SKP Bearing Industries Limited (SKP) Earnings Call Transcript

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to the H1 FY '26 Post Earnings Conference Call of SKP Bearing Industries Limited. Today on the call, from the management team we have with us Mr. Shrinand Palshikar, Chairman & Managing Director; Ms. Sangita Palshikar, part of the Promoter Group; and Ms. Shripada Patil, part of the Finance team. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to run us through the investor presentation key slides, highlighting the business and performance highlights for the period ended September 2025, the growth plan and vision for the coming year, post which we will open the floor for Q&A. Over to the management team.

Okay. A very good morning to everyone present here. Thank you for joining us for the earnings call of quarter 2 and half year presentation. I would like to go through our financial highlights. Next slide, please. Some of the key highlights of quarter 2, as we can see, the numbers are improving from quarter 1 to quarter 2. Quarter 2, we have revenue from operations as INR 150 million. EBITDA margin has increased to 40.9%, and earnings is INR 61 million. Also, profit before tax and profit after tax margins are as shown in the slides. Even for the consolidated, we are seeing a similar trend, which is on the improving side compared to quarter 1 to quarter 2. In front of you is the income statement for quarter 2 and H1 standalone. As we can see, overall there is an improvement in the revenue from operations. Quarter 1 was INR 13.6 million (sic) [ INR 136 million ], now it is INR 150 million. Profit before tax was INR 41 million (sic) [ INR 33.5 million ], now INR 69 million (sic) [ INR 62 million ]. And similar, PAT is, compared to last quarter, which was INR 25.5 million, this time it is INR 45.5 million. In the half yearly, if we compare, similar, for the consolidated, similar trend. Next slide, please. Our capacity utilization, as we know that ball plant has commenced, so the capacities are as shown in this slide. Our geographical breakup for domestic and export sales as compared to last year and this year. Some of the key highlights. In the past quarter, as mentioned earlier as well in the calls, France business integration and turnaround is ongoing. We are ramping up with production and customers. Also, for Plant 3 has now started, so there again, the utilization has started. Also, some debottlenecking operations which were there, that capacities have been increased. And on the France side, we are improving the margin and sustainability. And PM-KUSUM scheme has now started generating a substantial portion of the revenue. Next, please. A brief on the about us for the new investors here. So we are manufacturers of rolling elements, primarily needle, cylindrical, steel ball, and special chemistry balls. Next, please. A small journey. We started in the year 1991, which we started with needles, then we expanded into cylindrical, steel balls, and renewable energy sector. And in 2024, we acquired a French company, Valette & Gaurand Industries, which expanded our portfolio to overseas as well. Next, please. Our Board of Directors remains the same. Next. Our manufacturing facility. As you can see, this is the latest photo of Plant 3. Yes. Next, please. Our product range. For those new over here, needle rollers are parts which go into needle bearings, single row, double row, and caged needle complements as well. Next, please. Cylindrical rollers are rollers which are going into cylindrical roller bearings. Next. Precision pins. Precision pins is a wide variety. They go into not just automotive, but other applications as well, gearboxes, industrial machineries, and many more. Next, please. Balls. We are making balls from 4 mm to 22.25 mm. Balls, again, find their application in variety of industries. So besides the automotive, we go into accelerator, water pumps, steering, brakes, as well as the French portfolio, which considers (sic) [ consists ] of satellites, glass balls, plastic coated. These find their applications in pharmaceutical as well as cosmetic and many other industries. Next, please. Our French plant and its range. Our strategy, so basically -- please go ahead. Next slide, please. Yes. So these are some of our key strengths which we have told time and again in the calls, but we are just repeating once again over here. So we are one of the only manufacturers with such a wide range of products under one manufacturing roof. Also, we are having manufacturing facilities in two continents, in two different countries, which we pitch ourselves as a stable global supplier for a global customer. Next, please. Some of the industry overview. Next, please. Our Green Energy segment, windmills and solars. Way Forward. So the way forward from now, Zamar plant has already commenced its operation in March. So now we are expecting to increase the utilization in the coming quarters. Also, the France subsidiary has completed its one year of operations, and now we are seeing improvement in margin and revenue. Capacity expansion at existing roller plant is being started. Because the ball plant has shifted, so now we have space for capacity expansion. [Audio Gap] vision. Also global exports. So France and Indian synergy, we are leveraging that in the coming years. Next, please. Some of our certifications. Thank you. With this, I would like to transfer the dais to Mr. Palshikar, our MD, to give his insights. Over to you, sir.

