JTEKT India Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Sales outperformed a weak market, but margins fell hard: H1 sales grew 5.6% vs the PV market's 1.6%, yet EBITDA margin dropped 130 bps to 6.3% as four temporary headwinds compressed profitability.
• The margin story is a story of delays: Lower-than-planned volumes from new model launches (e-Vitara, Victoris) and stalled U.S. exports meant fixed costs went unabsorbed and product mix stayed unfavorable.
• Brazil export order opens a material new leg: A purchase order from JTEKT Brazil for steering manual gears, starting at ~1 lakh units, carries a path to ₹150 crore in export sales within 2–3 years and a 6% export contribution.
• Capacity build-out continues despite the soft patch: A sixth manual gear line, a third CPS line, and a second CVJ line are all operational or imminent, while Gujarat facility construction begins December 2025.
• What to watch next quarter: Whether the three temporary margin factors actually reverse in H2 as management expects, the pace of Brazil export ramp-up, and any resolution on U.S. reciprocal tariffs.

Margin Bridge: What Compressed Profitability

• Four temporary factors, per management: (1) continuous low exports to the U.S. (a 0.56% negative impact that has not recovered), (2) new product development costs running at a 0.6% drag because model launches were delayed, (3) non-absorption of fixed costs on just 4% sales growth, and (4) an unfavorable product mix because higher-margin new model volumes did not materialize on schedule.
• Employee cost rose 0.8% as a share of sales due to salary increments, while manufacturing costs added 0.2% from higher power tariffs and new production lines under trial. Material cost also rose 0.2% on mix.
• The structural backdrop is a 660 bps gross margin decline over six years, driven by exports not picking up and persistent mix headwinds. Fixed costs, management notes, have been held flat over that period.
• Rights issue expenses of \$8.2 million were absorbed without letting administration costs rise above 1.9% of sales.

Chanana: "all these factors, all these 3 factors, in our opinion, are temporary, and we expect that these factors will improve in the next 6 months' time or the next 2 to 3 quarters, and we expect to come back to our original profit levels."

Export: The U.S. Drag and the Brazil Opportunity

• U.S. exports remain the open wound: Export sales were only ₹29.8 crore in H1, roughly half the full-year run-rate of ₹51.2 crore last year, and reciprocal tariffs imposed by the U.S. government created a new challenge. Management expects the customer to expand exports post-resolution of the trade conflict, but no timeline was given.
• Brazil is the counterweight: A purchase order from JTEKT Brazil for steering manual gears has been received, with production and sales hoped to start from June or July next year. The start point is around 1 lakh units, and as new platforms are introduced, overall exports could reach 5 lakh units.
• The math on Brazil: Management estimates this business can create 6–7% growth and take export contribution in overall sales to 8–10%. Within 2–3 years, export business has potential to reach ₹150 crore, lifting export contribution to 6% and improving operating margins.
• A fourth manual gear line at Chennai is being built primarily to meet the Brazil export requirement.

Chanana: "within 2 to 3 years' time, this business has got a potential to go up to, say, INR 150 crores, and that will be a significant portion of our overall sales. It improves our contribution of export by to 6%. Operating margins will definitely improve."

New Model Pipeline: Delayed, Not Cancelled

• The H1 growth engine was Maruti Suzuki's new business: e-Vitara and Victoris, where JTEKT supplies a complete set (rack and pinion gear, column EPS, CVJ), contributed about ₹26 crore in the first half. But volumes were lower than budgeted because launches were delayed.
• More variants are coming: Another Maruti Suzuki variant similar to e-Vitara is likely to launch, with JTEKT supplying for that product, possibly around August 2026. Honda is also expected to introduce a new EV vehicle next year, potentially linked to the Elevate.
• Tata Coral (an EV carry vehicle) is a new supply start this period, adding breadth to the EV portfolio.
• The Honda drag: Honda declined about 37% in the market during the last year, creating a 1% negative impact on JTEKT's overall growth.

Capacity Expansion & Backward Integration

• Three lines went live in H1: A sixth manual gear line at Dharuhera (August 2025, taking manual gear capacity from 28 lakh to 32 lakh units), a third CPS line (July–August 2025, raising CPS capacity from 10 lakh to 15 lakh units), and a second CVJ line at Dharuhera expected operational within a month or two (lifting CVJ capacity from ~3.7–4 lakh to ~7.5–8 lakh units).
• Gujarat facility: Factory designing is complete; full-fledged construction starts December 2025 with committed funds of ₹250 crore, and building completion is expected by early 2028.
• CVJ forging backward integration: Management intends to start in-house production of forging parts (JF outer, JPL) to secure cost and quality advantages, supporting both domestic growth and overseas supply. Payback will be longer than typical because capital expenditure is higher in such integrations; no accurate estimate was shared yet.
• Post-merger manufacturing rationalization is underway: jacket assembly lines are being shifted to where CPS is manufactured, and the machine building division is being moved to available space at another facility.

Market Context & Demand Outlook

• GST reform provided a tailwind: The rate was lowered from 28% to 18% for smaller vehicles and from 50% to 40% for larger ones, effective 22 September 2025, sparking market optimism.
• H2 demand drivers: The Indian wedding season, positive agriculture cash flows, and new product launches are expected to sustain market momentum through year-end.
• India volume growth expectation: Management expects domestic volumes to continue growing between 5% and 7% over the years.
• JTEKT global support is deepening: The parent company is promoting India as a global site, providing technology support for backward integration (PDC, forging), and increasing exports from India, where more labor-intensive machining operations can be done.

Sugisawa: "The recent taxation reform, which lowered the GST rate from 28% to 18% for smaller vehicles and from 50% to 40% for larger ones, has sparked optimism in the market."

Cost & Capital Discipline

• Fixed costs held flat over six years even as gross margins compressed 660 bps, per management. Cost reduction is a regular ongoing activity with weekly review meetings.
• Administration expenses stayed at 1.9% of sales despite absorbing \$8.2 million in rights issue expenses.
• Management declined to quantify cost savings from initiatives taken last year, and also declined to provide product-level gross margins, calling the competitive process transparent and margins not very different across products.
• ROCE expectation: Management believes it should be better than the current single-digit 7–8%, though no specific target was committed.

Chanana: "That will not be possible. Just to give you an answer to this question, the product level margins will not be very, very different. It's not that there will be a huge difference or one is at 10% another is at 2%. That kind of thing does not happen, because you are supplying to customers."

Guidance & Commitments

Key Metrics