Carraro India Limited (CARRARO) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Carraro India Limited Q1-FI27 Earnings Conference Call. As a reminder, all participant lines will remain in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star, then zero on your touch-tone telephone. Please note that this conference is being recorded. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company has on date of this call. These statements are not the guarantee of future performance of the company, and it may involve risk and uncertainties that are difficult to predict. I will now hand the conference over to Dr. Balaji Gopalan, Managing Director. Thank you, and over to you, sir.

Thank you very much. Very good morning to all of you. This is Balaji Gopalan, Managing Director, Kararu India Limited. Thank you for joining us for Kararu India Limited's Q1 FY27 earnings conference call today. I am joined by Mr. Davide Grossi, our whole-time director and CFO, Mr. Sudendhar Manikar, our whole-time director and COO, Mr. Ashok Rai, our director, sales and business development, along with other members of the leadership team, and strategic growth advisors, our investor relations advisors. The quarter was characterized by a mixed operating environment. On one hand, domestic demand remained resilient across the agriculture, construction equipment, and broader off-highway segments, supported by continued infrastructure investments, healthy mechanization trends, and sustained demand for higher-performance equipment. On the other hand, global markets continue to face headwinds from geopolitical uncertainties, particularly the ongoing situation in West Asia, which resulted in supply chain disruptions, logistical challenges, and softer demand in certain export markets. While the evolving monsoon situation and the potential impact of El Nino remain important factors to monitor, the long-term drivers of our industry remain firmly in place. Increasing mechanization, the growing adoption of four-wheel drive tractors, raising demand for advanced driveline solutions, and the government's continued focus on infrastructure development continue to support industry growth. We also believe that the recent GST rationalization is a positive structural development that will improve affordability and further accelerate the adoption of advanced technologies in the sector. Against this backdrop, Kararu India delivered a resilient performance in the first quarter of FY27, with revenues from operations increasing by 10% year-on-year to INR 5,447 million. Domestic revenue also grew by approximately 26% year-on-year, reflecting strong demand across our key end markets. This robust domestic performance helped offset the temporary weakness in exports, which declined by approximately 14% year-on-year due to geopolitical disruptions and supply chain challenges in certain international markets. As a result, we were able to deliver healthy revenue growth while maintaining profitability. Our domestic business continued to outperform particularly well driven by strong demand for four-wheel-drive axle solutions in the agriculture segment and sustained momentum across key construction equipment platforms. At the same time, we made steady progress on several strategic initiatives that will support our next phase of growth, including capacity expansion, localization, new customer programs, and the continued development of our engineering services business to customers and suppliers. In the domestic agriculture segment, we continue to see encouraging demand trends supported by the ongoing shift towards four-wheel drive tractors. The GST reforms announced for the sector are expected to further support this transition over time. We continue to work closely with our customers and are expanding capacity to address anticipated demand growth. In the construction equipment, our Teleboom Handler Accel program continues to progress well, both in export markets and increasingly within India, as we are expanding our domestic Teleboom Handler presence through new programs with Indian OEMs and Indian operations of global OEMs. In the backhoe loader segment, Carraro's sales to Indian OEMs continued to outperform the broader market. Overall, backhoe loader sales by Indian OEMs, including domestic sales and exports, grew by approximately 14% year-on-year during the quarter. During the same period, Carraro's sales of drivelines to OEMs increased by approximately 18% year-on-year. Coming to higher horsepower transmission business, the export market for higher horsepower tractors is gradually recovering, which should support transmission of tech going forward. This is achieved as an important milestone during the quarter with the commencement of cereal production for a Turkish customer. In parallel, development activities for our Indian customer program continue to progress as planned with the start of production targeted by FY28. We believe this business represents a significant long-term opportunity as mechanization levels increase globally. Our engineering services business gained further momentum during the quarter. We continue to receive increased customer inquiries for higher horsepower and advanced technology configurations, reflecting growing confidence in our engineering capabilities. The Montra Electric project is also progressing well. Assignments worth approximately Rs. 33 million that were under execution at quarter end were completed in July 2026. Discussions with... Another prospective customer are also progressing, supporting further growth in this business. Over time, we expect engineering services and future-ready driveline technologies to become increasingly meaningful contributors to growth and our profitability. Innovation also remained a key focus during the quarter, with two prototypes being developed. On the manufacturing front, we continue to invest in capacity creation and operational excellence. Construction of our new paint shop facility commenced during the quarter, while additional investment in portal axle capacity and sub-assembly operations were successfully commissioned. These initiatives are aligned with long-term growth plans and will enhance our ability to support future customer requirements. Localization remains a key strategic priority. During the quarter, raw material localization stood at approximately 74% and we remain committed to increasing this further over the next few months and years. Higher localization will strengthen supply chain resilience, improve cost competitiveness, and support sustainable margin expansion over time. I am also pleased to share that during the quarter, Carraro India was recognized by Mindra and Mindra for our performance and partnership which reflects our team's commitment to quality, delivery, and customer satisfaction. Looking ahead, while geopolitical developments and global demand conditions may continue to create near-term uncertainty, we remain constructive on the outlook for our business. Domestic demand remains healthy, new programs are progressing well, capacity additions are underway, and supply chain conditions are gradually improving. We will continue to focus on disciplined execution, operational efficiency, and prudent cost management while investing in the opportunities that will drive our future growth. Our objective remains unchanged to build a stronger and more diversified and more profitable business while creating value for all. We remain confident in our long-term growth roadmap and our aspiration of achieving revenue of 3,500 to 4,000 crore by FY30. With that, I would now like to hand over this call to Mr. Davide Grossi, our CFO, to discuss the financial performance in greater detail.

