Automotive Axles

Automotive Axles reported a Q2 FY26 revenue of INR470 crores, marking a 6% sequential decline from the previous quarter. Despite this, the company achieved an EBITDA margin of 12.4%, an improvement from 11.7% in Q1 FY26 and 11.4% in Q2 FY25. This margin performance was supported by a favorable export revenue mix and foreign exchange benefits, alongside some one-time^📎 write-offs of unrequired liabilities, which, when normalized, would place the EBITDA margin at 11.7-11.8%.

Management noted a significant change in the cyclicality of the MHCV industry, with variations now expected to be within 10%, a reduction from the earlier 15-20%. The market has remained stable in the 400-420 thousand unit range for the past 3-4 years, with the next peak projected for 2029-2030 at 480-500 thousand units. This stability is attributed to factors like improved infrastructure, GST simplification, and the increasing demand for heavier vehicles.

In Q2 FY26, Automotive Axles successfully launched a 15-meter bus axle, which entered production, and migrated an older export product to a new, already productionized platform. Crucially, the company introduced two new families of axles for electric vehicle applications: a 4x2 electric tractor trailer and an 8x4 electric tipper, demonstrating readiness for the evolving EV market. Testing is underway for 9 and 12-meter bus axles, with development paced to align with the electrification trend in the bus segment.

While overall MHCV production grew by 3% in Q2, Automotive Axles' revenue declined due to a product mix shift, particularly a reduction in tipper sales during the monsoon season and a higher proportion of 4x2 tractors (which use fewer axles per vehicle than 8x2 models). Management emphasized that the company has not lost market share with its key OEMs, maintaining 60-70% with Ashok Leyland and high double-digit shares with Mahindra and Daimler.

The company anticipates Q3 and Q4 FY26 to be "very strongly, probably better than last year," driven by robust domestic consumption and the expected positive impact of GST 2.0. For the next fiscal year (FY27), initial volume forecasts suggest a 5-7% decline, though this could potentially be mitigated to a 2-3% decline depending on the final impact of GST sentiment. Management reiterated its commitment to achieving mid-teen EBITDA margins, stating they are "absolutely on track" and expect fixed cost leverage to improve margins as volumes pick up.

Current fleet utilization stands at approximately 75% for good, efficient fleets, benefiting from improved infrastructure and a shift away from overloading practices. The full impact of GST reduction on fleet operators is still evolving and is expected to become clearer in the next 1-2 quarters. The long-term impact of dedicated freight corridors (DFC) combined with improved efficiency and fuel economy is projected to be a 7-8% impact on the industry, which management believes will be offset by natural demand growth, resulting in a "neutral impact" for the company.