TVS & Murugappa: The Aerospace, Defence & Semiconductor Connection

Business overview (what’s common / why these are “unique”)

• Sundaram Fasteners (TVS Group) and Carborundum Universal (Murugappa Group) are positioned as niche, high-margin businesses within traditionally “old economy” industrial families.
• Shared thesis: Both companies have industry-leading margins in their core categories and are pivoting into “new age” growth areas such as:
  • Aerospace / defence / wind
  • Semiconductors / SOFC ceramics

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Frameworks / screening process used (playbook)

• Conference-call keyword & target scanning

  • Sundaram Fasteners: reviewed concall summaries for aerospace scaling targets, validated with overall financial growth.
    • Aerospace target pulled from concall: ₹50–₹100 crore “this year” with ₹500 crore ambition in 2–3 years.
  • Carborundum Universal: specifically looked for discussions around new engines in semiconductors, defence, and SOFC (solid oxide fuel cells).

• Growth-catalyst confirmation

  • Confirmed guidance changes and timeline peaks (e.g., ceramics growth and semiconductor contribution ramp).

• Unit economics + margin attribution

  • Sundaram: margins explained via defect rates/quality and contract structures.
  • Carborundum: margins explained via integration across the value chain and higher-margin ceramics.

• Valuation cross-check

  • Used scenario-based valuation ranges (base/bull/bear) using assumptions on guidance and margin uplift.

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Key metrics & KPIs extracted

A) Sundaram Fasteners (TVS Group)

Core margin / profitability

• EBITDA margin: ~16–17%
• Margin protection: profits and margin stayed intact even during an auto downcycle.

Growth / guidance

• Q1 FY27 top-line growth: +20%
• Q1 FY27 EBITDA growth: +15%
• Mid-term revenue growth guidance: 15–16%
• Bottom-line growth guidance: ~20%
• Exports growth guidance (FY27): +15–20%
• Q2 & Q3: called out as strong (ahead of annual performance)

Segment mix (given as % of revenue / relative share)

• Fasteners: ~₹2,800–₹3,000 crore sales (largest footprint)
• Powertrain components: 12–15% of revenue
• Metal forms: 10–12%
• Cast & machine components: leveraged to North American Class 8 trucks
• Powder metallurgy: ~5%
• Hot & warm forgings (wind fasteners): 10–12% of revenues; 100–200 bps higher margins

Targets / scaling plans

• Aerospace fasteners:
  • ₹50–₹100 crore (near-term target)
  • ₹500 crore in 2–3 years
• Wind fasteners:
  • ₹350 crore run-rate → ₹500 crore after an additional ₹100 crore investment
• Railway fasteners:
  • ₹30 crore/year → ₹100 crore annual run-rate (timing described as “just started”)

Capex

• ~₹400 crore total capex allocation (breakdown mentioned):
  • ₹250 crore into fasteners
  • ₹100 crore into forgings & wind
  • Remaining ₹50–₹100 crore into cast & machine components (for North America truck demand)

Valuation signals (scenario-based, high level)

• Trading multiple referenced: ~40–45x earnings (current)
• Scenario P/E ranges on FY29:
  • Bull: ~24x
  • Base: ~28.7x
  • Bear: ~34.5x
• Revenue/earnings scenario guidance (approximate):
  • Revenue: ~₹6,289 crore baseline; could move toward ₹9,000–₹10,000 crore (base/bull)
  • PAT: ~₹730 crore (bear), ~₹880 crore (base), ~₹1,030 crore (bull)

Key risks to track (execution-oriented)

• Truck cycle deterioration (North America Class 8) impacting demand
• Oil & gas / ICE terminal value risk: 35–40% of revenue linked to oil-gas vehicles
  • Mitigation via EV/agnostic use claims
• Program slip risk (example: automotive program scaling down vs peak expectations)
• Input cost volatility (steel/materials) pressuring margins short-term

Operational drivers / margin mechanics

• Margin creation: low PPM defect rates, metallurgical control, and engineered/customized supply
• Contract structures: shift commodity risk back to buyers (pricing power / pass-through described)

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B) Carborundum Universal (Murugappa Group)

