Tenneco Clean Air India Limited (TENNIND) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q4 and FY26 earnings conference call of Teneco Clean Air India Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Himanshu Sharma, Head Investor Relations of Teneco Clean Air India Limited. Thank you, and over to you, sir.

Thank you, Alrit. Good evening, ladies and gentlemen, and a warm welcome. Today, we have with us Mr. Arvind Chandra, full-time director and CEO, and Mr. Mahinder Chavra, Chief Financial Officer. A detailed presentation on the business and financial performance is available on the company's website and on the websites of the stock extremely. We will begin with Mr. Chandra providing a business update, followed by Mr. Chhabra covering the financial results. We expect the update to take around 15 minutes, after which we will open the flow scope Q&A session of about 45 minutes. Before we proceed, I would like to draw your attention to the questionary statements included in the presentation. With that, I now hand over to Arvind.

Thank you, Amanshu. First of all, good evening, everyone, and thank you for joining us for the Technical Clean Air India's Q4 and FY2026 earnings call. I am very delighted to share that we have had the best ever year on a full year basis for our company. I am very happy to report that in this year, We doubled our value-added revenue growth rate versus the prior three years, registered the highest ever EBITDA margin for our company, best ever ROCE, strong order booking, ending the year with a very strong balance sheet, and zero debt. As we reflect on the past year, our record stock market listing this past November, we have once again revalidated the strength of the operating model we have been building over the last several years. A model that is resilient, diversified, and execution-led. The performance in the quarter and the full year under review demonstrates that this approach continues to deliver consistent growth and strong profitability, even in a volatile operating environment. For the full year, we delivered value-added revenue growth of 12.3% year-over-year to INR $49,180 million, supported by sustained traction across both business segments. EBITDA grew by 13.5% year-over-year to INR 9,255 million. Importantly, we achieved our highest-ever EBITDA margin of 18.8%, expanding by 21 points over the last year. This margin progression from 14.3% in FY24 to 18.8% into FY26 reflects the cumulative benefits of our P3 operating model, driven operational discipline, improved cost absorption, and timely commercial actions. Turning to Q4, this quarter was particularly strong across all key metrics, despite elevated geopolitical cost pressures. Value-added revenues grew. Profit after tax came in at INR $1668 million, up 18.8% year-over-year, with pad margin at 11.9%, reflecting continued operating leverage. Now, beyond financial performance, I would like to highlight a few strategic and commercial developments that are central to our long-term growth story. Our customer-centric execution and quality excellence continues to be recognized. In our advanced ride technologies business, we were honored to receive in this quarter the Zero Defect Supply Award from Toyota, reinforcing our position as a trusted, high-quality partner to global OEMs. A defining highlight this year was a strong validation of our technology leadership through the adoption of VCX DaVinci. A first in the world advanced mechanical suspension system using SIM stacks. This was taken up by a leading Indian OEM for a next-generation flagship SUV platform, and I am delighted to share that the scope of this is being further expanded with multiple new DCX applications across other OEMs also. Our patented DCX reflects our commitment to India, bringing global suspension expertise tuned for local road conditions through a purely mechanical architecture that avoids the cost and complexity of software or electronics-heavy systems. This combination of performance, affordability, and speed-to-market positions Da Vinci DCX as a market-ready solution for all mid-to-premium passenger vehicle segments, including SUVs. It is a total game-changer and disruptive to the conventional mechanical dampers, which still dominate over 90% of passenger vehicles in India, as OEMs are increasingly pushing ride quality as their top market differentiator. Premium PV segment, we continue to play a key leadership role with electronics-enabled semi-active suspension technologies. Now, coming to clean air and powertrain business, we won, in Q4, a significant clean air program and achieved a strategic entry into the bearing systems business with a leading Japanese passenger vehicle, OEM, marking entry into a previously The Untap segment. This year's big announcement earlier in Q2 was a big breakthrough win for our clean air business with a leading Japanese passenger vehicle, OEM, in India, marking entry into a previously untapped clean air segment at this customer. This has opened our growth significantly in future years due to the significant market share that this particular OEM commands in India. Now, another strategic program was booked with a leading European commercial vehicle, OEM, in Q3. for a clean air aftertreatment solution tailored to customer-specific cost and performance requirements. Finally, just recently, in Q4, the company completed a strategic proof of concept with a leading European truck OEM for a Euro 7 compliant clean air solution, thereby strengthening capabilities in advanced emissions technologies and readiness for future legislations and to further India as an export hub for the world. All of these developments underscore our ability to deepen customer relationships and unlock growth opportunities through technology differentiation. Now, turning to order book, the momentum remains strong. As of March 31, 2026, our lifetime order book stands at INR 124,000 million, after accounting for net additions and programs that commence production this year. This provides 100% visibility of our FY2028 internal revenue targets and underpins a double-digit growth trajectory over the medium term. Export order book has also been strengthened and will continue to grow as we add more techno-commercial talent in the regions this year. Now, to support the order book and growth forecast, we are making disciplined capacity investments. Alongside our previously announced clean air facility in North India in Q3 FY26, We are now setting up a new green field, Advanced Rite Technologies plant in West India. Together, these projects represent an announced capex of approximately INR 1,400 million, ensuring we are well positioned to meet future demand while maintaining operational efficiency. Before I conclude, I would like to briefly reflect on our IPO journey. Our issue was oversubscribed 61.8 times. With qualified institutional buyers subscribing 174.8 times their allocation. Since the listing, our stock has delivered returns that outperform both the BSE Sensex and the BSE Auto Index. Our IPO marks a significant milestone in the evolution of Tentacle Clean Air India Limited. It reflects years of focused execution, disciplined growth, and teamwork across the organization. And the confidence our parent company and investors continue to play in Teneco India's manufacturing capability, engineering depth, and long-term growth opportunity. This achievement belongs to many people, to our tenacious teams across our plants, engineering centers, and offices in the 12 locations who live the Teneco way culture every day, to our fantastic global leadership at Teneco for backing this journey with conviction, and to you all. Our dear investors who chose to place your trust in us. We have continued to strengthen governance disciplines that support long-term performance and stakeholder trust. Our board and committees have provided oversight across strategy, risk, compliance, internal controls, and operational performance. We remain focused on building on this foundation. operating framework, we are well positioned to sustain profitable growth while continuing to create long-term value. With that said, I will now hand over to our Chief Financial Officer, Mahinder Chakra, to take you through the detailed financial performance.

