Automotive Axles Limited — Q4 FY25 earnings call

Call held 21 May 2025

Management summary

Automotive Axles reported a resilient Q4 FY25 with a 5.97% YoY revenue growth to INR 568 crores and an EBITDA margin expansion to 12.7%, driven by cost optimization and product portfolio expansion. Despite a challenging FY25 with a 6.2% revenue decline, full-year EBITDA margin improved to 11.9%. The company anticipates a soft MHCV market with a 3% degrowth in FY26 but expects 'single-digit high' top-line growth and marginal EBITDA improvement through new products and efficiency initiatives.

Highlights

  • Q4 FY25 Total Income increased by 5.97% YoY to INR 568 crores, despite a soft market.

  • EBITDA Margin for Q4 FY25 expanded to 12.7% from 12.1% in the same quarter last year, driven by cost optimization.

  • Full-year FY25 EBITDA Margin improved to 11.9% from 11.8% in FY24, even with a 6.2% revenue reduction.

  • Company generated INR 72 crores of additional cash, maintaining a debt-free balance sheet.

  • New products like MS185 Axle and the 109 upgrade for ICV/bus segments are ready for market.

Concerns

  • The MHCV market is expected to see a 3% degrowth in production to around 400,000 vehicles in FY26.

  • Soft domestic and export markets, along with an unfavorable product mix, impacted performance during the year.

  • The new technical and service fee agreement with Meritor HVS India is yet to be fully quantified, with details expected in 'a month or so'.

Key financials

2 periods

Headline

  • Total Income (FY)
    ₹2,104 Cr
    YoY -6.2%
  • EBITDA Margin (FY)
    11.9%

Q4

  • Total Income
    ₹568 Cr
    YoY +6%
  • EBITDA Margin
    12.7%

What they filed

Q1 FY27: revenue up 5.7%, net profit up 27.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue495 531 560 489 462 −7%562 +6%664 +19%517 +6%
EBITDA51 57 63 48 48 −6%64 +12%77 +22%60 +25%
Net profit36 40 46 36 36 +0%39 −2%54 +17%46 +28%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹120 Cr
    • Modernizing housing line and gear manufacturing line
    • Reducing overall throughput time through automations and Industry 4.0
    • Manufacturing excellence and capacity increase
    As we mentioned, we are investing in the capex. There is about INR120 crores that we'll be spending it. We will have already started it by end of next year. And we're completely modernizing our housing line and then also gear manufacturing line.
  • Debt Net ₹0 Cr
    All the debt, there's no debt, and all the balance sheet ratios are going good.
  • Liquidity Cash ₹72 Cr Significantly improved about INR72 crores of additional cash generated.
    We have significantly improved about INR72 crores of the additional cash has been generated.

Guidance & targets

Revenue

  • Top-line growth Revenue · FY26 · Medium confidence single-digit high
    Our focus right now, it could be at the single-digit high. That's what we are expecting. In the terms of overall profit, there will be an increase compared to vis-a-vis or a baseline.

    — Nagaraja Gargeshwari

  • Revenue target Revenue · 5 years · Medium confidence INR 5,000 crores
    So to tell you, probably like what Kishan mentioned, I think we have to get through this year. And next year, once the European market and the North American market that they start producing, the numbers are going up, and that should really help us to achieve that INR5,000 crores in our revenue.

    — Nagaraja Gargeshwari

Profitability

  • Profitability improvement Profitability · Annually · High confidence 0.8% to 1%
    So overall basis, we definitely bring about 0.8% to 1% improvement to mitigate the inflation and other pressures and show the profitability improvement.

    — Sankaran Ranganathan

What to watch in Q1 FY26

Meritor HVS service fee quantification

within a month or so
Current Undisclosed, in final stages of agreement
Target Specific amount or percentage disclosed

Why it matters

Quantification of this new related party transaction will impact future profitability.

We are in the final stage of signing up the final value, and we will be getting to know in a month or so going through the assessment process.

Risks & concerns

  • MHCV market degrowth in FY26

    high

    The industry is expecting a 3% degrowth in MHCV production to around 400,000 vehicles in FY26.

    Management acknowledged

  • Soft domestic and export market conditions

    medium

    The company ended FY25 on a high note despite a relatively soft year with headwinds from soft domestic and export markets.

    Management acknowledged

  • Unfavorable product mix

    medium

    An unfavorable product mix contributed to the challenges faced during FY25.

    Management acknowledged

  • Impact of prevailing tariff scenario on exports

    medium

    Management acknowledges some impact but states their niche business and internal competitiveness insulate them, noting the tariff situation is volatile.

    Analyst downplayed

Q&A highlights

6 direct
Details and quantification of the Meritor HVS service and technical fee agreement. Partial
We are in the final stage of signing up the final value, and we will be getting to know in a month or so going through the assessment process. Definitely, we need to have a fair value in terms of announce length.

Analysts are seeking clarity on the financial impact of the new related party transaction, which is still being finalized.

Asked by Viraj

FY25 capex allocation for R&D or EV-specific product development. Direct
right now, from automotive axles, we are mainly all our capex is going into the manufacturing infrastructure and then also certain supplier tooling... So we haven't spent much money on the e-Axle at this point of time.

Clarifies the company's current capital allocation strategy, indicating a focus on manufacturing excellence over direct EV product R&D for now.

