Divgi Torq — Q3 FY25 earnings call

Call held 17 Feb 2025

Management summary

Divgi Torq reported a challenging Q3 and 9M FY25 with significant declines in revenue, EBITDA, and PAT, primarily due to subdued volume offtake in transfer cases and lower-than-expected EV transmission sales. Despite the financial headwinds, the company achieved strong growth in its component business (46% YoY) and secured new contracts for EV transmissions and export components, with management expressing optimism for a strong recovery and growth trajectory from Q1 FY26, driven by new product developments and international expansion.

Highlights

  • Gross margin improved to 63.2% in 9M FY25, up from 61.1% in 9M FY24.

  • Component business recorded strong 46% YoY growth in 9M FY25.

  • Secured new contracts for EV transmissions for long-range versions of Punch, Curvv, and 4-wheel drive options for Harrier/Safari.

  • Final production approval for 8 component parts for export markets, with a revenue realization potential of almost INR90 crores per year.

  • Won 'Proprietary Powertrain Commodity Supplier of the Year' award from Mahindra & Mahindra for the second time.

Concerns

  • 9M FY25 Total Income declined 13% YoY to INR 176 crores.

  • 9M FY25 EBITDA declined 19% YoY to INR 44 crores, with EBITDA margin at 25%.

  • 9M FY25 PAT declined 38% YoY to INR 19 crores, with PAT margin at 10.8%.

  • Transfer case business saw a 32% decline in 9M FY25 due to volume offtake issues.

  • Low capacity utilization: transfer cases <50%, EVs ~20%, impacting ROI.

Key financials

2 periods

Q3 FY25

  • Total Income
    ₹57 Cr
    YoY -16.2%
  • EBITDA
    ₹14 Cr
    YoY -22.2% QoQ -22.2%
  • EBITDA Margin
    23.6%
  • PAT
    ₹5 Cr
    YoY -44.4% QoQ -33.3%
  • PAT Margin
    9.1%

9M FY25

  • Total Income
    ₹176 Cr
    YoY -13.3%
  • EBITDA
    ₹44 Cr
    YoY -18.5%
  • EBITDA Margin
    25%
  • PAT
    ₹19 Cr
    YoY -36.7%
  • PAT Margin
    10.8%
  • Gross Margin
    63.2%

What they filed

Q1 FY27: revenue up 90.3%, net profit up 177.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue54 53 58 72 83 +54%91 +72%108 +86%137 +90%
EBITDA11 9 9 14 17 +55%18 +100%22 +144%37 +164%
Net profit8 5 5 9 11 +38%12 +140%15 +200%25 +178%
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

  • Transfer Case Business (9M FY25)
    -32% Volume Growth
  • EV Transmission Business (9M FY25)
    13% Volume Growth
  • Component Business (9M FY25)
    46% Growth

Order book

high confidence

Total value

₹290 Cr

as of 2024-12-31 quantified

Composition

Mix 2 products
  • Component Exports (annual revenue potential) 31%
  • Manual Transmission Takeover (annual revenue potential) 69%

Share of order book by product

Pipeline

qualified rfp

RFQ volumes quoted for overseas opportunities

Cancellations & deferrals

  • deferred: One customer in the Midwest pushed out the schedule and ramp-up for 350,000-400,000 parts per year to Q2 (April-June) due to China Plus One transition complexities.
Management highlighted significant new order wins with annual revenue potential from component exports and a manual transmission takeover project, alongside a substantial pipeline of RFQs. However, some export revenue booking was delayed due to customer-side scheduling adjustments related to China Plus One sourcing.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹100 Cr
    • Automatic transmission program ₹100 Cr
    No, it will be in excess of between -- in capital investment and working capital, it will be well in excess of INR 100 crores. It's a big program. The automatic transmission program at a minimum will give a turbocharging boost of over INR 500 crores to the top line.
  • Liquidity Liquidity disclosed Cash sitting on balance sheet for future capex needs, particularly for the automatic transmission program.
    So, that is what your company has reached now to be able to convince, persuade one of the world's largest Tier 1s that is making several million units across the world and to convince them to come to India with us. So, that is where I expect the capex to happen and which is why because of this delay, there is that cash sitting on our balance sheet.

Guidance & targets

Overall Growth

  • CAGR Overall Growth · long-term · Medium confidence 15-20%
    And we have not forgotten the promise of bringing the growth back on a trajectory of that 15% CAGR, 15% to 20%.

    — Jitendra Divgi

EV Transmission

  • Revenue Growth EV Transmission · FY26 · Medium confidence Significant increase
    So, we are expecting a significant increase in FY '26 as a result of this development.

