Record Profits, Abysmal Returns on Capital. Classic Small Cap.

The Company That Makes The Parts Your Mahindra Needs To Be A 4×4

Founded in 1964, Divgi Torqtransfer Systems is India’s largest EV transmission manufacturer. But “largest” is a relative term when your peers include a Thai factory that makes the same thing but doesn’t bother with investor relations. The company does three main things: makes transfer cases for 4×4 vehicles, manufactures precision components for global Tier-1s, and tries very hard to convince people that EV transmissions are the future while running a 25% capacity utilization plant.

The business model is simple: buy raw materials, machine them into gears/cases, sell to OEMs like Mahindra, Tata, and Toyota at a margin, repeat. Four manufacturing plants across India (Bhosari, Shivare, Shirwal, Sirsi). Revenues of ₹303 crore TTM. And a management team that sounds like they’ve just discovered export markets for the first time in 2026 — which, to be fair, is still better than some.

Q3 FY26 was the inflection quarter. Revenue of ₹91 crore, PAT of ₹12 crore, and management announcing on the concall that export components business is growing at “over 120% YoY” while Indonesia is about to send 70,000 units their way. Also announced plans for a US factory, a Japanese OEM transfer case program, and automatic transmissions by FY’29. In one quarter. The ambition dial got turned up to eleven, and the market is still loading the webpage.

Transfer Cases, Export Components, EV Gearboxes — The Trilogy of Hope

Divgi operates three semi-independent businesses, each with its own chaos energy. Let’s unpack.

Transfer Cases (50% of revenue, declining trend): These are the mechanical magic boxes that let your SUV switch between 2WD and 4WD. When you press the button and your Mahindra Scorpio suddenly thinks it’s a mountain-climbing tank — that’s Divgi’s transfer case doing the heavy lifting. The business peaked pre-pandemic but is now “approaching FY’23 levels,” which is corporate speak for “we lost customers and are winning them back.” Management claims new 4WD adoption is helping. The Indonesia order (35,000 Scorpio pickups, 35,000 Tata Yodha) should inject ₹80–₹120 crore of incremental revenue over FY’27–FY’28. Exclusive supplier arrangement means no competition on this order. Good story, but it ends when the contract expires.

Components (29% of revenue, growing 120% YoY — the real star): Divgi makes precision-machined components for global Tier-1s like BorgWarner and Magna, which then sell them to Ford, GM, Chrysler, and anyone else who needs a gear that doesn’t break. This segment is on fire. Exports were negligible in FY’23, now running at ₹19 crore per quarter. China gets dinged with a 60% tariff from the US; India gets no tariff (till Congress changes its mind). Divgi is taking advantage. They’re attending the Detroit Tier-1 conference in March 2026. Management is “evaluating” a US manufacturing footprint (decision by Q1 FY’27). The tariff tailwind is structural but not permanent. Still, for now, this is the business with actual momentum.

EV Transmissions (8% of revenue, capacity utilization 25-30% — the nightmare): Divgi spent ₹83 crore to build India’s largest dedicated EV transmission facility (Shirwal plant, commissioned FY24) with 120,000 units/year capacity. The market hasn’t ordered 120,000 units. Or 60,000. Or even 30,000. Current utilization: a depressing 25–30%. Management’s honest word on concall: EV adoption is “range bound” due to “range anxiety.” (The irony of saying “range anxiety” about an EV transmission facility is chef’s kiss.) New product under development (120 kW, 220 Nm), targeting SOP in April 2026. But even if it launches, the addressable market is small. Divgi is betting on 3-wheeler electrification as the faster adoption vector. This facility will eventually make money. Today it’s just capital that’s sad.

Q3 FY26: The Numbers Grew. The Returns Didn’t.