Asked by Amit

Productivity improvements and cost savings from new Industry 4.0 enabled axle assembly line. Partial
4.0 initiative is basically it's a long-term. We really look at it in one of the lines we have aligned to Industry 4.0 in the year 2019, '20, okay? So -- and we are working on with the Industry 4.0 implementation and other value streams this year, we started with a housing line. And like that, we will be introducing the Industry 4.0 initiative slowly all the value stream.

Highlights the long-term nature of efficiency initiatives and their gradual rollout, implying benefits will accrue over time rather than immediately.

Asked by Amit

Business environment in ICV and bus markets, new product offerings for FY25/FY26, and the 5-year revenue doubling program. Direct
So we are expecting the industry to be around 400,000. So that's again a 3% degrowth... one of the products, which is 185 last year, and we have ramped up to a significant level last year... the 109, that is in almost its final stage of development and validation.

Provides a comprehensive market outlook for FY26, details on new product readiness, and context for the long-term revenue growth ambition.

Asked by Saket Kapoor

Tonnage growth and per axle realization trends given market degrowth. Direct
our per axle realization has significantly improved to 13% to 20%, 25% in some cases. So this is very consistent with how the Western world has evolved. So that is why our product road map has been very clear that we want to focus on the high horsepower, high tonnage vehicles applications.

Explains how the company is mitigating volume degrowth by focusing on higher-value products, leading to improved per-axle realization.

Asked by Saket Kapoor

Discrepancy between company's MHCV volume estimates and OEMs' guidance. Direct
So what we are looking at is the production and the sales is a totally different number. So when we said the MHCV production will be around 400, the sales may be around another 3%, 4% more. That's what even the OEMs are predicting, the low single digits or the medium single digits. So we are not very off.

Clarifies the difference between production and sales figures, reconciling seemingly conflicting market outlooks from different sources.

Asked by Himanshu Singh

Ashok Leyland's sourcing strategy for axles and opportunities with VECV, Tata, and TML. Direct
in terms of our share of business with Ashok Leyland, we have about 65% to 67%... they, of course, have a dual sourcing strategy... VECV in particular. So at one point in time, going back 7, 8, 10 years, we did supply axles to them, both of them. And their strategy has been to develop products for their own applications.

Provides insight into customer relationships, market share with a key OEM, and the competitive landscape for axle supply to other major CV players.

Asked by Sarah

Potential conflict of interest or competition between Automotive Axles and American Axle (acquired by Bharat Forge) given common promoters. Direct
it is very clear that we are having a different product portfolio and interest in different product segments. However, there is one small percentage where we are having a probably competing product. But again, as you need to understand that Automotive Axles is not we are having 2 promoters. So there is always a check and balance.

Addresses a key governance and competitive concern for minority shareholders, clarifying the distinct product portfolios and the role of dual promoters.

Asked by Viraj

2 min read 6 chapters

Detailed narrative

Q4 FY25 Performance and Full-Year Overview

Automotive Axles reported a Q4 FY25 total income of INR 568 crores, marking a 5.97% increase from INR 536 crores in Q4 FY24. The EBITDA margin for the quarter expanded to 12.7% from 12.1% in the prior year. For the full fiscal year FY25, the company achieved an overall revenue of INR 2,104 crores, a 6.2% reduction from FY24, yet managed to improve its EBITDA margin marginally to 11.9% from 11.8% in FY24, demonstrating resilience through cost optimization.

FY26 Market Outlook and Growth Strategy

Management anticipates a soft MHCV market in FY26, expecting production volumes to be around 400,000 units, representing a 3% degrowth. Despite this, the company targets a 'single-digit high' top-line growth for FY26, driven by new product introductions and an improved product mix. The long-term vision includes a 5-year program to double revenue, aiming for INR 5,000 crores, supported by strategic investments and market expansion.

New Product Development and Value Enhancement

The company has successfully introduced and ramped up products like the MS185 Axle and is in the final stages of development and validation for the 109 upgrade, targeting the high horsepower engine and ICV/bus segments. This focus on higher-value, high-tonnage products has significantly improved per-axle realization by 13% to 25% in some cases, helping to offset overall volume degrowth and align with Western market trends.

Capital Expenditure and Operational Efficiency

Automotive Axles plans to spend INR 120 crores in FY26 on capital expenditure, primarily for modernizing its housing and gear manufacturing lines. This investment is aimed at improving manufacturing throughput, introducing Industry 4.0 automations, and enhancing overall productivity and capacity. The company also targets an annual profitability improvement of 0.8% to 1% through continuous cost reduction and operational performance initiatives.

Meritor HVS Technical and Service Agreement

A new technical and service agreement with Meritor HVS India commenced on April 1, 2025, following the expiration of the previous related party transaction on March 31, 2025. The exact financial terms of this agreement, including the service fee, are still being finalized and are expected to be quantified within 'a month or so'. This agreement aims to leverage Meritor's expertise in product development, engineering, and market intelligence to accelerate Automotive Axles' product presence.

Export Opportunities and EV Readiness

While the current export market is soft, the company is exploring potential export opportunities, particularly as European and North American markets revive. They are also prepared for the electrification trend; existing mechanical axles are already fine-tuned for EV requirements, especially for remote-bound electric vehicles. However, significant e-Axle specific R&D capex has not been incurred yet, as the company awaits clearer market evolution and technology integration strategies.

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