Tenneco Clean Air India Limited (TENNIND) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q2 and H1 F527 earnings conference call of Stenaco Field, Air India Limited. As a reminder, all participant lines will mean the listen only more, and there will be an opportunity for you to ask questions after the business update continues. Should you need assistance during the call, please signal an operator by pressing star followed by zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rapali Singh, General Counsel and Company Secretary of Teneco Clean and India Limited. Thank you and over to you, Mr. Rapali.

Thank you, Ikram. Good evening, ladies and gentlemen, and a warm welcome. Today from management side, we have with us Mr. Arvind Chandra, whole-time director and CEO, Mr. Mahendra Chhabra, the Chief Financial Officer. A detailed presentation on the financial performance is available on the company's website and on the website of the stock exchanges as well. We will begin with Mr. Chandra providing a business update, followed by Mr. Chandra covering the financial results. We expect the updates to take around 15 minutes, after which we would open the floor for the Q&A session of about 45 minutes. Before we proceed further, I would like to draw your attention to the cautionary statement, which is already included in the presentation. With that, I hand over the call to Arvind.

Thank you, Rupali. Good afternoon, everyone. Thank you for joining us for Technical Clean Air India's Q2 and H1 FY27 Earnings Core. Before I begin... With Diwali around the corner, I would like to take this opportunity to wish all of you and your families a very happy and prosperous Diwali. May the festive season bring happiness, good health, and prosperity to everyone. I am pleased to report another strong quarter Q2 and H1 FY2027 for the company, building on the encouraging start we made to the year. The first half of FY27 has been marked by healthy growth across our businesses, continued market share gains, and several important customer and technology wins. This performance reflects the strength of our portfolio, our strong customer relationships, and consistent execution across both advanced-wide technologies and clean air and powertrain. During the second quarter, our value-added revenue grew 32.2% year-on-year, supported by volume growth of 25.4%. For the first half, value-added revenue grew 25.3% compared to volume growth of 20.7%. This growth has been supported by our continuous demand, by continued demand across our serve markets, new program launches, and increasing content per vehicle. Beyond the financial performance, I am particularly pleased with the progress we continue to make in strengthening our competitive position. According to the Crystal Research Report, our market share and clean air solutions for the commercial truck segment increased further to 59% in H1 FY27, compared to 58% in FY26 and 57% in FY25. In passenger vehicle shock absorbers and struts, also known as the ART business, we continue to maintain a strong leadership position with market share of approximately 55%. You would recall that just a year and a half ago, that share was only 48%. Let me now talk about some of the developments across our businesses during the quarter. In advanced-rise technologies, we continue to see strong momentum across both existing and new customers. We secured content on three new vehicle platforms with a leading Indo-Chinese joint venture. We also made an important entry into the fast-growing three-wheeler segment. Where we won suspension business with a leading Indo-Korean joint venture. This opens up another addressable market for our suspension portfolio and further broadens our customer base. We continue to build on the momentum behind our unique Da Vinci technology as well. During the quarter, we started production for three-door tar suspension program. We also secured two next-generation models with an existing leading Japanese passenger vehicle OEM and are further expanding our engagement with the Vietnamese OEM with the introduction of three new platforms. Another important highlight is the commercialization of advanced suspension technology in India. We supplied India's first locally produced semi-active CBSAE. Marking a very important step in our localization journey and demonstrating the strength of our local engineering and technology capabilities. Turning to our clean air and powertrain business, we made progress across commercial vehicle, alternative fuel, and ignition applications. During the quarter, we introduced a new hot-end commercial vehicle exhaust program with a leading Indian commercial vehicle OEM for bus applications. We also made a strategic entry into the CNG market through a cold-end assembly program for a European passenger vehicle application. In Powertrain, we further expanded our share of the business with an existing customer through a new spark plug award from a European passenger vehicle manufacturer. Taken together, these wins demonstrate that our growth opportunity is not dependent on any single product, customer, or end market. We are expanding across platforms. Applications and geographies while continuing to build on our existing customer relationships. Let me now spend some time on our order book, which provides us with very good visibility into our future growth. At the end of the first half, our lifetime order book stood at approximately INR 165,000 million. This represents more than 100% coverage of our FY2030 revenue target, giving us good visibility towards our longer-term growth ambitions. Exports accounted for INR $8,750 million of the total order book. Exports continue to form an important part of this opportunity. Our export order book now provides 50% coverage of our target FY2030 export revenue. The strength of this order pipeline is also driving our investment priorities. We continue to invest in capacity expansion, localization, and technology to support future customer requirements. This includes another new clean air manufacturing facility in West India, with an investment of approximately INR 450 million. Innovation and localization remain equally important to our long-term strategy. We continue to invest in local engineering capabilities to develop in-house solutions for our OEM customers. Now, beyond financial performance, we remain committed to sustainable and responsible growth. We were honored to receive the Best Manufacturing Brand Award from ETH and the National Green Future Leadership Award from the National CSR Leadership Congress. These recognitions reflect the dedication of our teams and our unwavering focus on operational excellence, innovation, and sustainability. As we look to the second half of the year, we remain encouraged by the underlying momentum across our businesses. The combination of a robust order book, continued customer wins, and technology-led growth, increasing export opportunities, and investments behind our future capacity gives us confidence in our longer-term growth trajectory. At the same time, the external environment continues to present challenges, particularly from inflationary pressures, including commodity-related cost increases. We remain focused on addressing these through productivity, commercial discipline, and rigorous execution across our operations as part of our P3 People, Performance, Pride, Culture, and Operations Framework. Overall, I believe that the first half demonstrates the resilience of our business model and the progress we continue to make in strengthening our competitive position. With that said, I will hand it over to our Chief Financial Officer, Mahinder Chhabra, to take you through our financial performance in greater detail.

