Tenneco Clean Air India Ltd| Q4 FY26 Earnings Conference Call

BULLISH SENTIMENT

⬤9th Jun 26

Summary : Tenneco Clean Air India reported a record-breaking FY26 with strong growth, high margins, and robust order book, driven by new technologies and export expansion, despite geopolitical cost pressures.

Management Perspective positive : Management repeatedly highlighted 'best ever year,' 'highest ever EBITDA margin,' 'strong order booking,' and 'delighted to share' results, indicating strong confidence and optimism.

Concall Report Analysis & Insights

Business Overview

Tenneco Clean Air India achieved its best-ever year in FY26, doubling value-added revenue growth.
The company reported highest-ever EBITDA margin of 18.8% and best-ever ROCE.
Operating model is resilient, diversified, and execution-led, delivering consistent growth.
Ended the year with a strong balance sheet and zero debt.
Received zero defect supplier award from Toyota, reinforcing quality.

Future Growth Prospects

Strong lifetime order book of INR124,000 million provides 100% visibility for FY28 revenue target.
Expanding into new segments like bearings systems with a leading Japanese OEM.
New greenfield Advanced Ride Technologies plant in West India and Clean Air plant in North India.
DCx DaVinci suspension system adopted by a leading Indian OEM for flagship SUV platform.
Significant growth expected from CAFE 3 and BS7 regulations, adding 1,300-1,400 crores addressable market.

Management Insights

"We doubled our value added revenue growth rate versus the prior three years, registered the highest ever EBITDA margin."
"Our record stock market listing revalidated the strength of our operating model: resilient, diversified, and execution-led."
"DCx DaVinci is a total game changer and disruptive to conventional mechanical dampers."
"Our exports order book is coming in at a much higher rate than our current export sales."
"We are well-positioned to sustain profitable growth while continuing to create long-term value."

Signs of Skepticism

Specific timelines for new plant commissioning and order execution are broad (6 months to a year).
Actual value of new bearings segment entry is not yet published.
Management acknowledges 'tough discussions with customers' for cost recovery.

Risk Factors

Geopolitical developments led to elevated cost pressures in Q4 FY26.
Indirect costs like freight due to Middle East war and currency issues impact profitability.
Customer negotiations for cost recovery can be challenging for external factors.

Good To Know

IPO was oversubscribed 61.8x, with QIBs subscribing 174.8x their allocation.
Stock has outperformed BSE Sensex and Auto index since listing.
P3 operating model (People, Performance, Pride) drives operational efficiencies and scalability.
Company is debt-free with a net debt-to-equity of negative 0.4.
Localization strategy aims to maintain 90% local content for profitability.

Key Drivers

Strong order book ensures future revenue visibility.
New plants expand capacity for growing demand.
Innovative DCx suspension gaining OEM traction.
Exports growing due to technology and cost advantage.

Key Analyst Discussions

Competitive Environment

Company works in partnership with Tenneco sister divisions, not in competition.
India's lower labor costs provide a competitive advantage for exports.
DaVinci DCx suspension system has attracted interest from 3-4 OEMs.
Company avoids low-margin segments like two/three-wheelers for profitable growth.
Not present in the number one PV OEM in India, but secured entry for 2028.

Market Trends & Consumer Behavior

India Inc growth and GDP growth are driving volume increases.
OEMs are increasingly pushing for better ride quality in vehicles.
Hybrid vehicles may increase content per vehicle due to adaptive valve needs.
Market is shifting towards hybrid/range extender solutions over full EVs.
CAFE 3 and BS7 regulations will significantly increase addressable market for clean air products.

Financial Highlights

EBITDA margins improved due to P3 operational efficiencies and commercial actions.
Capital efficiency improved significantly, with ROCE at 94% and fixed asset turnover at 9.6x.
Cash conversion cycle remained strong at negative 23 days.
Clean Air business margins are high due to high-tech products and new technology.
Currency depreciation benefits exports by making products more competitive globally.

Product Composition

Clean Air and Powertrain Solutions grew 9.9%, Advanced Ride Technologies grew 26%.
Content per vehicle varies significantly by vehicle type, weight, and engine displacement.
Diesel vehicles require higher aftertreatment content than petrol due to NOx and particulates.
Petrol engines will require particulate filters from 2027 due to gas direct injection.
DaVinci DCx offers 85-90% comfort improvement of semi-active suspension at lower cost.

Strategic Considerations

Exports are a key growth vector, with order book at 14-20% of sales, up from 5-6%.
New plants in North and West India will take 6 months to a year to commission.
Localization is a key strategy for maintaining and sustaining profits, targeting 90% local content.
Company is exploring M&A and other strategies for good margin areas.
CAFE 3 compliance involves lightweighting and aftertreatment solutions for petrol vehicles.