Ladies and gentlemen, good day, and welcome to the Q1 FY27 Earnings Call of Sterling Tools Limited. This conference call may contain forward -looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involves risk s and uncertainties that are difficult to predict. 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 the conference call, please signal an operator by pressing star , then zero on your touch - tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Atul Aggarwal, Managing Director of Sterling Tools Limited. Thank you, and over to you, sir.

Thank you, Nessa. Good morning, everyone, and welcome to Sterling Tools Limited's Q1 FY27 Earnings Call. I'm joined today by Mr. Jaideep Wadhwa, Director; Mr. Anish Agarwal, Director; and Strategic Growth Advisors, our Investor Relations Advisors. Our earnings presentation has been uploaded on our website and the stock exchanges, and I hope everyone has had the opportunity to go through the same. I would like to begin with the industry overview. The Indian automobile industry delivered a record-breaking start to FY27 with the highest ever quarter sales across passenger vehicles, commercial vehicles and 3 -wheelers. The strong performance was supported by lower GST rates, easier financing, new model launches and improving consumer demand, along with a favorable base from the previous year. Passenger vehicle sales grew 25.9% Y -o-Y to 1.27 million units, led by continued strength in utility vehicles. 2-wheeler sales increased 20.3% year-on-year to 5.63 million units with scooters significantly outperforming motorcycles. Commercial vehicle sales rose 18.3% year -on-year, driven by replacement demand and higher activity across infrastructure-linked sectors. While 3- wheeler sales grew 29.7% year -on-year, supported by healthy demand both in passenger and goods carrier segments. Exports also recorded their first ever strongest quarter pe rformance across all major vehicle categories, reflecting improving global demand. Looking ahead, the industry outlook for FY27 remains positive, supported by the upcoming festive season, lower vehicle ownership costs following GST 2.0, easier financing and steady consumer sentiment. At the same time, geopolitical developments, commodity prices and global supply chain disruptions remain key factors to monitor during the year. Coming to our stand alone fasteners business. We continue to build on the strong momentum witnessed last year and delivered another quarter of healthy performance. Our growth was driven by an increase in wallet share with existing customers and deeper OEM relationships and continued traction in value-added products, enabling us to outperform the underlying automotive industry. Backed by our focus on customer diversification, operational excellence and cost

efficiencies, we continue to deliver healthy profitability and strong cash flow generation despite the evolving business environment. Our standalone business delivered a robust performance during Q1 FY27. Total income grew by 23.7% year-on-year to INR201.9 crores, while EBITDA increased by 26.9% year -on-year to INR31.1 crores with EBITDA margins improving to 15.4% compared to 15% last year. Profit after tax grew by 48.4% year -on-year to INR16.4 crores with margins improving to 8.1%, supported by continued operational efficiencies and financial discipline. Importantly, our standalone fasteners business continues to remain strongly cash generative and net debt free, providing a solid financial foundation to internally support our long-term investments across EV and technology-led growth initiatives. As we continue to strengthen our legacy business, customer diversification remains one of our key focus areas. During the quarter, we made further progress in expanding our presence across commercial vehicle programs with significant inroads into both LCV and HCV segments. Combined with our growing portfolio of critical and value -added fasteners, this positions the business well to continue outperforming the broader automotive industry. During the quarter, we witnessed an increase in steel prices, which created some cost pressure on our fasteners business. However, our disciplined cost management, effective inventory management and existing pricing arrangements with customers helps limit the overall impact. As lower cost inventory has now been largely utilized, the impact of higher steel prices is expected to be more visible in the coming quarter. That said, we remain confident that our pass- through mechanism, along with our continued focus on operational eff iciencies and value engineering, will help manage these cost pressures while maintaining a healthy margin profile. Coming to Sterling E-Mobility, we continue to strengthen our position as a comprehensive EV powertrain and power electronics solutions provider. Over the last few years, the business has evolved well beyond motor control units and today offers an integrate d portfolio comprising motors, integrated motor and controller solutions, onboard chargers, off-board chargers, DC/DC converters and rare-earth magnet-free motors. This diversified portfolio enables us to participate across multiple EV platforms while increasing the content we supply per vehicle. We are also witnessing encouraging progress across our customer programs. Today, SEM is engaged in 33 active customer programs with strong relationships across leading OEMs, while customer diversification continues to improve with increasing traction in the commercial vehicle segment. We also received business confirmations from 4 OEMs, further strengthening our order pipeline and enhancing our long-term visibility. Our strategy continues to revolve around increasing wallet share with existing customers while adding new customers across vehicle segments. Our motor and off -board charger programs continue to progress well, and we remain focused on expanding our presence across higher-value integrated power electronics solutions.

