Carraro India Limited — Q4 FY25 earnings call

Call held 28 May 2025

Management summary

Carraro India delivered strong profitability in FY25, with EBITDA growing 24% and PAT increasing 41%, driven by product mix optimization and increased localization. Despite a challenging macro environment and flat revenue, the company exceeded its EBITDA margin guidance. Strategic initiatives in 4-wheel drive, teleboom handlers, and high-horsepower transmissions are expected to drive accelerated growth and margin expansion in FY26 and beyond, supported by planned capacity expansions and operational efficiencies.

Highlights

  • FY25 EBITDA grew 24% YoY to INR186 crores, exceeding 10% guidance with a 10.2% margin.

  • PAT for FY25 increased 41% YoY to INR88 crores from INR62 crores in FY24.

  • Localization reached 77% in FY25, up from 67% four-five years ago, with a target of 80% for FY26.

  • Domestic 4-wheel drive tractor absorption reached nearly 20% in FY25, up from 14-15% previously, with a target of 40-45% in 2-3 years.

  • Secured new series orders for backhoe loaders and won projects for high-horsepower transmissions with production starting in FY27-28.

Concerns

  • Global softness in export markets and muted demand in some segments during the election phase in India led to relatively flat total income for FY25.

  • Export performance remained under pressure due to macroeconomic headwinds and cyclical softness in key developed markets (Europe, US).

  • Gear business saw a slight dip in the last two quarters and is expected to remain stable with limited near-term growth.

Key financials

2 periods

Q4 FY25

  • Total Income
    4,479 Mn
    YoY +13%
  • EBITDA
    489 Mn
  • EBITDA Margin
    10.9%
  • PAT
    237 Mn

FY25

  • Total Income
    18,234 Mn
  • EBITDA
    1,864 Mn
    YoY +24%
  • EBITDA Margin
    10.2%
  • PAT
    881 Mn
    YoY +41%

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

SegmentRevenueContribution to Total Revenue
Agriculture Vehicle Segment (FY25)8,565 Mn47%
Construction Vehicle Segment (FY25)7,491 Mn41%
Other Segment (Gears, Spare Parts, Tools) (FY25)2,019 Mn11%
Domestic Sales (FY25)12,155 Mn67%
Export Sales (FY25)5,921 Mn32.8%
Domestic Revenue Split (Q4 FY25)——

Capital allocation

high confidence
  • Capex ₹70 Cr
    • New product introductions, including axle line for telescopic boom handlers and high-performance transmission range for agriculture applications
    • Process upgrades and maintenance to drive efficiency and integrate state-of-the-art technology
    In FY2025, our total capital expenditures stood at INR515 million. This investment was primarily directed towards supporting new product introductions, including the launch of a new axle line for telescopic boom handlers and a high-performance transmission range tailored for agriculture applications, both aimed at enabling incremental capacity to support our FY2026 sales. Additionally, we allocated capex towards process upgrades and maintenance in our plant to drive efficiency improvements and integrate state-of-the-art technology across all our operations. Product development - We developed nine prototypes during the year, with five moving into production. For us, prototype is a bellwether for future revenue because we develop prototypes only when we get a concrete order or contract signed with the OEMs. We have budgeted for FY26 INR70 crores of fresh capex. And this is not including any possible addition that we might deliberate related to the expansion.
  • Dividend ₹4.55/share (final)
    At the outset, I am pleased to share that the Board has recommended a final dividend of INR4.55 per equity share of INR10 face value for financial year 2025 subject to shareholder approval.

Guidance & targets

Revenue

  • Top-line growth Revenue · FY26 · High confidence 8% to 12%
    Looking forward to FY26, we expect top-line growth in the range of 8% to 12%, so we are surely going to add revenue in the current financial year.

    — Balaji Gopalan

  • Teleboom handler revenue from one customer Revenue · next three years · High confidence EUR35 million (INR300 crores)
    This 14,500 translates to a revenue of EUR35 million, which is roughly around INR300 crores. So we are getting from one customer a single product growth of INR300 crores in the next three years.

    — Balaji Gopalan

  • Overall revenue Revenue · medium term · High confidence EUR350 million
    We remain focused on our long-term roadmap of reaching EUR350 million in revenue and enhancing our EBITDA by 1% each year in the medium term.

    — Balaji Gopalan

  • Total income Revenue · this year (FY26) · High confidence EUR215-220 million

    From EUR200 million today

    For this year, we are looking at growing to about EUR215, EUR218, EUR220 million.

    — Balaji Gopalan

Profitability

  • EBITDA margin expansion Profitability · next three years · High confidence at least 1% year-on-year
    We are targeting continued progress towards our medium-term goal of increasing EBITDA margins by at least 1% year-on-year for the next three years, building on our financial year 2025 margin EBITDA of 10.2%.

