AUTOMOTIVE AXLES LIMITED (NSE: AUTOAXLES) Q1 2026 Earnings Call dated Aug. 07, 2025
Corporate Participants:
Unidentified Speaker
Nagaraja Gargeshwari — President and Whole Time Director
Sankaran Ranganathan — Chief Financial Officer
Kishan Kumar Udupi — President and Whole-Time Director
Analysts:
Unidentified Participant
Sailesh Raja — Analyst
Viraj — Analyst
Gaurav Agrawal — Analyst
Purva Jhaveri — Analyst
Samarth — Analyst
Saket Kapoor — Analyst
Presentation:
operator
Good day and welcome to Automotive Access Limited Q1FY26 earnings conference call hosted by Batliwala and Karani securities India Private Limited. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shailesh Raja from Bakliwala and Karani securities Private Limited. Thank you. And over to you sir.
Sailesh Raja — Analyst
Thanks Shubham. Good morning and thanks to everyone who have logged into automotive actions. One Q@ from the management side we have with us Mr. Babaraja Sergeant and Whole Time Director Automotive. Mr. Janganathan. Yes. CFO Automotive axles and Mr. GM Meritor India. I would now like to turn the call to Mr. Nagaraja for the opening remarks followed by. Sir, you may begin now.
Nagaraja Gargeshwari — President and Whole Time Director
Yep. Thank you Shailesh. Good morning everyone. Once again welcome to this Automotive axles quarter. One FY26 earnings call. I have again with me Mr. Ranganath, CFO who will be able to take up any of your questions related to the finance. And then I also have my colleague Kishan Kumar Urubi, President and whole time Director MHVSL who can bring in more information to the end markets. Despite the soft market we are able to put up a very strong performance. And then we continue to improve our EBITDA and cash flow for the quarter. So with that Ranga, could you please take us through the results and followed by the question and answer.
Sankaran Ranganathan — Chief Financial Officer
Sure. Thank you Nagraj and very good morning to all of you. I’m Ranganathan, CFO Automotive Axle Limited. The revenue for the first. I’ll just do a quick highlights of the financial performance and overall revenue for this quarter is close to about 498 crores which is. This is the overall revenue of the last year more or less. The revenue is in the same level and the revenue from operations was slightly lower. That’s 1% compared to last year. But if you take the overall total income is you are at the same level of the last year. As far as the profitability is concerned.
The EBITDA for the quarter is about 11.7% as per the published results and compared to the last year the same quarter as 11.2%. So at the EBITDA level we are able to improve 0.5% and as far as the PAC is concerned we are at 7.3 as compared to 6.9 the last year still better than by 0.4 to 0.5%. So the highlight and overall strong working capital performance for the quarter. The cash has significantly improved and good cash flow performance too for this quarter and overall the key contributory factors as all of you know that we have adopted the new business model as far as the arrangements with the return.
So the first quarter we are reporting under this and overall as Nagaraj said the market is still this quarter is going little slow and probably in terms of the initiatives towards the new product development and introduction and improvement on the cost reduction and cost and automation all continue to be on the same phase and this is definitely yielding slowly the improvement in the profitability perspective. That’s one of the things I just want to highlight. It is overall the profitability is improved compared to the last year. With this note I’ll probably end here and we will connect in the question and answer.
Thank you.
Questions and Answers:
operator
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press Star and one on the Touchstone phone. If you wish to remove yourself from the question queue you may press Star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Viraj from simpl. Please go ahead.
Viraj
Yeah, hi, thanks for the opportunity. Couple of questions. First, can you explain a little bit more in detail how the new model would work both in terms of impact on top line EBITDA and also how is the arrangement now with regards to the service fee which we will be paying to the private entity?
Sankaran Ranganathan
Yeah, so I take this question by and large. The earlier model to visit. This model more or less about 75% of the sales were referred to MHSA which is also being consolidated currently with sending to end customer in terms of revenue earlier also we are operating with very strong operating the transfer pricing. As for the ARM slim, the improvement on the revenue may not be very significant in terms of the top line and it is less than the double digit in terms of the increase in the top line.
Viraj
Increase in top line.
Sankaran Ranganathan
It will be in the single digit. It may not be a significant improvement compared to the earlier transfer pricing which is the direct sales to the end customer and because it varies between the product mix. That’s why I’m saying secondly the board from the overall profitability as an arrangement we have a very scientific and arm’s length assessment towards the fee what we need to pay as the monetaries continue to support automated on the marketing, product development and engineering support. So we have made an arrangement as for the arms length, that’s been arranged in terms of the overall profitability.
Your question is you can see the effect for the full year because the first quarter since we have the two factors I just want to bring you one is about the revenue recognition is one of the factors which is for the export this year, this quarter and that will get normalized in the coming quarter. And definitely all the efforts on the new product as well as on the cost improvement programs will continue to rethink and you will definitely find a marginal improvement. But since the arrangement is also to pay the fee for the support of marketing and engineering and product development.
Viraj
So just a follow up on this only because sorry, it’s not clear to me first, you know if I look at the sales model earlier versus now, right. As you said, close to 80% of the sales were routed through Merida HVF and if you look at that entity, they typically have a gross margin of 10%. So there was a markup of 10% further on the sales purchased from us and sold to oe. Now that piece is directly now sold by us to oe. So naturally one would think that there would be at least a 10% or so kind of a bump up in our top line starting from Q1.
And if I look at our key customers, be it Ashoklan and others X of Bus also the production largely been for the quarter been flat or marginally positive. So starting Q1 the thinking we had and I think in our earlier discussions also you indicated the top line growth being faster irrespective of the market cycle. That has not really played out starting Q1.