Thank you, Arvind, and good evening, everyone. Let me briefly take you to our financial performance for Q4 and also for the full year FY2026. As you know, we track our performance using value-added revenue for VAR as it has passed through sub-street costs and provides the most accurate view of our underlying operating performance and margins. Let me start with Q4 FY2026 first. We delivered a strong and well-rounded performance with growth across the business business. Thank you. Thank you. From a profitability standpoint, EBITDA increased. 573 million, with margins remaining stable at 18.3% of BAR. And this was despite the cost pressures arising from the geopolitical development. These pressures were effectively mitigated through timely commercial actions and ongoing operational efficiencies, reflecting the discipline embedded in our operating model. Profit after tax. Coming to the full year 2026, that reflects consistent growth alongside record profitability. Thank you. Thank you. Face of product market. Importantly, EBITDA grew 13.5% to 9,255 million, with margins expanding to 18.8% of VAR, marking our highest ever full-year EBITDA margin. This improvement has been driven by PC-led operational efficiencies, better fixed-cost absorption, and disciplined commercial recoveries. Over the past several years, we have focused on building a more resilient, efficient, and scalable organization by embedding Teneco's global P3 operating framework, people, pride, people, performance, and pride. This standardized operating system defines how we run our plant and distribution centers globally, driving consistent execution, operational discipline, and adoption of industry best practices. By actively leveraging the B3 framework, This business is driving continuous improvement across safety, quality, and safety. Thank you. to that INR 6044 million, up 9.3% year-on-year, with margins at 12.8%. of a one-time labor code charge, which was partially offset by stronger operating performance and higher other income. From a capital efficiency standpoint, FY2026 has been a standout year. Return on capital employed improved significantly to 94%, up from 57% in FY2025, reflecting both higher profitability and efficient capital utilization. Fixed assets turnover improved to 9.6 times. From 8.4 times in S by 25, while our cash conversion cycle remains strong at negative 23 days, highlighting continued discipline in working capital management. Our balance sheet remains very strong. We are a debt-free company with a net debt-to-equity of negative points. All while continuing to invest for us. Disciplined Capacity Expansion, we enter F8 2027 with strong visibility and a resilient financial foundation. Thank you. With this, now hand it over back to Emarch.

Thank you, Manila. We request all questions to kindly limit questions to two at a time. If you have additional questions, please rejoin the queue. I now request all right to commence the Q&A session.

Thank you. 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 comes from the line of Nishit Jalan with Access Capital. Please go ahead.

Yeah, hi. Good evening, everyone, and congratulations on good set of numbers, and thank you for taking my question. Two questions. Firstly, you had talked about exports. Being part of the order book in the previous quarter, so just wanted to understand on export side, how should we look at in terms of new order events and ramp up, right? We have talked about scaling up exports quite substantially. Can you give us some visibility as to how it will pan out over the next two to three years? Secondly, you have talked about new plans and some new orders that you have received on bearing side, on commercial vehicle side. I just wanted to understand the timeline of execution of those orders and commissioning of the new plans. These will be two questions from my side.

