spearhead of technology-led innovation. Now, and the vision is global. And of course, the foundation of everything is financial discipline, manufacturing excellence, and a culture of collaboration. Because what we are observing in this world today, no one firm has all the answers. So if you are part of a network that is collaborating, a consortium, that is the way to build sustainability in your business. So I believe that is how we will have to run our business going forward, and we are backing it up with specific, because there are a lot of NDAs and stuff like that. I'm not at liberty, but as and when we have the advantage of these quarterly calls, and as and when things fructify and crystallize, we will be announcing and updating you like we have been right now. And I'm sure our track record should give you assurance that... We will be pushing in the right positive direction.

Thanks. Thanks, sir, for such a little response.

Sorry to interrupt. Roshid, sir, we request you to return to the queue for follow-ups, please, as there are several other participants waiting for their time. Thank you. We have a next question coming from the line of A. Sriram with iThought PMS. Please go ahead.

Oh, thanks for the opportunity, sir. So, the automatic transmission we developed for which we are expecting the proof-of-concept stage, right? So, is this a wet-clutch DCT, and do we need a new plan for production when we reach that stage?

Yeah, I have to be a little careful here, because, you know, You will appreciate that a lot of the competition also listens on this, so we don't want to give away too much, but let me broadly say that we are looking at two market areas, and you will really appreciate this. If you look at India, there are two segments that we see you can develop an automatic transmission business proposition profitably. One is we believe is the mass car. Mass car means these premium hatchbacks of the type of Nexon or Bellino or I-20. You know, if you look at our cities are so congested that there will be a need for small cars, but with increasing disposable income, we clearly see a trend towards premiumization. And that is where you have to give product features that is not a compromise. You need to make it affordable and make it top class. So, we believe that can be serviced only with dual-flutch, because dual-flutch technology can optimize the weight, it can optimize the packaging, and it can harness the manual transmission infrastructure of the country. So, that is one area we are looking at. The other area we are looking at is, you know, we are in transfer cases. Rear-wheel drive, 2-liter engines. And we know that our transfer cases today over the last 20 years have been designed for all of the world's automatics. You name General Motors, Ford, ZF, Isen, Jacco. You name the Hyundai Transys. Any guy who's making an automatic, our transfer cases are engineered for that. So, now the time has come because none of these automatics is made in India. There are long, tenuous supply chains with inventory, you know, the problems of inventory pileup, inefficient working capital, and, of course, the mounting cost because of the weak rupee. So, that is another area we want to concentrate on. The architecture of the product is very critical, because these emission norms are constantly moving, and we need to be damn careful of... The technology and the configuration that we invest in so that we are not caught on the wrong foot. What we have now in place is within the space and weight, and hopefully even the cost of a six speed, we believe we can bring an eight speed now. And that's so that it is future ready. It enables our customers to get the migration path. Uh, and effectively compete against the best in the world globally. Uh, uh, and, you know, let me, uh, I know I'm taking a little bit of time, but you will appreciate this nuance and insight. Imagine if the, uh, uh, Indonesia export order, the tender specification called for an automatic, you know, sudden ramp up. Thank you. And when such an eventuality does come about, the OEMs will need a localized, aligned supplier who breathes and feels like the OEM. You cannot at that point in time get into a negotiation with a foreign supplier who is sort of... You know, glaring down at you. So I think our OEMs understand this, that to win in a competitive market, we need to build like-minded coalition in the automotive industry. And we are working in that direction to put in place. So the first project is not just going to be about investment and creating a product. It will be our contribution to India's ecosystem for automatics. I'm not saying we will do it completely, but we will be a significant player in bringing automatic transmission ecosystem to India. So it is, I mean, we are almost looking at it not just as a business, but with a sense of mission as well. And, you know, that gives our people tremendous motivation and josh to do something creative. That was very helpful, sir. Thank you and all the best. Thank you so much. Your best wishes and blessings are needed for us.