Sankaran Ranganathan
No, I mentioned there are two things about it the 10%. I don’t know where you reference these from.
Viraj
So you look at their own financial from rfe.
Sankaran Ranganathan
No, no, that’s not the right. That’s what we have. We have mentioned this earlier also sorry intervene. I know their financial is not only selling through air selling through. They have their own aftermarket division which they have a separate setup which is nothing to do with our model actually. Okay, so you can’t compare the entire other entity what the entire margin consolidation going to bring in. That’s the wrong assumption and that may not be appropriate. So the sales what we are telling the voice and which is now it’s been consolidated at and Whatever the images are their own initiative of aftermarket which continuously other unit.
That’s no role to play that secondly about. I know you talked about it the revenue. Yeah there will be definitely there will be there will be an upside on the revenue. The consolidation is concerned but may not be 10% for sure because that’s not appropriate to consider. My number two is about I mentioned in the first quarter some of the revenues we have to follow accounting standard input terms and the revenue could not be recognized especially on the exports that will get normalized that will show a little bit up on the on the top line.
And again when you look at it in the shareholder outside is a holistic revenue. What you see it also has an effect of the domestic market and it is a combination of both. So that comes to normalty and probably the sport on the top line you will definitely see little much more as compared to what you’re seeing today.
Viraj
Okay, second question on this only. Can you give more detailed perspective how the service fee would work? It’s an absolute fee which will be paying every quarter or if it’s percentage of sales and if it’s percent of sales and what you know what is that fee structure now which we’ll be having to pay with to the private entity.
Sankaran Ranganathan
Yeah, that’s what I’m saying. This is basically scientifically done with the you know assessment of two professionals to see what is the B2B paid and is in message as the arm strength. This has been determined and and it is percentage on the revenue. It’s a percentage on the revenue. What we pay outside the sales outside our group entities means that most of the sales what is the Indian movies what we do basically it’s what the fees applicable so and so overall basis is basically non slang and probably you know that’s how the arrangement has been made up at this moment.
Viraj
So net effect of post this fee structure and post full consolidation of export and assuming export we would have not recognized any revenue this quarter. Correct me on that. Suppose consolidation of that and post now the new fee structure the net effect to automotive Excel should we see a material margin improvement also assuming the market sees where it is.
Sankaran Ranganathan
I I know I, I I’m probably there’ll be an improvement in the margin which is. Which is actually a may not be material. I don’t know what is material but there will be definitely an improvement in marginal improvement. I will put it this way because we have to be true to the arm’s length assessment. So there will be definitely an improvement. There will be an Improvement in the top line. You see, if you look at the whole financial year, you will see the overall effect. You will see because there are lot more combinations. You need to look at it.
The market is so fluctuating this quarter. We are looking there is more softening on the market. I think Krishna can explain that. So the point is that that effect will also come in. We can’t stand alone pull out and saying that it’s difficult because when you do that. So the point is that definitely there will be per se, the consolidation will definitely give the margin improvement. No doubt about that. But the direction, not the material. I don’t know what the material mean, but what I mean is there will be definitely margin improvement will be there.
Viraj
Okay, just two more questions. I’ll come back in queue. We have been working in filling the product gaps pertaining to the bus segment and any update you can give whether that has been commercialized, either the 13 and a half or the 15 meter or the 9 meter segments which we were working on. Any update on these new products?
Viraj
Yes, I can. Thank you for the question.
Kishan Kumar Udupi
So I’ll start with the 13.5 15 meter. So these two are already supplying in proto batches and will be going into production soon, which is as per our plan. And coming to the other one which is the. We have discussed in the past the new development, the business discussions and commercials are going on with the customer. So we have finalized the specification and design and we are hoping to close the commercials first in this quarter which. Is the Q2 of this year. The other two, 13 and a half and 15 meter coach, as I mentioned, the proto trials are going on and we have received good feedback on that. There are some tweakings required as we expect after the trials which also we are planning to complete in the Q2. And early Q3 of this year.
Viraj
Okay, last question. So you said service fee would primarily be on the domestic OE business and not on the export which is done to group entities. Correct me. So in terms of export, how else would one now look at the margin compared to the domestic piece? And a related question is if you look at the private ngd, I understand they also have aftermarket. But if I remove the sales which are supplied by us to them and then eventually they are supplying to OE that 20% of sales in the margins they earn would imply, you know, the cross margin they will be earning on that 20 sales after the market will be in excess of 40, 50% which is quite abnormal for an aftermarket business.
You know the assumption what I was alluding earlier.
Kishan Kumar Udupi
So I. I don’t know. I not reviewed their financials to see what margins they are making in terms of that. And as far as the automotive actually is concerned they certainly consolidated and there’s. We have made answering assessment based on the assessment we fixed fee which is payable to them. Yes, you are right. This is basically for the largely for the domestic OE supplies and for intercom exports this fee is not applicable. But there’ll be a marginal improvement in the margin for the per se for this consolidation. And the effect of this you can see holistically actually a couple of quarters is good season.
You can see the normalcy over there.
Viraj
Okay, I’ll come back. Thank you.
operator
Thank you. Before we take the next question we would like to remind participants you may press star and one to ask a question. The next question comes from the line of Arjun from Arjun securities. Please go ahead.
Gaurav Agrawal
Hi sir, my name is Gaurav Agrawal from ninety one Capital. Your assumption, the previous participant, you know he said that most of the revenue at Medicare it is coming from automotive. I also did some work and sorry to say his assumption holds. Right. Because if you see direct purchase in that entity for the last five years, right. And you read in your related party. As percentage of that it comes to. 100. Of the RM is basically equal to whatever you supply to them as a traded party. And also they have only what six circuits of 10cr other expenses, operating expense of two and a half percent of sales. So you can choose to be ignorant about it or handle it. You know honestly what you are going to do in this arrangement.