Good afternoon, everyone. As we enter the festive season, I would like to extend my best wishes to everyone for a happy Diwali. May the occasion bring joy and happiness to you and your families. Now, let me take you through the financial performance for the second quarter and fourth half of FY27. As always, we use value-added revenue, or VAR, as our primary operating performance metric, as it excludes pass-through substrate costs and provides a more meaningful view of the underlying operating performance and profitability of our business. This is consistent with how we have reported our financial performance in the past. We delivered another strong quarter, building on the momentum from the start of the year. Revenue from operations increased 34.2% year-on-year to INR $17,183 million, while value-added revenue grew 32.2% to INR $15,229 million. For the first half of 2017, revenue from operations stood at... Looking at the performance across our businesses, our growth remains quite broad-based. Clean air and power-train solutions delivered value-added revenue of INR $7,218 million in Q2FY27, growing 26.6% year-on-year. For H1-27, value-added revenue stood at INR $13,843 million, representing growth of 17.8% year-on-year. This growth was quoted by healthy underlying volumes and the continued ramp-up of the programs across our clean air and power train portfolio. On the other side, advanced side technologies continue to deliver strong growth with value-added revenue of INR $8,010 million in Q2F by 27, an increase of 37.8% year-on-year. For H1-27, value-added revenue is INR $15,201 million, growing 32.9% year-on-year. The performance was quoted by strong production volumes, ramp-up of new programs, and the increasing content across customer platforms. This performance reflects the continued scale-up of our business and execution against our existing export programs. From a profitability perspective, EBITDA for Q2 increased 20.7% year-on-year to INR $2,616 million, translating into EBITDA margin of 17.2% on value-added revenue. For H1-FY27, EBITDA increased 14.1% year-on-year to INR 5,085 million with an EBITDA margin of 17.5% on value-added revenue. Moving further, profit after tax for the second quarter stood at 1,734 million, representing growth of 15% year-on-year. And for H1-FY27, profit after tax stood at 3,386 million, growing 6.2% year-on-year. PAT compared with EBITDA during the first half should be reviewed in the context of a one-time interest income benefit of PEPROX, IR254 million net of tax, related to the sale of motor care entity, which was recognized in H1 of previous year, and therefore created a higher base for comparison. Excluding this one-off item, the PAT would have been in line with EBITDA. Our profitability during the period was impacted by inflationary headwinds, including commodity costs arising from geopolitical environment, increasing the minimum basis in a couple of states, weakening currency, and a premium plate, plus the costs associated with operating as a public state. Partially offset through commercial recoveries, productivity improvements, and disciplined cost management, enabling us to maintain healthy profitability. Our operating performance continues to benefit from the maturity of Teneco's P3 operating model, which is people-bright and performance. This framework remains deeply embedded across our operations and continues to drive improvements across safety, quality, delivery, inventory management, and cost competitiveness. Our balance sheet remains strong. A capital-efficient operating model. We remain debt-free and continue to maintain net cash. Thank you. Our big book business already is covering more than 100% of F by 30 revenue plan. We have strong visibility on the medium term growth trajectory supported by domestic as well as export programs. We continue to invest ahead of these commitments to plant capacity expansion across the country, including a new plant for clean air in West India. This new clean air plant will generate additional capacity of 12 to 14% for hot ends. To summarize, Q2 FY27 saw strong growth and continued momentum across both our business segments, resilient profitability, despite inflationary headwinds, and the strong balance sheet. We remain focused on disciplined execution, commercial rigor, operational excellence, and proactive management of external risk as we continue to pursue sustainable and profitable growth. With this, we will now open the floor for Q2.

Thank you, Mahindra. We will now be moving to the Q&A session. We would request the participants to kindly limit the questions to two at a time. If you have any additional questions, please rejoin the queue. I will now hand over the meetings to the moderator to comment the Q&A session.

Thank you very much. Thank you, ma'am. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 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. The first question is from the line of Radha, from Motilal Oswal. Please go ahead.

Thank you for the opportunity, and congratulations on the performance. So my question was regarding the margin compression in this quarter that has happened in the subsidiary, which mainly contains the suspension and the businesses, from 14% level to 11.6% in this quarter. We wanted to understand how much of this is due to commodity pass-through lag, and by when do you think it can be recovered back to previous levels?