Over to you, Davide. Thank you, Balaji, and good morning, everyone. I will now take you through the financial allies for Q1, FY2027. Total income grew by 12% year on year to rupees 5,587 million. Other income included a one-time provision written back amounting to rupees 88 million pertaining to customs-related proceedings on account of a reassessment performed by the company for the period. Revenue from operations for Q1 FY27, so that's rupees 5,447 million, representing a growth of 10% year-on-year. A bid-down for the quarter stood at $579 million, reflecting a growth of 6% year-on-year, supported by discipline in cost management and execution efficiencies. A bid-down margin stood at 10.4% and was affected by higher energy and raw material costs, along with labor availability constraints. Profit after tax for the quarter increased by 8% year-on-year to R$314 million, with a tax margin at 5.6% in Q1 at Flight 2027. From a segment perspective, Agricultural vehicle revenues increased by 15% year-on-year to rupees 2,559 million. Construction vehicles revenue increased by 4% year-on-year to rupees 2,264 million. Geographically, domestic revenue stood at Rupees 3,795 million, contributing around 70% of the total revenue, while export revenue stood at Rupees 1,652 million, contributing around 30% of total revenues. With this, I will give it back to you, Balaji, and then we can take all your questions. Thank you, Davide.

To conclude, Q1 FY27 reflects the resilience of our business despite a challenging global operating environment. Strong domestic demand, recovering supply chains, progress across new programs, and continued capacity expansion provide a solid base for the year ahead. We remain focused on disciplined execution, cost efficiency, and delivering sustainable and profitable growth. With that, we would now be happy to take your questions.

Ladies and gentlemen, 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 their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Raghunandan, NL, from Nuwama Research. Please go ahead.

Thank you, sir, for the opportunity. Congratulations on the M&M Award. Sir, my first question is to better understand on exports. The major export customers, where we are supplying the Teleboom handler and backhoe loader, last year the revenue was about 160 crore and 66 crore. How do you see the ramp-up of the Teleboom handler and backhoe loader business for FI27?

Raghu, good morning, Ashok here. See, when we talk about the market side for the export, There are challenges in terms of logistics and those issues were there in the last quarter. But when we talk about moving forward, the expectation is that we will remain on what we said, that this market demand will be on the higher side, and accordingly we are expending our capacity to cater that. Saying that... Not going into the number, but in terms of the demand which is coming from the export OEM on the Teleboom handler side is stable and step by step increasing. And also for the backward order, especially in the Latin American side, we are getting some green shoot of further demand increasing. So accordingly, our capacity is lined up to meet those demands.

And maybe I can just add that probably already from Q2, you will see that in terms of volumes, we will be more or less back on track. This is kind of a one-off gig for this quarter.

Thank you. Thank you so much for that, and that is very helpful. And again, for the Turkey customer, how the ramp-up will happen in that higher horsepower exports for FI27 and FI28, if you can give some understanding as to what can be the potential here? Okay.

Raghu, just since we have started the SOP in the previous quarter, and steadily the volume will grow up, and those are aligned with what we were saying that the higher horsepower numbers will be higher, but as you know, the Turkish market is very volatile because of inflation. Like the previous quarter, it was very good, but this quarter, we are seeing some kind of challenges in the market, as a market perspective. There, especially in the lower horsepower, the numbers are more or less at the one point and the higher horsepower are also growing there and also fluctuating. But when we talk about our order book, it is in line with, in a certain band, where we can fulfill their demand. And since it's a start of production, so we have yet to see where they will stabilize it. But it is slowly and steadily, every quarter, the numbers are on a higher side.

If I can add something on this, the trend line is positive.

There will be... Thank you.

You got it, got it. Sir, that is very helpful. On the cost side, the increase in raw material cost and energy cost... With a lag, or would there be any negotiations involved, and do we need to absorb any impact? I'm broadly trying to understand how can be the margin range for FI27. Can it be around 10.5% to 11% on a full year basis? And also on localization, compared to last year, 74% in Q1 is slightly on the lower side. If you can indicate how you increase that localization level too.