Nagaraja Gargeshwari
So what’s your question?
Gaurav Agrawal
The question is that 10% gross margin which meritor is making now that entire sale has to be rooted via you. Will we see any benefit at the beta level or will we see the 0 benefit? And in some of the other.
Sankaran Ranganathan
You’re putting very aggressive statement. See what I’m saying is I very clearly mentioned there’ll be a marginal improvement on the ebitda. Okay.
Gaurav Agrawal
So I’m not able to understand that unless you see that service fee and R D fees, all of that put together is around 200 cross. If you believe that then it’s okay. You know, if there is a reason to believe that they should get 200cr for the providing these kind of services then I totally agree they should be not they should be on the marginal difference to the bigda. But if that service fee is let’s say even 100cr then we should get 100 crore kind of a benefit to our penalty. So that’s what I’m trying to understand.
Sankaran Ranganathan
That’s what I said. This arrangement is done on Armslang. So there will be an. Because of the model change there will be an improvement in the EBITDA margin. Okay. I can’t say a number at this moment of time. We also going through this. The point number two is. Is about.
Gaurav Agrawal
From Cuba, right? From first April 2025. Right.
Gaurav Agrawal
And it is still four months into the financial year. So still the arrangement is being decided upon or will get to know later part of the year or when will it be.
Sankaran Ranganathan
No, no. You see the. As an investor you see the. The effect of the season, right? Mentioned it the first quarter we have. We have the revenue rec point which is we actually change the model that will get seasoned out in three to four months time. Depends on the income terms what we agree. And. And definitely as a standalone. If we look at it under a new model this will have a benefit to the pnl. I am but. And the previous part has been also mentioned. It’ll be a material. I said material is a relative term. I mentioned very clearly there’ll be a relative term. We are done.
Gaurav Agrawal
Gross margin. It’s. It’s very material. Right.
Nagaraja Gargeshwari
One thing I think you need to ask. I think you are 200 crore profit pool. Just even if 50 crore comes to. Our our account, right? So it is two and a half.
Gaurav Agrawal
Percent of your revenue or as percentage of your EBITDA. It is like you know like 25, 30% last year 220 crore you made. If you add 50 CI it’s like 25 addition to your EBITDA. So it can be quite material. And the profit pool is large enough, right? And the other entity they have only 10 crore of excessive. So I don’t understand with 10 crore of fixed asset what kind of manufacturing are they doing?
Nagaraja Gargeshwari
Just hold on a second. I think you know Ranga already mentioned they not only have this business and they also have an aftermarket business. Okay. So I think we don’t have the complete details of what their margins. What is that you want?
Gaurav Agrawal
I have calculated everything you want. Can give me your email. I’ll send you everything. I think it’s fairly easy to conclude.
Nagaraja Gargeshwari
That most of the what we have included. What we have concluded is with our visibility like what Ranga has mentioned there is going to be an improvement at this point of time because the soft market and then product mix and everything it may not be visible over the whole year or a six months. You will have a very clear. You know Visibility of, you know, what improvements we are going to see. It will be marginal, it will not be, you know, big. But you are going to see it more on the. Rather than on the percentage.
You are going to see it on the numbers. That’s what you know, we think.
operator
Thank you. The next question comes from the line of Radha, please go ahead.
Unidentified Participant
Hello sir. Thank you for the opportunity. So my question was in buses. So with the 13.5 and 15 liter buses that you mentioned that you’ll be supplying from 3Q onwards. So currently who is supplying to Ashok Leland and what is the expected share of business gain with this customer that you expect from the buffet segment in the next few years?
Kishan Kumar Udupi
I can take that question rather. So first of all, I did not say Ashok Leland, I said customer. But anyways, let’s keep it that way. So both these are new launches for the customer. So currently there is no one supplying it. It’s a new platform that is coming up and like I mentioned we did some tweaking to our one of the products so that it is suitable for the application. The volumes are pretty low as it is a launch program and you know, it may not impact our overall share of business significantly with this customer. And over a period of time the customer has an aggressive launch plan.
But that has to be realized only after the market acceptance of the product. But overall it looks like a big growing market and the customer has the right strategy and we are present 100% with them. So I can leave it there.
Unidentified Participant
In the other batch model of the existing customer who was the current supplier.
Kishan Kumar Udupi
The other one is our competition. You can guess there are two. One of them is the competition there.
Unidentified Participant
Is there an opportunity to make actions for the buses segment for other customers also other than. In the coach?
Kishan Kumar Udupi
Probably the chances are few because the other customers, for example Volvo, if you see they’re already using our accents which are imported directly through them. And then it’s a very niche segment. Not many OEMs are present, not other OEMs are present. Coming to the smaller one, yes, there are opportunities but I think our focus is direct right now to get the product out and then we will pursue with other OEMs.
Unidentified Participant
For Tata. Any BEC do they have announced manufacturing for the buses and also for the E buses also.
Kishan Kumar Udupi
They have in house capability. But this product range, the 13.5 and 15 meter, that’s a niche segment. As I mentioned, that’s something apart from Volvo. Nobody is present today and everybody has tried in the past but it’s a very different market. So I will leave it there.
Unidentified Participant
Sir. On the export market other than non editor, we have added only Volvo as a customer in last five years. So what are the initiatives that we are taking to add more customers there?
Sankaran Ranganathan
Kishan.
Kishan Kumar Udupi
Sorry, can you repeat the last part?
Unidentified Participant
Yes sir. So in the exports market other than non meritorious, we have added only Volvo as a customer in last five years. So what are the initiatives that we are taking to add more customers?