Good morning, everyone. Thank you for joining early time in the morning, because it's very tough to join so early in the morning, because people are busy traveling and it's a lot of pressure, end of the week, last day of working of many of people. So thank you for joining. I would like to give certain futuristic approach, and you must have seen the figures are now improving. Our strategy of acquiring French plant, integrating both the facilities, providing solutions to the customers, which is having multiple site, so a global supplier to global customers, now is bringing fruits. Over a period of time, we have even more good potentials and volumes for the exports. New customers will be -- we are very confident that they will be coming to our portfolio. Also, our French operations are now slowly taking a shape. It's getting better and better. Of course, we are facing global challenges. It's not that easy. A lot of challenges has been in past six months or so, where it's all global challenges. So we are facing these all global challenges with a very positive side. All customers where we have approached, where we have proposed the solutions, slowly they are bringing -- they're coming back and putting faith in SKP. They have seen we have delivered in last 1.5 year -- almost 1.5 year. And we see a very positive side of SKP. Again, we are doing expansion now in the roller segment. We have very good growth potential and we are doubling all capacities, and this all process is on currently. Ball facilities are now already fully operational. All customer approvals and sample submissions, this process is on. It's complex process. Of course, it takes time, because it's a pure engineering solution, and customers need to do a validation, do audit, testing, like that. So this process is on. So we are very confident that over a period of time, the ball utilization also will be at very good level and the roller utilization will be at also very good level in time to come. So this is our future plan. I think now we can…

We'll now open the floor for question-and-answers. [Operator Instructions]. Yes, Mr. Rajesh, or is it Mr. Varun?

Yes, Varun. Thank you for this call and, I must say, an encouraging set of numbers. I have two questions. One is on the French entity, and the second question is from the guidance aspect. So the first question on French entity, sir, is, from the numbers point of view that if we subtract the standalone numbers from the consolidated numbers, I presume this would be the revenue coming in from the French entity. So the current quarter looks like we have INR 2 crores of top line from the French entity vis-a-vis INR 8 crores in the previous quarter. So sir, would like to have your views as to the reason for this fluctuation. That is one. Sir, second question on the guidance would be, previously, we've mentioned an aspiration of INR 100 crore top line in the current year. With the first half, we are at roughly INR 40 crore. So are we still on the course to meet that aspiration? And sir, a bit more from a longer term perspective. Does the company have an aspirational revenue projection, target, 4, 5 years down the line, or right now it is too early to ask about that question? These two things, sir.

Thank you. Good questions, because these are the questions which will be there in almost 80% of investors. So I will answer point by point. First, your question was the fluctuation of revenue compared in between quarter 1 and quarter 2 of French entity. So the question is, if you do a subtraction, you will have the revenue of around INR 2 crores or something like that from French entity. That's correct. There are two reasons. One reason is fluctuations in French customers' orders because of various global situations. This is a one major reason. Because some of our customers are also facing the same problem of tariff, which our European customers are supplying to U.S., and they are facing huge fluctuations. The customers were not very confident. So this was a situation in Q2 everywhere. This was one of the main reasons. So we have customer demands fluctuating between quarter to quarter, number one. Number two, we have a big holiday. If everybody is aware that Europe, you would have a holiday in month of July, August. So we were something like 4 weeks of holidays, something like that. So we have a drop in demand, number one. And number two, we have holidays. So actual operations are very less in this particular period. So these two are the reasons which are basic contributing towards drop in the revenue from quarter-to-quarter basis, because you are doing a quarter-to-quarter comparison. Second, your question is about targets, the yearly targets. Again, this is also a very important milestone. Our target was something which we already explained in our previous analyst calls also that we are targeting for migrating to the main mode. This was our target. Yes, to be very practical, looking at the number, we have a big now target. If you have to achieve that particular target of INR 100 crore for this particular financial year, we have balance 6 months, so we need to achieve a very big target. This target is not easy. Already our team is working how to achieve this particular target. The target remains the same, but a practical approach will be, if we do a INR 40 crore in first 6 months, we will do a much better in second half. That's what I can say. Because now we have all -- holiday season over in India, in France. We will have some little holiday in France end of the year, but that is a very short period usually. And we have a very good visibility of orders of future for France. Also for India, a very good visibility. So we have a good booking. There's no problem for anything for that. So our team focus is to produce and supply in time and meet customers' requirement. This is what is our focus, and the results should be very promising. That's what we're targeting. I hope I've answered all of your three questions.

Yes. Thank you so much, and wishing you all the best, sir.

[Operator Instructions] Yes, Jaideep.

Jaideep Merchant here. Sir, my question was related to the QC order, which has got delayed now, the implementation of which. Can you let us know the long-term impact of this order implementation and how the larger bearing companies are preparing for this and the impact on our business?