I'll start with the last question, which is about localization. See, the localization, there seems to be a drop. It looks like we have gone back. This looks like a drop, but in reality, it is not a drop because there is this inflation factor that gets built into it. And we had to import some of the shortages that we were having in the local suppliers. So in order to meet the customer demand, we had to increase our exports just to be sure that our lines don't stop for a couple of components that we need. So, fundamentally, from a structural, from a conversion point of view of import into localization, that is still going as planned. If the supply chain locally is coming back to the earlier level of consistency, then our imports will automatically drop. So, it was an abundant caution that we decided to build a little bit with our imports. So, localization, I would say, over time, things will normalize. It is already looking towards a point where things can get back to normalcy. So, that is regarding the localization. Davide, would you like to comment on the EBITDA question for the year, and we'll go to the next one.

So, I'll start by telling you a bit more about all these price increments related to commodities and also transformation costs. As you know, as far as we talk about commodities, Carraro is, let's say, fully insulated to the fluctuations of the commodities. However, there is and there will always be a time lag for that. So, of course, if you see under this perspective the results of this quarter, there is. A negative impact of the commodities fluctuation that has to be recovered. We are also seeing several hikes in the commodities. This will take some time because we will recover something next quarter, but we will also have to give something to our supplier next quarter, so it will take some time to stabilize, but it will be a zero-sum game. We will not lose. It's a pass-through.

That is what has been agreed, and customers have been told that it has to be a pass-through. In principle, many of them have also agreed, but still there are certain wait-and-watch situations. So there is a gap, but our endeavor is to make sure it is a sum zero-zero.

Then, when we talk about this, let's say, extraordinary wave of inflation that has impacted the transformation cost, this is something that is not structurally, let's say, agreed in a contract, but the industry is aware of what is happening. All the main OEMs are taking a clear position on how much they are going to pass through the entire value chain, and Carraro is part of this value chain. So we have no reason to believe that this will not be a pass-through as well. Of course, there is, as always, a certain level of negotiation that will happen. But again, the target of Carraro is to have a zero loss from this dynamic. It is also true, again, that we are a bit in the middle, so temporarily what you will see is that Carraro will have to give something to the suppliers in order to make sure that production flows up. Regularly and smoothly, and then we will get something back from our customers. So, again, there will be a time gap. There might be some margin fluctuations from quarter to quarter, but when we look at the entire financial year, the target is to recover in full all the price increments.

Yes. I would just like to add here. Many times in this current context, it is very difficult to have a very clear mathematical contract with suppliers or with customers because situation changes. Every day we wake up in the morning, there is a new situation. So in that context, sometimes suppliers have their material shortages or they have their capacity shortages because of this disruption, and it's a kind of a bidding that takes place because many people, many customers are positioning their team in the supplier end, and it's a kind of an everyday fight where we keep giving offers to them, some ad hoc amount is passed on, So that we are able to maintain the flow of components into our factory. So because of this, there will be, as Davide also said, a gap between the cost inflection and the price increase that we will get from the customer. With the supplier side, we are forced to give something ad hoc to keep the show running. On the customer side, we have to behave more mature like a partner, and we are sitting across them and we are discussing with them. So there will be a temporary gap. There will be disruptions in our numbers and profitability and margin. But at the 12-month period, we will be able to recover and bring in normalcy. That is what we are working on, where we don't spoil relationship because of this disruption. We are handling it in a very structured, mature way with all our customers, and customers are respecting our approach and are willing to come on the table and resolve it at the right time. So this is where we stand for the question. I hope we have answered the three parts of Mr. Ravu's question.

Yes, sir. That was very helpful. Thanks for the comprehensive answer. I'll fall back to the queue.

Thank you. Thank you. Participants who wish to ask a question, please press star and 1. We take the next question from the line of Shashan Kanodia from ICSA Securities. Please go ahead.

Yeah, good morning, team. So, three questions from my side.

First, if you can highlight within this 10% kind of revenue growth for the quarter, what is the component of metal price increase and what is the organic volume growth?

Can you repeat the question because there was a slide. Yeah, yeah. So, I am asking that between this 10% revenue growth that we reported, what is the component of metal price hike and what is the organic volume growth that you have seen in your business?

Okay, this is Ashok here.

See, as we said, know that the inflation is passed through, and it takes at least four months as a gap. So, in this revenue growth, there is a very little portion of the price increase. This is one. And when you talk about the volume growth, volume is more or less similar level. At the moment, the numbers are not in our front, but later on, we can give you answer after checking it. But this growth is not because of any price increase. It has some volume element, and that volume should be around 8 to 10 percent, similar level. But exact number, we need to check it.

Thank you. Second, sir, if you can share within your agricultural revenue, what was domestic agriculture revenue, both for this quarter and the corresponding period last year?

