RACL Geartech Limited

RACL Geartech Q1FY24 Concall:

Business:

-Revenue grew by 10.88% YoY 89.62 cr vs 80.82 cr

-EBITDA grew by 31.31% YoY 23.19 cr vs 17.66 cr
-PBT grew by 44.18% YoY 11.65 cr vs Rs.8.08 cr

-Usually the first quarter of the company is the lowest for the year, this could have been much higher due to shipping bills being filed late

-EBITDA margins stood at 25%-26% (Increased by 4% vs Q1FY23) driven by higher value addition in the product segment. Moving from lose component manufacturer to highly precisioned oriented manufacturer.

-Working with many sub-assemblies.

-The more complex the part is, the more margin RACL is able to command

-New projects are taking shape towards electric segments, hybrid segments. The customer’s consciousness towards quality and procedure is much higher. The mould is more complex and designs from customers have also been very complex. That is why the gross margins look better.

-The product line is such that the raw material content in the products is very low due to complexity of the products where the value addition is more so that is why the gross margins are higher.

-Recently the new electric scooter launched by TVS a couple of days back which is an extensive scooter, RACL is the single sole supplier for their entire rear axel assembly and many other things. Value addition per vehicle is 10,000

-One more major super bike is being launched maybe in September for which the entire transmission is being supplied by RACL.

-Developing Yokes for motorcycle. The rear wheel will be driven by the propellers instead of a routine chain

-Until FY2020, the company was zero is passenger car vehicle and last year it was 6% and this year it will be more than 10%. RACL is into passenger cars like BMW 7 series, Porsche, Mercedes AMG, BMW X7, Aston Martin. The kind of precautions and stringent requirements are a lot in these segments.

-FY24 guidance maintained at Rs.500 cr

-Capex plans: Until FY267 250 cr & Asset turn guidance: aim is to take it to 2x which right now stands at 1.3x to 1.4x

Management:

-EBITDA Margin sustainability guidance: 20-26%

-OEM customers have one product one supplier (They never use two suppliers)

-Geographical based competition: China, Taiwan, Japan, South Korea.

-Considering to work towards industrial and aerospace segment

Risks:

-Quality issue may lead to loss of customer

-Raw material procurement

Picture of Yoke shared by the management which will be used in Motorcycles:

Disc: no recommendation to buy or sell.