An important milestone for the business during the year will be the commissioning of our onboard charger and multifunction unit production lines, which remain on track for Q2 FY27. These new product lines will significantly broaden our addressable market while strengthening our capabilities in next-generation EV architectures. Backed by our technology partnerships, we believe SEM is well positioned to address the evolving require ments of electromobility while continuing to build long-term value through technology, localization and product innovation. Moving to Sterling Tech-Mobility Limited, our newest growth platform. We continue to make steady progress in establishing a domestic manufacturing ecosystem for high -voltage DC contactors and relays. The business remains focused on import substitution in a segment that is expected to witness significant demand with increasing electrification across electric vehicles, charging infrastructure and energy storage applications. Our customer engagements continue to progress well with 7 customer programs already secured. Commercial supplies are scheduled to commence from the second quarter FY27, marking an important milestone for the business. We are also systematically increasing localization, which will enhance value addition, improve cost competitiveness and support margin expansion over time. With our fully automated manufacturing facility in Bangalore and technology collaboration with GLV AC, we believe STML is well positioned to capitalize on this emerging opportunity as the Indian EV ecosystem continues to mature. To conclude, we have entered FY27 with a strong momentum across our businesses. Our legacy fasteners business continues to generate healthy cash flows and remains the financial backbone of the group, while our investments in electric mobility and next -generation technologies continue to strengthen our long -term growth platform. Supported by strong customer relationships, expanding product capabilities, disciplined execution and a robust balance sheet, we remain confident of creating sustainable value for all our stakeholders. With that, I would like to thank all our shareholders, customers, employees, business partners for their continued support and trust. We remain committed to executing our long-term strategy with consistency and discipline. Thank you once again, and we'll be happy to take your questions now.

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Deepan Sankara from TrustLine Holdings Private Limited.

Congratulations for a very strong set of standalone numbers. Firstly, in the standalone business, we have seen gross margin increased sharply by 270 bps, but the overall EBITDA increase has been limited to 40 bps. So any one-off expenses in the fixed cost for the current quarter?

I think firstly, there are no fixed cost increases. I think on a standalone basis, our margin was 15% last year, is up to 15.4% this year. So I'm not able to understand the question when you're saying it's not -- can you repeat that question again?

Yes.

But EBITDA margin has increased only by 40 bps.

Yes. So just to give you a sense, which I did cover in my opening speech, which was there have been 2 pressures coming this year. One is the steel price increase. And second, the big one also is, which is very unique this year, is the inflationary cost inc rease. All commodities, besides steel, which is chemicals, tungsten, steel, even wages -- minimum wages have gone up dramatically this year by as high as 35% in some areas. And chemicals, everything has gone up. So that is impacting our GM numbers accordingly. But we feel that despite those pressures, we have been able to generate some efficiencies on the shop floor. Now having said that, our steel is a regular pass -through mechanism. Normally, those negotiations take 2 to 4 months. So we are at a very mature stage of negotiations for price increases on account of steel. And for the first time this year, after a long time, since the inflation impact has been dramatic, we have taken up this matter up strongly with all our customers. And we are getting quite a positive feedback from a large number of them that they'll compensate us for the inflationary impact we have this year. So like I said, these are all 2 to 4 months of lag time before we conclude and before they translate into our P&L.

What is the kind of current capacity utilization we have in our standalone business? And I noted down that INR80 crores of capex we are putting up for the stand-alone. So when that capacity will get commissioned?

So currently, as of today, I think we are probably at 90% to 95% utilization, which is a very high number, keeping in mind the product mix issues we have. So you can pretty much say we are fully utilized right now. But this INR88 crores (wrongly said, kindly read it as INR80 crores) capex we have for this year, some of it has already kicked in, in the first quarter marginally. But substantially, a large part of that capex will kick in, in the second half of the year. So the benefits of the full capex will not be felt on a full year basis. They will be felt starting maybe last quarter and the year going forward. So we invest into our capacities a year ahead of currently, keeping in mind the strong tailwinds we have in this business and the feedback we have from our customers. I think we are taking an aggressive posturing and building capacities with a view of the next 12 to 24 months.