First of all, Nishit, thanks so much. Hope you're doing well. The first question on exports, yes, so, you know, Our current exports as a percentage of sales is very low, you know that, because we never had exports grow as a strategy in the past, right? So we're only at about 5-6% currently. He pointed out that the order book for us is somewhere between 14 to 20%, right? And that exports order book growth is both with moving business or exporting to third-party OEMs, and it's also exporting back to Genico entities, right? So Genico Europe, Genico U.S., and so on. And there's a couple of reasons for that. One is technology equalization, right? So India is now equal in technology, whether you look at clean air exhaust systems or with shock absorbers. You know, we have six... 6.2 with RDE, you know, Europe has the same thing, you know, Euro 6 with RDE, so the same essential products can be exported. On the shock absorber side with the semi-active suspension, we can also export the same technology, right? So technology equalization is new, and we're taking advantage of that. The second reason is many of the OEMs from a China plus one diversification or let's call it supply chain diversification standpoint are looking to India as a source. For products, and we're also benefiting from that. And the third one is just the improving labor cost arbitrage, right? India's always been a source for, let's call it, best cost labor. And also now with the currency that is depreciating, it also makes our overall products more export worthy or more competitive, so to speak. So yes, to answer your question, our exports are coming in way stronger than our current level of exports, and they're coming in very strong on both sides, by the way. They're coming in very strong on the Clean Air powertrain side and also on the shock absorber side. In fact, Clean Air, we're booking a lot of new business there for exports across the region. And again, it's also covering multiple geographies, you know, North, South America, Europe, and also Asia. So, period. Exports is going to be a very key vector of growth for us beyond content per vehicle. To answer your second question on the new plant, yes, we've got two new plants that we announced, one in the last quarter and one in this quarter. The last quarter we announced was the clean air plant expansion in north of India to support, of course, our Japanese customers in the north as well as for commercial truck and off-highway customers. We announced just recently is for West of India for shock absorbers, and that's because the overall market itself is growing. Again, I can take names of Mahindra, Tata, they're all growing volumes. But at the same time, you know, new technologies like DaVinci DCX We're growing in volume because of the India Inc. growth or the GDP growth, but we're also taking over market share. We're growing faster than the market, and that's the reason we're setting up a new plan. On the bearing side, we haven't still mentioned the actual value because this is just a significant entry, let's call it a strategic entry into this customer, but at some point, we will publish the exact numbers when they become available. Will we set up a new plan for that? That still remains to be seen. We're still working on the capacity situation and our existing plans to see if we can accommodate in the existing location. But the point I want to make is that bearings... It was difficult to get into this particular custom of bearings for a very long time. And the fact that we have been able to... It's strategic for us, which means we can now grow with this Japanese customer in a bigger way. The same story like we had in the earlier quarter where we got into the leading passenger vehicle OEM in India with a clean air product on the hot end, that was a gasoline particulate filter, which, again, opens the door for much faster growth for clean air starting late 27, 28, and onwards. I hope I answered your question, Nishun.

Yeah, thanks for the detailed answer. Actually, what I also wanted to understand primarily was, yes, you are starting this plant and you have won these orders on both export and domestic. Just wanted to understand the timeline when these orders start or when do these plants commission and will export revenue ramp up be more, will it happen in a smooth way over the next two, three years or some of the orders are back and there so the commissioning will be late, right? So, will districts go to 8, 10, 12, or will you see exports being slightly back-and-date increase in terms of mix of our revenues?

All right. So the timing, like, we started the work on setting up both the plans in North India and West India. We just got the board approval for the one in West India. And so those plans will take, you know, somewhere between six months to a year to commission, and the volumes will start. So I think the actual peak will happen somewhere in mid-28 to 29. You know, typically, we have a 1 is to 3 ratio, capex going to, let's call it steady state revenue. So, again, I can't eyeball it, but I would say it's somewhere between 28 and 29 when you start speaking. To answer your story, your second question was about big school. It's not front-ended or back-ended. I would say it's more middle-ended. We're hitting the ground around 2028 timeframe, right? So that's when we see a lot of the critical mass of exports hitting us. But it will start, I mean, it will already start ramping up around 27, 28, and then 29 onwards it will continue. But like I said, our exports order book is coming in at a much higher rate than our current exports.

Question comes from the line of Ravi with in-cred capital. Please go ahead.