Because, you know, optically, it seems that the tractor industry has gone 18-19%, whereas our agricultural revenue has gone 15%.

So, I can give you the breakdown of our domestic revenue. So, AGRI was... $2,135 million INR, and export, sorry, construction was $1,393 million. Remaining part is $267 million, which is our, let's say, other sales.

What was the domestic equity revenue last year? Same quote? So, Q1 last year versus Q1 now, that is what is your question?

Yes, yes.

So, that is around 32%, Q1 last year versus Q1 current. In Agri business,

32% growth, Q1 versus Q1. On the construction business domestic, there is a 20% growth. Sir, I would request that, you know, going forward, if you can follow these numbers in the presentation, that will be really helpful.

Okay, and, yeah. Thirdly, sir, if you can help us understand how has been the four-wheel drive penetration in the tractors to win. So, it used to be 25-24% as of last fiscal year, right?

And we were progressing towards a 40% level by FF 30. So, as per Q1 trend, how do you see this, and is the trend progressing in your favor?

Yeah. See, there is no doubt about the absorption of four-wheel drive into the Indian market. There is... There is no kind of excitement in the market that technology has been accepted and there have been no negative inputs that have come for the change in this technology. So it has passed the test of market acceptance in India, which is a very good indication. The numbers are increasing. There is no doubt about it, but there is a concern on the supply side whether that ramp-up can be met by the supply chain that is available in India at the moment. So things are looking very positive. That is the destination to go, and we have absolutely no doubt about the 30%, 40% penetration that we are looking at. This quarter is not the right quarter for taking any reference or any analysis because this is an extraordinary situation. But having said that, there is no change in the pattern of growth in the four-wheel drive. That segment is growing and that is gaining momentum. More than that, that is gaining large-scale acceptance. In the market as well. So, we are, our strategy is right. The capacities we have built and the technology we have brought seems to have hit the bull's eye, and we are moving positively in that direction.

Right, so any new customer brings for us either on the tractor side or the station equipment series?

That will be the last thing for my time. I'll put it this way. We already have 36 customers. Right from Mahindra to Kartar or Captain, we have covered almost all tractor manufacturers in India. So the question whether we have got a new customer, for that we need a new customer in the market. So as of now, we are covering everybody and new projects are taking place. That is an indication for us. That is why you will see in the reports when we say we have made two prototypes, it means we are working on two new projects. That is the bellwether. In one and a half, two years, I will start getting revenue from that as well. So, I would request all the analysts and listeners to not kind of look at, how do I say it? Customer base. Yeah, don't look at customer base as OEM customers, but look at the projects and the prototypes that we are rolling into the market. That is the indication of where Carraro stands. Have I answered it in the right perspective?

Absolutely, sir.

Thank you so much, and we feel the best. Thank you.

We take the next question from the line of Lakshmi Narayana from Tumka Investment. Please go ahead.

Yeah, thank you. So I understand that for some of the customers, we actually supply the materials directly from some of our international locations. Is this observation right, or is it that you do it to get an economic order quantity before you try to supply to the Indian OE from your own facility?

See, this is a very specific situation where we have got a contract or a supply requirement demand where the technology is higher than what is available in India. I mean, Kararo, India. If that technology is not available, and as we have said, the ramp-up in our industry is not very steep like an automotive. So, it's not that you have to first set up the plant and then go to the market. We have that privilege or that luxury that we can start supplies in a modest way, and the ramp-up happens in one year, one and a half years. That is the time it reaches the peak. So, we can parallely build capacities while, as you rightly said, we have to look at the, you know, economics of importing it initially because I have developed the supply chain over there. I have already the assembly set up over there, testing, validation, everything has been done. So, from an existing line, I am just removing few products to feed the Indian market initially. I use the word feed because it is a temporary requirement. Once the volumes are stabilized and the product is established in the market, then we start planning our growth. As I have said in the past, Kararu India does not believe in growth by opportunities. We believe in growth by strategy because that is what will sustain. An opportunistic growth is something that looks very nice in the short term but may let you down in the long term. So that is the reason we balance it by importing it when required and subsequently productionizing it locally. It doesn't make sense for us to do a large-scale continuous import, which we have never done in the last 30 years, and we will never be doing it in future as well. Have I answered your question, sir?

If you just look at the total supplies in India by either Carraro India or outside Carraro Global, what would be the mix? Is it something like 95% would be Carraro India and 5%?

Yes, not even 5%. I would say it all depends. If you ask me after a couple of months of importing, probably we have stopped also. So it is very situational. What happens in this quarter is based on what requirement has come for that higher technology product. But in any case, as I said, it will be very, very negligible. Single digit, not even 5-6%. It should be much, much lower than that.

All right. So, my second question is that if I look at the numbers declared by some of the players like Escorts and some of the others who are not in the, I mean, outside the agriculture farm, right, there has been a strong growth either because of base effect or whatsoever, maybe backward loaders, et cetera. So is that you are also seeing a strong growth in the non-farm sector and in Q1, did you see, and you think that will be sustainable over the next two, three quarters?

