ZFCVINDIA — earnings call

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Prepared remarks

LIMITED · MODERATOR:

MR. SHANKAR VENKATACHALAM – HEAD, OE SALES – ZF COMMERCIAL VEHICLE CONTROL SYSTEMS INDIA

MS. M.

MUTHULAKSHMI – COMPANY SECRETARY – ZF COMMERCIAL VEHICLE CONTROL SYSTEMS INDIA

Moderator · Conference Operator

MR. ANNAMALAI JAYARAJ – BATLIVALA & KARANI SECURITIES ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Ladies and gentlemen, good day, and welcome to ZF Commercial Vehicle Control Systems

Questions and answers

Moderator · Conference Operator

The first question is from the line of Mukesh Saraf from Avendus Spark.

Mukesh Saraf

My first question is on the EBITDA margins.

We have seen the margins improve significantly this quarter.

We actually saw the same last year third quarter as well when sequentially the margins improved more than 300 bps. So just trying to understand what has driven these margins because other expenses have come down, while gross margins have stayed similar Q-o-Q.

It will kind of help understand this phenomenon, please?

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Sweta Agarwal

Thank you for the question, Mukesh.

Mukesh, we typically do our retrospective price amendments in Q3. So, what you would see is a small impact of the price adjustments or collections of the increases of prices from April to September also being collected in December.

That's why you see the seasonal increase in the same quarter of last year as well as this year.

I mean, on a financial year basis, you would see a small expansion in our margin over what we delivered for FY '25 and '26, but this is the seasonality that you're seeing in December quarter standalone.

Mukesh Saraf

Right, I mean, retrospective price adjustment will probably reflect in the gross margins, I would imagine, because your gross margins haven't really moved sequentially.

It's the other expenses that have come down.

So, I mean, is this also driven by this pricing -- the retroactive pricing adjustments?

Sweta Agarwal

That's right because proportionately, the expenses would not -- it just goes into adding to the margin, right?

There is, of course, an effort in our cost management and better absorption due to higher volumes, but the impact of the higher EBITDA in last December as well as this December would come from the SPV or the sales price variances.

Mukesh Saraf

All right, Understood.

And secondly, I mean, I think you did mention that exports have remained weak this quarter, obviously, because of the tariff issues, etcetera.

Now that we have a lot of clarity on the U.S. tariffs as well as with the EU agreement, how are we placed in terms of exports?

I mean, if you could kind of help us understand next couple of years, how could exports grow, especially given that the parent actively looks to source from India given its best cost engineering capabilities?

So, I mean, any outlook for the next couple of years we can provide on exports specifically?

Sweta Agarwal

I mean, when you're asking for outlook on a couple of years, let's say that the EMEA is showing consistent growth in vehicle production.

But having said that, we are living in a very volatile world, so commenting for '27 would be difficult.

In general, we can say EMEA is strengthening.

But however, early days yet for the U.S. tariff announcements, and we are not able to comment on that, and we don't see that impact in EDI as yet.

Mukesh Saraf

Okay.

And just lastly, I think in the opening remarks, you mentioned about the mandating of low-floor buses for city applications and how that could benefit the ECAS, the Electronically Controlled Air Suspension product.

Any timelines we could have on the possible mandating of these low-floor buses?

And how is our current revenue from ECAS?

Are we currently importing this product, any sense on the ECAS product?

Shankar Venkatachalam

Yes.

Right now, this is a draft legislation at this point of time.

You might be aware that the market is gradually shifting to ultra-low entry buses to facilitate ease of entry and mobility in cities.

So there is a draft legislation that in the upcoming October 2026 timeframe, all the buses ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal that are going to be sold in major metros and cities could be ultra-low entry.

And we see a potential of this ECAS being utilized in each of these buses.

And currently, yes, it is an imported solution, and we have internally activated some actions towards a fully localized content.

Mukesh Saraf

Any sense on the -- how much like on an average, the content per vehicle for ECAS could be for us, once it's localized, what could be the potential per vehicle realization?

Shankar Venkatachalam

So today, it's running at very low volumes.

Going forward, when the volume increases, the price would also typically come down to maybe about INR25,000 to INR30,000 per vehicle.

Mukesh Saraf

Okay.

All right.

And just lastly, I think the revenue mix that you mentioned for 3Q, some of the numbers are inaudible.

If you could just repeat the OEM aftermarket and exports revenue mix alone for the third quarter, please?

That's it from my side.

Sweta Agarwal

Sorry, could you repeat your question?

Mukesh Saraf

The third quarter revenue mix between OEM aftermarket and exports.

If you could just repeat those numbers, some of those numbers were inaudible.

Sweta Agarwal

Okay.

So OEM was about INR520 crores, aftermarket INR157 crores and exports INR259 crores, with service income being about INR125.