As we know, this quarter was impacted by the inflationary headwinds, which is mainly on account of the Middle East situation, where the prices of commodities had gone up, which included steel and non-steel items like loop oil, plastic rubber and all. Now, for some of these commodities, like steel, we do have an arrangement with our OEMs, where we recover this money from the OEMs. There could be a time lag of a quarter or so. But for other items like blue ball, plastic, and other, these are the non-redact items, and we kind of keep on discussing and negotiating with the OEMs to recover as much as we can. We have been successful in recovering a part of that, and the discussions with the customers are ongoing, and as and when we are able to recover that amount, it will be part of the PM.

Okay, so by when, can we expect it to reach back to TGA servers? Because constantly the product mix is also improving for the company in this extension. So that should help question the margin.

Yeah, so like I said, these are non-index items, and this is all subject to our discussions. So, the discussions are in progress, a difficult to commit a timeline for that, but yes, I mean, we will keep on having these discussions with our customers.

Okay, second question, sir, what will be the dividend payout policies? Is there a plan to start paying out dividends from this year?

Well, we do have a dividend policy, and it's still on the website. We would be taking a decision at the right time. So we do have a good amount of cash, and we are generating a good amount of cash. And even for this half, we generated a good amount of cash. Now, yes, we need to invest that cash. So we have been exploring the various opportunities. Where do we invest this cash? So this could be in terms of the investment. One is the investment within the business. Like, we already announced two plans earlier, and we have announced one more plan. So one is to invest behind the growth. That's one of the top priorities. Then we are also looking for any other growth opportunities where we can invest this money. And, of course, dividend will also be one of the considerations as we move on. So it's difficult to say at this point of time how much dividend and when we will be declaring it. But, yes, there is a dividend policy, and we do have a capital allocation policy, and dividend is one of the considerations in that.

Okay, thank you, and all the best.

Thank you. Before we take the next question, a reminder to all the participants, if you wish to ask a question, please press star and one. We will take the next question from Pradeep Pandey from Access Capital. Please go ahead. Yes.

Hello, sir. Thank you for taking my question. My question was on exports. So, if I recall correctly, sir, at the end of FY26, the order book stood at about 12,400 crore, and you indicated that the export order book would have stood at about 14% to 20% of the total order book. But in this quarter, the number seems to be in the ballpark range of 5% to 6% because it is about 800 crore on the base of 13,000 crore. So I just would like to understand what has changed in six months and is it something that is really wrong? And then another question on QNJ, we will take it later maybe.

Hi, Pradeep. Thanks for your question. Yeah, so last, you're right, FI26 with 12,400 crores or a book, exports came in somewhere between 40-20%. This quarter has been a bit less for a variety of reasons. I think one is the, again, when we export, we export the third-party OEMs as well as internal Teneco to Teneco, right? Teneco India to Teneco U.S. and Europe. So, the end market OEMs, the market has been a bit soft in Western markets. They have slowed down, specific to Western Europe and Americas. They have GDP contraction, and some of the vehicle deliveries themselves have stopped. And that's also made worse because of the China OEM successes that they've had with Chinese vehicle exports into those regions, slowing down the Western OEM production, right? This is especially tutely felt in Germany, France, UK, and even in the U.S. The second one is the U.S. tariffs. There's a lot of uncertainty around the U.S. tariffs having a negative or spooking effect on many OEMs. Including as recently as mid-September when Trump threatened to have a 100% tariff on India for buying Russian oil, all that spooked the market. So I think some of it just slowed down because of uncertain tariffs and also things like the oil prices going up, freight costs going up. So the business cases that we had before, everything got a little bit uncertain. Thank you. SOP launches or startup production launches got delayed or even canceled due to the war, the uncertainty, tariffs, et cetera, as well as great cause increases. So making some of the business cases worse. Our domestic order book has been very, very strong, right? So our order book has been... Completely swaying away from the Trump administration. We're hoping that some of the things around, like, Iran war, just, you know, stopping the war. They were bringing the freight costs back. Also, you know, getting rid of all the tariffs, at least what the Democrats have promised, should kind of ease up on some of these export concerns that they have. So, overall, yes, it's low. Optically, it looks low, but I think if you look at the grand scheme of things over time, knowing that India, Teneco India, has such a strong labor cost advantage, and also because of technology equalization, right? Whatever we are selling to, for example, Mahindra, Tata, Clean Air, Powertrain, and even, let's say, suspension systems like Da Vinci and semi-active suspension, the same product also sells in Europe and the U.S. and so on. So when you have technology equalization, when you have India that has a strong labor arbitrage, we believe that the long-term conditions for export will remain strong, and many OEMs themselves are pushing more and more. As many OEMs are struggling with their own profit margins in Western countries, they are demanding that a lot of that business be moved to India over time. So it's a little bit of a long-term... Journey here. So, I'm not super concerned about this particular quarter export as a percentile of total order book, yeah? Thanks, Pradeep.

Yeah, yeah. So, as the base case, 800 to 900 perot would be the lifetime export order, sir, as of now?

Yeah, I think it's 8750, I believe. I didn't look at the number, but yeah, that's sort of the nice time revenue. And yeah, correct.

