RACL had quite an interesting call, they have been able to develop and win orders for new products from new customers. FY24 growth will likely be ~15% due to execution issues, but orders are secured and once these issues normalize, growth should improve. Concall notes below.

Sales slowdown

• Got stuck on a gear grinding process (first time in India), this affected production for MAN trucks, which is now getting resolved. They have 3 gear grinding machines and 3 more are in order (2 in transit that cost 20 cr.)
• Faced some issues with ramp-up with ZF as order started during COVID and this was their first time catering to 4-W. Issues have now been sorted
• Europe has faced slight slowdown, but they have many product categories and new orders that should propel growth
• Sales will grow at 15% in FY24, lower than 25-30% due to these short term issues

Customer specific

• BMW R1200 (city top selling bike): 10% YOY growth in this bike. New version (R1250) value addition is again higher (shelf life is until 2033)
• KTM has a JV in China, through which they are selling good numbers, and gear is supplied from non-Chinese suppliers (20-25k bikes)

Capex

• 95-96 cr. revenues from Gajraula plant
• Noida plant expansion: will be operational by next month. Earlier was only catering to domestic market but in January will have a new product line (German premium e-bicycle product manufacturer, 5-7k Euro, will supply entire gearbox assembly, patented technology by customer, got this order because cost of manufacturing in Europe became very high). Supplies will start in January 2024
• China procured 50 gear grinding machines (booked until 2026) and RACL could barely get 2
• FY24 capex: 80 cr. budgeted capex and have spent 50 cr. in H1FY24

New projects

• E-bicycle gearbox for German customer, painting process for BRP, wheel axle for KTM
• Painting process for BRP, put up a dedicated paint shop (1.5 cr. expense), will be supplying to Canada for first time (will start in Q1FY25)
• KTM will use their wheel axle in their superbike (will start in Q1FY25)

Margins

• Doing forging inhouse improves margins
• In new products, gross margins are higher

Disclosure: Invested (position size here, no transactions in last-30 days)

@Amit2saxena
thanks for your message. In my opinion, the SEZ dedicated building are not attracting new tenants as they are not getting tax incentives. So only limited ITES related export service providers would be looking at that office area. As a result, the occupancy in SEZ for Embassy as well as Brookfield was lower than average occupancy.

While based on my understanding from con call, I understand that in Bangaluru office, Embassy was able to get approval for buildings denotification. However, now floorwise denotification from SEZ would provide better planning of SEZ area (consolidating SEZ clients in specific area) which would release new area for general purpose which would improve occupancy in medium term.

The problem is existing tenant would be seeing tax incentive being not avaialble and may not be keen to renew the lease. At the same, since the area is notified as SEZ (which mean can not be used for domestic market services and shall be exclusively for the exports), demand from new tenants (with no new tax incentives) is very low. Hence, occupancy in SEZ office was higher than non SEZ area. As per Q1FY24 con call, find enclosed management comment on same.

Dislcosure: Embassy REIT is the second largest holding in my Debt/Hybrid portfolio. I have traded in Embassy REIT during last week to benefit from major price decline in 6 December 2023. My view may be positively biased due to my investment. My understanding on REIT instrument structure and market may be wrong. I am not reommending any investion actions to reader, I am not SEBI registered investment advisor.

Vinati has commenced commercial production of new Ortho Secondary Butyl Phenol (OSBP) and Di-Secondary
Butyl Phenol (DSBP) at their Lote facility. Only manufacturer of OSBP and DSBP in India with an installed
capacity of 5000 MT and 1000 MT respectively.

15187dcd-61a2-4160-8c40-e104682a14e1.pdf (378.8 KB)

Fundamental concern is that due to sugar companies being banned from using sugar to produce ethanol, demand for ethanol plants orders will lower. Hence profit booking is seen.

Keep tracking and see if it consolidates. Company is still great for Ethanol & other Biofuels.