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Kross Ltd

| Q3 & 9M FY26 Results Conference Call

BULLISH SENTIMENT

Report Source

⬤3rd Feb 26

Summary : Kross Limited delivered strong Q3 FY26 results, driven by M&HCV recovery, new product launches, and capacity expansion, with positive outlook for future growth and exports despite rising costs.

Management Perspective positive : The company delivered a strong performance during the third quarter of FY '26. The company remains confident on achieving its full year export contribution of 5%, and has laid out a clear roadmap to scale exports to double-digits by FY '27. The company remains confident of delivering a strong performance in the fourth quarter of FY '26.

Concall Report Analysis & Insights

Business Overview

  1. Kross Limited reported Q3 FY26 revenue of INR177.5 crores, up 18.3% year-on-year.
  2. EBITDA margin for Q3 FY26 stood at 13.2%, with 18.9% year-on-year growth.
  3. Nine-month FY26 revenue reached INR447.8 crores, a 3% year-on-year increase.
  4. The M&HCV segment showed growth for the first time in seven quarters, driven by dumpers and tippers.
  5. Trailer axles and suspension contributed 40.7% to Q3 revenue, other components 59.3%.

Future Growth Prospects

  1. Axle beam extrusion plant commissioning by February '26 will increase axle manufacturing capacity by 50%.
  2. Launch of Tipping Jack in the trailer segment is expected to provide incremental revenue from FY27.
  3. Expanded forging capabilities with new screw presses will enhance efficiency and support growth.
  4. Exports are targeted to reach 5% of total revenue for FY26 and double-digits by FY27.
  5. Tractor segment contribution is aimed to increase to 15% of revenue over the next two years.

Management Insights

  1. Strong Q3 FY26 performance was supported by favorable macroeconomics and improving demand.
  2. M&HCV segment recovery is encouraging, with H2 FY26 revenues expected to be significantly higher.
  3. Capacity expansion initiatives, including the seamless tube facility, are progressing as planned.
  4. New product launches and export growth are key drivers for future revenue and market share expansion.
  5. Management is confident in delivering strong performance due to improving working capital and order book.

Signs of Skepticism

  1. Analyst questioned the 80 bps Q-o-Q impact on gross margin despite soft steel prices in Q3.
  2. Analyst noted 'other expenses' grew 35% CAGR (FY22-FY25), higher than topline growth.
  3. Management's explanation for 'other expenses' increase due to new projects was noted, with expectation of future reduction.

Risk Factors

  1. Validation process for new products like Tipping Jack is internal and may take 18 months for OEM adoption.
  2. Steel prices have started trending upwards from December, potentially impacting gross margins.
  3. New product launches and projects incur initial expenses before contributing to the top line.
  4. Achieving premium pricing for new products like extruded axles may take time to gain market acceptance.

Good To Know

  1. Approximately 90% of IPO proceeds have been deployed, with the remaining 10% to be utilized by FY26 end.
  2. The company added five new fabricator customers in the trailer segment during the quarter.
  3. OEM production schedules for the agri-sector are improving earlier than usual, from February.
  4. The company holds 30-40 days of raw material inventory, varying by grade and size.

Key Drivers

  1. M&HCV segment shows strong recovery.
  2. New Tipping Jack product launched.
  3. Axle beam capacity to increase 50%.
  4. Exports targeted for double-digit growth.

Key Analyst Discussions

Competitive Environment

  1. Q: What is the target market share for trailer axles with the new extrusion line?
  2. A: Aiming to increase market share from 26-28% to 35% in the Indian market.
  3. Q: Will extruded axles command a pricing premium over welded axles?
  4. A: Premium pricing will be sought after establishing market penetration, not immediately.
  5. Q: How will the CV component business grow faster than the industry?
  6. A: Diversified product range and specific fast-growing products like anti-roll bars drive growth.

Market Trends & Consumer Behavior

  1. Q: What is the current demand trend in the trailer segment?
  2. A: Noticed a significant pickup in demand, supporting volume growth in H2 FY26.
  3. Q: How is the agri-sector performing and its impact on the tractor segment?
  4. A: Agri-sector is highly active, leading to 16% revenue growth in 9M FY26 for tractors.
  5. Q: What is the outlook for M&HCV segment demand?
  6. A: Demand is increasing, with encouraging production projections for Q4 FY26.

Financial Highlights

  1. Q: What caused the 80 bps Q-o-Q gross margin impact in Q3?
  2. A: Steel prices started trending upwards from December, impacting Q3 margins.
  3. Q: Why have 'other expenses' grown faster than topline over FY22-FY25?
  4. A: Due to consumables, spares, tooling for new projects, and increased freight costs.
  5. Q: When will 'other expenses' normalize as a percentage of sales?
  6. A: Expected to reduce to 22-23% once new projects contribute to the top line.

Product Composition

  1. Q: What is the revenue contribution of the tractor segment in the CV mix?
  2. A: Tractors contribute approximately 12% to the nine-month component business.
  3. Q: What is the expected revenue from the new Tipping Jack product in FY27?
  4. A: Targeting INR45-50 crores in FY27, producing 300-350 kits per month.
  5. Q: What is the growth rate for tractor and CV components in Q3 FY26?
  6. A: Tractor components grew 29% YoY, CV components grew 16% YoY.

Strategic Considerations

  1. Q: What is the current stage of validation for the new Tipping Jack product?
  2. A: Product is under validation with known customers, awaiting performance feedback.
  3. Q: What are the volume targets for Tipping Jack in FY27?
  4. A: Peak capacity of 800 assemblies/month targeted within a year, 750 units in Q1 FY27.
  5. Q: What is the total forging capacity and current utilization levels?
  6. A: Utilization is 60-65%, with new presses increasing capacity to 65-68%.
  7. Q: What is the progress on export orders, especially for the new European customer?
  8. A: Samples dispatched, supplier approval obtained, trial orders received, revenues expected from Q1 next year.