Okay, okay. So just another question on the three-wheeler suspension. Congratulations on entering this segment. And what would the suspension be? Would it be passive in nature and what shall be the content for vehicles in three-wheelers? Because the passive in PEs are generally at the ballpark in the 5,000 to 6,000 per vehicle. How material is different or similar did it be in three-wheelers? And when do you expect to, when does that go into production?

Great question. So first of all, we are very happy to see that after the success of the four-wheeler suspension, especially Da Vinci and the semi-active, One is there's been a formal, like a fear of missing out with other OEMs beyond Mahindra. So everybody is coming to us asking for this, right? So there's this big disruption expected to happen, and Da Vinci and CBSA are helping us get there. And you can see just by the sheer number of programs we're winning. Remember, a year and a half ago, our market share was only 48%. Now we're at 55%, which for the automotive industry is very, very strong, you know, disruption, if you will, of that market itself. Now, hearing the news of four-wheelers, even the three-wheeler OEMs and the two-wheeler OEMs are coming to us, asking us, hey, can you do something? Can you DaVinci this? Can you do that? So, right now, we are winning a combination. I won't specify what exactly is the technology. We haven't announced it yet, but both with Indo-Chinese OEMs, JVs, and also Indo-Korean, Indo-Japanese. All of these other combinations of OEMs that also want to set up shop in India, they realize that Teneco has a much better technical product and performance product, right? So the three-wheeler is a good example of getting into that business. At the right time, we will announce, obviously, the customer name. We have to get the permission of the customers for that. But it will be a combination of conventional, slowly moving into DaVinci, and then that's slowly moving into semi-active solution. Now, because it's a three-wheeler... EV, it probably means that it will start off as conventional, but move into Da Vinci over time. Because Da Vinci, remember, I said even the last time, the delta cost is not so much. But the advantage in terms of comfort is, you know, it takes you 80% of the way there, right? So just bear with us. Quarter over quarter, you will notice that our foray into three-wheelers, two-wheelers, also with, you know, all these JVs coming in, especially with Chinese OEMs. I would like to win more and more with Chinese OEMs. I think that would be a huge advantage for us.

Yes, sir. Okay. Thank you so much, sir, and congratulations on a good side of the universe this quarter. Thank you so much, Japanese.

Thank you. Next question is from the line of Viraj Shanshi from Ambit Capital. Please go ahead.

Hi, thank you for taking my question, sir. My question is on the clean air and powertrain business where growth has kind of recovered this quarter almost after three quarters of underperformance. It has been tracking the segmental auto production growth this quarter. So, I just wanted to understand what is the outlook over here in terms of growth, do you think you'll kind of going forward, grow in line with the auto production volumes at least, and the capacity expansion over here also, is that for the large PV OEM with whom we are not present earlier? That's my first question.

Great question. Thanks so much. So, look, like we always believe that clean air and powertrain business, you have to look at the whole world as our market, right? And because of a very strong order book, a lot of those order books are being converted to production, right? So, clean air. See, right now, what is our clean air issue, right? So, we are serving all the markets, right? Passenger vehicles, commercial truck off highway, and we have very high market shares. Now, the only thing is we are not present in Maruti right now, but, you know, in the future, we will be there in 2029, as we said in the earlier quarter, you know, press releases. And because of the advent of EV, right? But despite that, for example, now, if we were to take out EV, we were to take out Maruti, we're actually doing much better in terms of volume-to-volume comparison. The industry production volume without EV, without Maruti, grew by, let's say, about 13.3%, and our Teneco sales volume for clean air, power trade, clean air, grew by 18-plus percent. So we are growing market share through Tata, through, you know, through Volvo I share, through Astro Blade, and et cetera, right? But having said that, now, let's talk about exports. So, exports also now, we recently had a very successful Euro 7. POC, Proof of Concept, at the leading Western truck OEM in Europe. And that means that we are Euro 7 ready even before BS 7 was announced. And BS 7 recently got announced, right? You know that. The passenger vehicles will be 2029, the light commercial vehicles will be 2030, and then heavy commercial vehicles will be 2031. So we are ready, and we believe that we have a superior product. So we think that the growth rate for clean air and powertrain will continue to grow, not just in domestic markets, but also in export markets. Because here's the other thing, right? As the market's moving to electrification, many of the OEMs that are still selling ICE vehicles, and by the way, ICE is going to continue for a very long time, both petrol and diesel, and in all forms, right? CNG, biodiesel, all kinds of combinations, ethanol. What's happening is that many of the OEMs want to source exhaust systems of the future from India. And this is where we are ready, because we are technology ready. OEMs have the desire to source more out of India, and I think that's where we will come in. So overall, I think that growth will be maintained. Of course, I cannot forecast what that's going to be, but it will be a good growth when you take the full global market into consideration.

Got it, sir. Secondly, sir, the order inflow, both the order inflow and the revenue growth in your suspension business has been very good, almost upwards of 30% in first half as well. But, sir, the bidda growth in X of Clean Air Solutions business is almost only 10% YY in the first half. I understand there will be some bit of commodity pressure and conversion cost pressure over here, but just the scale benefits, the operating leverage doesn't seem to be coming in over there in the suspension business. So how should we look at the margins going forward over there?