    — Balaji Gopalan

Localization

  • Localization percentage Localization · current year (FY26) · High confidence 80%

    From 77% today

    So our estimation based on the product mix for that particular year, we are expecting to touch 80% localization for the current year.

    — Balaji Gopalan

  • Localization percentage Localization · over the three years · High confidence 86% to 88%

    From 77% today

    Enhanced localization targeting around 86% to 88% over the three years.

    — Balaji Gopalan

Capacity

  • Total revenue capacity Capacity · Medium confidence EUR350 million (INR3,200 crores)
    The next expansion immediate that will happen will take us to EUR350 million, which is roughly around INR3,200 crores.

    — Balaji Gopalan

  • Total revenue capacity Capacity · Medium confidence EUR500 million to EUR600 million (INR5,000 crores to INR5,500 crores)
    So we can go up to EUR500 million to EUR600 million, around INR5,000 crores, INR5500 crores.

    — Balaji Gopalan

Efficiency

  • Labor efficiency Efficiency · next 1.5 to 2 years · High confidence 20% increase
    As part of a recently signed wage agreement with our labor union, we have secured a commitment to an increase of 20% in our labor efficiency enabling us to support margin expansion without adding to our headcount.

    — Balaji Gopalan

Volume

  • 4-wheel drive absorption Volume · next two to three years · High confidence 40% to 45%

    From 20% today

    So we are hoping for it to reach about 40%, 45% in the next two to three years, which will all be a favorable direction for Carraro in India.

    — Balaji Gopalan

What to watch in Q1 FY26

FY26 Top-line growth

FY26
Current FY25 revenue relatively flat YoY
Target 8% to 12% growth

Why it matters

To confirm the company's ability to accelerate growth despite macro challenges, as guided.

Looking forward to FY26, we expect top-line growth in the range of 8% to 12%, so we are surely going to add revenue in the current financial year.

Risks & concerns

  • Global macroeconomic headwinds and cyclical softness in export markets

    medium

    Export performance remained under pressure due to macroeconomic headwinds and cyclical softness in key developed markets such as Europe and the United States, leading to flat overall revenue.

    Management acknowledged

  • Muted demand in some domestic segments during election phase

    low

    Domestic demand was muted in some segments during the election phase in India, contributing to flat overall revenue.

    Management acknowledged

  • Short-term margin impact from new product introductions

    low

    New products initially have lower localization components and require efficiency improvements, leading to staggered margin benefits in the very short term.

    Management acknowledged

  • Stability of gear business

    low

    The gear business saw a slight dip in the last two quarters and is expected to remain stable with limited near-term growth, as it supplies to other industries beyond construction and agriculture.

    Management acknowledged

Q&A highlights

5 direct
Outlook for domestic tractor industry, especially 4-wheel drive tractors Direct
the four-wheel drive market has been the strategy for growth of Carraro in India. This is the field that we entered just about four years ago and we have been capturing significant market in the four-wheel drive segment. ... it has already reached close to 20% in this financial year and it is very important that the global four-wheel drive tractor market stands in developed countries at 99%. So we are at a nascent stage.

Highlights the significant growth potential and market penetration strategy for Carraro India in the 4WD segment, which is a key growth driver.

Asked by Raghu Nandhan

Ramp-up of teleboom handler supply and associated margins Partial
the OEM is pushing us to ramp up much faster than what they estimated because the product that they launched with our axles has been very well received by their global final customers. For that reason, the ramp-up is growing and we are in a position where we will be required to do a plant expansion to cater to their requirements in the next one to two years. ... when we talk about margins for teleboom handler, we can say that the current set of orders that we have will be in the midterm, accretive in terms of margins, compared to the average of our portfolio.

Indicates strong demand for a new product, necessitating capacity expansion, and confirms its accretive margin profile in the medium term, despite short-term localization challenges.

Asked by Raghu Nandhan

Localization share increase and the timing of its financial benefits Partial
This localization is kind of a sun and cloudy season. So when the product mix is good, we get a good benefit into our numbers. When the product mix is going towards existing products or it is too much of the new technology products, then although I have the localization, those components are not going into the products that are getting dispatched for that month or for that quarter. ... the localization benefit accruing directly into my financial numbers will be on a staggered basis, but it will keep getting consolidated between what was in the past and what is emerging in the future.

Clarifies that while localization is a key strategy, its margin benefits are not immediate and depend on product mix and volume absorption, flowing through gradually.

Asked by Sonal Gupta

Construction equipment growth outlook given industry slowdown Direct
the model of Carraro business, we are at a stage where we are not dependent fully on the organic growth in the industry. So, we are beating the industry estimation because we are growing in this segment that we operate. ... for us, for example, in construction equipment, teleboom handler, I have given the reference of the contract that we have got, which is leading us to INR300 crores in the next 3 years or rather 2-2.5 years.

Explains how Carraro India can outperform the broader industry growth by focusing on specific segments and securing new projects, demonstrating resilience.

