JTEKT India — Q2 FY25 earnings call

Call held 27 Nov 2024

Management summary

JTEKT India reported a resilient H1 FY25 with 9% sales growth, despite a flat automotive sector. Q2 EBITDA margins recovered to 8.2% (9% adjusted for a one-time warranty provision). The company is aggressively expanding capacity for CEPS, manual gears, and CVJ, including a new INR2,500 million plant in Gujarat. Export initiatives are gaining traction with a significant order from Brazil, and localization efforts are improving profitability.

Highlights

  • JTEKT India achieved sales growth of 9% in H1 FY25, outperforming the passenger vehicle market growth of 2% during the same period.

  • EBITDA margins improved to 8.2% in Q2 FY25 from 6.8% in Q1 FY25, though still lower than 9.5% in the previous year.

  • A one-time warranty provision of INR50 million impacted Q2 FY25 profitability by 0.8%, with adjusted EBITDA margin at 9%.

  • The company announced a new manufacturing facility in Gujarat with a committed investment of INR2,500 million, expected to be completed by 2027-2028.

  • Localization efforts for the new CVJ product resulted in an INR375 per unit impact on profitability, accounting for 6-7% of the product's bill of material.

  • Total capital expenditure for FY25 is projected to be around INR250 crores or slightly more, with H1 FY25 capex at INR120 crores.

  • Capacity for CEPS is being expanded from 10 lakh to 15 lakh units, and manual gear capacity from 29 lakh to 36 lakh units.

  • An export order from Brazil is expected to increase export revenues by 2% of overall sales, with an initial value of INR50 crores and INR200 crores over its life, starting April 2026.

Key financials

5 periods

Headline

  • Sales Growth
    9%
  • EBITDA Margin (Last Year)
    9.5%
  • Warranty Provision
    50 Mn
  • Warranty Impact on Q2 EBITDA
    80%

Q1 FY25

  • EBITDA Margin
    6.8%

Q2 FY25

  • EBITDA Margin
    8.2%
  • Adjusted EBITDA Margin
    9%

H1 FY25

  • Employee Cost as % of Sales
    10.6%

FY20

  • Employee Cost as % of Sales
    13.4%

What they filed

Q1 FY27: revenue up 26.8%, net profit down 42.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue605 592 649 566 639 +6%680 +15%780 +20%718 +27%
EBITDA47 44 57 31 46 −2%52 +20%71 +26%38 +24%
Net profit19 16 25 11 18 −6%20 +25%27 +12%6 −43%
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

  • CEPS (Electric Power Steering)
    51% Revenue Contribution (H1 FY25)48% Revenue Contribution (FY24)
  • MS-Gear (Manual Steering Gear)
    24% Revenue Contribution (H1 FY25)23% Revenue Contribution (FY24)
  • HPS (Hydraulic Power Steering)
    7% Revenue Contribution (Current FY)8% Revenue Contribution (Last Year)
  • Exports
    3% Revenue Contribution (Current Period)4% Revenue Contribution (Last Year)

Guidance & targets

Capex

  • New Gujarat Facility Investment Capex · by 2027-2028 · High confidence INR2,500 million
    At this point of time, we have committed investment of INR2,500 million for this project. We will keep reporting to you about the progress of this project as we achieve various milestones.

    — Hitoshi Mogi, Chairman and Managing Director

  • Total Capital Expenditure Capex · FY25 · High confidence INR250 crores or slightly more
    So when we look at the current capacity expansion, the third CEPS line, which we are working will increase our capacity from 10 lakhs to 15 lakh units. And then the fifth manual gear line, which we are working at Dharuhera will increase our capacity from 24 lakhs to 29 lakhs. So that's a capacity expansion, which is going to happen, and this will happen sometime in April '25, July '25 period.

    — Rajiv Chanana, Director and Chief Financial Officer

  • Annual Maintenance Capex Capex · Annual · High confidence INR20 crores to INR30 crores
    It will be around INR20 crores to INR30 crores. That's a normal bench ballpark number.

    — Rajiv Chanana, Director and Chief Financial Officer

Capacity

  • CEPS Capacity Capacity · April '25, July '25 period · High confidence 15 lakh units

    From 10 lakh units today

    the third CEPS line, which we are working will increase our capacity from 10 lakhs to 15 lakh units.