Sir, lastly from my side, what is the kind of guidance we are providing for non-fasteners business for full year FY27?

You're talking about the step-down subsidiary business, EV business?

Subsidiary, yes.

So I think, let me just say it like this, that our fastener business will grow like we've been -- we are up, I think, 20% plus in the first quarter. And based on estimates we have right now, the near

term looks very similar going forward, unless there is something -- unless automotive industry slows down. The industry is growing as fast as well. Going to our EV businesses, we believe that those businesses in terms of revenue will be up maybe at that le vel of 20% to 30% as well on a full EV platform perspective. So that's the kind of number we are looking at growth in our EV businesses, between 20% and 30%.

The next question is from the line of Amit Ahuja from PJ Capital.

Congratulations for the strong set of numbers. So I'll be asking 2 questions. And so you indicated that the benefit of low steel inventory has largely been exhausted. So like how should we think about EBITDA margin for the standalone business over the rest of FY27? And my second question is, how should we think about the growth trajectory of the new business lines in SEM and STML? So could you provide a broad time line for each business and outline their expected growth journey?

Yes. So on the fastener business, we talked about our lower cost inventory getting consumed. I also said that we are expecting pass-through mechanism price increases from our customers on the steel. So from that perspective, I don't see our EBITDA getting any weaker. We hope -- despite the pressures, we are quite confident that we'll be able to hold our margin structures on a full year basis despite the steel and inflation because we expect to get price increases from customers, which are in a very advanced stage. And also, at the same time, we have a good growth trajectory on the overall top line revenue. So keeping everything in mind, we are quite positive that we'll be able to hold our margin structures for the full year. On your second question of EV businesses, like I said, we are looking at anywhere between 20% to 30% growth in the EV businesses this year. And with the momentum we have on customer acquisition on both in our SEM and STML business, I think we are looking a t maybe another 30% to 40% growth next year, FY28 basis. So I think the growth -- we are establishing the growth platform in both our SEM business and STML. Just to summarize, for 20% to 30% growth this year in FY27 and maybe 30% to 40% growth on top of that next year, in FY28.

The next question is from the line of Nitin from Inoquest Advisors Private Limited.

Just continuing the same subsidiary -related performance, like we continue to burn off approximately INR10 crores a quarter. And we also have continued momentum in the Q1. What are the breakeven levels? And with whatever growth rate you are saying, 20% to 30% for this year and 30% to 40% for next year, when do we see -- from which quarter onwards are we seeing positive at least or at least breakeven scenario for those -- both the subsidiary, maybe independently both, each of them, if you can share?

Can you share revenue for each of them separately, what level of revenue there?

On an SEM basis, we'll probably break even at a level of maybe INR175 crores and STML at about maybe INR70-odd crores. So you can say about INR225 crores, INR240 crores-INR250 crores business, both put together, will break even.

And based on our current capacity, what we have built in each, what is the peak revenue potential of this subsidiary?

So Jaideep, do you want to take it by SEM and I'll come to Anish for STML? Jaideep?

So our business is going through an evolution in terms of the changing of the capacity. But we believe that we've got capacity right now for about over INR300 crores without any further investments.

In STML?

At SEM.

At SEM. Anish?

For STML, we can do around INR140 crores on a 3-shift basis.

This is based on current capex and current capacity on the floor for both the businesses. So basically, both businesses put together, about INR340 crores revenue is the current capacity installed. Jaideep, it's INR300 crores. Sorry, INR440 crores, INR300 for SEM and about INR140-odd crores for STML. So INR400 crores plus is the current capacity on the floor.

And operating margin, I presume it will be somewhere at least high teens or mid -- sorry, low teens at least for when we start…

It will be about 10%, give or take, plus/minus 2%. We'll try and keep it at double digit 10% plus levels.

And what is our total exposure, including working capital for each of -- both the subsidiaries?

Exposure from a holdco perspective?

Yes.

So we have invested -- our current investment in STML is INR50-odd crores and our current investment in SEM, also from a cash investment perspective is again about INR48 crores to INR49 crores. So maybe INR100 crores investment in both the businesses.

Yes. I think with this INR88 crores (wrongly said, kindly read it as INR80 crores) capex, we believe to touch a -- if the markets and the customers support us, to touch a revenue of INR1,000 crores, we may have to do anywhere between INR25 crores to INR30 crores investments next year just to balance out everything to arrive at a capacity of -- to arrive at a potential revenue of INR1,000 crores.