Asked by Sonal Gupta

Impact of US tariff situation on exports Direct
At the moment, we have limited exposure to the US market. ... we are in the range of 4% to 7% or I would say we are in single digit exposure to the American market. So, it's not a very big concern for us... we don't pay any of the duties or we are not affected directly by any of the tariffs. ... the nature of our business we have explained, it takes two years to three years for replacing any of our products. We are mission critical.

Provides reassurance that the company has limited direct exposure to US tariffs and its products' mission-critical nature provides a strong competitive moat against quick replacements.

Asked by Sonal Gupta

Addressable market size for 4-wheel drive in India in monetary terms Partial
We operate in 41 horsepower and above market. So in 41 horsepower and above market, the market size is approximately 170,000, 180,000 tractors this year. Now in that, in the non-captive segment, we have almost 60%, 65% market share. ... if we talk about it could be in that band. 40%, 45% would be the band in which we are selling. ... roughly about INR400 crores to INR500 crores.

Gives a clearer picture of the current and potential market size for Carraro's 4WD products, indicating significant headroom for growth.

Asked by Ashok Shah

Reason for decline in the 'Others' segment (gears) Direct
Others is basically our gear business that we have. We also have engineering services over there. We also have spare parts over there. ... The gear business is a little bit down. So to that reason, because the gear is not going directly to construction or to agriculture sector. We supply gears to other industries as well. So the offtake of gears has gone down a bit.

Identifies the specific sub-segment responsible for the decline and explains the underlying reason, providing transparency on performance drivers.

Asked by Anish Rankawat

Mechanism for achieving the 1% annual EBITDA margin increase Direct
One significant is the localization. Whenever we localize any part, we save roughly, if not more, at least 15%. ... Secondly, plant efficiencies are being increased on a daily basis. For example, the revenue we will grow by 10%, but my headcount goes down by 100 people. ... And all other fixed costs, we are controlling so that as the revenue grows, I am not having a model where my costs are also growing along with the revenue. ... with the union, we have got a 20% improvement in labor efficiency over the next 1.5 years, 2 years.

Details the multi-pronged strategy for margin expansion, including localization, plant efficiencies, fixed cost control, and labor productivity improvements, providing confidence in the guidance.

Asked by Ashok Shah

2 min read 5 chapters

Detailed narrative

Strong FY25 Profitability Despite Flat Revenue

Carraro India reported a 24% year-on-year growth in EBITDA for FY25, reaching INR186 crores, with the EBITDA margin expanding by 192 basis points to 10.2%, surpassing its 10% guidance. PAT for the full year increased by 41% to INR88 crores from INR62 crores in FY24. This strong profitability was achieved despite the total income remaining relatively flat year-on-year, attributed to product mix optimization and operational efficiencies.

Strategic Focus on 4-Wheel Drive and New Products

The company's strategy in the 4-wheel drive (4WD) tractor market is yielding results, with domestic 4WD absorption reaching nearly 20% in FY25, up from 14-15% previously, and a target of 40-45% in the next 2-3 years. Carraro India also secured its first export shipment for teleboom handlers in Q4 FY25 and won new projects for backhoe loaders and high-horsepower transmissions. The teleboom handler business alone is projected to generate EUR35 million (INR300 crores) in revenue over the next three years from a single customer.

Localization and Efficiency Driving Margin Expansion

Localization efforts significantly contributed to margin improvement, with the localization percentage reaching 77% in FY25, up from 67% four to five years ago. The company aims to increase this to 80% in FY26 and 86-88% over the next three years. Additionally, a new wage agreement with the labor union includes a commitment to a 20% increase in labor efficiency over the next 1.5-2 years, further supporting margin growth by controlling fixed costs and improving plant utilization.

FY26 Outlook and Capacity Expansion Plans

For FY26, Carraro India expects top-line growth in the range of 8% to 12%, with a continued goal of increasing EBITDA margins by at least 1% year-on-year for the next three years. The company has budgeted INR70 crores for capex in FY26, primarily for product development, capacity enhancement, and process automation. Due to strong demand for new products like teleboom handlers, a plant expansion of approximately 25,000 square meters (2.5 lakh square feet) is anticipated in phases over the next 1-2 years, with the next immediate expansion targeting EUR350 million (INR3,200 crores) in revenue capacity.

Segmental Performance and Export Challenges

In FY25, the agriculture vehicle segment contributed 47% of total revenues (INR8,565 million), while the construction vehicle segment contributed 41% (INR7,491 million). Domestic sales accounted for 67% (INR12,155 million) and exports for 32.8% (INR5,921 million). The gear business, part of the 'Other' segment, experienced a slight dip due to reduced offtake from other industries, but is expected to stabilize. Export performance remained under pressure due to global macroeconomic headwinds, though management noted limited direct exposure to US tariffs and no loss of customers.

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