Kishan Kumar Udupi
Okay, so like you said, the first part is right. We always supply to our own entities elsewhere. And we don’t typically do a direct sales because the application, the business model and the legal requirements are very different. In the regions Volvo or currently ud, that is a different case because that is a division that is sitting in India and discussions. And the technology commercial closes here. It’s only a supply that goes to the other plant outside India. But everywhere else we have our own presence. And like I said, the application, techno, commercial terms, legal requirement, that’s all handled.
Kishan Kumar Udupi
By the regional teams. And that’s why we supply to our own entities and they interface with the, you know, the end customer. And also there is a lot of value and that happens at the region. So it’s we only supply the sub components but the value add, final value add specific to the region happens at those locations. And that’s been the strategy. And I don’t see that changing in any near future.
Unidentified Participant
Okay, so in previous you mentioned that you were in discussion with a few OEs to add them your customers in the export market. So what is the update on that?
Kishan Kumar Udupi
So you are talking about deemed export. So let’s say if one of the customers in India they want to do an export we all always have the right to approach it. And that’s our right, that’s our business. So it is a deemed export that is possible. But going to the location where the.
Unidentified Participant
Sorry, direct export, not indirect, direct export.
Kishan Kumar Udupi
Is only through to the sites of Cummins or the entities of Cummins, not directly to the end customer.
Unidentified Participant
Okay. Yes sir. Thanks. I will come back in the queue. Thank you.
operator
Thank you. The next question comes from the line of Puru Azawevi from one of financial. Please go ahead.
Purva Jhaveri
Hello.
operator
Yes sir.
Purva Jhaveri
Good morning sir. So I just wanted to add a few questions, sir. So firstly sir, on the Overall outlook for FY26, will it be window demand or you see the status here? Can you take it?
Kishan Kumar Udupi
Yes. So let me step back. So what we are seeing. Okay, let me start with the overall industry, what’s going on? So typically you know, if you go back 10 years or 12 years. The historical cyclicality of the industry, we see that after let’s say two stable years with good volumes, we see a dip. And usually the dip is pretty severe. Like we have seen 15, 20% dip. But last three years, if you see the market is hovering around 400, pretty stable and we are not seeing a steep dip even this year. Even though we have projected 4% lower than the last year overall production.
That’s still a very strong market for us. But what we do see is a couple of things which may be only temporary. The Q1 Due to this AC cabin change, most OEMs have built on their inventory, I think in surplus of what they usually plan for. So that is going to impact us in Q2. And then the second one is monsoon. Typically we see that when there is a good monsoon, the freight movement is low. And this year looks like it’s above average monsoon. And also it started a little bit early in the country. So both these will, you know, probably the Q2 will be much lower than what we initially anticipated.
But we do think that Q3, Q4, that’s where we see start seeing the other programs that the government is doing. For example, the industrial activities are very low. Even though there’s so many infra projects programs launch, but those will start kicking in after the monsoon. Hopefully Q3 and Q4 we will see the market coming back and we are very optimistic that it will be at that 400 or plus minus 3, 4% level.
Purva Jhaveri
Okay, sir, thank you. And sir, another question to CFO sir, I wanted to ask about the other expenses which came in around 75 crores. So we must have classified the fees paid to the meritor in this other expenses. So can you just quantify it how much fees I will pay to Merida.
Sankaran Ranganathan
At this moment I don’t have the detail with me, but it is grouped under the other expenses at this point of time.
Purva Jhaveri
So sir, going forward we can expect other expenses to reach in the range of 15%. 15, 15.5% may not be.
Sankaran Ranganathan
I don’t think so. Yes, it depends on again the product means again I’m saying, you know. So yeah, it will be around 12, 13%.
Purva Jhaveri
All right. So from Q2 onwards or for the whole year to 13%.
Sankaran Ranganathan
Yeah, you need to see, see the first quarter we have just moved to the new model. Okay. So we may have to have a little thing settled on next couple ofquarters maybe Q3 onwards. You can see a reasonable normal field overall financials.
Purva Jhaveri
The incremental revenue from the direction buyers won’t be having will be below 10. Right. The growth. Thank you, sir.
Sankaran Ranganathan
Because they see for example, I don’t know there are a lot of calculations going outside much more informed information with them. The point is that our transfer pricing for the financial year last year also is well made. And no compromise on the transfer pricing is concerned. It is as far as arm’s length and it’s been certified by the people. So this model is basically in response to the shareholders decision and probably a lot of expectations. All of you have a completely respect that. But we also need to be when we adopt a model the change of 44 years we have to gradually adopt into the new system.
Expectations are fine, we respect that. But we may have to take the business in the gradual way because there are some values which other entities are creating we need to respect. We need to have a arm’s length model. Being a listed entity, we need to align the compliance is a very critical aspect for automotive access. So we’ve gone ahead with the right process in terms of setting this. It’s probably the intention is very straightforward and we want to be very honest to the shareholders. I just wanted to place it across the board.
Purva Jhaveri
Sir. Can I just squeeze in one question, sir?
Sankaran Ranganathan
Yes, sir.
Purva Jhaveri
You have seen gross margin improvement in this quarter. So what would be the reason behind would it be product? Look, probably this quarter is concerned.
Sankaran Ranganathan
Overall basis is basically. Yes, a couple of things. Probably NAGRAJ can add value. One is about the new product which we have introduced called 18 TG which is probably the volumes are slightly picked up this quarter. This was one of the reasons that the mix definitely has a benefit. And secondly we also have other side. The flip side of the mix is about export revenue is not recognized. But very important point is about very consistently for several years. We have a very focused approach as far as the cost improvement programs are concerned. And all of you know, the last one and a half years we are very seriously considering automating our manufacturing lines.