    — Rajiv Chanana, Director and Chief Financial Officer

  • Manual Gear Capacity (Dharuhera) Capacity · April '25, July '25 period · High confidence 29 lakh units

    From 24 lakh units today

    the fifth manual gear line, which we are working at Dharuhera will increase our capacity from 24 lakhs to 29 lakhs.

    — Rajiv Chanana, Director and Chief Financial Officer

  • Overall Manual Gear Capacity Capacity · April '25, July '25 period · High confidence 36 lakh units

    From 29 lakh units today

    First will be the sixth manual gear line at our Dharuhera facility. And second will be one line at which will be the fourth manual gear line at our Chennai facility. So this will increase our overall capacity from 29 lakhs to 36 lakhs.

    — Rajiv Chanana, Director and Chief Financial Officer

  • CVJ Capacity Capacity · Near term · High confidence 8 lakh units

    From 3.7-4 lakh units today

    we're doubling our capacity from, say, around 3.7 lakh or 4 lakh to maybe double to about 8 lakh units.

    — Rajiv Chanana, Director and Chief Financial Officer

Export Revenue

  • Revenue Contribution from Brazil Order Export Revenue · Next year (post April 2026 start) · High confidence 2% of overall sales
    So expansion of exports, this particular order will increase our revenues from exports by 2% of the overall sales.

    — Rajiv Chanana, Director and Chief Financial Officer

Export Value

  • Brazil Order Initial Value Export Value · Initial phase · High confidence INR50 crores
    The initial value will be around, say, INR50 crores kind of a thing.

    — Rajiv Chanana, Director and Chief Financial Officer

  • Brazil Order Life Value Export Value · Over the life of the order · High confidence INR200 crores
    But over the life, we are expecting this will be around INR200 crores kind of an effort.

    — Rajiv Chanana, Director and Chief Financial Officer

Export Timeline

  • Start of Brazil Order Supply Export Timeline · April 2026 · High confidence April 2026 or 1-2 months here and there
    I think the April 2026 or maybe 1 or 2 months here and there, we'll start supplying this product to Brazil.

    — Rajiv Chanana, Director and Chief Financial Officer

Export Portfolio

  • Export Contribution to Top Line Export Portfolio · Aspirational · Low confidence 10%
    aspirations are okay, like I may aspire to have a 10% portfolio from export.

    — Rajiv Chanana, Director and Chief Financial Officer

Risks & concerns

  • Flat growth in the automotive sector due to unforeseen external events

    medium

    Events like elections, heatwaves, and heavy rains in May, June, and September adversely impacted momentum, leading to flat growth in the automotive sector.

    Management acknowledged

  • Warranty costs and product recalls

    medium

    A quality defect in manual steering gear for Alto K10 led to a recall of 2,555 vehicles and a one-time INR50 million warranty provision in Q2 FY25, though covered by insurance.

    Management acknowledged

  • Increased manufacturing costs due to inflation and new product tooling

    medium

    Manufacturing costs saw a slight increase due to inflationary impacts (power, state prices) and higher tooling costs associated with new product launches like CVJ. This is expected to normalize within a year post rationalization.

    Management acknowledged

  • Logistics and transportation costs for serving new regions

    low

    Supplying to the Western region from existing North/South facilities involves high logistics and transportation costs, which is a key driver for setting up the new Gujarat plant.

    Management acknowledged

Areas of evasion (2)

  • Specific future product pipeline from JTEKT Global to India
  • Exact legal structure for integrating bearing business into the new Gujarat plant

Q&A highlights

2 direct
Product mix and its impact on profitability, specifically comparing CEPS, MS-Gear, and HPS margins. Direct
So with this, I would like to close my comment is that the margins are not very, very different from product to product level because deciding factor, the RFQ and costing and other decision criteria are practically same.

Clarified that while product mix shifts exist (e.g., CEPS up, HPS down), the margin differences between core products are not significant enough to cause a big impact on overall profitability, as pricing is determined at a system level.

