ZF Commercial Vehicle Control Systems India Q2 FY25 earnings call

Despite an 11.5% decline in product sales, ZF Commercial achieved a record EBITDA margin of 22.7%, up from 19.0% YoY. This was driven by a strategic decision to exit 'bleeder' products like air tanks and hoses where customers refused to compensate for costs. Favorable foreign exchange also contributed, though management noted that even without forex, margins would have been near 16.9%, showcasing strong operational efficiency.

The company announced a major entry into the LCV segment, leveraging its heavy-duty expertise for products like hydraulic ABS and vacuum boosters. Management estimates this segment represents a €90 million annual revenue opportunity by 2030. This move is intended to diversify the revenue base and mitigate the impact of cyclicality in the Medium & Heavy Commercial Vehicle (M&HCV) market.

Export dynamics are shifting from a single-customer focus (Volvo) to a broader base including DAF and Daimler. Compressor supply to Volvo stabilized at 100,000 units (down from 180,000), but is being offset by new high-end twin-cylinder compressor orders for Daimler and DAF. Actuator volumes are also strengthening, leading to the addition of a new production line at the Oragadam site.

Electronic Stability Control (ESC) penetration is expected to rise as government mandates for buses expand in September 2025. While currently selling about 1,000 ESC systems (25% applicability), management sees the potential for this to triple or quadruple. Advanced Driver Assistance Systems (ADAS) and Advanced Emergency Braking (AEBS) are projected to become the next major regulatory drivers by 2026-2027.

Export of services grew 25% to ₹116 crores, reflecting India's growing role as a global R&D hub for the ZF Group. The company now employs approximately 1,200 R&D colleagues in India. This high-margin service income provides a steady cushion against the more volatile domestic OE sales environment.