Thanks for the opportunity, and congratulations on the great set of numbers team. So my question, because on the car exhaust system, so can you talk about the car exhaust system contained per vehicle versus commercial vehicle contained per vehicle? And yeah, I understood that you are supplying to Japanese OEM. Are you in talk with any other OEM to supply this in future? And secondly, on this car exhaust system, is this similar for a diesel, petrol, CNG, or maybe for the hybrid, or there is a differentiation among all these type of systems? Any color on that? Thanks.

Yeah. So, um, On the contents, I won't get into the actual numbers because it really varies because depending on the vehicle, depending on the gross vehicle weight and the engine displacement, they can vary a lot, even between one passenger vehicle to the other, right? So I think I would just say that if the car exhausts like a typical passenger vehicle exhaust system, and again, by the way, it also changes between diesel and petrol, as you know, right? And also, even within that, there's the difference between hot end and the cold end. The hot end has all the after-treatment, and the cold end has the muffler, etc., right? So it's very hard to pinpoint, but luckily, if I could just do it in terms of X, 2X, 3X, I would say if the car, typical passenger vehicle exhaust system is an X, a commercial system exhaust could be somewhere between 3X to 4X. In the case of something like a vehicle, like a tractor, currently there is no exhaust after treatment, right? At some point, when you add all of the particulate filter and SCR systems and, you know, OxyCADs and so on, you can even go from X to 10X, right? So it's hard to pinpoint. So, a specific CPD, content-free vehicle, but needless to say, it could be a factor of 3x to 4x and all the way up to 10x. Some of the real low-volume applications like construction equipment can be even like 10 to 15x because they really need very, very strong after-treatment, etc. So, some of our after-treatment systems are very small, and I'll come to the second question in a second. And some of the others for commercial vehicles and construction equipment are very, very intense. Intense. In terms of… Also, the kind of substrates and platinum, palladium, rhodium loading that they carry, they can be very, very significant. To answer your second question, I think it's a very good question. Obviously, between diesel and petrol, you know that diesel requires a higher aftertreatment because of... Higher NOx and particulate matter. So you need a diesel particulate filter, you need an SDR system, sometimes you need EDR systems and so on. So the hotend of diesel versus the hotend of petrol is a bit different, which means diesel has a higher content of hotend versus petrol. But now increasingly with gas direct injections on petrol engines, What's happening is they are forced to implement a particulate filter because the amount of particulates that come out of a gas direct injection, although it lowers your CO2 for cafe purposes, it also increases the particulate matter. And therefore, petrol engines also are starting to have higher content starting in 2027. I think mid of April, mid of 27 is when the cafe norms come out, right? So, that shows you the difference between diesel and petrol. Talking about CNG and hybrid, for all of these, CNG, hybrid, they will need exhaustive. In fact, We don't think in terms of content there will be any reduction or loss of content. In fact, for hybrid vehicles, because what happens is one is the after treatment, but you are essentially trying to improve the emissions performance. In a very, very small space. The effect of taking our content from X to 1.5 to even 2X, because now you might have to add an adaptive valve or some sort of an acoustic valve to manage the sound transition as the vehicle goes from an electric to a... Also, because remember that the markets in the U.S. and Europe are sliding back from an EV to more of a compromise, right? They're going to more of a, what I would call, a hybrid or a range-extended solution. And even in markets like China, you're seeing some signs that hybrid and, let's call it, compromise solutions between an ICE and an EV are starting to take shape. For all of these compromise solutions, anything from a traditional ICE, petrol, diesel engine, all the way up to just short of a full EV. Our Seneco Clean Air business has a lot of potential in terms of content review. That's the summary.

And secondly, on the new suspension plan, is this for the new, are you adding new OEM for it or maybe it is for the existing clients? And what kind of suspension are you going to make? Is that for the conventional one or are you going to manufacture semi-active or maybe the higher ones? How is it to think about it?

Yeah, so first of all, you know, I'll just give you just an overall summary, right? So for about 60, 70 years, India has only had one tuning, right? Which means one tuning fits all. So whether you're on a highway or an uneven road or in a speed bump or a pothole, you only get one tuning. And that's been the case for 90 plus percent of the vehicles, even today. Even today, if you go out. Most vehicles have the traditional shock absorber that, for whatever reason, never got premiumized. I mean, cars moved to SUVs, but the premiumization of SUVs never happened, right? But that's changing dramatically. And this is where Teneco comes in, right? So we are now able to go to more frequency-dependent damping, where depending on the road forces, we're able to use valves recreatively and hydraulics to control the flow of hydraulics in a way that will have non-linear damping, which means not one-size-fits-all, but different tuning depending on how the road conditions are. So that's what Da Vinci does. Da Vinci has these shim stacks like wafers in aluminum discs on either side of a piston that will selectively allow hydraulics to flow in and out. And so depending on whether you're on a rough road or a pothole or a speed bumps, which I guess in India, these are quite common, the vehicle responds very differently. And that's, you know, well documented on the Mahindra 7XO. Don't take my word for it. You can check it on YouTube, on Instagram. I mean, there's hundreds of influencers that have said wonderful things about this product. So for me, I look at this DaVinci DCX. It's called the ultimate mechanical suspension that is also affordable, that will cover all the mid up to the premium range, maybe up to 35 lakh rupee and MSRP. We'll be a candidate for the CVSA, which is the semi-active control valve suspension, which has electronics and software, which takes you the remaining 10% of the way. So in terms of comfort, the DaVinci takes you about 85-90% of the way. A CVSA with electronics and software takes you all the way, maybe up to 98%.