Asked by Praneet

The new Gujarat plant's product scope and potential integration with JTEKT Bearing India (JBIN), an unlisted group entity. Partial
We have not decided that. What will be the legal structure of that, we'll decide later, and we'll report maybe at the subsequent investor calls. At this point of time, the legal structure has not been decided.

Revealed that while the Gujarat plant aims to be a composite facility producing various products including potentially bearings, the specific legal and operational structure for integrating JBIN's business (e.g., hub bearings) is still under evaluation, indicating uncertainty.

Asked by Aman Agrawal

The Alto K10 steering malfunction recall, its financial impact, and the company's response. Direct
This exceptional provision of INR50 million towards warranty cost, this has impacted our quarter 2 financials by 0.8%. So if we remove this exceptional cost, EBITDA margin for quarter 2 actually improves from 8.2% to 9.1%.

Management directly addressed a significant quality issue, quantified its financial impact (INR50 million provision, 0.8% EBITDA hit), and explained that it was a one-time event covered by insurance, reassuring investors about its isolated nature and mitigation.

Asked by Tushar

3 min read 6 chapters

Detailed narrative

Q2 & H1 FY25 Financial Performance Overview

JTEKT India reported a 9% sales growth in H1 FY25, significantly outpacing the 2% growth in the passenger vehicle market. EBITDA margins for Q2 FY25 improved to 8.2% from 6.8% in Q1 FY25, although they were down from 9.5% in the previous year. A one-time warranty provision of INR50 million impacted Q2 profitability by 0.8%, with the adjusted EBITDA margin standing at 9%. Employee costs as a percentage of sales were 10.6% in H1 FY25, compared to 13.4% in FY20, indicating ongoing cost optimization efforts.

Strategic Capacity Expansion and Gujarat Plant

The company is undertaking significant capacity expansions, with total capital expenditure for FY25 projected at around INR250 crores. This includes increasing CEPS capacity from 10 lakh to 15 lakh units and manual gear capacity from 29 lakh to 36 lakh units, expected by April-July 2025. A new manufacturing facility in Gujarat is planned with a committed investment of INR2,500 million, targeting completion by 2027-2028. This plant will address the growing demand in the Western region and mitigate high logistics costs from existing North/South facilities.

Product Mix and Profitability Dynamics

The product mix in H1 FY25 saw CEPS contributing 51% of total revenue (up from 48% last year) and MS-Gear at 24% (up from 23%). HPS contribution decreased from 8% to 7%, and exports from 4% to 3%. Management clarified that while shifts occur, the profitability margins across core products like CEPS and MS-Gear are not significantly different, as pricing is often determined at a steering system level. The new CVJ product is expected to double capacity from 3.7-4 lakh to 8 lakh units, significantly improving content per car by 50% when combined with CEPS.

Export Growth and Localization Initiatives

JTEKT India secured its first export order from Brazil for a PSA product, which is expected to increase export revenues by 2% of overall sales. This order has an initial value of INR50 crores and a life value of INR200 crores, with supplies commencing in April 2026. Management noted that export profitability is significantly better than domestic sales. Localization efforts have been successful, reducing the total import content of material cost to about 10% and yielding an INR375 per unit profitability impact for the CVJ product, accounting for 6-7% of its bill of material.

Alto K10 Recall and Warranty Provision

The company addressed a quality defect in manual steering gear supplied for the Maruti Suzuki Alto K10, which led to a recall of 2,555 vehicles in August 2024. A one-time provision of INR50 million was made in Q2 FY25 to cover replacement costs, impacting the quarter's EBITDA by 0.8%. Management emphasized that this was an isolated incident, the first in many years, and the entire provision has been made, with an insurance claim lodged to recover costs.

Outlook and Future Growth Drivers

Despite a flat automotive sector in H1 FY25 due to external factors, management is bullish on a rebound in H2, citing a 30-35% increase in vehicle registrations in early October. The industry is projected to grow at a 4.5-6.5% CAGR from FY24 to FY29. JTEKT India plans to continue expanding its product line, potentially including driveline systems, and aims for an aspirational 10% export portfolio in the long term. Manufacturing rationalization and cost optimization are ongoing, with manufacturing costs expected to normalize within a year after the current one-time expenditures.

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