Okay, I'll start, and then maybe, Mainder, you can add more detail. So, look, suspension is a technology game, right? Over time, as we are disrupting the markets, as DaVinci and semi-active suspension start creating their own niche, The profit margins will increase because that's the way new technology works, right? And we are clearly the market leader. So as these technologies proliferate and penetrate the market in bigger numbers, the mix of higher margin Da Vinci's and semi-active suspension should increase as a percentage of the total, right? Right now, you know, 90% of the Indian market is still running on conventional suspension. But that is... Drastically changing. Look at Mahindra, for example. Mahindra has decided that they don't want to have conventional suspension anymore. That's it. Once the consumer has tasted Da Vinci, anything else sounds very, very tepid. And that too, Da Vinci can even now go on an A-segment vehicle. You know that last time we announced, last quarter, that we have now come up with a smaller diameter. A damper to also meet the needs of an A segment vehicle. So we can go down as much as, you know, five, six lakhs, even if you had to, in terms of the vehicle cost, the MSRP of the vehicle. With Da Vinci's having that kind of a market impact, as it starts disrupting, the margin will improve. I cannot tell you what that exchange of margin will be over time, but definitely it's moving to a higher margin plateau as the conventionals are getting replaced. And the battle is only internally, just for us to be able to keep adding capacities. We've already announced a new suspension plant in west of India, and guess what? That plant's also going to run out of capacity very soon. So we will keep on adding plans just to meet the sheer. Crazy growth of the suspension business. And that too, the growth is all happening in technology, right? So I think that's how it will be. Maybe Mahindra, if you can address the commodity impact for now, please, for the Q2.

Yeah. So, I mean, if we look at the current quarter and likewise the previous quarter, we know there was an impact of the commodity prices increased. Like I mentioned, mainly oil. Like oil, we have about 330 ml that goes into one day. So 1.2 liter oil goes into all the four of the suspension. Now, since it is as of now and non-indexed, We can't take that into the P&L until then we have a confirmation from the OEMs. So as our discussions kind of move in the positive direction, and then we have some positive kind of response from the OEMs, we'll see the benefit of that coming to the P&L.

Sure, sir. And Mahinder, sir, lastly, if you could just help us with the export revenue in first half and the CAPEX target for the full year, that would be my questions. Thank you so much.

So, as far as CAPEX is concerned, we have given a guidance of about 350 to 450 CR, INRCR for this fiscal year, FY27. We, as of September, I think we have invested close to 120 CR, and we should be on track to kind of meet the numbers that we had indicated earlier. In terms of export, like, it's about 7% of our revenue for the current quarter.

Sure. Thank you so much, sir. Thank you.

Thank you. Next question is from the line of Himanshu Singh from Baroda, BNP Paribas. Please go ahead.

Yeah. Hi, sir. Thank you for the opportunity. So, my question is on the order book. We have seen the export order book actually falling by almost 50% on a YOY basis. So, can you just highlight what is the reason? Have we lost any customer or what has happened?

Thank you, Manshup, for the question. Yeah, I think I already answered it a little bit earlier, just to kind of reiterate, right? I don't worry about it so much, simply because this is just a one-quarterly number. What has actually happened is the end markets have slowed down in Western markets, GDP contraction. of declining vehicle production and also made worse because of the Chinese influx. Chinese OEMs have been entering those markets. Of course, U.S. is trying to put bans and tariffs, and so is Europe, on Chinese OEMs. But that has had a damper on order book. I think the main effect is more to do with threatening of U.S. tariffs, you know, the Trump administration threatening 100% tariffs on India for buying Russian oil, trade costs going up due to the various crisis, oil prices going up. So all the business case, everybody sort of put a few things on hold just to see, wait and see, wait for the midterm elections to see. If there will be any change. I strongly suspect that after the news of the last two days, things will loosen up. One is the war. Hopefully, it will come to an end. The tariffs will come down to something that's reasonable. And those GDP contractions will stop. You're already seeing some sort of rally across the world. For us, you know, some of the SOPs got delayed and also canceled, again, all related to the war uncertainty and also because of tariffs and so on. So I think, look, this is a temporary thing. I think over time we will catch up. We do have very strong labor cost arbitrage. We have excellent technology, which means we are on par with technology that is being sold in the U.S. and Europe, for example. So it's not like we are lagging behind when it comes to technology or equalization. So we are able to do that. Plus, with our labor cost arbitrage, we are able to export across the world. I strongly suspect in areas like Greenland, Partrain, that will actually accelerate, mainly because many of the OEMs... Over there, Western OEMs themselves, who are not making very good profit, are really pushing for India to be an export hub for them. So that thing, over time, you'll notice that it will come back. The other thing is, from a ratio perspective, our domestic order book was very, very strong, right? Way stronger than what we thought it would be. So exports as a percentage of the total order book looks, on a percentage basis, small, mainly because your denominators have increased on the domestic side. Hope that answers that.

Was the cancellations from our own group entities or direct-to-order customers? Whether the cancellations are from intercompany or third party?