The next question comes from the line of Radha Agarwal with Motilal Oswal Financial Services. Please go ahead.

Hello, sir. Thank you for the opportunity. Sir, firstly, on the export front, as per the agreement with the Teneco parent company, can we export only to Teneco Group entities or can we also export direct customers as well?

Yeah, so we have a very good arrangement with our Teneco Group entities, right? So we are not there to compete with each other. In fact, we look at us, Teneco India, as supporting... Teneco Europe and supporting Teneco US for them to become more competitive, right? So we are quite happy to supply them child parts or sub-assemblies or even finished goods, depending on whatever the needs are. So we work in partnership with our Teneco sister divisions. For example, there might be also customers and segments that the Teneco group is not targeting. And that happens, right? Sometimes they're focused on a specific segment, and they're not interested in a certain other segment because of cost or profit reasons. But we, Teneco India, for us, it works a lot better because our labor cost advantage over, let's say, Teneco Europe is much better, much stronger. So we are able to directly then, with their permission, talk to the OEM directly and say, hey, here we are. We are competitive. This is the selling price. And we can actually win business with their permission. So we work very closely. We have a very good regular cadence of export opportunities, both from a third-party OEM perspective as well as inter-companies here. So we'll be selling child parts, sub-assemblies, and even finished goods, depending on what the needs are. So we're very flexible. I think flexibility is key. And we come at this as partnership rather than direct competition.

Wonderful. Secondly, you know, in the suspension business, you are not presenting with the wheeler. So I wanted to understand, are there any plans to enter into the segment or do you think that this is a comparatively lower margin business and you want to remain on the TV?

Yeah, good question. So, I think if I understood your question, it's like, are you going to expand suspension beyond four wheelers, right?

Yes, sir.

Okay.

And the margins of two wheeler suspension versus four wheeler.

We are a high-margin company. You see from our EBITDA numbers, 18.8. These are pretty nice numbers for automotive sector. So we want growth, right? We do want growth, but growth has to be profitable growth. So we're not going to directly jump at any opportunity that comes our way just because we are not in a certain segment or at a certain customer, right? So sometimes we have deliberately avoided in the past, for example, clean air, we have deliberately avoided... Two-wheelers or three-wheeler, you know, auto rickshaws and so on, purely because it doesn't give us the right margin potential for us, right? But having said that, we want to enter segments and markets and new customers using technology as our differentiation. And that's been the key, right? So we want to be able, so if we do enter, let's say, the two-wheeler market for clean air or for suspension, it will be something that Bring something unique to that segment. So we don't have to play a commodity price game. Because we're not that kind of a player. We are an MNC, right? So we want to play in a... In a segment where the customer and the consumer is looking for some level of disruption, like you're seeing in the passenger vehicle for shock absorbers, right? So, we're going to be very careful and meticulous about where we enter. We don't want to be, you know, once, you know, trying to cover all of the segments, like two-wheeler, three-wheeler, just because it's there. We will be very careful in where we invest. Again, we are not just looking at organic. We're also looking at inorganic. We said during our pre-IPO and during our IPO and post that as well that we will be looking at M&A as well. Other strategies to get into areas which also give us...

So, last question, if I may. The DRHP mentions that via localization, you want to increase your presence in CVs, as this is a relatively under political category. So, are you talking about the clean eye division here, and can you please elaborate further on this point?

Sorry, Radha, I missed it. Can you just repeat the question again? I heard something about localization. Can you finish the sentence again, please?

Yes, sir. So, there is a statement in the DRHP that mentions that via localization, the company wants to increase the pezils in CVs because this is a relatively underpenetrated category. So, is it fair to understand that you are talking about the clean air division here and or, you know, just wanted you to elaborate further on this.

