Carraro India Limited — Q3 FY25 earnings call

Call held 10 Feb 2025

Management summary

Carraro India reported a mixed Q3 FY25, with a decline in quarterly EBITDA and PAT, primarily due to soft export volumes, unfavorable product mix, and lower supplier rebates. However, the company demonstrated strong 9M FY25 growth in EBITDA (26% YoY) and PAT, driven by increased localization (76%) and new revenue streams like engineering services and Teleboom Handlers. Management remains confident in achieving double-digit EBITDA for FY25 and 15% within three years, supported by strategic initiatives and a strong market position in India.

Highlights

  • 9M FY25 EBITDA grew 26% YoY to INR 1,375 million (137 crores), with margin expanding to 10% from 7.7% in 9M FY24.

  • 9M FY25 PAT improved by 45.27% YoY to INR 645 million (64.5 crores).

  • Localization content reached 76% in 9M FY25, surpassing the target of 72-73% for the year.

  • Secured the first engineering services contract, which contributes directly to the bottom line with no major costs.

  • Made pilot dispatches of over 40 axles for the new Teleboom Handlers segment, which has a potential of EUR30 million in 3-3.5 years.

Concerns

  • Q3 FY25 EBITDA declined by 14.89% YoY to INR 365 million (36.5 crores), with the margin compressing to 8.1%.

  • Q3 FY25 PAT declined by 23.71% YoY to INR 148 million (14.8 crores).

  • 9M FY25 total income reduced by 3% YoY to INR 13,755 million (1,375 crores).

  • Export business is currently soft due to cyclical downturns in mature markets (Europe, US).

  • Lower volume of gears and lower supplier rebates impacted Q3 margins.

Key financials

2 periods

Q3 FY25

  • Total Income
    4,528 Mn
    YoY +3%
  • EBITDA
    365 Mn
    YoY -14.9%
  • EBITDA Margin
    8.1%
  • PAT
    148 Mn
    YoY -23.7%

9M FY25

  • Total Income
    13,755 Mn
    YoY -3%
  • EBITDA
    1,375 Mn
    YoY +26%
  • EBITDA Margin
    10%
  • PAT
    645 Mn
    YoY +45.3%

What they filed

Q1 FY27: revenue up 10.4%, net profit up 6.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue437 445 441 489 582 +33%565 +27%603 +37%540 +10%
EBITDA42 31 44 47 51 +21%54 +74%62 +41%42 −11%
Net profit22 14 23 29 31 +41%28 +100%41 +78%31 +7%
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.

Segment breakdown

SegmentShare of Total RevenueRevenue
Agriculture Vehicle (9M FY25 Revenue)48%6,529 Mn
Construction Vehicle (9M FY25 Revenue)41%5,561 Mn
Other Products (Gears & Spares) (9M FY25 Revenue)11%—
Domestic Revenue (9M FY25)66%8,958 Mn
Export Revenue (9M FY25)34%4,674 Mn

Guidance & targets

Profitability

  • EBITDA Margin Profitability · next 3 years · High confidence 15%
    I have a very clear target of achieving 15% EBITDA in the next 3 years.

    — Balaji Gopalan

Revenue

  • Total Revenue Revenue · next year · Medium confidence EUR215 million to EUR220 million
    We are looking at a significant revenue growth. We would cross close to about EUR215 million to EUR220 million as our estimation now.

    — Balaji Gopalan

  • Total Revenue Revenue · next 5 years · High confidence EUR350 million
    So, we have a clear vision to reach that EUR350 million in 5 years.

    — Balaji Gopalan

  • Teleboom Handler Business Revenue Revenue · next 3, 3.5 years · High confidence EUR30 million
    This has a very big potential. It could grow to about EUR30 million business in the next 3, 3.5 years.

    — Balaji Gopalan

  • Teleboom Handler Business Revenue Revenue · this year · Medium confidence 5 million, 6 million
    Probably we will start with 5 million, 6 million this year, move to around 12 million, 14 million, 16 million the year after that, and then moving on to close to 30 million.

    — Balaji Gopalan

  • Teleboom Handler Business Revenue Revenue · year after · Medium confidence 12 million, 14 million, 16 million

    — Balaji Gopalan

Localization

  • Localization Content Localization · this year · High confidence 72, 73%
    We committed to cross 72, 73 this year. I'm very happy to share that we have touched 76% localization, and we are doing well.