No, actually, Indian intercompany also, finally, they sell to a third party, right? We are tier one suppliers. So, yeah, Indian is a third party OEM. Many off-highway customers, for example, said that, wait, we're going to delay the production of this particular model or we're going to cancel it and wait for it to come up next year. So, that's the other reason. So, I think, look, all of this is a temporary lull. There's been a lot of political... Uncertainty, especially around the Americas, and a little bit of that is affecting Europe as well. So I think once those things are, they settle down, I think our exports will come back. Because our basic formula for exports hasn't changed, right? We have the technology. At the Western OEM level, right, we have the quality, we have the ability to deliver. We are already doing that across over 14, 15 countries today, and we have a very strong labor cost advantage that nobody can beat us on, right? I think that still remains.

And just last question on the new CAPEX, which we have announced, the hotend CAPEX, which is operating at 99% utilization. So, will we see a mix kind of deteriorating towards coldend in the meantime until the new CAPEX comes online?

Look, hotend is way more profitable than coldend. So I'm very happy to have more and more CapEx and new plant additions where we're focusing on hotend because the profit delta is significantly better for hotend. Why? Because hotend obviously has the three-way catalyst or it has the, you know, OxyCAD, you know, particulate filter, SCR and so on. So because we have mixers and so the fluid flow in the hotend. And the technology and the science that goes on a hotend is way more than that of a cold end, which is basically a pipe and a muffling device, right? So I think look at it from a profit mix standpoint. So as our hotend business grows, from a mixed standpoint, that also helps us vis-a-vis the cold end.

Right, right. So my question was, like, we have, we are already utilizing 99% of our capacity, and the new capacity will take some time to come online, right? So will we see the mix deteriorating towards cold end? Or will we do a de-bottlenecking and we'll increase the capacity? How do you see that?

No, we are not going to be bottlenecked by it. So what we're doing is we're adding a new plant in the west of India for clean air with a 45-pro investment just to deal with this additional volume. So somewhere around, let's say, 300K or 10 systems will get added on top of the existing base that we have, somewhere around 2 million, right? We're just basically adding more capacity. We are a new plant to support our customers in West of India. So these are obviously the Tata Mahindras of the world. So it's good. It's all good. We're just adding a plant. And again... That plant was going to also get filled up very quickly. So we're doing it in a way where we have maximum utilization. You know that in one of the earlier calls I mentioned that we have a very unique, standardized, and modular way of working, which means we are able to run very high volumes of basic Lego parts. That can come together, and that explains why we are sort of asset, right? Our fixed asset turnover is very high, our return on capital is very high. So for clean air, that's a very huge advantage for us. So with depreciated assets, with a very standardized module on the same line, the canning line, we can run multiple parts. The same canning line can run a Kirloskar generator exhaust system. It can run a Ashok Leyland big, you know, heavy-duty exhaust system. It can also run a Mahindra vehicle, like a diesel engine exhaust system, right? So, it can run all of that in the same way. So, all that has an advantage. So, that gives us the ability to have a very good ratio of revenue to the capex intensity.

Thank you so much.

Thank you. Next question is from the line of Rajat Agarwal from Neelkiri Advisors. Please go ahead.

Hi, thank you for taking the question. Just staying with the capacity, could you advise the status of the two capacity addition announcements which were made in February and May? And the reason I'm asking is the announcement that was made in May, it said the capacity of hotend products is 1.97, and you were adding around 250k of hotend product systems. And the current announcement says the capacity is 2 to 2.2. So has that been commercialized?

The plant that we announced earlier, which is coming in the northern part of the country, that should be up for SOP starting March 27th. Now, in terms of installed capacity, to some extent, it varies on the product mix as well, whether we're doing hot-end production for commercial vehicles or for PV. So, the capacity is close to 2 million, but it could slightly go up and down depending on the product mix.

Okay, so the cold end product expansion and the hot end product expansion announced in February, the SOP will begin in March of 2027, right?

Yeah, roughly, yeah. And so the North India plant will have both hot end and cold end capacity increases. Again, I'm eyeballing about 10% increase, and this plant in the west of India, that adds another 12% to 14%, something like that, capacity increase, and that's more focused on the hot end. And like I said, mix-wise, we are delighted because that gives us a much better margin mix, right? As we add plants that are more hot end focused, then the margin mix is better for us.

Right, and the capacity addition announced in May. For 2.1 million, both front strut and rear shock absorbers, it said they'll come up in two phases, one in FI27 and another in FI28. Does that still, as in the status, stay at the same, or is there any change?

Yeah, so we're basically doing it half and half, right? So we'll probably add a million by July, and again, it's more about getting the... The full annualized value of that, right? Because we will be starting to add capacity only like in a year. So, one million this year, next million, next year, another million. So, it will give you another two million shocks of capacity on top of the 90 million we have, which is the basic base capacity across the many plants we have.

Got it. Okay, so the next question is on related to the FY30 revenue target that you have referred to in your presentation. So is there a number to it? What the number that you're looking at? I mean, I couldn't find that number anywhere, so I might have missed it.