    — Jitendra Divgi

Component Exports

  • Annual Revenue Realization Component Exports · per year, starting Q1 FY26 · High confidence INR 90 crores
    realization of this chunk of about INR90 crores per year will start. It has actually already started in a modest way, and we will see the results unfolding from Q4 onwards, but really making a significant impact from Q1 of FY '26.

    — Jitendra Divgi

Exports (China Plus One)

  • Additional Monthly Revenue Exports (China Plus One) · per month · Medium confidence INR 7 crores
    And including export orders from China, we are expecting an additional jump of almost INR7 crores a month.

    — Jitendra Divgi

Manual Transmission

  • Annual Revenue Potential Manual Transmission · long-term · Medium confidence Over INR 200 crores
    The opportunity is well over INR200 crores to the top line.

    — Jitendra Divgi

Total Exports

  • Annual Revenue Total Exports · FY26 · High confidence INR 80-90 crores
    So to answer your question, it will start at around INR 6 crores a month and then go to about INR 8 crores to INR 8.5 crores a month. And all this is going to unfold in FY '26. So, we are expecting about INR 80 crores to INR 90 crores in that range. That's the expectation for next year.

    — Jitendra Divgi

  • Monthly Run Rate (initial) Total Exports · initial phase · High confidence INR 6-7 crores
    And so it's like going into steady state even as we speak. And it will start maybe with around INR 6 crores to INR 7 crores a month.

    — Jitendra Divgi

  • Monthly Run Rate (peak) Total Exports · peak · High confidence INR 8-8.5 crores
    And then at its peak will go to INR 8 crores to INR 8.5 crores a month.

    — Jitendra Divgi

Capex

  • Automatic Transmission Program Investment Capex · upcoming · High confidence Well in excess of INR 100 crores
    No, it will be in excess of between -- in capital investment and working capital, it will be well in excess of INR 100 crores.

    — Jitendra Divgi

What to watch in Q4 FY25

Transfer Case Volume Improvement

Next quarter (Q4 FY25) and Q1 FY26
Current Declined 32% in 9M FY25
Target Slight improvement in Q4 FY25, significant improvement in Q1 FY26

Why it matters

Volume recovery in this segment is crucial for overall revenue and profitability, as it has been a major drag.

However, based on the forecasts that are coming in on schedules, we are anticipating a slight improvement this quarter and certainly going into the first quarter of the next financial year.

Risks & concerns

  • Volume decline in transfer cases and EV transmissions

    high

    Subdued volume offtake in 4-wheel drive transfer cases and lower-than-expected EV transmission sales impacted Q3/9M FY25 performance.

    Management acknowledged

  • Low capacity utilization

    high

    Capacity utilization is less than 50% for transfer cases and about 20% for EVs, leading to a negative impact on ROI.

    Management acknowledged

  • Uncertainty in EV market growth

    medium

    The risks of the EV market remain, though new models and contracts are expected to be a tipping point.

    Management acknowledged

  • Delays in automatic transmission project

    medium

    The automatic transmission project has been delayed due to an overseas customer's inability to provide requested data.

    Management acknowledged

Q&A highlights

4 direct
Q4 FY25 and FY26 Outlook Partial
I mean, I we are acutely sensitive and aware of what is happening, and that this Q3 has been disappointing. However, what I would request you to look at is what are the substantive corrective measures that are underway to address this state of affairs, okay. ... And I think there will be significant improvement starting April. It may take a month or 2, but certainly starting next quarter.

Analyst sought clarity on immediate and future performance given recent degrowth; management acknowledged challenges but pointed to corrective actions and an expected turnaround from Q1 FY26.

Asked by Mahesh Bendre, LIC Mutual Funds

Capacity Utilization and Capex Plans Direct
On transfer cases, it's less than 50%. And on EVs, it's about 20%. ... The capex plans that will come are expected for the automatic transmission business. ... it will be well in excess of INR 100 crores.

Revealed low current capacity utilization in key segments and quantified significant capex planned for the new automatic transmission business, indicating future growth investments.

Asked by Mahesh Bendre, LIC Mutual Funds

Clarification on 150,000 Manual Transmissions Opportunity Direct
We are very excited by this development. And let me be very clear, it is a manual transmission for a pickup truck in India. It is not an EV. ... I can tell you very clearly, the OEM is expecting us to deliver a full system-based solution. ... it is an existing [product].

Clarified a major new business win, confirming it's a full system solution for an existing ICE pickup truck, representing a significant outsourcing opportunity from an OEM.

Asked by Manish Goyal, Thinqwise Wealth Managers

Realization for Manual Transmission Opportunity Partial
The pickup truck segment is extremely competitive. So the manual transmission realization will be quite competitive. Because there's an NDA and it's under negotiation, I wouldn't like to hazard a number here, but it is significant. The opportunity is well over INR200 crores to the top line.

