Concall-Transcript
Hey guys - I’m new to Investing and have learned a lot from the Valuepickr community. Had a quick query on how to view Operating Profits not getting converted to cash - as this is a Capex Heavy business, and requires constant investments/capital to grow, how should one view this in isolation, and how does the market view this ?
I guess in a bull market, the market would not care as much if other parameters like EPS growth/RoE/Growth is high, but how would this change in a bear market ? Would love to get your thoughts on this ! Thank you 
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Hi Nikhil,
I am not an expert but please do read the enclosed doc from Manish Gupta (Solidarity).
“Delayed gratification: This is not very different from a graduate who goes on to take an advanced degree rather than immediately accepting a job. You are postponing a salary you could earn today, for higher skills and hence better job prospects and a higher salary two years down the road”
Hope it helps. Invested and biased.
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Thank you for sharing this note, Ankit. Well written & shares a unique perspective on Manufacturing as a sector, which is usually a lot more non-glamourous than consumer plays
Racl Geartech Q1 Fy24 - Good growth Yoy, Down QoQ, historically their 1st Quarter comes flat.
Waiting for the concall for more updates.
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Concall Recording Link
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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.
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RACL Q1, FY 24 concall highlights -
Company Infra -
02 manufacturing locations
03 warehouses in Europe
01 corporate office at Noida
Products -
Transmission gears and shafts, sub assemblies, precision machined parts, Chassis parts, Industrial gears
Product Application areas -
2,3 & 4 wheelers, CVs, Agri equipment, Off road vehicles, Industrial gears
Q1 outcomes -
Sales - 89 vs 80 cr
EBITDA - 22 vs 18 cr
PAT - 11 vs 8 cr
70:30 pc sales breakup - Exports:Domestic sales
Q1 is generally the weakest Qtr-due holidays in Europe
Company’s GMs are industry leading as the complexity of products and value addition by RACL are high
Company is already supplying to most premium bikes in India. Company is the sole supplier to TVS X- electric scooter
Also going to be the sole supplier to a new super bike to be launched in India by next month
In medium term, company to maintain EBITDA margins between 22-26 pc band
Even the Yokes and Suspension parts produced by the company are very high on complexity and value add
At present none of the Yokes are used in Motorcycles in India. These are very high end Yokes being used in European 2 wheelers
3 yrs back, company’s share of revenues from 4 wheelers was zero. This yr, company hopes to do 10 pc revenues from 4 wheelers
Company is only supplying to high end OEMs like BMW, Porsche, Mercedes, Aston Martin etc
Value of company’s transmission parts / TVS X electric vehicle is aprox Rs 10000
Post Covid, Company’s order wins have increased in Europe due China + 1 strategy being followed by OEMs
Intend to keep growing the company at > 20 pc CAGR for the foreseeable future
Aim to hit topline of 470-500 cr in FY 24
Company likely to win one big project in a new segment. Details to be known by next Qtr
Capex projection for FY-24 to 27 at 250 cr
Min asset turn expected on this capex is 1.3-1.4 with an ultimate goal of hitting asset turn of 2
Disc: holding
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Here are my notes from their FY23 AR.
Miscellaneous
- Forex gain : 7.35 cr. (vs 2.66 cr. in FY22)
- Unique business model of well diversified Premium Niche segment and a strong resilient supply chain network
- Defect free quality product with 100% On-Time deliveries . Have earned a dominant position in the fiercely competitive Gear market
- Commissioned 558 Kwp Roof Top Solar Power Plant in Gajraula which will lead to savings of >26 lakh per annum . Instead of capital investments, company entered 25 years OPEX model agreement with an external company . Aim to source 40% electricity from solar energy by March 2024
- They are a zero water discharge company
- Broad basing product mix by producing Chassis, Suspension and Steering Components and sub-assemblies for Passenger cars and Engine Gears for Heavy Commercial vehicles as part of an extension and diversification strategy
- Also supplying components for Electric Vehicles in local and international markets
- Realizes invoice value of goods via bill discounting from RBL Bank Limited, Citi Bank and Standard Chartered Bank. Did bill discounting of 28.49 cr. (vs 13.87 cr. in FY22)
- Bankers : Bank of India, RBL, Citi, IndusInd, Standard Chartered, Yes, SBI (new)
- Share price : 954.15 (high), 444.4 (low)
- Shareholders : 12’826 (vs 13’929 vs in FY22)
- R&D : Is in the process of segregating R&D and capex investments from normal business activities
- Purchase of fixed assets : 61.83 cr. (vs 56 cr. in FY22)
- Advances given : 15.94 cr. (vs 6.08 cr. in FY22)
- Auditor remuneration : 6.45 lakhs (vs 6.35 lakhs in FY22)
Segment share
Geographical breakup and forex outgo
- Exports: 249.97 cr.; Domestic: 88.41 cr.
- Present in 4 states in India, exports to 10 countries
- Forex outgo: 42.34 cr.
Employee:
- 538 (vs 494 in FY22)
- Gursharan Singh remuneration was 2.07 cr. (vs 2.16 cr. in FY22)
- Dev Raj Arya remuneration was 78.27 lakhs (vs 82.15 lakhs in FY22)
- Prabh Mehar Singh drew only 27.42 lakhs
Imported technology
Customers
- BMW Mottarad (Germany), Kubota Corporation (Japan, Thailand and USA) , IT Switzerland (Same Group Company), KTM AG (Austria) Schneider Electric (Germany), Dana (Italy and China), etc.
Important resolutions
- Anil Sharma to be given retainer fees of 2.5 lakhs per month
- Narinder Paul Kaur to be given retainer fees of 2.5 lakhs per month
- Increase borrowing limit to 250 cr.
Disclosure: Invested (position size here)
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Credit ratings notification
Company enhanced its long term bank facilities from 206 Cr to 297 Cr so going for aggressive expansion as discussed on concalls
Actual report from Care Ratings
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Company is sponsoring BMW GS Trophy India qualifier 2023 as a title sponsor for the first time. First attempt of brand promotion at a premium biking event
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Did a short study/overview on the company with my views, most of the things might have been already covered, so apologies for the overlaps, for a new beginner it can act as a quick summary on the company.
Link: RACL Geartech - Google Slides
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Hi Divyansh
Good to see you capture RACL strengths in slides.
How about you taking the lead in capturing the RACL Stock story at VP where other RACL veterans like @ayushmit and team can also help refine. Let us know
Please update your VP profile with relevant details. Saw Latent Advidors headlined, is that your firm - then would encourage to include links in profile.
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is there anyone going to Saturday palnt visit from Bareilly? I would also join…
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Dear Divyansh
Thank you for your spontaneous takeup.
You have been given Stock Story rights. Please check if you are able to edit.
You are the lead/owner of RACL Stock story. I am sure others will pitch in to help
@ayushmit @yogansh @aga.ayush11 @sahil_vi and any others wanting to help
please pitch in generously and help refine once Divyansh created the base. Hoping for a super collaborative effort again. All the best
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Yes, its in Gajraula but the entries are closed now. Happy to share details of the visit here on the thread.
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I have also got the invitation, just wanted to know if someone is going from Bareilly so , I could have tagged along with him
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