Key takeaways of the call

Consolidated sale in Q2FY18 was higher by Rs 47.3 crore and EBITDA was up by about Rs 10.4 crore. Considering higher sales, the EBITDA should have been higher by atleast Rs 20 crore but the company ended with Rs Rs 44.8 crore instead of Rs 51.4 crore. The lower than expected EBITDA was largely due to higher material cost due to mix variation especially India, Italy and US markets. Further the manpower cost was also higher as there industry salary level has gone up and the company was forced to match up.

There was a slowdown in domestic demand in initial part of Q2FY18 due to uncertainties post introduction of the GST. The situation improved progressively in the later part of the quarter. At Indian market all verticals have done well for the company but scope for more growth is still there.

Performance in most of the markets outside India met the expectations. Growth witnessed in US and European geography was pretty good in Q2FY18 and that is even better than Indian market. US geography has registered a growth of 12-13% and Europe has grown by 25%. The absolute growth is expected to sustain going forward in next 2 quarters.

GOI mandated BIS for all motors effective Oct 1, 2017 but the deadline was extended by a notification on Sep 29, 2017. Since the vendors of the company are not BIS certified and as they gear up for that, the company was strategically to over buy stocks to maintain its operations. Moreover there was significant uptick in market and to meet the increased demand the company strategically kept additional inventory leading to higher inventory.

Growth in railways is consistent with budgeting and purchase of the government. In Water-well segment the company is focusing on some strategic initiatives that could not be revealed now.

PCG global strategy project completed.

In railways compressor is used for braking application so the demand is neutral whether it is electric locomotive or diesel locomotive.

There are signs of reactivation of large projects but that is not going to happen soon. Cement players have started talking about newer/expansion capacity but when they start investing has to be seen.

After market sales – Sales in July 2017 in particular is bad for parts with GST for some parts being 28% and some parts being 18%. The AMS business of the company is pulling itself out of the depth it was in July 2017.

ATS has done well on topline but bottomline growth was not in line with topline growth. Supporting OEMs network expansion.

Technical issues in the GST portal continue to be challenge for working capital management and this is expected to stabilize in Q3FY18. By now the impacts of demonetisation and GST are behind and the next two quarters has to be better in Indian market. Growth in H2FY18 will be better than H1FY18.