Moderator · Conference Operator

The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities.

Mumuksh Mandlesha

Congrats on healthy results and greetings to the managements.

Sir, we are 1.5 year away from the ADAS regulation implementation.

So, most of the OEMs would have started finalizing the vendors for the ESC, ABS and the ADAS function.

Can you help us understand how are you seeing the book building for us for this ESC and ADAS system?

How we are seeing the traction with the major CV OEMs?

Shankar Venkatachalam

Mumuksh, thank you for the question.

On the ESC side, we are working with all of the OEMs.

So, we would retain our current leadership position in terms of the ESC system overall with each truck and bus OEM.

On the ADAS side, this is still at a discussion phase, advanced discussion phase with most of the OEMs.

But there are discussions going on in the market with regards to other players who have offered products at a lower pricing than what is currently being offered by ZF.

And as a result of that, there are several discussions and ongoing proof-of-concept related topics that are undertaken with each OEM.

So, we are at an advanced stage of discussions and expect to have some directional conclusion in the coming quarter.

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Mumuksh Mandlesha

Just on the content value for the system, we earlier mentioned INR65,000 kind of value for the system, broadly INR25,000, INR30,000 for ESC.

Is it also -- on the ground, are you seeing the same kind of pricing post the negotiation that are going with the customers?

Shankar Venkatachalam

On the ESC, we would be at around INR20,000 to INR25,000 as we had indicated earlier.

On the ADAS, the earlier indication of INR40,000 to INR45,000 was the number we had indicated during our earlier discussions.

However, based on the latest outlook and the feedback from customers, their expectation is somewhere half of that.

So, that's the kind of pricing levels which we are looking at as we are going forward.

Mumuksh Mandlesha

Got it.

Sir, for this regulation, would you require any capex requirement for the next few years to support the orders, sir?

Shankar Venkatachalam

At this moment, we are only enabling our capabilities from an application engineering perspective.

So, that's more from a test track related capability requirement only, yes.

Mumuksh Mandlesha

Okay.

I mean, then going ahead, there would be a requirement to then start manufacturing when the regulation comes in, right, sir?

Shankar Venkatachalam

In the longer term, yes, we would be looking at further localization content when the volume picks up for the market overall.

Mumuksh Mandlesha

Got it, sir.

Got it.

And sir, for this quarter, because the regulation of ESC buses have started, right?

So, I just want to understand what kind of volumes we are doing or what kind of revenue this quarter came from the ESC solution for the buses?

Shankar Venkatachalam

Just to give a comparison, from Q3 of '24, '25 to the Q3 of '25, '26, we are seeing approximately 3,000 units of ESC delta increase.

So, approximately 1,000 units per month increase over last year based on the legislation that has been mandated for the buses.

Mumuksh Mandlesha

Got it.

Agree with that, Sir.

Sir, on the -- just on the low-floor bus, the application...

Moderator · Conference Operator

Sorry to interrupt.

Mr. Mumuksh, may we request you return to the question queue for a follow- up question.

The next question is from the line of Lakshminarayanan from Tunga Investments.

Lakshminarayanan

I just want to understand, what has been the growth of the trailer segment in the last 9 months because what I understand is that, that segment was actually growing faster.

And there were some components which we are actually able to put on the trailer segments where we were doing EPS segments, so on and so forth.

Can you just help me understand how the mix has changed?

And what has been our content in these trailer combinations?

Shankar Venkatachalam

Yes.

Thank you for the question, Mr. Lakshminarayanan.

I think the trailer segment had been growing in the early part of the year, primarily driven by a change in mix from the rigid to the tractor trailers.

However, in this quarter, quarter 3, compared to previous year, there was a dip of about 6 to 7 percentage in the overall trailer production.

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal So, there has been multiple factors related to GST fleet underutilization, export requirement decline and so on.

So, these were certain factors that triggered a drop in the overall trailer production in this quarter.

So overall, if you see, this has impacted in terms of numbers, volumes of trailers that are produced in the quarter 3.

Lakshminarayanan

Got it.

And what kind of components we actually have within them?

And can you just give a rough estimate?

Shankar Venkatachalam

So apart from the prime mover to which we supply to all the OEMs, on the trailer side, we supply the actuators, which are fitted on the axles as well as the braking system-related components, valves and EBF, lift axle control systems as well.

Lakshminarayanan

Got it.

And there was -- we were supplying to a Russian commercial vehicle manufacturer, and that actually had a challenge because of all this Russian war, etcetera, right?

Now, can you just help me understand whether that particular thing was lost or it is actually augmented in some other way?

Shankar Venkatachalam

From India perspective, we were not supplying directly to any Russian manufacturer.

That was more from a global business perspective.

And I think since we are part of the companies which are part of the European Union, I think post the Russia-Ukraine war, all supplies have ceased for Russia.