    — Balaji Gopalan

  • Localization Content Localization · next 3 years · High confidence 86%, 88%
    The target is to reach around 86%, 88% in the next 3 years, which will help us with that margin target of 15%.

    — Balaji Gopalan

Export Business

  • Export Business Recovery Export Business · from now · Medium confidence 4 to 6 months from now
    We are expecting things to move, gain momentum at about 4 to 6 months from now.

    — Balaji Gopalan

Market context

  • EBITDA Margin Profitability · FY25 · High confidence double-digit
    We are committed to give you a double-digit EBITDA. We are committed to get into a next 3-year plan. I have a very clear target of achieving 15% EBITDA in the next 3 years.

    — Balaji Gopalan

What to watch in Q4 FY25

FY25 EBITDA Margin

Next quarter (Q4 FY25 results)
Current 9M FY25 EBITDA Margin 10%, Q3 FY25 EBITDA Margin 8.1%
Target Double-digit (10%+) for full FY25

Why it matters

Management has committed to achieving double-digit EBITDA for the full year, which requires a strong Q4 performance.

Quarter four should be better than quarter three, but nothing very dramatic, okay. So, which means that it will kind of take us to a closure of our EBITDA of 10% plus.

Risks & concerns

  • Softness in export business due to cyclical mature markets

    medium

    Export business is currently in a low cycle in mature markets like Europe and the US, which are outside Carraro's control, but recovery is expected in 4-6 months.

    Management acknowledged

  • Impact of product mix on margins

    medium

    The product mix dispatched in a given quarter can significantly influence margins, as some products have lower localization or different margin profiles, impacting Q3.

    Management acknowledged

  • Delay in infrastructure projects due to elections

    low

    The current year's elections caused delays in projects and tenders, impacting demand from component suppliers, but recovery is expected post-elections.

    Management acknowledged

Q&A highlights

8 direct
Q3 EBITDA margin decline and drivers Direct
When we look at Q2 to Q3, we identified a few major contributors for the drop. And as we said, as we already mentioned, one of the reasons is the lower volume of gears. Gears is a category that often is seen as a residual. Nevertheless, despite not being so relevant in terms of top line, can be quite relevant in terms of contribution margin.

Clarifies the specific factors (lower gear volumes, lower supplier rebates, absence of Q2 engineering services revenue) that led to the sequential margin drop, which was a key concern.

Asked by Kumar Rakesh

Quantification of Q3 margin impact Direct
Okay. So, gears would explain pretty much 0.3% of the drop. And supplier borrows is half a point. Engineering services, another half a point. And spare parts, another 0.2. So, overall, you explain a couple of points.

Provides specific numerical breakdown of the impact of various factors on the 2.5% margin decline, aiding in understanding the magnitude of each.

Asked by Kumar Rakesh

Outlook for Q4 and full-year FY25 EBITDA Direct
Quarter four should be better than quarter three, but nothing very dramatic, okay. So, which means that it will kind of take us to a closure of our EBITDA of 10% plus.

Sets expectations for Q4 performance and reiterates the commitment to achieving double-digit EBITDA for the full fiscal year, despite the Q3 dip.

Asked by Kumar Rakesh

Export market opportunity and margins Direct
Our exports are driven by our headquarter sales and business development team... So, we are coming under contract manufacturing for our group, for all the exports that are happening out of India. So, the margins are governed by the transfer pricing regulation, wherein we have to keep certain margins as per the Italian regulation, and we have certain requirement guidelines by the Indian taxation authority's regulation. In all, it basically means that I cannot have a margin lower than my domestic margin.

Explains the mechanism of export sales and clarifies that export margins are comparable to domestic margins due to transfer pricing regulations, addressing concerns about potential lower profitability from exports.

Asked by Deepak Gupta

Reasons for soft export business and recovery timeline Direct
So, business is soft for reasons which are outside the control of Carraro. We have to be very clear about it. Especially when we talk about export business, we are talking about mostly mature markets like Europe and the US, which in our industry are quite cyclical. And today, as a matter of fact, we are in a moment of low level of this cycle... We are expecting things to move, gain momentum at about 4 to 6 months from now.

Provides context for the export slowdown, attributing it to cyclical mature markets, and gives a timeline for expected recovery, which is crucial for future revenue growth.