I'm sure that you will do it in '28. I wish you all the best.

Yes. We have good traction, good cash flows, good revenue growth. So we are currently thinking on similar lines as well.

Is there anything which is a positive surprise, which can come in both these subsidiaries in a shorter duration or any such positive announcement or some great changer can come through?

So I think for SEM, I would say we've had -- we're getting a lot of success in our LCV and HCV programs, public transport buses programs. If the government spending picks up in terms of public transport and with this current momentum of oil prices being very high, there's a lot of traction for electric vehicles across the board. If that swing maintains and picks up momentum, I think our revenue growth numbers can be a lot more attractive than what I've said currently. And on STML, because this is a safety product, the testing validation is anywhere from 8 months to 16 months, depending on customer to customer needs. Once we are certified, we believe that the revenue growth numbers can be very attractive. I think the mis sing piece there is, we are attracting domestic customers only right now. Once we stabilize our processes and build some revenue with domestic customers, the game changer for that business over the next 2 to 3 years would be export market. We want to target exports also as well going forward.

Is there any number which you would like to say, what is the potential of export business for us?

No, it's too early. I won't hazard a guess on that right now because we haven't really done much customer interaction on that. We want to stabilize the product, the processes, quality domestically, work closely with them, build confidence in ourselves and our teams and our customers, which will give us the leverage to go outside and sell our product more aggressively.

The next question is from the line of Payal Shah from Billion Securities.

I have a few set of questions. First being the announced capex of INR80 crores for the fasteners business. So could you clarify whether this will be a greenfield investment or an expansion of the existing facilities?

Okay. Sir, my next question is what are the key milestones that one should look after or monitor over the next 3, 4 quarters or a span of 2 years across our SEM and STML business?

So I think on both SEM and STML, I think the parameters which we focus on is customer acquisition. And within that, what products we are doing. SEM has graduated from a pure MCU maker to a multi -unit maker where we have got a lot of success, like I said, i n our LCV , HCV business. We want to focus on that. There's other product lines which are under testing and proof of concept with other customers - - incumbent customers in India. So we are focusing substantially on getting success with additional incumbent customers across LCV , HCV , passenger vehicles and 2-wheelers. So that's one. And finally, based on how that revenue trajectory is looking in that. In STML, there's a lot of work being already done on the automotive side. We have done a lot of testing and validation and customer acquisition with the incumbent customers on the automotive side. So we want to focus on going forward, once we stabilize thi s, like I said, we want to focus on charging infrastructure, solar infrastructure and exports after that. So you've got to keep in mind that these EV businesses have very poor EV ecosystem in India. India is still largely dependent on technologies and supply chains from overseas. So we are trying to build our capability, our competencies in the entire EV ecosy stem. And even the customers are graduating accordingly. So the whole system is ramping up, entire ecosystem and supply chain. So it's going to be slow. At the same time, once we -- once all the placeholders are there, once all the technologies are in place, we believe we'll be very well positioned to grow on top of the foundation we have laid.

My next question is the onboard charger and the multifunction unit production that are expected to commence in quarter 2 of this year. So when do you expect these products to contribute meaningfully to our revenues and profitability?

Jaideep, do you want to take that?

Yes. So these products have already been tested as completely imported units from China. Our lines will get commissioned by the end of this quarter. Once we give samples from these lines, typically, customers have to do on-road trials, which could take us about 4 months to do. I mean the company would typically want to do about 50,000 kilometers of road trials before they will sign on such an important component of their vehicle. So looking at that, I'm saying that I feel that we will be in production or we will start supplies sometime in December or January.

So as of now, some of the integrated units that we are providing for the heavy bus and -- for the bus and heavy truck platforms typically run about INR3.5 lakh -- anywhere between INR3 lakh and INR3.5 lakh per unit based on configuration.

The next question is from the line of Dev V, an Individual Investor.

In the SEM division, what would be the percentage between 2 -wheeler, 3 -wheeler and commercial vehicles?

Currently, as per our plan this year, about 1/3, about 30% to 35% is coming from 2 -wheeler, 3- wheeler, about 65% is coming from commercial vehicles. Commercial vehicle includes LCV , HCV and public transport buses.

