Divgi Torq

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.

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).

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.

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.

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.

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.