Asked by Deepak Gupta

Impact of Euro norm changes on exports Direct
Now, this has a very, very positive impact for Carraro, because the Indian OEMs will be able to now export to all developed countries, which will be our indirect export... So when the engines become Euro compliant, 5 compliant, then they can access all the developed market itself. And that will be a big opportunity for increasing our exports out of India.

Highlights a significant future growth driver for exports, as Indian OEMs adopting Euro-compliant engines will open up developed markets for Carraro's components.

Asked by Deepak Gupta

Teleboom Handlers revenue booking and margins Direct
Now, coming to your question, the revenue will start pouring in from probably 3 to 6 months from today. Although the revenue has already started, the trickling effect is already there, but we will be having firm orders wherein we should cross, in our opinion, in the next 3 years around EUR30 million kind of a revenue that will come from Teleboom handlers.

Provides a timeline for the ramp-up of revenue from the new Teleboom Handler segment and clarifies that these high-tech products will contribute higher-than-average margins.

Asked by Hafeez Patel

Overall revenue guidance for next year (FY26) and 5 years Direct
Looking at all these things, we are more or less looking at a range of 220 million, considering also the Teleboom Handler business that will pick up from, say, August or September. All in all, domestic export, indirect export, all put together, we should be in the range of roughly EUR210 million, EUR215 million, EUR220 million, which is a realistic estimation that we have on our table.

Consolidates the company's near-term and long-term revenue targets, providing a clear picture of expected growth.

Asked by Daljit Singh

3 min read 6 chapters

Detailed narrative

Q3 & 9M FY25 Performance Overview

Carraro India reported a 3% YoY increase in total income for Q3 FY25, reaching INR 4,528 million. However, Q3 EBITDA declined by 14.89% YoY to INR 365 million, with the margin compressing to 8.1%. Profit after tax for Q3 also fell by 23.71% YoY to INR 148 million. For the nine months of FY25, total income saw a slight reduction of 3% YoY to INR 13,755 million, but EBITDA grew significantly by 26% YoY to INR 1,375 million, with the margin expanding to 10% from 7.7% in 9M FY24. PAT for 9M FY25 improved by 45.27% YoY to INR 645 million.

Strategic Market Position and Competitive Advantage

Carraro India holds a strong, monopolistic position in the non-captive supply of gearboxes and axles for the off-highway vehicle segment, particularly in backhoe loaders. The company caters to almost all major tractor brands in India and has a 27-year presence, fostering long-term partnerships with leading OEMs. Its in-house R&D and manufacturing capabilities allow for customized, high-performance solutions, creating high switching costs for customers due to the 2-2.5 year testing and validation cycle required for new product integration.

R&D and IP Transfer for Localized Solutions

Carraro India established its R&D center in 2006 as part of a global network. In October 2023, Carraro Group transferred exclusive IP rights for 153 products sold in India to Carraro India, eliminating royalties and strengthening local R&D. This move has reduced time-to-market for new products, as Indian design engineers possess deep market understanding. The company is now leveraging its R&D capabilities to offer engineering services to OEMs, including for electrification of tractors, which directly contributes to margins due to lower associated costs.

Export Market Dynamics and Euro Norm Opportunity

The export business, contributing 34% of total revenue, is currently soft due to cyclical downturns in mature markets like Europe and the US. Management expects a recovery and ramp-up in export volumes within 4-6 months. A significant future opportunity lies in the upcoming Euro norm changes (expected 2026), which will enable Indian OEMs to export to developed countries, thereby increasing demand for Carraro's Euro-compliant components. Export margins are maintained at levels comparable to domestic margins due to transfer pricing regulations.

Teleboom Handlers Opportunity

Carraro India is entering the emerging Teleboom Handlers segment, which is expected to grow significantly in India. The company has already made pilot dispatches of over 40 axles for this segment. Management projects this business to generate approximately EUR30 million in revenue over the next 3 to 3.5 years, starting with EUR5-6 million this year (FY25) and growing to EUR12-16 million in the following year (FY26). These high-technology products are expected to yield higher-than-average margins.

Localization Initiatives

The company has made significant progress in localization, reaching 76% localization content as of 9M FY25, surpassing its target of 72-73% for the year. This initiative is a key driver for margin improvement. Carraro India aims to further increase localization to 86-88% within the next three years, which is expected to support its target of achieving 15% EBITDA margins. The company also signed an agreement with the union for a 20% improvement in labor efficiency.

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