In the 2-wheeler, sir, if we actually see, you don't have any of the large or the ones that have a higher market share, like Ather, I don't want to take names, but there are these companies like Ather, Hero, TVS, etc. Is there any specific reason why we have not been able to penetrate there?

No, I think in those incumbent or large existing customers, they all have -- some of them have in-house production. And some of them have longstanding relationships with suppliers, they've been working over the years. But there are 2 programs we are workin g on for 2 different 2 - wheeler makers. They are at a very advanced stage. We are hopeful, in the next few months, we'll probably get a positive response from one of the makers. That's one, for a new program. Secondly, the current penetration level is going to almost 10% in India for 2 -wheelers. The volumes are really going up, as you can see. We believe as the volumes go up in the EV segment, a lot of this incumbent or large existing customers will start doing second sourcing of products, which is where we believe we are well positioned to acquire that business.

One follow -up question on this. I've not been following your company for quite the earlier period. In the SEM business, if you can just give us a brief of why are we making losses today? Is it because of the historic business that we have done with one of the large 2 -wheeler companies? Or is it because of the investments that we have made in terms of R&D in the EV ecosystem?

So in FY25, SEM business has clocked about INR380 crores of revenue backed on one large key anchor customer. That key anchor customer in -sourced their product. We lost close to INR280-odd crores of revenue in just 1 year. So that was a huge drop in our revenue, and our infrastructure, our cost levels were based on that larger revenue, that's one. Second big factor is the -- which is what we still continue to do. We still continue to invest a lot into product engineering, into design and development, basically research and development to strengthen our own tech capabilities.

So despite the loss in revenue, we continue to invest in engineering capabilities to make ourselves more and more independent, to make ourselves strong in terms of localization, etc ., etc. So it's an investment we are doing in the future and for the future. So short-term, yes, there is some pain. But we believe we are on the right track. We need to do these investments in R&D to help us acquire customers, help us make better product lines and help us build our future.

Atul, if I could to -- sorry.

Yes, go ahead, Jaideep.

Atul, if I may add to that. Just to give you a perspective, we have about 130 people in our organization. More than half are in product or application engineering, okay? And that investment is crucial for the future. The other thing we need to keep in mind is that as we are launching these new products, there is a huge investment that is going into product testing and validation, because each product that is localized and at each stage of localization, we need to test the product. So if we import a product and give it to a customer and say, please try this out, then we have to do some level of testing to make sure that the product meets Indian regulations and Indian test standards. So we obviously have the China test standards or the China DVP. We then do the India -- we do a whole set of validations in India. We then migrate to a CKD program where we bring in completely knocked down pieces and assemble them. We go through the entire test and validation again, and then we localize. And when we localize, we go through that entire test and validation again, and you're talking lakhs of rupees per SKU. So it's all that part of that same engineering investment that we are doing to basically build our future as a comprehensive powertrain a nd power electronics company.

One last question. We have recently signed for ADAS and driver monitoring solutions. I just wanted to understand, these are primarily used in 4-wheelers, right? So do the current companies that are producing vehicles, don't they already have these technologies? What is the traction that we are seeing in terms of being able to accept a new product or a new solution?

Anish will take this question.

Yes. In ADAS, there's a regulation, which has been notified, which is kicking in from October 2027 in medium and heavy commercial vehicles, which is probably 0.5 million units a year across 5 different features of driver monitoring, front collision warning , blind spot etc . So to capture that market, we have signed this partnership with a company in China. I think the implementation from October may be pushed to Jan 2028, but it's already been notified. And with that regard, we are actually working on.

In terms of the existing models, which already have these technologies, it's in passenger vehicles, that too in the premium trims of, say, Mahindra, Tata Motors or the Korean companies that are offering ADAS Level 2 solutions. There is no regulation, which is on passenger vehicles right now, but we feel 2029, the regulation is already in draft. It will also be notified mandating all vehicles to have Level 2 ADAS starting 2029 here for the Indian market, barring passenger vehicles and commercial vehicles. Even 2-wheelers regulation is under draft at ACMA as well as the Ministry of Road Transport and Highways in cooperation with ARAI and ICAT. And I'm part of that committee also which is drafting the standard for 2- wheeler safety rider assistance solutions.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you very much for your time today. These interactions help us convey our strategy going forward and also help us understand investor concerns around the company and help us tweak our strategy going forward. Once again, thank you very much.

On behalf of Strategic Growth Advisors Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.