Sharda Motor

Sharda Motor reported Q2 FY25 revenue of INR711 crores, a 7% decline year-on-year, primarily influenced by softer demand in certain vehicle segments. Despite this, gross profit grew by 8% to INR188 crores, and EBITDA increased by 6% to INR105 crores. The EBITDA margin expanded significantly by 178 basis points, reaching 14.8% from 13% in Q2 FY24. Consolidated PAT for the quarter remained stable at INR79 crores. For the first half of FY25, revenue saw a marginal 1% decline to INR1,397 crores, but EBITDA demonstrated strong growth of 20% to INR201 crores, with the EBITDA margin improving by 258 basis points to 14.4%.

The Indian automobile industry experienced a 9% year-on-year volume growth in Q2 FY25, driven by strong performance in the 2-wheeler (13.1% growth) and 3-wheeler (4.7% growth) segments. Conversely, passenger vehicle sales saw a slight decline of 0.6%, though utility vehicles grew 12.3%. The commercial vehicle segment declined by 9.2% YoY, primarily due to monsoon delays and reduced government infrastructure spending. Tractor sales, however, grew by 3.4% to 1.3 lakh units, with expectations for strong growth in FY25 driven by favorable monsoons and rural development.

A major highlight was the announcement of a new export order for emission components to the U.S. market. This order is for commercial vehicles and involves advanced emission systems, specifically modules. The annual business is estimated at approximately $7 million, with a lifetime value exceeding $40 million. The Start of Production (SOP) for this order is slated for January 2026, with a ramp-up of $5 million to $7 million in the first year. This marks a significant achievement for the company, opening new avenues in the global market and building confidence for future cross-selling opportunities.

Sharda Motor is actively building its suspension business, focusing on control arms and axle assemblies as part of a broader light-weighting vertical. A new plant dedicated to this segment is expected to commence operations by mid-December or early January in Q4 FY25, with an allocated capex of INR50 crores. This plant will have a capacity of 280,000 controls on site and is designed to cater to both EV and ICE platforms. The company aims to be selective in this vertical, targeting areas with high Return on Equity (ROE) and significant technological barriers.

The company is entering the construction equipment market in India, driven by new emission norms effective from January 2025. While volumes in this segment are currently low, Sharda Motor is focusing on developing customer relations and adjacencies, particularly temperature control tubes, which are high-value products. Initial revenues are expected next year, with mature volumes anticipated towards June 2025. Management noted that the company is fully prepared for the upcoming TREM 5 norms, and any potential delays would be due to government regulations rather than internal readiness.

Sharda Motor continues to maintain a healthy liquidity position with over INR782 crores in cash and cash equivalents as of September 30, 2024. The management reiterated its commitment to value-accretive M&A, with a dedicated team focusing on powertrain agnostic products. Capital is also being allocated to build the light-weighting vertical, with INR50 crores already invested in the new suspension plant. The company also highlighted its established dividend policy and recent share buyback as part of its strategy to efficiently utilize surplus cash and enhance shareholder returns.