We have recently certified last year certified by TPM and we are adopting industry 4 not 0 for all the value stream one by one. Adobody actually is investing. Though the market is slow, we are investing on this automation improve the productivity and we want to be up and ready for the upside of the market one in terms of our capacity and efficiency. So that is also happening. See all these programs of cost reduction and automation is paying up this year. And you can be evident you will see the coming quarters too.
Purva Jhaveri
All right. So thank you. All the best.
Sankaran Ranganathan
Thank you.
operator
Thank you. A reminder to all participants, if you wish to ask a question, you may press star and 1. The next question comes from the line of Viraj from SI mpn. Please go ahead.
Viraj
Hello.
operator
Yes, you’re audible.
Viraj
Yeah, hi, just few more questions. Just want to understand why what are the reason behind not consolidating us? Not able to consolidate exports in Q1 and were there any expenses incurred pertaining to the same in Q1?
Sankaran Ranganathan
No export is being made from automotive action only. These inco terms for all these exports are different. So based on the income terms we are not able to recognize the revenue in the books. And as we meet the income terms the revenue will be recognized. From this quarter onward, that is Q2 onwards, the revenue will be recognized as per revenue recognition policy.
Viraj
So this expenses. Sorry, sorry, I’m not able to understand. So it is only the timing.
Nagaraja Gargeshwari
It is just the timing because it depends on whether you are having a cif, you have X works or you know, landed depending upon what agreement is there with the customer. The revenue recognition is done. So it is just the timing. And like what Ranga mentioned, going forward from the Q2 onwards it will get.
Viraj
Normalized and the expenses have we recognized pertaining to the same or that is still yet to be.
Sankaran Ranganathan
Recognized automatically. The cogs relevant to the export is also not. So it goes hand in hand.
Viraj
Okay, second question is in terms of export, what is that you are hearing from your key group entities, you know across the globe. So I think for this year we were also looking at a sizable capex to modernize the mysterious plant. So any color you can give in terms of what is that you are hearing from key market in terms of export and any update on the capex?
Nagaraja Gargeshwari
I will take the first portion of it and Kishan you can add. So as you can see that you know North America with all these tariff discussions going on, the end markets are very very low. So we have always been very competitive when it comes to certain specific models which we manufacture only in India which is required in the rest of the part of the world and at the same time also when they have peak demands where we can act as a layer capacity. So the investment, what we are doing is not only for the export but also for the domestic.
As Kishan mentioned, end market is changing, new products are coming, there is a lot of requirement in terms of product performance. Obviously along with that this will also drive our productivity improvement and reduction in operational cost. So this is the. When we started investing we thought that you know, the end market especially in North America and Europe is going to hold unfortunately, it is not the case. So we are expecting, you know, there will be a potential increase in our export to these regions in next couple of years.
Viraj
And given the way the tariff rates are playing out, how does that place US Visa with other entities the independent must be sourcing from in terms of competitiveness?
Nagaraja Gargeshwari
Yeah, that is some strategy. Obviously we need to be competitive when compared to the landed cost or announced cost. Obviously we also look at the same thing. We don’t know the storage are, you know, temporary or you know, they are permanent. I’m sure that Cummings on their side, they are also working out on the strategy in terms of, you know, they have a lot of, they have a manufacturing, you know, centers here in India, Asia, pac, Europe and everywhere. So I think, you know, they probably also working on that and then we work on our strategy and see where our strategy is going to sync with them.
But again, at this point of time it is too early to, you know, comment on this.
Viraj
Okay, just two more questions. So you said that you know, the fee which we’ll be paying is purely on domestic. So would it be right to think that whatever exports we will now be making directly to group entities that will carry a much higher margin structure than what we’ve been historically been earning?
Nagaraja Gargeshwari
Theoretically, yes. The agreement is the fees are payable only for the sales that is done outside Cummins businesses. So essentially any exports to Cummins entities will not carry any of these fees.
Viraj
Okay. So traditionally we have maintained that assuming a market is stable, marginally growing, given the kind of cost initiatives and we have been taking, you know, as an entity we can easily or comfortably own somewhere around say to 13, 13 and a half percent operating margin. So given the fee structure is not applicable on exports, would it be right to think that we can have even possibly unmixed margins on exports?
Nagaraja Gargeshwari
Yes, theoretically, yes.
Viraj
Okay, last question. See, I assume I understand there’s a lot of validity in the market in terms of demand and product mix and other calculations. But If I take 2025 as a base, right for you and on that base, if you take into factor the new model we have, there’ll be some working we would have done in terms of the absolute increase in EBITDA we would see assuming 2025 as a base. So where I’m coming from as investors, we would also probably get some perspective of how much of that value addition is now coming to the listed entity as against what it was flowing through the private entity.
So can you give some more perspective on this?
Nagaraja Gargeshwari
Ranga? You want to take that.
Sankaran Ranganathan
As I mentioned before at this moment I can’t able to quantify and tell you the month sorry for it but you definitely see a marginal improvement of that benefit really coming through and it is not appropriate for me. We not looked at it whether how much dogger entity you are making money like that approach most the investors having is quite genuine. We respect as I mentioned that. But that’s not the way we can structure the Armstrong transaction between the two entities. And the value addition of the other entity is quite significant. The survival of automotive access basically depends on that engineering value addition.
So the engineering is the brain behind this product. So obviously sorry to interrupt.