Yeah, so we don't disclose obviously future revenues, but I think what we're trying to do is just provide comfort that our order book is so healthy. It gives us very strong conviction that we will have a nice, healthy double-digit growth that takes us all the way to FI30. So, FI30 revenues are fully covered. So, whatever we have planned for the IPO, that's comfortably covered for the year, FI30. You recall that in the earlier quarters, we said, okay, FI28, we are probably 80%, 90%, and then finally 100% covered. But now we have enough confidence to say that by FI30 also. The FI30 revenue number will be 100% covered, but if you just stack all the order book lifetime revenues year after year in terms of the start of production, the ramp up, peak, and then ramp down, that gives us a lot of confidence and comfort that it's going to be a good growth for us in the future.

Just a small clarification. You were saying the order book covers the revenue. Total revenue, cumulative revenue up to FY30, not just the FY30 revenue.

No, no, FY30, right? So if you take just the bar, FY30 revenues, right, whatever that is, let's say that's X, that was planned, we are very happy to report that all of that X is, we are able to cover now.

Got it. So that is for one year and not just cumulative for four to five years.

Yeah, just for that one, yeah. Which means, you know, next year we'll be able to probably say that, hey, we can even probably do FY31. So now, obviously, FY31 probably will be at a lesser percentage coverage because, you know, there's a lead time. Because we have a long sell cycle, there's a lead time to it. But by next year, with the continued success of our business, we will be able to provide more comfort on the...

Can I have a quick question? Do you share the total number of customers as on 30th September? Is it possible? And the same number for FY26N?

We've not announced. I think we just did that during the RHP. After that, we haven't said that. But I think all I'll give you comfort is that, you know, once we have a customer, we never lose them. We've got 30, 40 years with some of these customers, and all we're doing is growing with them. In fact, like you saw in today's... The announcement, we are picking up customers that we never had before, which is fantastic. I'm delighted to have Indo-Chinese, Indo-Korean, Indo-Japanese. All possible, you know, coverages we are okay with, especially for the white space that we still don't have. So that's the reason why we keep picking up market share across the board, and we're quite happy with that.

Right. It's very heartening to know and hear about the customizations, and that's precisely why I was asking, because you've been adding so many customers and so many, you know, increasing the volition as well. Anyway, thanks a lot for your time. Thank you.

Thanks, Rajiv.

Thank you. Next question is from the line of SA Naryan from Capritan Research. Please go ahead.

I understand you are putting up three new facilities. Where are these to be located?

Yeah, sure. So, the clean air facility that we announced first, that's located in the north of India, obviously to supply Maruti and Mahindra and some of the others in the north. Then we announced the suspension plant for ART, Advanced Right Technologies, that's in west of India. That was the second announcement we made in our prior quarter. And this quarter, we are saying we're adding one more. Clean air plant also in Western India. Obviously, when you say West India, Mahindra and Tata, that's sort of the center of gravity there. So, look, this is all because of our order book, right? And as you can see, our order book is stronger and stronger, and because of the health of our order book, we can be sure that we'll be adding many more plants in the future.

So, these are in nearness to the OEMs, right? You are taking care of registers there.

Sorry, if you're asking, are these for Indian OEMs? Yes, Indian OEMs, but also a portion of exports will also figure in there.

Fair, I understand. When will these facilities go live, all three of them? When will they go commercial?

So, the first plant that we said clean in the northern part of the country, that would be, SOP should start sometime in March 27, close to that. Then for advanced side technologies, which would be in West India, that should kind of be in SOP sometime in July 27. And the plant that we announced, like yesterday, today, the clean air plant in West India, there we are expecting the SOP to start around September.

All in calendar year 27th.

That's right. As of now, yes. All these will start in the next year.

Even the plus or minus a couple of months here and there, right? It all depends on the customer volume, etc. So it will be, again, it's an approximate month, yeah.

And finally, what is the payback period for these facilities units?

So, I mean, we can tell you the pixel sets turnover that we have. So whatever we have been investing, we generate revenue of, let's say, 3 to 4x on a gross block. To start with, it can be 3. And as we keep on utilizing it more and more, we reach the optimum capacity, it can go up to 4. So, from investment, you can figure out how much of investment is.

Yeah, I think this is, without giving you the answer, we can say with a smile on our faces that this is a great story for us, right? We are, our asset utilization and efficiency is among the best in all of India. And that explains why, you know, last, as of March 31st, last year, last financial year, our ROC was 94%. Think about that. Um, and, uh... And even fixed asset turnover is upwards of 8 is to 1, right? So I think 9 is to 1. So I think as we deploy our capital, see, we have the advantage of using depreciated assets. We also buy assets at fair market value from our sister divisions in Europe and U.S. So as their volumes are declining, there's a lot of capex. And of course, because of our standardized modular nature of how we manufacture stuff, the efficiency is very high. So, multiple plants can make the same product. The same line can make multiple segments at the same time, which is... From that standpoint, okay?

Great enough. Nice of you. Thanks for responding. All the very best to you, and great delivery to you and your team.

Thank you so much, Mr. Narnia.

Thank you. Next question is from the line of Shabham Agarwal from FIL. Please go ahead.