Segment economics & margins

• Value chain split (sales mix):
  • Electro minerals: 32%
  • Abrasives: 44%
  • Ceramics: 25%
• Ceramics margins: ~20.2% (higher than abrasives/electro-minerals)
• Abrasives: ~9.5% overall
  • PBIT for abrasives mentioned around 7.9 in a referenced slice
• Electro minerals: ~9–9.5% (“necessary evil” due to integration role)

Guidance and growth targets

• Ceramics growth guidance raised: 23–25% (from earlier 23 → 25)
• Semiconductor ceramics timeline:
  • Contribution described as starting FY28 and peaking FY30
• Receivables guidance (interest on receivables): referenced as ~11–12%
• Ceramics margin guidance: ~20.5–21%
• Ceramics growth guidance revised over quarters; ended at 25% (as referenced in the “growth guidance trend” section)

New age “adjacencies” & capacity plans

• SOFC ceramics:
  • pilot plant mentioned
  • described as used in Bloom Energy-like hot boxes for data center power
• Semiconductor wafer fab ceramics:
  • ceramics supplied to wafer fabrication & equipment manufacturers
  • (not manufacturing fabs/equipment directly)
• Defence / ballistic armour:
  • ceramics for ballistic armour with qualifications/large order mentioned
• Capex: ~₹400 crore into ceramics / new age industries
• Optionality size (incremental revenue): ceramics business could add ~₹50–₹100 million incremental revenue (higher margin asserted)

Profitability reset / self-help story

• Past headwinds:
  • Abrasives pressure from Chinese dumping
  • Loss-making European business
  • Russia sanctions exposure: cash trapped ~₹297 crore
  • South Africa JV exit (in Q2 FY27)
• Near-term lever: China subsidy removal leading to better pricing power

Key risks to track

• Too many moving parts across geographies/products
  • execution and capital allocation quality risk
• Russia / sanctions exposure: trapped cash and need for strategic restructuring

Valuation signals (scenario-based, high level)

• Base-case example provided:
  • Sales ₹5,100 cr → ₹7,200 cr (via optionalities)
  • Margins 12.4% → 14.8%
  • PAT ₹310 cr → ~₹580 cr
• Trading multiple referenced:
  • ~30–35x earnings (FY29 basis) in a base-like scenario
  • Bull case: EPS could reach ~₹37 and earnings multiple ~27–28x (as stated)

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Concrete examples / customer wins referenced

Sundaram Fasteners

• Aerospace customer additions: Skyroute Aerospace added to roster (ISRO, GE cited)
• Automotive wins: orders from Hyundai and K (sizes referenced: ₹100 crore+)
• Supplier qualification / long-term platform effect: passenger vehicle platform life 7–10 years (supplier lock-in)

Carborundum Universal

• Semiconductors:
  • qualified anchor customers for semiconductor wafer fab equipment
  • orders mentioned for semiconductor WFE ceramics and SOFC ceramics
• Defence:
  • ballistic armour qualifications achieved
  • “large armor order” and export approvals referenced
• Switchgear / metallized cylinders:
  • World #2 producer
  • ~30% market share in India abrasives
  • increasing utilization and move toward semiconductor-grade quality in silicon carbide
• Integration moat: electrominerals upstream supply supports quality vs Chinese fluctuations

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Actionable “what to watch” (execution tracking metrics)

Sundaram Fasteners: only track 3 things

• Non-automotive revenue growth (especially wind/aerospace/defence/railway)
• Margins (do they expand with mix shift?)
• Overall revenue growth acceleration (returning after ~12–16 quarters)

Carborundum Universal: track capital allocation + restructuring levers

• Ceramics scale-up: growth to ~25%, margin stability ~20.5–21%
• Execution of FY28–FY30 semiconductor ramps
• Abrasives restructuring to offset European weakness and validate margin “self-help”
• Sanction exposure resolution: Russia cash trapped ~₹297 cr

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Presenters / sources

• Presenter: narrator/author of the “SOIC – Unique Business Analysis series” (no individual name provided in subtitles)
• Companies discussed:
  • Sundaram Fasteners (TVS Group)
  • Carborundum Universal (Murugappa Group)
• Source basis: information attributed to conference calls (concalls) and valuation analysis using third-party research referenced as StockScan / deepdive-style reports.