Viraj
I think nowhere either me or any of those other investors are questioning the IP or the value add the private entity is bringing to the table. I think the idea that you need to pay is fully justifiable. What I think me and others are just trying to get more clarity is how much as for the new arrangement, how much of the value addition will now be coming to the vicinity? And if you go back say in October, November, the whole reason why shareholders may be rejected the proposal is because there was not a clarity of how much valuation will be flowing through the disability.
So while we appreciate that you have corrected this structure and it’s now flowing only through the listed entity, there’s still some degree of ambiguity of whether the value addition will at all be coming to the listener. And I think we have Mr. Kishan also on the call who is representing Meritor HVS. So I think some more clarity. As long term investors and co owners we would also appreciate, you know, having to have, you know, because we also want to be part of this new ownership under comments.
Nagaraja Gargeshwari
So yeah, we appreciate, we appreciate you know you bringing it up and you know, I think you know we owe you an answer. As we clearly mentioned, if you compare base to base, there is an improvement. There is a improvement you are going to see in terms of margin also in terms of absolute numbers. The challenge for us is putting it up because of the various product mix and then the mix between the exports and domestic sales which is changing so drastically quarter on quarter we are not able to put an absolute number. And that’s why we are asking you to have a patience in just the first quarter and probably by Q3 we will have a very clear visibility of you know, what those margin improvements that we are going to see because of the new arrangement.
Viraj
Just one last question for Mr. Kishan. See Meritor HVS as Mr. Nagar has also talked about other than the sales through which they source Traditionally been sourcing from automotive. They have roughly somewhere around 300 to 400 crores of sales outside. Now, in the past, we have talked about aftermarket also being a sizable growth driver in our ambition to double sales in the listed entity. So can you just give some perspective what this 300, 350 crores of sales, what does this pertain and what role automotive excel will play in the aftermarket play, you know, in India? And just one request to the management, maybe not immediately, but maybe you can just put it out in a press release laying out a scenario that if we were to assume 2025 operations as a base and with the caveat, obviously mixed changes and markets are dynamic, what kind of change one would see.
As for the new model, I think this will go in alleviating a lot of concerns of minority investors. So over to you.
Sankaran Ranganathan
My axle. And let’s restrict to the question with only the respect to automotive action, because going beyond it’s not very appropriate. It’s not compliant is also my opinion. So it’s not this purely restricted automatic performance. As far as this call is, I appreciate your understanding.
Nagaraja Gargeshwari
Yeah, just, just to, you know, to tell about automotive axles, you know, any of the product that we sell into the domestic OEs or that we manufacture it here, all those parts are NHVSL will be, are sourcing from AAL only. So that means they cannot buy it from anybody else. They are buying it from automotive axles. So whatever they sell in the automotive, it will be, you know, automotive axles product. But other than that, you know, they also sell, you know, other makes and you know, other than axles and brakes, they sell so many other parts.
So I think we leave it at that place.
Viraj
Okay, thank you.
operator
Thank you. The next question comes from the line of summer from Jenna Merchant Securities. Please go ahead.
Samarth
So am I audible?
operator
Yes, sir.
Samarth
So American axles, which got taken over by Bharat Fuch, who is where Kalyani Group is also a partner in our own company. So they have been also trying to like when it was American access, they were also trying to get in Ashok Leyland. So do you see any pricing pressure in the axle category. Going forward or. Already is it visible because of which we have to take price decrease?
Nagaraja Gargeshwari
No, I don’t think so because in fact we also supply some brakes to American axles, you know, for the another oe, you know, through, through the American axles. So essentially what we see is American axle and us, you know, we continue to be competitors. We continue to, you know, you know, compete for the share of business that has been happening for the last several years. If I’m right, at least for the last 10 years. I think it will continue to, you know happen. And then we are very confident in terms of the products that we are developing in terms of the manufacturing capability and capacity what we are having.
So we hope and then we continue to put efforts in winning as much as share of business with the customer as possible. So this. Whatever the recent transaction has happened, you know, it has. It is not going to change the way automotive vehicle is going to operate or you know, pursue potential businesses.
Sankaran Ranganathan
See I just add to Nagaraj 60. In an automotive industry as far as. Concerned will consistently face the pricing pressure. Okay. In terms of the valuations and forcing on continuously. There is not with respect to any. Tire 1 or Tire 2 suppliers are concerned that continues. But what Naira is trying to explain if it’s not that strong American accident presence is not in valid. They already pre existing before us also before this acquisition also. So I don’t think that’s going to add anything special at this moment the business got normal. There’ll be continuous pressure from the OES. As far as the price reductions happen. That is until we’ll manage it. We have been managing for several years. We’ll be continuous to manage it. We have a specific programs with over you there. We have an arrangement to share some bit. There are some internal valuation that will. Definitely approve to us. So that arrangement continue will continue in the Future also.
Samarth
Another two questions from my side. One is the heavy access that we have for the 50 and 55 ton vehicle. So from what I. From what we understand is Tata Motors captively doesn’t have these products. So can you win more business with Tata Motors for the very heavy axle category?
Nagaraja Gargeshwari
Let me just try to answer. Kishan, you can add to that. Now we continuously, you know explore opportunities with the OEs. There are new OES other than to whom we are already supplying. They have approached us, you know inquiring about certain. Not just this particular product, the potential other products that we have developed. So continuously we are looking at the opportunity if the business makes sense. If it works out, why not? Yes, we would like to, you know supply to Tata. Not just Tata, any. Any other OEMs as well.
Kishan Kumar Udupi
I agree with Nagaraja. But I also want to clarify our strategy with Tata. It’s definitely we want to strengthen our relationship on brics. That’s where our current business holds. And then anything add on and I don’t know where you’re getting this data that Tata is Looking for or may not have the right product. They already have a product which is in the market and we always pitch in our product when we launch it. But it’s purely the gap they see in their product line in terms of whether it is cost, performance, reliability, durability, quality. That is what is the pull.