Lakshminarayanan

Got it.

Third question is that can you just talk about what are the other regulations that would actually help us that is ESC and buses and also ADAS and AES, ECAS, etcetera, right?

So, can you just plan out what would be the next 2 or 3 years and which would actually would drive the growth in terms of prior -- in terms of, which would be taking higher prioritization?

Of course, you've talked about ADAS in the previous question.

Shankar Venkatachalam

Right.

So, ADAS is already a legislation, which is coming up in 2027.

Apart from that, we have a few other draft legislations.

I think one is the draft legislation of mandating ESC and school buses.

So, that is again something that is potentially going to roll out later this year.

And the other point which we spoke about is mandating ultra-low entry buses in the type 1 city bus segment, which could lead to improved sales of our e-cars.

Thirdly, this would be something that is an overall benefit to the CV industry is the scrappage policy, which is under discussion for the last several years.

If that is potentially rolled out, that would have an overall benefit in the CV industry as a whole.

Moderator · Conference Operator

The next question is from the line of Ankit Shah from White Equity Investment Advisors.

Ankit Shah

Sir, my question was on EV bus e-compressors.

So, we understand that our content in the EV bus jumps about 4x or 5x, mainly because of this e-compressor versus the ICE buses.

So, is this with respect to even the smaller buses?

Or is this for a particular segment of the buses?

One, another piece within this call, so are we near monopoly in the e-compressors for the EV bus?

Or ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal is there competition?

So, we've heard names like KingClima, Bitzer, Valeo, etcetera.

So are this our competition or we are near monopoly in India?

Paramjit Singh Chadha

Yes.

I think you rightly said that in electric vehicle, e-compressor is more expensive as compared to the ICE vehicle.

And mostly in India, we are, I would say, a major supplier from India, but there are some imports also by some of the manufacturers.

But as a government policy that every EVA has to ensure that local content.

So we are fulfilling that liability.

Ankit Shah

Okay.

And this e-compressor opportunities for all buses?

Or is it for a particular range of buses, more than 9 meters or 12 meters?

Shankar Venkatachalam

Today, majority of the buses are 9-meter and 12-meter and the current product, what we have proposed fits in that application.

But off late, there are some requirements coming for the smaller 7-meter buses as well.

So, we are trying to see the product, suitable product fit with our product, which is also capable to be packaged across board.

So typically, in a bus application, which has higher air consumption and requirements, our product is the right fit.

Ankit Shah

Got it.

Sir, we understand about 4,000, 4,500 EV buses were sold in calendar year '25.

One report projected that e-bus volumes could hit about 17,000 in 2 years' time.

So, can you share your perspective on whether this is plausible from your perspective?

Shankar Venkatachalam

As you rightly mentioned, the e-bus segment has seen a steady year-on-year growth that has been positively driven by 2 factors.

One is the straight transport unit undertaking related tenders as well as the PM-eBus Sewa related discounts and incentives that are offered.

So most recently, I think the 10,500 buses order was also concluded in the month of November, December, which is going to add a real fill to several OEMs who are into bus manufacturing.

So, these are the quantum of buses that are going to be produced over the next 2 years.

And it is anticipated that the government will further incentivize these kind of initiatives going forward, driven largely by domestic value addition.

So, the key OE players who are able to give more maximum local content will also be incentivized to offer these buses.

The complete opex model operation system to the public.

So. in lieu of that, it seems possible, but of course, subject to a lot of other charging infrastructure and capabilities that need to also be built in to support that.

Ankit Shah

Absolutely.

Right.

And the last question on the recent order that Tata Motors received from Indonesia for exports of 70,000 vehicles.

So, just wanted to understand whether we have an opportunity in this.

So, would these vehicles be exported to Indonesia in a complete knockdown position and our products would go with them or this is not in our domain?

Shankar Venkatachalam

So, of the vehicle orders that they have received, there is an Ultra T.7, which comprises 36,000 units, and that is offered on an Air Brake System platform. in that air brake vehicle system platform, we are working with Tata on that product.

Ankit Shah

Got it.

The advanced products are not part of that, right, like the smaller vehicle?

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Shankar Venkatachalam

I think it's a very basic ABS system.

There are no advanced products as part of the spec.

Ankit Shah

Right, right.

And the last, if you can share the number of...

Moderator · Conference Operator

Sorry to interrupt Mr. Ankit, I request you return to the question queue for a follow-up.

The next question is from the line of Nirali Gopani from Unique PMS.

Nirali Gopani

Sir, my question is on this comment that you made that where the content per vehicle or the pricing between our and the competition is different of 50%.

So, if you can just talk a little bit more on this, how serious is the competition?

Because given we are the technology leaders, how easy will it be for someone to replace us with the OEM?