Yeah, Ashok. Good morning, Ashok here again. See, when you talk about sector as a non-form segment, actually we will not be able to inform because we don't do so.

Sorry, my question is, so if I just take Escort, Escort has an agree and the non-agree, right? The non-agree is actually growing much faster in, you know, almost like 20% plus for Q1 in terms of revenues or volumes. So I'm just trying to understand whether that is also reflected in your own dispatches to the non-agri sector or the non-farm sector, and is it sustainable for the year? Are you seeing similar things? Because Escorts have actually called it out.

I am not going on that, but actually I have not understood the meaning of the non-form segment, because non-form segment could be classified depending on various, but we supply our equipment for the tractor, which is normally transmission and axle we supply to the customer. So, whether they use later on to farming or non-farming sector, because sector is also sometimes used in the non-farming segment. So, we will not be able to clarify.

I'm talking about backflow loaders. Actually, I'm talking about backflow loaders. Ah, construction. Okay. Okay, now we've got it. We'll clarify. Because we thought you're looking at farm agriculture products being used for non-agriculture. So, that's why we said we don't know what is the application. We call it... Yeah, sorry. For us, agriculture is tractor, and anything non-agriculture is construction equipment.

Ashur, please. Now, clear. In case of construction segment, it is again driven by the government investment. If we talk about the government investment and their intention, those intentions are positive for past many years, and it continues to remain like that. And if you talk about the long-term visibility of this segment, it will show to grow. If India has to go to 5 million or drive 7 trillion economy, so that way the trend is positive in terms of growth of this segment. Of course, in the short term, you will always see some kind of a quarter-on-quarter disruption in this segment because, like, inflation has gone up in the last quarter even with the construction contractors. The labor shortage was there with the construction contractors. The funds for the government was left in the last quarter. The fund flow to the contractors were lower. So, all these are short-term issues are there, which are coming, and as soon as they stabilize, the market is expected to grow.

Sir, backhaul loader grew, the market grew quarter to quarter, 14% this year. So, if you compare last quarter to this year's quarter, it is 14%, but Carraro actually beat that also, and we grew roughly 18%, sir. So, we outperformed the broader market, which grew 14%, but Carraro grew 18%.

Are you seeing the indication that the construction equipment industry would actually grow faster this full year? Are you getting signs from your end customers and your programs? Are you seeing an increase there?

There is a positive context that is being passed on to us. Customers are not reducing any of their forecasts. Our order book is giving a completely different scenario, but there is always a wait and watch situation. It all depends on the subsidy issues, how much the government is getting into subsidy for fertilizers and the seeds. Cash flow to contractors, many of the tenders have been passed, projects are working, but we hear from media and other places that there is a cash flow issue to the contractors who have completed the work. The gas issues and those things we have already understood, and there is a possibility that OEMs are looking at increasing the vehicle prices also to offset all these costs. So there is a kind of a feeling that the vehicles will be increasing by 3% to 5% or 3% to 6% at cost to the final customer. So all these things will kind of drive the construction equipment segment, but that is a segment that has to grow. There is no looking back. Infrastructure and the development that is needed for India has to be sustained. It cannot be stopped midway unless there is a national crisis or something. Otherwise, we have to be building projects. Government is also working on it. They are allocating funds to it, but the disbursement is not happening as it should happen. So, overall, we will not lose business, sir. Another point in our favor is other than one major OEM, that is JCB, we are supplying to all backhoe loader OEMs in India, which means that... The pocket will change, but the overall number will remain same. So other than JCB, any other backhaul loader in the market, whoever is capturing the market share, it doesn't matter. Only the dispatch address for us changes based on how each OEM is performing. So we are in a very comfortable situation, and we have no concerns about the future of the backhaul loader market in India.

I have one last question from my side. If I just look at your export programs, there have been, I think, one or two things, the Teleboom handler, and I think one more thing, which we were actually getting large programs. Now, in the last few months, have you initiated a few more programs? What is the kind of outlook for the exports market over the next three to five years?

Yeah, see, historically, and looking at what I said, the protos and the projects that we are working on, we are seeing that our portfolio will be more or less stable at 65% domestic and 35% export. This is more or less the picture that we have in front of us based on the projects and protos that we are doing. So I would still say that we would be in that 33% to 35% for export, and the balance will be domestic. Both will grow parallelly. This is more or less the message that I would like to share.

Got it. Thank you. Thank you.

Thank you, sir.

Thank you. Participants, in the interest of time and fairness to others, we request you to restrict to two questions per participant. We take the next question from the line of Supreme D. Patil from iSight FinTrade Private Limited. Please go ahead.