First thing, at SKP, we do not feel any impact because of the competition. That's number one. What we believe in, deliverance to customers. So customer has to come back. He has to give us a target, which we have to meet. So we are not afraid of competition, number one. What is most important is the productivity level, quality levels. These are the requirements. Customers know the quality control order has been delayed, because there has been a lot of resistance from major clients, importers, everybody to bearing in its commodity. Bearing quality control order more or less has been cleared, but a component quality control order still being not cleared, there is another new hurdle which is now coming. So okay, the ministries are working, the associations are working, both the sides. So we are not afraid of the competition. That's number one. Even if it is a Chinese competition, we are not afraid. We have to see that we have to deliver a quality product at value for money at customers' requirement. This is our focus. So we are not afraid of competition. We give solutions to our customers which are long-term and sustainable. So this is our focus. There is a process of implementation. So even with the OEMs where we are approached for a roller, there is no problem. For ball, we have a huge gap to meet. So there, we are working very hard to meet all the requirements of customers in shortest possible period of time, so that we have all approvals from major customers and the utilizations will reach to the required levels very soon. So this is our focus. But quality control order, when it is implemented, it will be a boon for all Indian manufacturers, because the size of the industry for bearing and components as on date is more than INR 10,000 crores. So this particular volume, even if it is shifted 50% to Indian manufacturers, Indian manufacturers are immensely going to be benefited. And it is going to be good for all major customers -- major manufacturers, midsize manufacturers, and small size manufacturers.

[Operator Instructions] We'll take the next question from Shubham Upadhyay.

So I wanted to know, what is exactly the utilization level for H1 FY '26 for roller plant and ball plant, because I don't see it in the presentation?

Only one question Shubham?

Yes. Then I have a follow-up question. So like you have been talking about the world challenges, especially regarding your French plant also faced some challenges due to geopolitical situation. But I think there is an already established free trade agreement between U.S. and EU. So do we see those challenges persisting, or do we see it subsiding over the next few quarters?

Okay. So your first question was related to -- can you just repeat the first question?

Utilization levels for H1 FY '26?

Okay. For the roller plant, already we are at a very good level close to 90 plus level. Ball plant utilization, we are at a very low level, because our capacity earlier was low. We have now expanded to 200 tons per month. The order cycle, it is increasing -- the trend is increasing, of course, but the trend compared with the previous capacity and the current capacity, it is not in line. So we are focusing on very high volumes in the time to come, because we have established the capacity something like 200 tons per month. Currently, we maybe have operating around 40, 50 tons per month. So this is what is currently operating level, and we have to reach 200 tons per month. This is the gap. So we have a huge opportunity for ball plant. Roller, we are already at the highest levels. We are expanding our capacities to twice. So this is what is our focus. Whatever we are doing currently around 100 tons, so we are expanding to 200 tons. In principle, if you take for both the plants together, we will be from 125 tons to 130 tons 2 years back to 400 tons in next 1 year to 2 year period. Regarding French entity, geopolitical situation, yes, everybody was very afraid, all our customers, end customers. Not our direct customers, but the end customers also had this particular volume forecast decreased. So they were also playing very cautiously. But now we have very clear vision for the balance of '25, the volumes, and '26. So we have very good visibility for '26 now on our customers, which we are focusing now, slowly are coming back.

Okay. That helps. And final question, regarding your Phase 2, which we have mentioned for the ball plant, like up to 4,800 ton per annum, like what is the timeline for this, if you can...

The process is customer approvals. Customer approvals is the process. So we are in that particular phase. The plant is fully operational. Now it's a question of customer audits, then customer visits, the samples approval. This is all. And the customer also will not give 100% volume on day 1. They also will do a testing on some particular SOB levels, but we are targeting larger level of customers. So this is a -- process is on. Process is on.

[Operator Instructions] We'll take the next question from Anubhav Jain.

Sir, my question is that we have some initial glimpses of improvement in your consolidated as well as standalone. How do you see this playing out for the remaining part of the year?

I'm very positive. Very, very positive.

Yes, I have some follow-up questions. So where are we on the overall reduction on employee cost in the international subsidiary? And how will the margin profile change?

See, margin profile, again, is a resultant of your sales and the cost. There are certain sales part which, when we are talking to the customers, we have to meet their expectations. Now what is left with us is the cost part. So we have to be very cost effective and give the solution. So the resultant remains the same. So people who are with us since a very long period and those who have seen us, this question was there since last more than 2.5 years when we got listed. So everybody asked always the questions, your margins are unimaginable type. Do you have the long-term sustenance for this type of margins? Now it's third year we are now into. The margins, people who have studied, who have analyzed, you must have seen the margins are quite sustained. Yes, there will be a few percentage point fluctuations here or there. But yes, over a period of time, we have performed.

Yes, sir. So my last question is that are we working on the strategy to reduce the cost by offshoring to India?