Okay, so I still wasn't clear, but I think I understand your question. So, look, localization is a very key element of our strategy, right? I mean, one is the new technology. Of course, we have the luxury of several thousand patents. That we have globally between the U.S., Europe, and so on. So we're able to bring those patents to India and apply it in the Indian context, whether it's engine or vehicle architecture, and we're able to sell those to our India-based OVMs. But localization is very important because that's where our profit margins come from. So we have on both the clean air, the shock absorber side, which is the ART, as well as our train side, we do want to make sure that we are localized as much as possible. Even with some of the critical components, like, for example, pistons for shop observers, right? Those would be key localization strategies that we would pursue. Currently, our localization is about an 89-90% level, and we want to see that. Now, obviously, with new technology, initially, we might be importing. Some of the subcomponents and child parts from our sister divisions or from other suppliers, but we will make sure that we are consistent with our, you know, It may not happen the very next year. It will take some time, but new technologies, once they start... The idea is to make sure that we...

Sir, actually, it is mentioned that localization is because CVs are relatively under-penetrated. So, here, for CVs, are you talking about the clean air CVs or the suspension CVs?

Yeah, so, it's clear. When you say CVs, that would be for clean air, yes. It wouldn't be for suspension, because typically, suspensions are for passenger vehicles only. I argue that there is a demand for, you know, Da Vinci type suspension for cab dampers and, you know, and so on, axle dampers and so on. But I think what you're referring to here and what that DRHP refers to is commercial vehicle for clean air, clean air product.

Thank you, sir.

A reminder to all participants, you may press star and want to ask a question. The next question comes from the line of Vipul Agarwal with HSBC Bank. Please go ahead.

Yeah, hi, sir. Thanks for taking that question. So, first, the question is on the margins part of the business. On the standalone margins, like, it has improved by almost 200 web stacks, mostly from your clean-year business, despite, like, the clean-year business has, I would say, has kind of lagged from the overall industry growth. Like, industry, CB industry has grown by around 18%, but CB business has grown by around 10-11%. So, can you help us understand what are the key drivers for the margin expansion over here? Is it like seasonal or is it sustainable on quarter-on-quarter basis or should we look at it?

Sir, Vipul, first of all, good to see you, good to hear from you, Vipul. Sir, you're talking about clean air growth or clean air margins?

Clean air margins and growth, both basically.

So, I'll kind of summarize in my mind or you can add to it, right? So, I think, look, our clean air story, you know, if you remember from, I guess, the IPO and subsequent borders, right? Clean air business for us is a high-margin business, but we are not present in the number one PB OEM in India today, right? So that automatically eliminates us from 2, 2.5 billion vehicles, you could say. But that changes, right? In 2028, we have already secured entry into the supplier panel for this. The largest PBOEM in India, due to cafe norms with a gasoline particulate filter. So we're hoping that once we enter the panel, our growth will increase quite a bit, and we'll be able to do so with equal or better margin simply because it is a high-tech product, right? It's a high-new technology product, right? Now, in terms of clean air growth year over year, you might argue that it's a bit tepid, But that's mainly because... We've had some, you know, within OEM mix and between OEM mix issues. So we have not really lost any share of business versus the competition. What has happened is that within certain OEMs, where we had strong market share, they have sold more of their lower-end SUVs versus the higher-end SUVs. And in between OEMs, for example, there's a European OEM where they sold more electric vehicles rather than more ICE vehicles. So it's just a combination of factors where the mix has changed at the vehicle level. So nothing has changed for us, right? We have not lost any competitive share versus some of our key adversaries or competitors. But overall, the growth has been... Along with market volumes. Minus the fact that we are not present in a certain passenger vehicle OEM. And again, things like the GST benefit, which favored this particular OEM, we were not part of, right? But that changes in the future. So 27, 28 onwards, 29 onwards, we do participate in this OEM. The other good news, right, the good news for clean air is that the addressable market, if you look at CAFE 3 and BS 7, the addressable market is as much as 1,300 to 1,400 crores of additional content per vehicle. So that's something that we're going to target, and obviously, Even our competitors will target that.

We have built a more resilient, efficient, and scalable organization with the help of the unique operating model that we have built. Our train or of the unique operating model that we have, and hence, we see improvement in the margins, and we also expect these margins to remain stable.