Otherwise it’s purely, you know an interaction with Tata on brakes alone today.
Samarth
So and on the brake side. So in brakes like 30, 35% cost is a casting cost and we don’t do our own castings. So. So as we gain scale do you, do you have any plans of getting castings for captive purpose or you can even export it out of India since.
Sankaran Ranganathan
You will be able to build a scale.
Nagaraja Gargeshwari
Right now we are looking at multiple. We have been looking at potential opportunities to you know, increase the value add within our manufacturing footprint. So I don’t know whether it is going to be just a caching or it is a more automation and then you know, increasing the capacity. So we time and again whenever there is an opportunity we’ll explore it. Casting is a totally different animal. You know, if it makes sense, yes, we might look into this. But right now our focus is you know, looking at, you know, automating our current processes, bringing in new technology rather than, you know, adding some commodities which we can buy more economically and more efficiently from the current suppliers.
Samarth
Thank you sir. That’s all from my side. Thank you.
Sankaran Ranganathan
Thank you.
operator
Thank you. The next question comes from the line of Saket Kapoor from Kapoor and company. Please go ahead. Mr. Kapoor, your line has.
Saket Kapoor
Thank you for this opportunity. Am I audible sir?
operator
Yes sir.
Saket Kapoor
Hello.
Nagaraja Gargeshwari
Yeah.
Sankaran Ranganathan
Yeah.
Saket Kapoor
So firstly if you, I, I joined late. So firstly if you could just give us some understanding how the current year is shaping up with the exit of the first quarter in terms of our deliverables that are scheduled going ahead in terms of the incremental tonnage that we may expect. And in the other expenses line item we see that that line item increasing disproportionate to the change. So what any one of item that is incubated in the other expense line item of 75 crore for this quarter.
Sankaran Ranganathan
So I just answered the second one. And here so I think we have explained it earlier. So the technical fee, what we paid MHSL under new model which has been coming under our expenses and as far. As the market is concerned, Kishan can able to answer. Yeah. So.
Kishan Kumar Udupi
This year specifically a couple of things are happening. One is I explained earlier to the audience historical cyclicality is actually changed now. So we have we are having constant volume around 400,000. This year we do see a dip of around 4% which is primarily coming from some of the inventories that has been built addition to what OEMs typically plan. And second one is even though the volumes are around 400, the mix is changing. So one in the truck segment we are seeing higher heavy duty engines coming into play. Whether it is a 4 by 2 tractor trailer where we already have a product launched and then the tipper segment.
So again we have a product there. The other change which we are seeing consistently last three, four years is the bus volume in this entire product mix that is changing, that is increased. Typically we see around 40,000 buses on an average last 10 years if I take a average of bus sales. But last three, four years we see consistently 70, 80,000. This may be the deficit that’s caused by the. You know, the COVID And then there was a continuous push to improve the overall bus from the state transport limits as well. So overall market will still be 400.
We do see this product mix mainly in the buses where we have already launched two product. One product is in the pipeline and the heavy segment. What you mentioned the tonnage carrying capacity. In terms of. Tonnage carrying capacity of the vehicles we have for 50 to 55 ton range. The axle already in production.
Saket Kapoor
So that is all alluding to our business volumes and the margins going up. Which is what the someone substance should be. Especially for the higher damages and the contribution Also moving ahead.
Kishan Kumar Udupi
The per axle realization in terms of pricing. Yes, it is definitely more because there is more metal, more content, more technology.
Sankaran Ranganathan
Yes.
Saket Kapoor
And so for this other expense which you mentioned for the. I think the merit or part. So this is going to be directly proportioned to the sales or what should be then the number. We should simply mean going ahead. Just. To understand what should be the percentage.
Sankaran Ranganathan
No, the point is that the arrangement I mentioned earlier, the arrangement for the support of engineering and product development and marketing based on arms length. We have fixed a percentage. We have fixed now base which is their percentage to the sales to the domestic OEs. So that has been will be payable to MHSM for the valuation what they are bringing in. So I mentioned it earlier. Just wait for a couple of quarters third quarter owners. You can see a kind of. Kind of the normal view about this transaction.
Saket Kapoor
Last for two line time completely missed. If you could just repeat four quarter or what you were trying to say.
Sankaran Ranganathan
No, no, we want to see. You want to have some holistic view. I said at least. At least 3/4 you need to go through. So I. I just requested that you hold it till the third quarter and. See then if you have instill have any points then we can actually discuss it.
Saket Kapoor
Okay. No, if you could just elaborate the component for it. Out of the 25 crore, how much is adjustable to the. To the. To the commission part for the special expenses which we have paid for the technology and the sales promotion.
Sankaran Ranganathan
No, no, that’s what I said. Hold it for a couple of quarters. At this moment of time I am not accessing. The percentage is based on the sales what you made to the domestic OEMs and hold it. Your question for next couple of quarters. My request is.
Saket Kapoor
Okay, but. But will our margins be protected? Sir, when we entertaining.
Sankaran Ranganathan
Margin is protected. I mentioned earlier also another has also reinstated that this new arrangement definitely there’ll be a marginal improvement on the margins and the market expectation is high. That’s why we have given a very clear communication the earlier part of the call that there will be a marginal improvement on the margin. As far the purchase model is concerned. See the margin on holistic way we look at it, the various other elements too. One element is about the product mix, other element is basically the market fluctuations. So definitely we are doing our best. I know to make sure that automatic. Axle margins are well protected under the. New model per se. There will be any. There will not be any deterioration in the margins. There will be a marginal improvement of the margins.