Hi. Hi. Thanks for the opportunity. First question is on, you mentioned that there have been two next-generation models in Japanese OEMs for the art business. Can you give some more color on this? Is this for DaVinci or the passive suspensions or FDD?

It's a combination of both because, like, for the existing customer base, most of them want the DaVinci, right? They want to upgrade. But for new customers where we have not had business historically, they want to mix of both, right? They're like, okay, on the maybe A, B segment, we want this, the basic conventional suspension, and on the new ones, we want Da Vinci. So there's like a pecking order and a sequence to these things. They also want to feel comfort that, okay, here's a new supplier, even though they're quite well-known, you know, 55% of... Market share means more than one out of two cars and SUVs in India have a technical shock absorber. But having said that, there's still that remaining white space that we are trying to go after. And so these business wins are a combination of conventional and Da Vinci. And Da Vinci also is like, you know, we have to set up the capacity, right? We also have to kind of... We're going to bring the piston line in-house, you know, localize it, automate it, and things like that. So there's going to be some gestation period to that, but the demand is huge. The demand is way more on Da Vinci than we can supply today. So that's the reason why we are scrambling to create space and host sewer in our plants. To allow for that da Vinci growth to happen. And a lot of that legacy commodity, let's say shock absorber lines from Hosur and Bangalore, some of that will move to West India in this new plant. So that's it. We're just kind of playing little, you know, we're juggling chairs around to allow for this new technology capex to be created in Hosur. Hosur is a pillar plant because Hosur is where also our engineering center is located for the ART business.

Okay, so to summarize, what I understand is that these two next-generation model wins for the Japanese PV, they're a mix of both passive as well as DaVinci, in short, right?

Right. And as the comfort grows, there'll be more and more DaVinci replacements because the delta cost is so small. You know, they will see that there's value, right? A few thousand rupees delta cost for an 11 lakh rupee car, right? You know, there's no, it's a no-brainer.

Right, yeah, that is the story across, that is the story for the whole Da Vinci to go forward anyway. Specifically for the Japanese TV OEM wins, this is a mix at this point of time. So, you have some Da Vinci wins also. So, Japanese OEs will be introducing Da Vinci, is my understanding.

Yeah, at some point. Don't forget that at Maruti Toyota, we have very high share of business. So I can't say what's going to be launched when, because it's still a discussion we're having, but it will happen at some point.

My second one is on the margin pressure in the subsidiary. The margin pressure out there in the subsidiary is quite high compared to the standalone business. While we've mentioned commodity being the key headwind, and we also see that in gross margin console, but can you give more color on what's leading to this sharp drop-in subsidiary profitability?

Yeah, it's largely on a solid level. Yeah, no, it's largely on account of the commodity prices. There are no other reasons for that. And like I said, commodity prices could be bifurcated into index and non-index. Index, we have been able to recover from the customers. Non-index is something which is subject to a discussion. So there's no other reason. When I say the impact of this commodity price, it also includes the Forex impact, which again we have been kind of discussing with the customers to kind of compensate us for that. So it's largely on account of the geopolitical impact on the price.

So, fair to say that the proportion of non-indexed costs is significantly higher in the subsidiaries?

I mean, in some subsidiaries it could be, yes.

And can you give some more in-depth color on what are those commodities like? Is it plastics or is it more forex-oriented?

Yeah, it could be oil, plastic rubber, and yes, the forex impact that I mentioned about.

Okay, and, okay. Just to, sorry, but just to pull this thread forward, in the standalone business, we're not seeing any kind of margin pressure at this point of time. But we're seeing that, so in the standalone there, we don't have, we've already passed on all the commodity increases that have come. Is that fair?

Yeah, that business has, most of the kind of components are intact in that for development. All right. So it's mainly the steel, which is an indexed commodity.

Okay.

I'm so sorry to interrupt, Shabam. You may please rejoin the queue for follow-up questions. Thank you. Next question is from the line of Adesh Gosalia from Sparse Capital. Please go ahead.

Hello. Hello. Am I audible?

You are audible. Yeah, you are audible.

Yeah, so firstly, congratulations on a good set of numbers. Actually, I missed some part in between, and sorry if I'm repeating the question, but it was mainly on the subsidiaries. Said that the margins in the ART segments should be lower. So, just wanted a clarification that whether they are related only because of the commodity pass-through, or is there something else?

No, it's mainly on account of the commodity price. Like I mentioned about the oil, it's low oil. So, there has been a steep increase. Yeah, that's one of the main commodities, which is impacting the profitability of the advanced rate.

Okay, okay. Thank you.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Rupali Singh, General Counsel and Company Secretary, for closing comments.

Thank you, Itra. Ladies and gentlemen, thank you so much for your continued interest in our company. We appreciate the time you have taken to participate in the meeting and look forward to meeting you in the next quarter as well. On behalf of the entire Teriko India team, I wish you and your families a very happy Diwali. Thank you and a good evening.

Thank you very much. On behalf of Teneco Clean Air India Limited, that concludes this conference. We thank you for joining today's call. You may now disconnect your life.