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Tube Investments of India Limited

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Tube Investments of India Limited Q1FY27 Earnings Call Highlights

Financials

Business Background

Tube Investments of India Limited (TII), a flagship engineering company of the Murugappa Group founded in 1949, is a leading Indian manufacturer specializing in precision steel tubes, metal formed products, automotive chains, and bicycles. Headquartered in Chennai, the company operates across key divisions Engineering, Metal Formed Products, and Mobility owning iconic bicycle brands like Hercules, BSA, and Montra. Over the years, TII has aggressively diversified beyond its traditional core into high-growth sectors, expanding into electric vehicles through its sub-brand Montra Electric, industrial and power systems via its subsidiary CG Power, as well as medical devices and semiconductors.


Q&A

Q: With standalone EBIT growth in the engineering and metal formed segments appearing muted, to what extent has the company under-recovered commodity price increases from OEMs?

A: There was significant steel price inflation in Q4 and Q1, which compressed margins. We typically recover these costs with a lag of two to three quarters, and we are confident in fully recovering these increases to neutralize margins in the coming quarters.


Q: Can you provide an update on the TI Medical business and the potential for revenue growth following recent acquisitions?

A: The core surgical business grew by 20% in Q1. We also acquired an IV cannula business that is expected to start generating revenue this quarter (August/September), and we remain confident in maintaining 20% year-on-year revenue growth for the medical division.


Q: What is the current status and growth trajectory for the CDMO business, particularly regarding the new reactor capacities?

A: The 200kl intermediate capacity has been commissioned, and validation batches are currently being supplied to customers. We expect regulatory inspections to occur in the next financial year, which will put the business on a high-growth trajectory.


Q: The Metal Formed Products (MFP) segment saw 11.5% revenue growth; what were the primary drivers for this performance?

A: This growth was entirely volume-led as price recoveries are still pending. While the railway business remained a drag and a new greenfield plant in the West is delayed by six months, strong performance in the automobile segment particularly with customers like Hyundai helped drive volumes.


Q: Regarding the e-mobility segment, have we passed the peak for quarterly losses, and what is the timeline for breaking even?

A: Directionally, we believe we are beyond the peak quarterly losses as volumes increase. We expect one of our EV businesses to break even within this financial year, with two others reaching break-even in the next financial year.


Q: Could you share the specific billing volumes for the various EV products during Q1?

A: In Q1, we billed 1,924 three-wheelers, 347 small commercial vehicles (SCVs), 86 heavy trucks, and 22 tractors. This contributed to the segment’s highest-ever quarterly turnover of approximately ₹240 crore.


Q: There is a notable gap between your three-wheeler billing numbers and Vahan registration data; how should investors interpret this?

A: There is typically a 30 to 45-day lag between billing and registration. Over a six-month period, these numbers generally align; for instance, last year’s billing of 6,700 units closely matched the 6,500 registrations recorded on Vahan.


Q: How is the engineering segment performing in terms of volume growth and international exports?

A: Engineering volumes grew by 17% during the quarter. Exports have maintained strong double-digit growth and now account for approximately 14% of total revenue at the TI level.


Q: What progress has been made in the international expansion of your electric three-wheelers?

A: We have achieved a breakthrough in Nepal, shipping over 100 units with positive initial feedback. We are also in the exploratory stages for several African markets, including Tanzania and Ethiopia.


Q: With global cell prices remaining volatile, how is the company mitigating supply chain risks for the EV business?

A: Cell prices are not expected to cool down soon due to high demand for Battery Energy Storage Systems (BESS). To mitigate this, we are pre-booking orders with long lead times and locking in prices with cell and battery manufacturers.


Q: The cycles business has seen a margin recovery; is this sustainable and what is the target for the year?

A: Q1 is seasonally strong due to school and college openings, which we encashed fully. We are targeting a five-percentage point improvement in margins for the full financial year through continued operational work.


Q: What is the strategic rationale behind the acquisition of the startup Orange Kijani?

A: It is a small acquisition aimed at developing capabilities in additive manufacturing, specifically Metal Injection Molding (MIM). We plan to study the market for a couple of quarters before scaling it up further.


Q: What are the total capital expenditure (Capex) plans for the company and its subsidiaries, excluding CG Power?

A: For the current financial year, we have planned approximately ₹350 crore for TI standalone and ₹100 crore for Shanti Gears. This investment is primarily directed toward the engineering, metal formed, and medical divisions.


Q: When is the conversion of external investors' stakes in TI Clean Mobility likely to happen?

A: External investors hold CCPS (Compulsorily Convertible Preference Shares), which will convert only at the time of an IPO. There is no fixed timeline for this yet, as it will depend on market conditions and the business achieving certain profitability milestones.



Strategic Outlook

  1. The company maintains a bullish demand outlook for the next one to two quarters across most vehicle categories and geographic segments.
  2. Capital expenditure is prioritized with a planned ₹350 crs for TI standalone and ₹100 crs for Shanti Gears to support engineering and medical divisions.
  3. Management targets double-digit EBIT margin growth once the lag in commodity price recovery is fully addressed with customers.
  4. A major priority is reaching profitability in the EV segments, with one business expected to break even this year and two more by next financial year.
  5. Completing the delayed greenfield plant in the Western region is essential to expanding the capacity of the Metal Formed Products division.
  6. The CDMO business is expected to enter a high-growth trajectory following the completion of validation batches and upcoming regulatory inspections.


Business Strategy

  1. The company is focused on fully recovering cumulative steel price increases through price hikes with OEMs, aiming to neutralize margin pressure in the coming quarters.
  2. A key strategy involves vertical integration within the EV segment, such as setting up battery assembly lines for in-house consumption in commercial vehicles.
  3. Management is expanding its international EV presence, specifically targeting the Nepal market with over 100 units shipped and exploring further African markets.
  4. Growth in the CDMO and API sectors is being driven by commissioning new 200kl reactor capacities and preparing for global customer inspections next year.
  5. TI is diversifying into high-tech niches like additive manufacturing (Metal Injection Molding) through the strategic acquisition of startups like Orange Kijani.
  6. The cycles business is being optimized to encash seasonal demand, with a goal to improve overall annual margins by approximately five percentage points.


Key Highlights

  1. Standalone revenue grew to ₹2,366 crs compared to ₹2,007 crs in the previous year, while the annualized Return on Invested Capital (ROIC) stood strong at 41%.
  2. The e-mobility segment achieved its highest-ever quarterly turnover of approximately ₹240 crs, showing significant traction across three-wheelers and commercial vehicles.
  3. Engineering exports maintained strong momentum, growing at double digits and now accounting for approximately 14% of the total revenue at the TI level.
  4. Consolidated revenue reached ₹6215.33 crs, bolstered by a strong performance from subsidiary CG Power, which registered ₹3,281 crs during the quarter.
  5. The Medical business recorded 20% growth in its core surgical segment and is preparing to start revenue generation from its newly acquired IV cannula business.
  6. Free cash flow for the quarter was healthy at ₹174 crs, despite some margin compression in the engineering and metal-formed segments due to rising steel prices.

Performance

Q1 FY27:

  1. Revenue from operations: ₹6,215.33 crs (↑17.07% YoY)
  2. EBITDA: ₹547.87 crs | EBITDA Margin: 8.81% (↓147 Bps)
  3. PAT: ₹290.72 crs | PAT Margin: 4.68% (↓125 Bps)


FY26:

  1. Revenue from operations: ₹22,847.43 crs
  2. EBITDA: ₹2,257.55 crs | EBITDA Margin: 9.88%
  3. PAT: ₹1,179.50 crs | PAT Margin: 5.16%


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