See, we are already at the highest level of the costing structures. Of course, there are other measures also which are available. It is like when the right time comes, we implement those particular measures. So you have to have the stability of some particular model, and then when the stability is achieved, so then we do implementation. So we have very proper planned activities for all these models to implement, so we do a cost optimization.

We'll take the next question from Ashish Kumar.

Yes, sir. So my question is that in Q1 con call, you had indicated that the margin is sustainable at 40% in stand-alone business, which we have seen in Q2. Consolidated EBITDA margin is at 25.4%. So where do you see consolidated EBITDA margins with gradual improvement in international subsidiary?

See, international subsidiary, our focus is the revenue. It's the top line. So yes, the cost structure over there is more or less fixed, number one. Number two, the cost structure will reduce because of retirement or because of optimization of the resources which are available. So now our focus for the French entity is very simple, top line. That's it. You achieve hit, hit, hit, the new targets, new customers. And we're constantly focused on this particular line. We are contacting all our old customers. Those who are new, I would like to update you. This particular entity in 2010 was operating around EUR 16 million, this was operating. Over a period of time, this got reduced to a level of around EUR 8 million before we took over. When we took over customer approvals, many, many complex procedures has taken a hit, we went down. Now we are coming up. Our target is to reach to the old levels in period to come. This is our target. We have to win back the customers with all the solutions. We are very flexible. We are dedicated. We have all new technologies to be implemented and to offer to our customers. And customers have liked it. I will not say that -- the customers have liked it, they have put faith in us. We are coming back with higher volumes, even higher volumes. The old customers are coming back with higher volumes for '26. We have much better visibility for '26.

That's good to hear, sir. So my other question is that with the new expansion in roller bearings, how do you see this utilization level changing?

Sorry, can you repeat?

With the new capacity expansion in roller bearings, so how do you see this utilization level changing?

We have a good visibility. That is why we are expanding. So it's not like we have a customer order and then we do expansions. So first, we do the expansions. And then we offer our capacities to our existing customers, new customers, and these are pure engineering products. So these have got a lot of quality requirements. These have got warranty requirements also, performance requirements also, but these are engineered and manufactured products. So the process is on. It's never a traded product. So it's not like x+x=2x. It's not like that. So it's always a slow and steady growth. The customers we win back, we never lose. This is a very simple theory. The customer who comes back will always have increased faith and increased turnover on size of the business. So it's long term, it's not short term.

Okay. So for all you said, so if you can tell me what is your revenue guidance target in stand-alone and on a consolidated basis for this year and also for like next 3 years?

See, I always believe in working, means producing results by means of customer confidence and revenues. The figures automatically will get generated, because when you have customer confidence, you have the business, automatically, the top line and the bottom line will increase. I cannot give any figures because I always say it's not okay to disclose figures or anything, but our future levels are very bright and very optimistic.

[Operator Instructions] We'll take the next question from Majid Ahmed.

Good set of numbers. Sir, I just want to understand, especially from the working capital and cash flow point of view, I'm seeing that in terms of -- even though you're able to improve your margins to 25% in EBITDA, but I'm seeing your working capital is quite stretched, leading to higher working capital debt. How are you going to manage sustaining your margins and improving your working capital together?

Working capital means? What do you mean by -- the amount, or what do you mean by it?

The working capital days. The working capital overall days, I'm talking about.

Those who know us, see, we do a lot of products. We have our own processing. We have our own product we develop. So because of that, our inventory levels are higher. And because of those, our margins are very sustainable. So we do a lot of product engineering by ourselves. So because of that, our inventory levels are on higher side. We develop products. We provide solutions to the customers, which the other manufacturers, other competitors do an import solution like that, we develop ourselves, and we provide equivalent solutions. So there are 2 different strategies, which are present, one import work, we believe in develop and offer. So this is why we have better margins. That is why we have a better operational excellence, but we have little higher inventory levels. Of course, my team works always on optimization of inventory levels, but then yes, this is more or less little on higher side.

So going forward, this will maintain in the coming years?

There will be some fluctuation, but it will be more or less same.

Got it, sir. Sir, like apart from that, so to sustain margins, what type of -- like any raw materials or anything which affects your gross margins? Because I see your gross margins on a H1 to H2 basis. So last H1 FY '25, it's around 78% of gross margin. And this time if I see, it's around 66%. So this quarter, you have made 25%. But on H1 FY '26, it is slightly moderated. Due to some operational efficiency, your EBITDA was improved. So I just want to understand that part.

Yes. So there are some fluctuations on -- because you cannot have a one-to-one relationship. But if you take our overall bottom line or overall top line, overall, so you will see a very, very moderate level. There will be some fluctuations, but it will be always in the same range.