RACL Geartech Limited

[DEBASHISH]

Racl qtr 2 2122 .pdf (7.4 MB)
very good topline growth ,moderate bottom line growth

quick observation -opm is ok …cash flow impacted because of debtors (the magnitude is large may be because of quarter end billing ) …borrowing increased for funding P&M … Inventory increase is in line with sales increase…lets wait for investor concal

Discl -Views may be biased because of my holding

[ankit_tripathi]

Not happy with the reult.

RACL was a company which could get advance money even for expansion from client.
Now from results it seems they could not get get cash even for sold items.

Will wait for clarity or May be end an email to enquiry about it .

Invested

[dhawal_patel]

Did you get a chance to ask your queries to the management. That can also help everybody else.

[myfirstmillions]

Does anyone know if Sona BLW is a direct competitor of RACL?

[sahil_vi]

Concall is next friday

Please register for, attend, ask good questions if you are interested in the company.

Some questions I am hoping to ask if i get a chance:

1. One of the biggest reasons clients prefer RACL is the quality of gears that we make. When a client asks for 100 PPM errors, we ensure quality is maintained under 25 PPM. Can you please share some details on how we are able to accomplish this? How do we build & maintain a culture of quality?
2. In previous interactions, company has said that gears for EV bikes will require higher precision & thus be higher gross margin. Since we are already working with some OEM EV programs, do we have any estimates for whether the increase in gross margin will compensate for the fall in volume due to EV requiring fewer gears?
3. Each company generally thinks about how to capture a higher & higher share of wallet from their existing clients. What are some of the measures we are taking in this regard? Is there scope for us to capture a higher share of clients’ wallet?
4. How is the capacity expenditure program going on? Have we started doing testing for our newly built capacity? When do we plan to start utilising our new capacities ? Are we on track for when we want to reach 100% capacity utilisation?

Disc: invested, biased.

[vivek423]

Answers from a prior interaction

1. Invested heavily in their laboratory

2. 3-4 percent revenue comes from EV currently

3. Don’t like to have any customer concentration risk. So increasing wallet share needs to be balanced against that. Also for one of of the programs for BMW they are the only supplier of certain gears and assemblies. (This was quite a revelation)

[sahil_vi]

@vivek423

Invested heavily in their laboratory

That much is clear, but would be nice to know exactly what they are doing.

@vivek423

Answers from a prior interaction

Which interaction?

@vivek423

3-4 percent revenue comes from EV currently

Question is a bit different. Question is whether increase in gross margin due to requirement for higher precision gear can compensate reduction in volumes.

[Dev_S]

Trend for Kubota exports seems to be going well in Oct and Nov months, going by weight and qty( just to observe trend as this is limited set of data only for NA)

Racl Geartech Ltd. | See Recent Shipments | ImportGenius

Earlier month snapshots here

RACL Geartech Limited

Paid website but trend on export seems to be on uptick for exports to Kubota [Screenshot_20210906-225513_Chrome]

Qs that would be interesting to get answers to ( sent as well in mail to IR)

1. As expressed in previous calls - a new customer incubation which was in works and was to be announced - updates on same as well as pipeline view.
2. Quality of growth and scalability - will RACL play with same playbook as last decade or leverage EV/Gear skills and capabilities to play for a meaningful aggressive scale in this decade EV opportunity and participate in mass equation as well.
3. 2X asset turns - what levers will enable us to reach there and when? Given we will always need to invest for growth, is it practical to assume 2X at consol? Does current capacities suffice with some brownfield( gross block at 170 cr) for 500cr rev ambitions broadly or need significant new greenfield Capex?

[Marathondreams]

Another important point to check is - Will Kubota’s stake increase in Escorts have any positive impact on RACLs’ business in India? Not sure how much business Escorts do with RACL, if any?

[harsh.beria93]

FY22Q2 concall notes
• 500-600 unique parts are manufactured each month with total volumes averaging 7-8 lakh every month
• Piaggio is the oldest customer, recently added Escorts for their domestic tractor division
• Ventured into passenger cars through ZF
• Electrical vehicles (EVs):
o Started export supplies to EV scooter parts
o BMW Germany launched EV scooter in Germany (model number CE04) which is being supplied by RACL
o In discussion with one EV scooter manufacturer in India
o Number of parts reduce in a product kit in EVs while realizations for the kit remains the same implying higher realization per part
o Have started giving breakup of ICE vs chassis & suspension (which will be required in EVs) vs EV revenue. FY22 will be 4% from non-ICE
• As a de-risking strategy, RACL is moving towards steering parts, the current parts are more towards the engine
• Bikes are 50% of revenues currently
• RACL was the first gear exporter to Japan in 2005
• The number of mechanical processes in-house is higher than competitors which leads to a complete business solution for clients
• Have very clear visibility of 500 cr. by FY25 with tied up business (or in advance stages of business being tied up). ZF and MAN trucks will contribute to 20-25% of 500 cr. by FY25. Comfortable with the current leverage (~0.98x)
• Internal focus is to keep exports to 65-70% and domestic mix to 30-35%. Domestic business was adversely impacted due to de-growth in 3-wheeler business. The new relationship with Escorts and TVS should improve domestic share

Disclosure: Invested (position size here)

[sahil_vi]