While not giving per-unit realization, management quantified the annual revenue potential of this new manual transmission business at over INR200 crores, highlighting its material impact.

Asked by Manish Goyal, Thinqwise Wealth Managers

Export Targets and Run Rate for FY25/FY26 Direct
So to answer your question, it will start at around INR 6 crores a month and then go to about INR 8 crores to INR 8.5 crores a month. And all this is going to unfold in FY '26. So, we are expecting about INR 80 crores to INR 90 crores in that range. That's the expectation for next year.

Provided specific numerical guidance for export revenue for FY26 and detailed the expected monthly run rate ramp-up, offering clear verifiable targets.

Asked by Manish Goyal, Thinqwise Wealth Managers

Outlook for Domestic Components Business Direct
Domestic actually is showing -- thanks to extremely robust performance by -- and we are very proud of the achievement of Mahindra. ... And we are also helping Tata Motors in indigenizing the transmissions that go into their EVs. ... So, this is an enviable position to be in. And that is why I say that the domestic, we are extremely optimistic about the domestic business.

Management expressed strong optimism for the domestic components business, citing successful partnerships with major OEMs like Mahindra and Tata, and ongoing discussions with other key players.

Asked by Manish Goyal, Thinqwise Wealth Managers

3 min read 6 chapters

Detailed narrative

Q3 & 9M FY25 Performance Overview

Divgi Torq reported a challenging Q3 and 9M FY25. For the nine months ended December 31, 2024, total income stood at INR 176 crores, reflecting a 13% year-on-year decline from INR 203 crores in 9M FY24. EBITDA for 9M FY25 was INR 44 crores, down 19% YoY from INR 54 crores, with the EBITDA margin at 25%. Profit after tax for 9M FY25 was INR 19 crores, a 38% YoY decline from INR 30 crores, resulting in a PAT margin of 10.8%. Gross margin, however, improved to 63.2% in 9M FY25 from 61.1% in 9M FY24.

Segmental Performance: Transfer Cases & EV Transmissions

The transfer case business experienced a 32% decline in 9M FY25, primarily due to the introduction of a low-cost variant without 4-wheel drive and the transition of Mahindra's Thar from 3-door to 5-door versions. Despite this, per-unit realization on transfer cases was significantly better due to defense sales and volume-based pricing. The EV transmission business, while growing 13% YoY in 9M FY25, was disappointing relative to original business plans. Capacity utilization remains low, with transfer cases below 50% and EVs around 20%, impacting the company's Return on Investment (ROI).

Component Business Growth & Export Expansion

The component business demonstrated strong performance, recording a 46% YoY growth in 9M FY25. The company has secured final production approval for 8 component parts for export markets, totaling 1 million units annually with a revenue realization potential of almost INR90 crores per year. These export orders are expected to significantly impact revenue from Q1 FY26. Additionally, Divgi Torq anticipates an additional INR7 crores per month from China Plus One sourcing initiatives, contributing to an overall export target of INR80-90 crores for FY26.

New Business Opportunities: Manual & Automatic Transmissions

Divgi Torq is actively pursuing new opportunities, including a takeover of 150,000 manual transmissions for a pickup truck application from a major Indian OEM, representing an opportunity well over INR200 crores to the top line. The company has also signed an MOU with a major Tier 1 transmission manufacturer for a feasibility study to produce over 100,000 automatic transmissions in India, with a final decision expected by mid-March. Furthermore, a feasibility study for an 8-speed dual-clutch automatic transmission with a prestigious European OEM is underway, with a decision expected by March end.

Strategic Partnerships & Industry Recognition

The company has strengthened its long-standing partnership with BorgWarner Drivetrain Systems Group through a new 7-year agreement for technical marketing and supply chain collaboration. This partnership enhances global supply chain opportunities and visibility. Divgi Torq also received significant industry recognition, winning the 'Toyota Supplier of the Year' award in September 2024 and the 'Proprietary Powertrain Commodity Supplier of the Year' award from Mahindra & Mahindra for the second time, reaffirming its product quality and execution competence.

Outlook & Growth Trajectory

Management views FY25 as an 'aberration' and expects a significant improvement starting April 2025, with a return to a 15-20% CAGR growth trajectory. They anticipate a slight improvement in transfer case volumes in Q4 FY25 and Q1 FY26, and EV transmission revenue streams are expected to start in June/July 2025, leading to a significant increase in FY26. The company is optimistic about domestic business, citing strong performance with Mahindra and Tata, and is actively exploring overseas opportunities, including a pipeline of RFQs exceeding INR600 crores.

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