And just one more to add, Vikram, you know, if you remember during, you know, the road shows that we did, and also all the meetings we've had about, you know, why is Teneco a high-margin company, right? And how is it that we have... Such a high return on capital employed, right? We have this operating model that we have over many, many years has become very standardized and modularized. We are so flexible that any of our lines, let's take a clean airline, right? Any of our high-speed canning line can make multiple products. So I can make today in the same plan on one line, I can make a passenger vehicle exhaust system, or I can make a A stationary genset, or a genset exhaust system, or I can make something for a commercial truck, right? And the other flexibility is I can have multiple plants run the same product. So the flexibility is so unique, and everything is so standardized. You know the Lego brick model that I've mentioned in the past as well? The Lego brick means you only have a few degrees of freedom, and because of that, That gives us a unique competitive advantage. So we can run the individual Lego bricks of a system at very high capacity utilization. And therefore, it helps our ROC, but also helps our margin, because now we are not deploying additional resources to validate individual parts, right? Everything is already pre-validated. All you're doing is like Lego. You're putting it together, forming a system, and then you're giving it to the customer that's already pre-validated. So the time to market is faster, the cost of that product is less, the margins are better, and of course, the capital efficiency is the highest. So this kind of model is what It's one of the reasons why we're able to perform at such high capital efficiency and also high margin. So I hope I answered the question in terms of how the clean air business is growing and also how the margins are moving in the future, including the exports.

That was really helpful, sir. Just a second question is on the suspension demand. Like, in the 1.5 meter category, one of the mainstream OEM has launched a model with your suspension, and it is getting quarter traction, and there's one more OEM coming next year. So are you seeing, like, this is something which is competitive? It gives a competitive edge to the OEMs. So, do you see other OEMs are also approaching you faster than anticipated? Or what kind of ramp-up or maybe scaling up of the passive plus suspension we're expecting in 1.5 meter category?

Okay. So, first of all, suspensions typically don't go with engine displacements, right? So, they go with vehicle architecture and gross vehicle weight. So you would have a different suspension for cars versus SUVs, right? Now, specifically your question on how things are going with Da Vinci DCX, what we call, at least we believe, the world's best mechanical suspension that's also affordable, and many, again, don't take our word for it. OEMs have talked about it. The traction is so good that we have three to four OEMs that are already interested in our product, and this covers other Indian OEMs, Japanese, and also Korean OEMs. They're all interested in our product, and also European OEMs. So, this product will find its way and rethink. This is standard across the entire... SUV range from mid to, let's call it the premium segment. You know that the India's market size for passenger vehicles is about five, five and a half million. So we are hopefully targeting somewhere about 50% of that to be able to disrupt. And like I said, the OEM interest has been very, very significant. And also purely because there's a lot of media buzz around it. There's, you know, social media buzz. Everybody's talking about it. And the feedback has been fantastic. And so I think that's what we're trying to do. And of course, the new plan that we're setting up in West India is to also try to manage all of this additional volume, the volume growth with new technology, but also just the basic commodity legacy product that's also growing with the growing Indian market. So we've got a double growth happening at the same time. And that's why we think that business is going to grow pretty exponentially in the coming three to five years.

Thank you. Thank you for the real answer. Just one last question if I can squeeze in. I'll try my luck over here. So maybe what is the pricing fees an OEM will have to take or a structural change they might need to take while graduating from a passive OEM, passive suspension to passive plus or your FDT suspension? Like, is it a major change they need to make in their chassis and their overall system, or just maybe a simple facelift can also have your passive plus suspension? I'm just trying to understand that if an OEM wants to upgrade its model to a passive plus suspension, does it really a very tough thing for them to do, come up with a new platform, or it can be done in the same existing platform as well, with minor changes?

Yeah, I think as long as they stay within the realm of mechanical suspension, I think the, let's call it the envelope that's given to us, we are able to package the shock absorber, damper, et cetera, into the packaging environment that's given to us. So all the way from a conventional suspension to a frequency-dependent damping, all the way to, let's say, the DaVinci, which is the upgrade, the next level of that. We are able to package it relatively well, and that's why I'm saying, right, the beauty of the DaVinci, you know, the frequency-dependent damping and the DaVinci, the ShimStack, is that we respect the packaging environment. The delta cost is less from an upgrade standpoint, and the comfort level is significantly more, right? You're paying a lot less for... Significant amount of additional comfort, right? The problem happens when you have to go into electronics and software because it's not about the packaging environment. It's about routing, you know, wiring harnesses and cables. You know, you need ECUs. You need to now connect that to a central ECU. So that requires additional cabling and additional validation, etc., right? So that's why the cost delta going from a conventional to a, let's call it the frequency-dependent damping to the... Then to the electronics and software-enabled suspension, that last prong, delta, is much higher because the packaging environment and the routing of the cables, et cetera, could be challenged.

Thank you. Thanks a lot for the detailed answer. It was really helpful. That's all from my side. Thank you, everyone.

The last question comes from the line of Pramod Amte with InCred Capital. Please go ahead.