Saket Kapoor
Okay, the last point is for this quarter. How are the programs for the deliverable schedule? If we compare it with first quarter or with last year, what are the current sentiment and this carry part of the story that I joined late. So what would be the impact on us if any on the same. If these two points you can explain.
Nagaraja Gargeshwari
Could you repeat that question please?
Saket Kapoor
Firstly is how are the quarter two deliverables currently ongoing with respect to the programs which we have from the oem the current ensuing quarter and how are these comparables with the first quarter or the last year similar quarter? I just wanted to understand the business sentiment. And secondly the impact of tariff if any. I think so from the US part how are we prepared for the same.
Sankaran Ranganathan
Yeah, I’ll take the first part.
Kishan Kumar Udupi
So this quarter is compared to last year’s quarter. It’s about 5% down. And there are many reasons like we were discussing in the past the AC cabin changeover that has actually created a lot of additional inventory with oem. So we are seeing that impact coming into this quarter which will subside going forward. And then the monsoon is also Playing a role which is typical. We see that from Q this year only thing is the impact is slightly longer than what it was earlier because of the early monsoon and also higher than above average monsoon coming to the tariff.
I think every day morning we wake.
Sankaran Ranganathan
Up with something new.
Kishan Kumar Udupi
I think you know, anybody’s guess right now, 50%, you know, that’s just impossible for anybody to navigate, I’ll put it that way.
Saket Kapoor
And what percentage of our business is directed is directly affected because of these tariffs to our US counterparts.
Kishan Kumar Udupi
Our export to North America is pretty small. So it’s not a big concern for us. And also as you know, North America market is already 50% down and they have capacity. You know, like Nagaraja was telling earlier, only where we are 100% present only that is where we may see this impact. But otherwise it’s insignificant right now.
Saket Kapoor
Okay, and two small points I joined with you. Firstly sir, about the CapEx. How much are we going to spend for the CapEx especially for capacity augmentation and further product introduction. And secondly on our part to double our revenue I think with the five year program which was augmented last year. How well are we progressing and what milestones are we expected to reach this year and next year? If you could just elaborate these two points.
Nagaraja Gargeshwari
Yeah, so I’ll take that. You know right now the board has already approved about 120 crores that we are spending on the capex including our capacity capability and then equipment replacement and also so automation. So all those projects put together. So what we see is, you know, I can split it into let’s say phase one and then phase one A. The phase one, we will be completing it by end of this financial year. So we’re going to start seeing those benefits, improvements coming in during the later part of quarter of FY27 and then coming to the Phase 1A.
We should be able to complete those upgrades and investment and commission all the equipments by December 2026. So that’s a third quarter of 2027. So essentially what I call is this. The first initial investment will be completed in the next 18 months or so. And in the meantime we are already developing on working to meet our FY 2030 goals. What are all the other additional investment that we need to do including our product strategy, including our manufacturing strategy. You know, we are working on that so that we should be able to complete, you know, kind of finalize by end of this year and go to the board to seek their, you know, guidance and approval.
Saket Kapoor
Okay, so 120 is what we spend this year, this is what we have.
Nagaraja Gargeshwari
Outlined this year and next year put together mainly on the, you know, specific, you know, capacity enhancement. Capacity and capability enhancement projects.
Saket Kapoor
Yeah. And for the product introduction, sir, you mentioned some that new products launched would be there for the second half. Yeah, towards the end of second half.
Nagaraja Gargeshwari
You know, we are kind of looking at this point of time, we are kind of fine tuning the product specification to meet the ever changing customer applications and demands. So we’ll be having a properly prototype ready by end of this year and then we need to see when the actual start of production happens with the OEs.
Saket Kapoor
Taking all the factors into account and the business modeling which we have done there. Does the quarter one business environment gives us an understanding that we will have a better year in terms of higher tonnages and thereby improvement in margin and profitability for the year as a whole. Or we should have to, we need to wait for another quarter to get that understanding clear. How are we seeing the landscape for us for this financial year?
Nagaraja Gargeshwari
I would say that we need to wait for at least another quarter to clear all these, you know, the confusions with the tariffs and everything. And then also we need to see.
Saket Kapoor
Like Kishan was mentioning how the post.
Nagaraja Gargeshwari
Monsoon scenario is going to develop. We think that like, you know, it.
Saket Kapoor
Will be slightly, it will be flat.
Nagaraja Gargeshwari
Or slightly lower compared to last year. But you know, unless something goes drastically wrong, you know, we should be putting in a good performance.
Saket Kapoor
Okay, sir, thank you for all the elaborate answers and all the best to the team. Thank you sir.
Sankaran Ranganathan
Can we close the call because all to be executed the time.
operator
Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Shailek Shahja for closing comments. Thank you. And over to you sir.
Sailesh Raja
Would you. Like to make any closing comments? Maharaja sir.
Nagaraja Gargeshwari
Again thank you very much for you know, calling into this earnings call. Really appreciate it. I know that, you know, there are a lot of questions out there with regards to the new models that we have put in there. What I would like to assure every investor is that, you know, the automotive excellence interest has been always taken care of. That is the highest priority. And at the same time we also want to ensure that we, we kind of respect the legal requirements like you know, deal with related party and everything. So we have a very strong, you know, legal team.
We take their advice before, you know, we make any of these decisions. So whatever the investment we are doing, it is going to really help us to, you know, improve our position, improve our share of business at the end of the day, improve our profitability and network of our company. So please continue to have our confidence in us. We will continue to do our best to meet your expectation. Thank you.
operator
Thank you. On behalf of Batliwala and Karani securities India Private Limited. That concludes this conference. Thank you for joining us. And you may now discuss clinical lines. Thank you.