S H Kelkar & Company Ltd Q1 FY27 Earnings Analysis

- European business expected to grow rapidly with new factory capacity enabling double-digit growth in next few years. (Page 12) - India and Asia markets to continue steady growth, with strong demand in India and Middle East. (Pages 10-12) - Middle East and APAC regions expected to provide 3-4 years of rapid revenue growth. (Page 12) - UK and US markets are longer-term growth drivers (3-4 years to ramp up), with large market opportunities. (Page 12) - Inflationary environments benefit market share gains; demand may be muted overall but company expects normal growth through share gains. (Page 15) - Confident of maintaining or surpassing FY2025 EBITDA levels in FY2027, indicating revenue growth support. (Page 15) - Structural portfolio adjustments removing low-margin business (~Rs. 50 crore) will not impact overall growth. (Page 14) - Continued strong demand and good win rates seen in recent quarters support growth outlook. (Page 15)

- Confident to achieve Rs. 300 crore+ EBITDA for FY2027, at least matching or exceeding FY2025 levels. - Adjusted EBITDA margin expected to stabilize around 13%-14% in the near term, with efforts to maintain low double-digit margins despite inflation. - Demand expected to be muted industry-wide, but company aims for normal growth through market share gains. - Focus on portfolio optimization to exit low or negative margin businesses (~Rs. 50 crore exited) without hurting overall growth. - Growth drivers: mature steady businesses in India, expanding markets in Middle East and Southeast Asia, and longer-term investments in Europe, UK, and US with expected ramp-up over 3-4 years. - Longer-term EBITDA margin improvement from 10% (FY2026) to 14% by FY2029, though timing is uncertain due to dynamic environment. - Capex of Rs. 140 crore planned for FY2027, supporting capacity expansion and growth.

- FY27 capex is expected to be around Rs. 140 crore, mostly front-ended in the first two quarters. - Almere factory (Netherlands) is fully operational, supporting European growth by debottlenecking capacity constraints. - Vanavate facility in Maharashtra expected to come on stream in the coming months, with the transition between factories happening over the next 6-12 months. - Rebuilding of the Vashivali factory is underway after a fire incident, adding to capex needs. - Three new development centers (Germany, Manchester UK, and US), with combined annual operating costs of Rs. 80-85 crore, are ongoing strategic investments expected to breakeven after 3-4 years. - No large capex planned in India beyond these, focus is on international expansion and capacity additions to support ramp-up in multiple geographies. - Long-term focus on innovation centers and factories to strengthen the global footprint and enhance product development capabilities.

- No specific announcement of new fundraising through debt or equity in the near term. - Borrowings are expected to remain around Rs. 800 crore. - Temporary increase in debt is possible in the next 3-6 months due to higher inventory for supply security. - Long-term target is to reduce debt by approximately 10% each year after the interim increase. - Capex for FY27 is projected at around Rs. 140 crore, mostly front-ended in the first two quarters. - No mention of fresh equity fundraising plans; focus remains on managing operational and capex funding through internal accruals and controlled borrowings.

- The company has a secure order book for the next six months, supported by price increases and supply contracts, especially for Q1 and Q2 of FY27. - They have adequate raw material inventory to ensure supply continuity and margin maintenance. - Due to inflation and supply chain volatility, they have a robust system to monitor orders and pricing, communicating frequently with clients. - There is strong demand and good win rates for product range developments, indicating a healthy pending order pipeline. - The ongoing portfolio optimization has led to exiting around Rs. 50 crore of low-margin business but is not expected to negatively impact overall growth or order inflow. - Transition of factories and capacity expansions in Europe and India are expected to support increased order execution and volume ramp-up in the coming quarters.