Hi, thanks for the opportunity. So the first question is with regard to exports, since it's a new business which is getting up big time. How are you looking at the currency depreciation? Does it stand in your books? Will it be passed on to the parent? How are the contracts constructed for you? Hi, Pramod. Thanks for your question. I think, look, currency depreciation is actually a boon for – it's bad in one sense because you have to import parts that might be more expensive. But like I said, if you remember in one of my earlier answers, we are already pretty highly localized at 89-90% level. We said that in our IPO deck as well. I think depreciation of the rupee can also be a blessing in disguise. It makes our products more competitive. So, I can actually lower my selling price and be able to export and be more competitive to a European OEM or a U.S. OEM, right? So, I look at it as something that benefits us. Our products become more competitive. And so I think... The India Inc. story, which is India as India for the world from an export standpoint. So the India Inc. story, when the auto sector, and specifically for Teneco as the export hub for the world, and also the export hub back for Teneco, becomes more compelling. So I think that's the way I look at it, Mahindra. If you want to add something, you're welcome. But I think I only see an overall benefit. We don't know where this currency is going to finally land and take it off. I see this as an immediate 15% to 20% improvement in our ability to compete in the global market.

Yeah, no, that's right. So if you look at the current status, the way the rupee is, I think we are in an advantageous position as we realize more INR in terms of whatever we are exporting.

I appreciate that for the future orders, but the orders which you have disclosed now in terms of order book. Where does the currency as you deliver sits in your books, or will it go to the customer or to the parent? Yeah, so look, for all of these things, right, even the MIDI situation, right, we have direct material and indirect material. So the direct material, like, you know... So steel, stainless steel, carbon steel, we have a clear escalator agreement with the OEM. So every quarter, the prices are updated to the new commodity level. So there we are fully covered. Indirect is where there's an issue, right? Because you've got freight costs because of the Middle East war. You've got this currency issue. You've got cost of plastics and rubber that have gone up. Then you have LPG, CNG, crude oil. So what we're doing is what other auto suppliers are also doing, right? So we are collating, putting, bundling all of these costs together. And in many cases, we're going back to customers and seeking recoveries. At the same time, we are also trying to, and again, recoveries for all of these categories, including currency. And we're also at the same time trying to cut our costs, working on SG&A. We are trying to also improve our factory efficiency through ideation, the P3 model that Mahindra talked about, but also, for example, running equipment off of... We can also mitigate some of these costs. But yes, sometimes these do make for tough discussions with customers because a lot of these are not caused by us. These are all external factors and we have to get recovery for that.

And the second question is with regard to CAFE 3, which will come for passenger vehicles next year. What type of changes you are being requested to do in after treatment, and how does it, if you can technically walk us through, and what's the content per vehicle it can swing in for you guys, purely cars or SUVs?

Yeah, so CAFE 3 is about CO2, right? So, which means... And there are a few ways to reduce CO2. One is to do light weighting. So the lighter your vehicle, the lighter your parts, the less CO2 your vehicle generates. So OEMs often come to us and say, hey, as part of a running chain or for this next platform, can you reduce weight? Can you look at different kinds of materials? Can we do something together? And we do that a lot with OEMs. We work with them to try and reduce the... The actual physical weight of the exhaust system, because you can imagine the exhaust system all the way from exhaust manifold to the muffler can become very, very heavy. So that's one area. The other one is, and again, by the way, if you don't meet CAFE 3, the penalties are quite high, because for every gram per kilometer of CO2 you exceed, you have to multiply that with the entire fleet. So, the issue mostly for Cafe 3 in terms of meeting the CO2 target is with... And if you combine that with turbocharging, your shear will go even lower. Which means you have to add another gasoline particulate filter in the exhaust system. So the hotend content for petrol goes up. But the CO2 goes down, right? So I think for us, as a technical clean air, one of our advantages is that we are able to be very flexible. So depending on the kind of vehicle engine displacement, the vehicle architecture, and the purpose that it's used for, whether it's a passenger vehicle, commercial truck, or whatever, at least now speaking here in terms of passenger vehicles, we're able to offer different solutions in terms of after treatment. So I think for us, the content goes up from somewhere from X to 1.3 to 1.5X. That gives us additional content. And we typically say that's another 300 to 400 pro addressable market per cafe. And the BS7 for us is another 1,000 pro. So about a 1,300 to 1,400 pro addressable market we can go after in the next three to five years.

Thanks. Thanks for the detailed answer. On the list. Ladies and gentlemen, that brings us to the end of the question and answer session. I would now like to hand the conference over to Mr. Himanshu Sharma, Head Investor Relations, for the closing remarks.

Thank you, Alrik. Ladies and gentlemen, thank you for your continued interest in our company. We appreciate your time and participation and look forward to speaking with you again next quarter. Thank you and have a good evening.

Thank you, sir. Ladies and gentlemen, on behalf of Teneco Clean Air India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.