Good morning. I have two questions. The first question to Mr. Balaji is beyond the regular outlook, just want to understand the top two to three education priorities we are focusing on in the next few quarters. And alongside that, what do you see as the biggest, relative demand shifts, regulatory changes, or competitive pressures? And how are you preparing to manage them while strengthening the company's position in the driveline and transmission? That's the first question. Please take a person after this. Thank you.

Actually, the voice was very jumbled. I don't know whether the problem was on my side. Could you figure out, because in the end, it became digital sound.

The question was, is that the priority? After that, the voice was challenged.

Okay, so we will talk of our priority for the next coming quarters. The first priority is to recover all the costs that we have passed on to our suppliers, which we have to take it up with our customers, and our sales team is fully engaged on this mission. While new projects, new discussion, that goes on parallelly, our sales team is fully focused on working on making zero-zero the cost and the price. Okay, so that will be the first balance that we need to do. Second, we are seeing order book, which is quite encouraging for us. So, for the capacity to meet the market demand, we are doing the bottlenecking and expansion of wherever we need capacities to meet the market demand in the direction towards 3,500 to 4,000 crores. So we are not going to be doing expansion every two years or something. It is a continuous. It will be linear. Parallel to the demand growing, our capacities will also keep growing. So the work has already started, paint shop and other things are already being expanded, so our dispatches can increase. This is the second one that we are doing. Cost is a general mandate to So, all our fixed costs we are looking at, we don't want our revenue also growing and all our costs also growing. So, we want to see efficiency where a higher revenue will give us a higher margin, and that will happen only when we work on internal efficiency. So, that is another thing which we are strongly working on. Localization is the fourth pillar that is very, very important. There will be disruptions now, but I need validation and the approvals to ensure when things become normal in my supply chain in India, I can reduce my import of components. So localization has to go back to the original target of 86%, 88% in the next months in future. Engineering services, very interesting, not part of our core business, but part of our core strength. Technology, R&D, innovation, we realize is a core strength that we have, and we are offering not just in-house. Now, as you have seen, we are getting engineering contracts with our customers also. We are now going to suppliers also to help them in building whatever technology that they need. So, all in all, this discipline that we are putting in place in our operations with a clear mandate is helping us not lose track of whatever vision and commitment we have given to the stakeholders. Have I answered your question, sir, or have I missed the second part?

No, sir, it is very fine. My second question to Mr. Grossi is, along the similar lines, Just to understand from a financial point of view, what key risks or challenges do you anticipate in the coming quarter, and what specific measures have been taken to manage margin, cash flow, and strengthen the balance sheet, especially in areas pertaining to raw materials cost volatility, receivables, and compliance. Thank you.

Before David gets into the numbers, I would like to give a feeling of how we are looking at the context, the scenario in front of us. We think the worst is over. We have bottomed out. We feel we have seen we have got all the shocks that can come in this period of uncertainty. Similar to what we learned in COVID, we feel that now things will only move towards recovery unless there is some other major disruption, something nuclear, something that we have not anticipated. But in the normal course of business and the anticipation that we have for future, we don't think things are going to go deeper. Things will only see greener shoots. We will see the light at the end of the tunnel. So this is the overall context that I am talking about. Now, Davide will give you some of the numbers to back up.

Yeah, so when you talk about key risks, if you put yourself in my position, I would say Carado India has ahead of... Ahead in time, interesting times. We see growth. We see demand growing. Now, and we need to fund that growth and fund expansion and make sure that this growth is a profitable growth in extreme synthesis. So, the risk that we are monitoring, first of all, is that Our order book, our demand remains stable. We want to make sure that whatever we see out of us is something which is really there, something that we can sustain, and something we can invest for. So this is what we do. We keep monitoring and make sure that we grow gradually in a prudent and sustainable way. A link to that has said, Growth has to be profitable. So we are focusing in those months in helping our colleagues on the sales front, on the purchasing front, on the operation front to make sure that all these tensions that we have been seeing in the market in terms of geopolitics, in terms of supply chain, in terms of inflation, are all monitored under control, and we do not make any false steps. And we gradually recover whatever we have to give to our suppliers. In terms of... Cash flow, of course, those are all linked. We have to make sure that the growth is profitable to generate healthy cash flow. We have to make sure that we do not get unbalanced and avoided to create tension in terms of working capital. We have to make sure that our growth is sustainable because we are going ahead for some relevant amount of CAPEX that needs adequate returns. So this, in a nutshell, is what we are doing. This is what we try to keep all together. I hope I answered your question.

Thank you, and best wishes. Thank you.

Thank you.

Thank you. We take the next question from the line of Somal Shah from Paris Investment. Please go ahead.

Yes. Hi, Dean. Good morning. So, I mean, most of the questions are answered. So, just a follow-up on the previous participant that you mentioned that now we are seeing recovery from here on. And for Q1, we did an EBITDA of around 10.4%. So, where do you see coming quarters and the current year? If, say, geopolitical issues and all are sorted, so where do we see our company for FI27 in terms of EBITDA?

