Sundram Fasteners Limited says export cycle reaches 9 months

Sundram Fasteners Limited said in Q2 FY27 that its export working-capital cycle can reach nine months, while 57% year-on-year export growth lifted inventories, receivables and Goods and Services Tax input credits. Management said cash flows were not stressed and expected borrowings to moderate as cash generation returns to normal levels.

Why did Sundram Fasteners' operating cash flow appear weaker?

Sundram Fasteners said the reported cash-flow pressure reflected working-capital absorption from higher business activity rather than operational stress. The company said inventories and receivables increased alongside activity, while Q2 FY27 export revenue grew 57% from the corresponding quarter. Management attributed about 10 percentage points of export growth to rupee weakness, with the remaining 47 percentage points arising from volume and dollar-denominated growth.

The company also cited accumulated input-tax credit as a contributor to the cash-flow outcome in Q2 FY27. Sundram Fasteners said procurement of raw materials at inflated prices and its capital-expenditure programme added to input credits. Its subcontracting model adds another mechanism: materials move out for processing and return to the company, which creates a GST input-credit balance in its books.

How long can Sundram Fasteners' export cash cycle last?

Sundram Fasteners said export transactions typically have a much longer cycle and can stretch up to nine months. Management contrasted this with the previous period, when exports were lower and the cycle was shorter. The difference matters because exports recovered to almost 30% of revenue in Q2 FY27, from around 25% after tariff and other impacts reduced their share in the previous year.

The higher export contribution accompanied faster sales growth. Sundram Fasteners reported about 30% revenue growth in Q2 FY27 and said exports increased 57%, supported by improved schedules at Cummins and Navistar. For H1 FY27, revenue reached Rs 3,254 crore versus Rs 2,605 crore in the corresponding half, a 25% increase, while export growth was 40%.

Management separately described export products as having earnings before interest, tax, depreciation and amortisation, or EBITDA, margins above 20%. It said exports accounted for about one-third of revenue around two years earlier and that a return towards that share could expand margins. That potential mix effect does not remove the timing issue because inventory must be produced and receivables collected before export revenue turns into cash.

What changed in Sundram Fasteners' sales mix and profitability?

Sundram Fasteners' export share rose to nearly 30% of revenue in Q2 FY27 from roughly 25% in the previous year after tariff-related disruption. The company reported profit before tax of Rs 160 crore for the quarter, compared with Rs 140 crore a year earlier. H1 FY27 profit before tax was Rs 311 crore, compared with Rs 278 crore in the corresponding period.

Raw-material inflation partly offset the sales growth in Q1 and Q2 FY27. Sundram Fasteners said steel and aluminium costs rose, while indirect materials such as stores and tools also faced inflation. Management said the contribution-level effect versus the corresponding quarter was almost 3%, though lower fixed costs and improved asset utilisation partly mitigated it. Q2 EBITDA margin was 15.7%, while H1 FY27 EBITDA margin was 15.9%.

The company said original-equipment customers generally pass through material-cost changes immediately, although some arrangements had historically operated with a three-month lag and now use one-month indexation. However, 40% of business, comprising about 10% aftermarket and about 30% exports, did not have the same corresponding compensation for raw-material inflation. This means export growth can raise revenue while adding both working-capital needs and input-cost exposure.

What does Sundram Fasteners expect for borrowings and cash generation?

Sundram Fasteners said it has sufficient banking limits and expects borrowings to moderate as cash flows improve and return to normal levels. Management did not provide a borrowing balance, cash-flow amount or a timing target for normalisation. Its expectation rests on the view that inventories, receivables and tax credits built up because activity and exports increased rather than because operations were under cash-flow stress.

The company also said customer schedules remained available across domestic and export markets in Q2 FY27. Original-equipment customers typically provide one month of firm schedules and two months of indicative schedules, according to management. It said this visibility supported its expectation of sustaining turnover at the current level and seeing further growth, although those schedules are planning inputs rather than a nine-month collection forecast.

Capital expenditure is another variable in the cash outlook. Sundram Fasteners said it had spent Rs 281 crore against its FY27 capital-expenditure programme of about Rs 400 crore and remained on course to complete it, possibly slightly above that amount depending on customer requirements. For FY28, management said it was too early for firm guidance, but cited a historical annual capital-expenditure range of Rs 350 crore to Rs 450 crore.

Conclusion

Taken together, the disclosures indicate that a larger export contribution is extending the time between production spending and cash collection, while GST credits and capital expenditure add to the working-capital balance. Management also linked higher export mix to products with EBITDA margins above 20%, creating a separate profitability consideration from the timing of cash conversion.

The next scheduled point to watch is the Q3 FY27 update, when management said it expects to have a clearer view of the FY28 business plan. Investors can also monitor whether borrowings moderate as management expects and whether the FY27 capital-expenditure programme, already at Rs 281 crore, stays close to the roughly Rs 400 crore plan.