Notes

2. Reduction gears go into EV. EV parts we started recently. Some assembly, some lose parts. Every month we do 500-600 parts. 800K parts a month Volume.
3. 26 acre of land in gajraula. Unit 2 in Noida.
4. RACL Geartch gmbh office in austria. 2 people. Last mile support.
5. Bikes: BMW, KTM, Piagggio, Yahama, TVS, kawasaki
6. 
7. For PV: BMW, Porsche, ZF.
8. 2W: 50%, tractor: 20%, ATV: 18%, 5% Industrial, PV etc
9. SOP of BMW EV scooter parts started at customer end.
10. ZF & MAN sample submission going smooth. SOP (start of production) to start in June 2022. RACL production will start in Feb 2022.
11. Undergoing business discussion with EV scooter maker. Major German car manufacturer for steering & suspension parts.
12. 96% come from ICE. 1% from EV. 3% from chassis.
13. FY23: EV: 4%, Chassis & suspension: 8%, 88% ICE.
14. Quality is a way of life: Quality starts here: people, way we think, way we work, follow the processes, We take care of our people, provide them good infra to work over there, even in peak summer temperature, AC workshops, best technology, well groomed workforce, duly supported by systems, following written guidelines & systems. Drive-train: kinematics.
15. For a fuel ICE engine: 1 motorcycle; 140$ : 10k INR. for EV package is still is around 11k rupees.
16. Technology edge: Customer wants solution under 1 roof. Precision gear is complex product. Plethora of processes. RACL has been unique in defining our strategies in last 10 yr. We invested in global technology, completely integrated setup under the roof. Can produce gear under any processes. Produce gear for 3W as well as aircraft.
17. Large # of parts have small to mid volumes. 800 different parts. Not all 800 are produced every month. 100 pieces of X in month 1. So we have to maintain minimum inventory of each part. Premium segment niche market volume are very limited.
18. Product costing has built in feature for higher inventory.
19. Clear roadmap for 500cr revenue. Tied up + advanced stage of serious discussions is already 500cr revenue.
20. Kubota has done strategic alliance with escorts. Big opportunity for RACL. Will increase our domestic market presence. 30-35% domestic, 60-65% exports.
21. Took 3 years to test the BMW EV. 1st big product launch with them.
22. Europe Lockdown is only for pub & restaurant. So lockdown is not impacting RACL european customers.

Disc: Invested, biased.

[msandip]

Thanks for the detail notes Sahil, it was super quick!

One quick question: I dont remember if I have seen Porsche in their customer list earlier. Anyone seen it earlier? Are they added recently?

[sahil_vi]

@msandip

One quick question: I dont remember if I have seen Porsche in their customer list earlier.

this was surprising to me too. Porche came through ZF client aquisition. This is why ZF was so huge.

Porsche General information - Porsche AG

I think currently supplies to ZF are not material but we can expect 20-25% contribution by 2025.

[msandip]

Thanks for the link. So its clear that ZF supplies their components to Porsche. Now the question is has Porsche become the RACL customer through ZF engagement, or RACL is supplying directly to Porsche? If its later then thats something really exciting. Porsche is a cult brand and having them as customer speaks at length about the company, but I guess as you said they came through ZF client acquisition.

As management said, ZF sample submission is going on now, and production to start in June 2022. Also, RACL will supply chasis components to ZF, so diversifaction strategy will start gaining ground big way.

This is what they said in Feb 2021 concall:

Another big addition to our customer list is ZF which is one of the biggest automotive component manufacturing company across the globe and we shall be supplying chassis component to ZF. This is the part of our diversification strategy as these parts shall be for car segment. We shall also be supplying some critical components for both electric and hybrid cars and are also discussing new projects with them.

[S.A.B]

In the 15 point , what’s package, haven’t understood ? Would you mind clarifying?

[sahil_vi]

@S.A.B

package

The total value of all components is the same regardless of whether it’s ev or ice. But fewer parts in ev. So higher value added in ev compared to ice.

I suspect this can also improve the fixed asset turns. Will try to probe management more on this aspect in subsequent few concalls.

[msandip]

Recording of today’s concall has been made available at company’s website:

http://www.raclgeartech.com/pdfs/Audio%20Recording%20of%20Q2%202021-22%20Investor%20Concall%20held%20on%2010th%20December,%202021.mp4

Investor presentation:

https://www.bseindia.com/xml-data/corpfiling/AttachLive/914cf4a7-2407-430c-8822-4cdad055f448.pdf

[Marathondreams]

In last 6 months, I have seen marked improvement in their communication. Started conducting regular concalls, uploading investor presentations, quality of investor presentations (giving breakup of their revenue across product/customer segments, talking about new products etc) and now uploading concall recording in “record” time…:-

Also about the question of arranging plant tour, they came up with better idea of preparing a plant video and showing it to all investors next time, thereby avoiding information imbalance (those who do plant tour will learn more about the company than others). It is refreshing to see such fairness from such a small company. It shows they are getting ready to be amongst the big boys… Increased my conviction further…

Disclosure - invested and transacted in last 30 days.

[Guarndian_Nettings]

the humility that comes across is remarkable…

[msandip]

This update was shared in Feb concall:

The second project they mentioned here was for BMW EV scooter. So, RACL is supplying e-axle and entire kinematics for BMW EV scooter !

Third project they mentioned here was ZF.