Thank you. Your next question comes from the line of Darshal Javi with Crown Capital. Please go ahead.

Hello. Thank you so much for taking my question, sir. Just a lot of my questions have already been answered. So just a small two-parter question, sir. So one is the 2,000 crore annual run rate that we mentioned in our PPT. By when do we think we can reach there, sir? And some margins, I understand that you said that, you know, because of the Indonesian order, we have some higher margins. But overall, with new projects coming up, something or else coming up. So, we can sustain a range of margins, like 20% to 27% is a very big range. So, if you could just narrow it down for us, that would be really helpful, sir.

Let me be extremely practical and down-to-earth here. I mean, you guys are in the financial field. You probably know much more than us. I mean, we are also engineers and, you know, some banks. So let me just say that you know what is happening in the Indian most suitable, the range at which EBITDAs and ROICs are coming. And let me just point to one of the market leaders in India. The top leadership at Mahendra has said that they want to focus on return on invested capital of 18%, right, minimum. So I think that sets a benchmark target for all of us. We have to do this by being competitive. Nobody is going to hand that to us on a plateau. So that ROIC, I think, has always been a touchstone for the Divki enterprise. The second one I would say is if you keep talking about innovation, product leadership, and we cannot deliver better margins for the risks we all are taking, then what is the business all about? So I'm suggesting to you that we should, we have studied the Indian market, we have benchmarked it. We know that over the last six to seven years, EBITDA margins have, on an average, gone between 14% to 17% in the Indian automotive industry. My proposition to you is if I can sustain 20% to 22% and above, I think that's a very fair offering we are giving you. And this is the mission that we are on. I can tell you, any quotation that goes, this is what we focus on, and we need to do it with innovation, because at the end of the day, we have to be competitive to win the business. And deliver that EBITDA. And the more complex the technology, the better the chances we have of doing both.

Correct, correct. And 2,000 crore target, sir.

Yeah, I think 2000 is like a potential in terms of the, you know, addressable market and the potential we have. I think you would agree that our first order of business is to work out a roadmap to get to the first 1000. And that is what we are engaged in. Experience tells us that, you know, like somebody said, luck is what happens when preparation meets opportunity. And what you saw now, a first quarter revenue of 140, given that we were at 240, then we did 390, just with this 140 that we have done, if you annualize that, that goes to 560. So that is how things will happen. But my suggestion is focus on the here and now in terms of execution, set the path and the direction. And what we are telling you is that across these four verticals, the first order of business is to cross that thousand. For that, we need to have four or five chunks of 150 to 200 to 400 crores, you know, and that's the roadmap we are on to. We'll see you next time. Transfer cases, EVs, manual transmissions, and what will then give that buoyancy to all of this is that automatic transmission. I mean, my submission is that even if we get a modest order of 40,000 to 50,000 units, it will still be business worth 400 to 500 crores.

Thank you, thank you so much, sir. That's it from my side. All the rest, sir.

So, I think we are being very practical down to work, but to be, to present this in a simple fashion, I can tell you, many, many years of hard work have gone into this.

So, yeah, that's really great, sir, and that's really shown in the results that we are doing, sir. Yeah, we're just hoping for better results coming forward, sir. Thank you. This streak to continue. Thank you.

Thank you. Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

Yeah. No, I just want to thank all those who came for this call, asked, you know, piercing, penetrating questions. I was once asked. You know, going public, is that going to be a drag, a difficult, you know, do you want to take on this load? And I can tell you, dear investors, that it's because of the kinds of questions you ask, you keep my organization on its toes. That enables us. To perform well and give us a sense of motivation to try and redeem the promise that we give you. So I do want to thank you for all the trust and confidence and your best wishes and blessings are needed as we go forward now on this journey. Thank you very much. Thank you.

On behalf of Equatoria Securities, that concludes this conference. Thank you, everyone, for joining us and now this Connect Your Lines. Thank you.