If you can just highlight a few points there, that will be helpful.

Shankar Venkatachalam

Thank you for the question.

I think the main background of the other players who have come into the segment are from a different segment, the passenger car portfolio.

So, their product and offering may be differently suited.

However, we are still in discussions and advanced stage of alignments with customers with vehicle proof-of-concept trials and so on.

Nirali Gopani

Okay.

So, you expect that in order to win the orders we'll have to come midway with the competition on our pricing or we'll have to compromise on our pricing part?

Shankar Venkatachalam

At this point of time, we are talking about what value we are offering to the customer, and we also have our own testing capability as well as the field vehicle data acquisition.

So, these are the algorithms that are available with us, which are our USP when it comes to talking about the product to customers.

Moderator · Conference Operator

The next question is from the line of Dishant Jain from Quasar Capital.

Dishant Jain

Yes.

Ma'am, can you please repeat on the retrospective price adjustment part?

Sweta Agarwal

Dishant, the price adjustment.

So, price increases happen with effect from 1st April, but the effect is given via POs in December, November or December.

That is the reason why in December results, there would be an impact of retrospective price increases from April to September.

Dishant Jain

Sure.

But then if the price increase, then it should have been in the -- like increase in the gross margin, right?

Sweta Agarwal

It does get into the gross margin, yes.

But you do not -- sorry, please ask your question.

Dishant Jain

Yes.

So, the effect of the price increase should be visible in the gross margin, right?

Because on a Y-o-Y basis, it is on the similar lines.

Sweta Agarwal

If you're comparing it to the same quarter of last year, there is the same impact also in the same quarter of last year.

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Dishant Jain

Okay.

But even on a sequential basis, the gross margin on the same.

Sweta Agarwal

I don't -- I'm not sure where you're getting your numbers from.

Maybe you can connect with me or send me a question via e-mail, and we can take it up there.

Dishant Jain

Sure, sure.

My second question ma'am would be on the -- that recently EU deal.

Are we thinking -- the parent company thinking of introducing some products from the Indian operations since we would be in a position to supply to the Europe after this deal.

So, any thoughts on that?

Sweta Agarwal

Around -- so the EU FTA has just been signed off.

Of course, this presents a significant opportunity, but we are still evaluating what would increase and how this would play out.

And ZF will release comments upon developments on how they are affecting our -- and how they're translating for us.

Dishant Jain

Sure.

And just last question, ma'am.

Is it possible to give the Europe growth and the U.S. growth for Q3?

Sweta Agarwal

Yes.

Europe has grown about 20 -- Europe has grown about 9%.

Europe has grown about 9% and U.S. has degrown by about 28% on volumes -- on vehicle production.

Dishant Jain

On vehicle production?

Sweta Agarwal

Yes.

Moderator · Conference Operator

The next question is from the line of Dishant Jain from Anand Rathi.

Dishant Jain

So, my question is on the low-floor bus city application, like what is the segment opportunity in terms of volume and value?

And how are we positioned to capture the opportunity?

Shankar Venkatachalam

Dishant, when we look at the ultra-low entry buses, these would be typically type 1 city buses.

So today, if you look at the overall volumes in this particular segment, maybe there may be about 1,500 buses a month potentially that could be transformed into the ultra-low entry type application.

Of course, the infrastructure and the routes that are currently mapped on the usage of these buses need to be enhanced.

Otherwise, you're going to have all these buses scraping the floor of every single road pothole that we have surrounding that.

And going forward, the potential opportunity that we have apart from the basic braking system is the e-Cabs, because these ultra-low entry buses also would have the kneeling and raising functionality similar to the Termite Coach bus.

So, that is the opportunity that we spoke about a little while earlier.

Dishant Jain

Okay.

And my second question would be in the smaller CVs, like how are you getting traction for ESC or EVS?

ZF Commercial Vehicle Control Systems India Limited February 12, 2026 Internal

Shankar Venkatachalam

Smaller CV, you're referring to SCV or LCV, which segment are you having queries with regards to?

Dishant Jain

Over 5 tonne.

Shankar Venkatachalam

Okay.

So, in the SUV segment, the products that are there with the air brake, we are already present.

The products that are fitted with the hydraulic brake, we are in series supplies to some of the OEMs with our hydraulic ESC products.

Those are already in series production today.

Moderator · Conference Operator

Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

Paramjit Singh Chadha

Thank you very much.

And we are -- as we discussed that commercial vehicle market above 6 tonnes is booming, buoyant market.

Our team is working to support that.

And definitely, the indications given by all the OEMs during our personal visits also last month are talking about this buoyant market at least till March and even indications are given after April.

Thank you very much to all the stakeholders who are supporting us into this growth and wishing all the best for the future.

Thank you.

Moderator · Conference Operator

Thank you.

On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.