CARRARO - CARRARO INDIA LIMITED Share Price

Management Outlook:
Carraro India's management projects steady growth driven by technological advancements, localization, and market expansion. They aim to achieve a 15% EBITDA margin within three years, supported by increased localization (currently 76%, targeting 86"“88%), R&D-driven product innovation (e.g., Teleboom Handlers, electric tractors), and engineering services. The domestic market is expected to grow structurally, while export recovery is anticipated in 4"“6 months.

Major Points:

1. Financial Performance:

   • Q3 FY25 revenue rose 3% YoY to Rs.4,528M, but EBITDA margin fell to 8.1% (vs. 10% for 9M FY25) due to weak exports, product mix, and supplier rebates.
   • Target: Double-digit EBITDA for FY25, with Q4 improvement expected.

2. Growth Drivers:

   • Teleboom Handlers: Pilot dispatches underway; projected to generate €30M revenue in 3 years.
   • Engineering Services: New revenue stream (e.g., electrification projects) with high margins.
   • Localization: Increased to 76%, reducing costs and enhancing margins.

3. Market Expansion:

   • Domestic Focus: Strong relationships with OEMs (Mahindra, Sonalika); infrastructure push post-elections to boost construction demand.
   • Exports: Softness in EU/US markets cyclical; recovery expected in H2 2025. Indirect exports (15% of domestic sales) to benefit from Euro norms compliance by 2026.

4. R&D & Technology:

   • In-house R&D enables customization and rapid product development (e.g., electric tractors).
   • Positioned as a technology partner for OEMs, driving long-term customer retention.

5. Long-Term Vision:

   • Revenue target of €350M in 5 years (FY30), with FY26 guidance of €215"“220M.
   • Margin improvement via high-tech products (e.g., 4WD axles) and operational efficiency.

Challenges:

• Short-term margin volatility due to product mix and export cyclicality.
• Execution risks in scaling new segments (Teleboom, engineering services).

Management emphasizes patience, underscoring a stable industry position and commitment to long-term value.

Question 1:
"My first question was around the margin sequential movement. So, your EBITDA margin has declined by more than 250 basis points quarter-on-quarter. Can you just take us through the margin walk of what has happened during the third quarter over second quarter? And also, within those, what are the one-time impact which you see reversing in the fourth quarter?"
Answer Summary:
The EBITDA margin decline was attributed to lower high-margin gears and spare parts revenue (contributing ~0.5% drop), reduced supplier rebates (linked to lower annual purchase volumes), and no engineering services revenue in Q3 (previously ~0.5% in Q2). Management expects Q4 margins to improve slightly but cautioned against expecting a "dramatic" rebound, aiming for full-year EBITDA margins in double digits (10%+).

Question 2:
"If you could give us some perspective of how you see export market opportunity for you as a company over the next few years... Secondly, also on margins of export business, how competitive they are versus the domestic market and some color on the indirect export opportunity."
Answer Summary:
Exports (35% of revenue) face cyclical challenges in mature markets (Europe/US) but are expected to recover as global demand improves. Margins for exports align with domestic sales under transfer pricing rules. Indirect exports (15% of domestic revenue) will grow with Indian OEMs accessing Euro-compliant markets post-2026. Carraro India is the global hub for agriculture transmissions, positioning it for long-term export growth.

Question 3:
"On the engineering services... would there have been certain costs in this quarter related to that as well, which would have impacted?"
Answer Summary:
Engineering services (a new high-margin revenue stream) contributed to Q2 margins but had no revenue in Q3. Prototype-related costs for projects like electrification were not a factor. The R&D center, now fully under Carraro India, monetizes expertise via OEM contracts (e.g., electric tractor solutions), with future revenue expected but not quantifiable yet.

Question 4:
"Your others' revenue is down 18%. So firstly, what led to this sharp decline...? What exactly was the reason for this?"
Answer Summary:
The "others" category (gears, spare parts) declined due to weak indirect export demand for gears, driven by cyclical market softness, not company-specific issues. Gears' lower volume reduced Q3 margins by ~0.3%. Management anticipates gradual recovery in gears/spares volume in Q4 and FY26, aided by stabilizing global markets and domestic infrastructure push.

Question 5:
"What exactly is your guidance for near term, maybe FY26 and then for 3 years, 5 years...?"
Answer Summary:
FY25 revenue is projected near Rs.1,950-2,000 crore (~€195-200 million), with FY26 guidance of ~Rs.2,200 crore (€215-220 million). A 5-year target of €350 million revenue is set, driven by Teleboom handlers (€30 million potential), domestic infrastructure growth, and export recovery. EBITDA margins aim for 10% in FY25, scaling to 15% in 3-5 years via localization (76%→88%) and high-tech product mix.