Okay, so I will only be able to give you a partial answer because the situation is still a little foggy at the moment. What I mean to say is that... If the situation stabilizes and there are no additional shocks, we believe that in terms of top line, we will do quite well, and we will be back on track, and we will be able to deliver a growth year-on-year in the range of at least maybe up to 10%. So, this would help us also to regenerate the kind of operating leverage that we have lost during this quarter, and this will benefit our EBITDA overall. At the same time, the open topic, which is the tricky one, is the one of price increments, inflation, and what we have discussed at the very beginning. We are, of course, trying to bridge the gap 100%. If we do that, we will be able to, for sure, increase our overall EBITDA versus last year. Probably by half a point, I would say it's something realistic, but we will try, for sure, to do more than that. But again, It's a little bit too soon because there are too many moving parts at the moment. Probably by next quarter, when also the market will settle a little bit in terms of pricing, in terms of volumes, we will be able to give a much more accurate estimate on the end of the month.

See, basically, whatever are the gaps that are existing, today it is existing only for the quarter. Now, how long this will continue will determine how much time we have to recover everything. So, the runway, if it is reduced, so if this uncertainty inflation continues for another four months to six months, then we have hardly a quarter left or probably four or five months to do that recovery. So, it's a bit early. But as Davide gave you some numbers that we are looking at, I think we are quite realistic in what Davide has projected.

That was helpful. That's it from my side. Thank you and all the best.

Thank you. Thank you. We take the next question from the line of Shahupal from Growth Investor. Please go ahead.

Sir, can you quantify your exposure to China, both as a percentage of total exports and total revenue, and clarify whether China is currently a meaningful growth market for Karara India? That's my first question. I have another question about a bit of margins.

This is Ashok here. See, when we talk about China, we already have a setup there, and normally it is catered through our Kararo China plant.

Okay.

So, the market there is also a little different, sir. The horsepower, the vehicle that are required in India is very different from China. China is all bigger vehicles, higher horsepower. The entire configuration of vehicles are very different, and the production setup is also different for those kind of requirements. So that is why India to China is not something we have looked in the past. Even before we had Carrara China, we didn't have much to do with China from India because the product range is completely different.

Okay. So, how much is China is contributing to our revenue or exports?

India. India revenue.

In Carrara, India Limited's revenue, do we have...

Revenue. Yeah, we'll tell you. One minute.

Actually, we don't understand this question, actually, because we don't export

much, or we don't really export to China, because we don't have any big orders coming in from there. So, it will be a very, very small number, which doesn't impact our larger, and vice versa. Yes.

Okay. So, China is not a significant portion at all. It's a very minor aspect of Caravar India, is what you're saying.

Yeah, yeah, yeah. Absolutely. In fact, we would say hardly a percent or something like that. That also could be because it's a small order they have got. They want to get it from here. It's not a regular annual quantity that we are exporting to China, no. We may have a sudden requirement of 50 axles, 100 axles. That's about it. So, it's not part of my portfolio in India.

Okay. Thank you. Thanks for clarifying. My second question is about your comment. What has impacted the EBITDA margins for this quarter? Two factors were totally beyond our control, that's the energy prices and raw material costs due to geopolitical disruptions, which is completely understandable. Another aspect, of course, not in direct control, but you can potentially influence is the labor availability constraint. So, we should understand, can you explain the labor availability constraint? Is this something which you can anticipate? Do you think this impact is likely to repeat in the upcoming quarter? If not, how are you really addressing it? Can you please elaborate on that aspect?

There is this issue of labor non-availability, mainly migrant labor. So they are more casual labor and doing low-end support activities for the core product that we manufacture. In Kararo, India, with the level of automation and the processes that we follow, our dependence on casual labor is very, very limited. We have full-time employees who are all with us for many, many years. They live around the factory. So those are not the people where we have shortages. Shortages are for migrant labor. So, to answer your question, within Kararo India, we are not facing any hurdle or constraint because of manpower in our facility. Having said that, we are having the impact of collateral damage because our suppliers are depending on a lot of migrant labor because the processes require those kind of actions to be taken. Like in a casting industry, the petting operation is a very dusty labor-intensive operation which uses a lot of migrant labor, and there is a shortage over there. So, the next level, tier 3, where they are supplying components and parts to me, they are having constraints on labor, not Kararo India.

So, the comment you have mentioned in your presentation, because ultimately it has impacted the EBITDA margin, and this was the explanation you have given why Carrara India EBITDA margin impacted this year. So, you are saying you do not have any labor availability constraint which was impacting Carrara India's profitability. You are referring to your suppliers' challenges.

Yes, supplier challenges and their inability to give us the components that we need on time. Okay, understand. And that is why I said all OEMs have placed their teams in suppliers, and the everyday bidding kind of a situation happens.

