Studds Accessories Q1 FY27 earnings call

Studds Accessories Limited delivered a healthy 13.7% year-on-year growth in revenue, reaching INR 169.7 crores in Q1 FY27. The company's two-wheeler helmet and boxes volume stood at 1.95 million units, with a capacity utilization of 81%. However, profitability was significantly impacted, with EBITDA at INR 19.6 crores (11.5% margin) and PAT at INR 12.3 crores (7.2% margin).

The quarter was severely impacted by a sharp increase in styrene-based raw material prices, which surged by approximately 65% from INR 135 at the beginning of Q4 FY26 to a peak of INR 225 in Q1 FY27. The company implemented necessary price increases, achieving an effective realization of 5% in Q1. Management expects raw material prices to moderate from July onwards, with a 300 bps impact in Q2 FY27, and aims for full price pass-through to reflect 8-9% realization in Q2 and 9% in Q3.

Beyond raw material costs, 'other expenses' saw a 200 bps increase primarily due to a 35% hike in minimum wages in Haryana, effective April 1st. This increase, from INR 11,000-12,000 to INR 15,000-16,000 for unskilled labor, is expected to sustain and will be offset by better product mix or further price increases.

The first phase of 1.5 million helmets of additional annual capacity is progressing as planned and is expected to become operational by October/September 2026. This expansion is crucial as existing facilities are operating at a high utilization level of 81% (1.95 million units in Q1 FY27). The additional capacity will provide headroom for incremental demand and enhance manufacturing flexibility.

The company's engagement with Decathlon is progressing well, with commercial production anticipated to commence in October 2026. Italian operations are also expected to be fully functional by October 2026, serving as a platform for European growth and enabling a more responsive, just-in-time supply model. These initiatives are part of a broader strategy to increase export contribution, currently at 21% of sales, to closer to 30%, which is expected to improve PAT margins by 200-300 bps.

Studds continues to focus on product innovation, launching two new helmet models (Ares and Raider Youth) in Q1 FY27. The company is also developing Bluetooth communication systems, with commercial production for the advanced mesh system expected in Q3 FY27. Riding jackets are also progressing well and are expected to be commercially available around Q2 FY27, with new product categories expected to contribute INR 15-20 crores in FY27.

Management anticipates EBITDA margins to improve to 14-15% in Q2 FY27 and reach the normal run-rate of 18-20% by Q4 FY27, assuming raw material prices remain stable. While the 9% price hike from FY26 base is being implemented, full margin recovery to the previous 13% PAT level requires styrene prices to return to FY26 levels (INR 135), as current prices (INR 185 weighted average) still result in a PAT of 11.5-12%.

The total capex till June 30, 2026, was INR 76 crores, with INR 7.5 crores spent in Q1 FY27. The FY27 capex budget is INR 58 crores, primarily for new facility expansion. For FY28, the company plans a capex of INR 31 crores, which includes the second phase of construction.