AUTOAXLES - Automotive Axles Ltd. Share Price

Management Outlook & Key Points:

• Market Conditions: M&HCV market expected to decline 5% in FY25 but rebound in Q4 (110k units, similar to FY24). FY26 projected to remain flat. Long-term (2029"“30) growth anticipated (~500k units) driven by infrastructure and fleet efficiency.

• Growth Strategy: Target to double revenue by FY30 via:

  • New Products: MS 185 axle (launched), MS 177 (bus axles), and heavy-duty axles (MT 160, MS 610) for higher value. Trials for 9/13.5/15-meter bus axles to start in 2025.
  • Export Expansion: Focus on Europe/N. America; current exports ~INR 200cr.
  • Aftermarket Growth: Targeting independent channels (non-OEM) for higher margins.

• Margins: Aim to sustain/improve EBITDA (~12% in Q3) via Mission 25 cost optimization, automation, and lean manufacturing. Potential upside to 13"“13.5% with volume recovery.

• Operational Updates:

  • Hosur plant closure (warehouse shift) has no financial impact.
  • Capex of INR 200"“300cr planned for modernization (3"“5 years). Current capacity utilization ~65"“70%.

• Risks: Soft global markets (Europe/N. America), vertical integration by competitors (e.g., Tata). Limited near-term impact from EVs (focus remains on ICE/transitional tech).

• Bus Segment: New axle launches target 60k-unit market; defense/off-highway segments under review but deemed niche.

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Question 1: "What was the rationale behind the closure of the Hosur plant, and how does it impact operations?"
Answer: The Hosur unit closure was part of footprint optimization. The plant primarily functioned as a warehouse with minor assembly operations. Moving closer to customers improved logistics efficiency. Revenue from Hosur operations (INR 458 crores) continues unaffected, as the closure involved transitioning to a leased warehouse in the same region.

Question 2: "What is Automotive Axles' revenue doubling strategy by FY29/30, and what are the growth drivers?"
Answer: The company targets doubling revenue via: (1) higher-value products (e.g., MS 185, MT 160 axles), (2) export expansion, (3) aftermarket growth, and (4) market share gains in buses. Margins will improve through cost optimization (Mission 25 initiatives) and modernization (INR 200"“300 crore capex). The M&HCV market is projected to grow to 500,000 units by 2030, with EV opportunities in buses.

Question 3: "How is Automotive Axles addressing the threat from Bharat Forge's acquisition of American Axle?"
Answer: Management sees limited overlap, as American Axle focuses on LCVs and DICV partnerships, while Automotive Axles dominates M&HCV axles (Ashok Leyland, Daimler). The acquisition is unlikely to disrupt their market share due to differentiated product portfolios.

Question 4: "What is the outlook for the M&HCV and bus segments in FY26?"
Answer: M&HCV volumes are expected to remain flat in FY26 (400,000 units). The bus segment (60,000 units annually) will benefit from replacements in state transport fleets. Automotive Axles plans to launch MS 177 axles for 13.5/15-meter buses in Q1 FY26.

Question 5: "Why was the 9-meter bus axle launch delayed, and when will it commence?"
Answer: Delays stem from extended validation for noise compliance. Trials with OEMs begin by May 2025, with series production starting by late 2025/early 2026. The product will compete with a single incumbent supplier.

Question 6: "What is the current capacity utilization, and how will capex support growth?"
Answer: Utilization is ~65"“68%. A INR 300 crore capex (FY25"“27) focuses on automation, quality upgrades, and capacity expansion to meet domestic and export demand. Margins are expected to sustain at 12"“13%, with potential upside from operational efficiency.

Question 7: "How does Automotive Axles plan to reduce customer concentration risk (Ashok Leyland at ~50% revenue)?"
Answer: Diversification efforts include expanding exports, aftermarket sales, and new OEM partnerships (e.g., Mahindra, Daimler). Brake supplies to Tata Motors (44% market share) and EV axle development for new entrants will reduce reliance on Ashok Leyland.

Question 8: "What is the impact of the rejected related-party transaction with Meritor HVS?"
Answer: The transaction (INR 700 crore sales to Meritor HVS) rejection requires renegotiating terms. Management is working on revised agreements by March 2025, ensuring continuity without material disruption.

Question 9: "How are exports and aftermarkets contributing to growth?"
Answer: Exports (~INR 200 crore/year) target Cummins' global drivetrain plants and European/North American markets. Aftermarket growth focuses on independent channels (non-OEM parts). Both segments are critical for long-term diversification.

Question 10: "What is the eAxle strategy, and why is progress slow?"
Answer: eAxles are not prioritized due to low domestic EV bus volumes (~3,000"“4,000 units). Global EV slowdowns further delay investments. Current focus remains on mechanical axles, with eAxle development deferred until demand scales.