Okay. Okay. So ultimately, as a shareholder, I am concerned anything that impacts the margin of the company. So for you, even though it's a challenge at the supplier side, finally, there's a financial impact for the company. So is there anything that you are able to do to control this aspect?

See, the market is also stabilizing. That is why I said the kind of problems we had two, three months ago has now moving towards normalcy. So, the supplier and capacities are also improving, but not dramatically, number one. Number two, because of the shortage, obviously, everybody is using overtime, they are paying overtime, with the limited resources, they are stretching, and there is a cost element to it. And that is what we said, the cost includes not just commodity or the steel prices, it also includes conversion charges, which includes manpower cost also, enhanced manpower cost. So, we have to manage that, and even in Kararu India, like I said, we are making adjustments. Wherever there is a shortage, we have sufficient people. Probably, we have to make them work on overtime or make them work on a Saturday that normally we close. So, there is a cost impact. We are, you know, catering to that requirement so that our capacities are not affected, and this has to be recovered from the price we are discussing with the customer. So the customer also understands this scenario. So everything is on the table. There is just a wait and watch. The feeling is things will come back to normalcy. So why give an increase at this point in time? We can adjust it, probably do a one-time payment for what happened during the quarter. All these kind of discussions are going on. So we, as I said, we are not letting any stone unturned to support our suppliers with the price or with any other support that is required. This is the way we are mitigating that. Problem that we are having.

Understood, sir. Thanks for the detailed explanation. I also understand eventually if they delayed a pass-through, so our depressed margin will come back to normal fee eventually.

Exactly. Exactly, sir. So if I have a long runway, I recover it quickly. If this goes into July, August, September, then I have only six months runway to recover. So the recovery will depend on the runway available to me in front of me.

Okay, perfect. Thank you.

Thank you. We take the next question from the line of Lakshmi Narayana from Tunga Investments. Please go ahead.

Yeah, thank you. This is on the export bit. Can you just help me understand how the export revenues split across agriculture vehicles and non-agriculture? And second, we talked about the Turkish program, and I understand that the currency volatility of Turkish Lira versus India has been quite strong in the last one year. So how does that impact your current program?

Okay, so you want to start with Turkey, so you have a number, yeah.

Answering on the last question, Turkey market is really turmoil. As I said in a couple of minutes also, that the first quarter we were seeing a positive sign from Turkey, even the order flow projection was good. This quarter when we have entered, the order flow we are seeing not encouraging, only Turkey's side. This is one. But probably with this introduction of the new customer, we will be able to offset the expected decline which is happening in the market. So that is on the Turkish side market. And even for the export in general, we are facing different region has a different aspect of demand. For example, European market in the agricultural is still subdued. This is one. When it goes to the US market, the demand is good, but the decision making is also happening in delay. The reason is that there is inflation. And plus, now even when you go to the U.S. market, you will hear about the construction of the agriculture. The economy is going up. There is no doubt about it. But with the inflation, they are also taking the decision on an economic basis. So they are also talking about ROI of the machine. They are also talking about reduction in the cost. So those are basically delaying the pickup from the U.S. market in the construction and the agriculture. The market which is showing some positive strength at the moment is only the Latin America side, where our customers are asking slightly more than what they are regularly asking. So, this four sides I have given you, one is Turkey, Europe, US, and Latin America side. But since we don't export directly, we export our parent company, so that also gives us less visibility in reality what is happening on our turnover, but Ravide can inform you about the numbers now.

So you asked about the split of the export turnover. So construction equipment in Q1-2027 was 871 million INR. And agriculture was 424, and our other category was 357.

Just on the exports, if I look at the FI25, there was a kind of a single-digit decline, and FI26 was a very, very strong growth in exports. And we have started with a negative in exports. So, you know, is the export business really unpredictable? How do you increase the predictability of your export business?

This quarter is not representative. You should kind of forget about it in the sense that this quarter was impacted by external constraints Constraints in terms of logistics, we suffer from unavoidability of containers and vessels, so... It's really not representative. From next quarter, you should see export back on track and on the similar level to what we've seen in 2526.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Dr. Balaji Gopalan for his closing comments.

Thank you very much. To conclude, Thank you, everyone, for joining us today and for your continued support and trust in Kararu, India. Despite the near-term uncertainty in global markets, we remain confident in the strength of our business and the opportunities across both domestic and international markets. Recovering supply chains, the ramp-up of new programs, ongoing capacity addition, and progress in engineering services provide a solid base for sustainable and profitable growth. We continue to focus on disciplined execution, cost efficiency, customer service, and long-term value creation. We hope we have addressed your questions satisfactorily. Should you require any further information, please feel free to reach out to Strategic Growth Advisors, our Investor Relations Advisors. Thank you once again, and have a good day ahead. Thank you.

Thank you, sir. On behalf of Carraro India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.