RACL Geartech Limited

Racl -Update

Racl -Future growth(2024-july+sept)

26% CAGR GROWTH in last 2 yrs

=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.

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

=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.

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

=Bagged order from an European Two Wheeler manufacturer for supplying finishd forgings Yoke’s. This is a new business line. In past, RACL has never supplied parts till Forging stage

=At present none of the Yokes are used in Motorcycles in India. These are very high end Yokes being used in European 2 wheelers

=SOP for two new ZF business for started in June 2023. ZF dedicated plant running at 95% Utilisation. Project volume has peaked 2 years before anticipated projections

6…Company likely to win one big project in a new segment. Details to be known by next Qtr


=New Shakti plant was inaugurated in March 2023. The plant has been commissioned and commercial production has started for few projects

=Capex projection for FY-24 to 27 at 250 cr

= The company has projected capital expenditure of ~Rs.61 crore for FY24 (refers to the period from April 01, 2023 to March 31, 2024) for the purpose of creating capacities for existing products alongside new customers and modernization/upgradation of existing plant and machinery.

=No investment is made by the company unless the company gets a nomination letter from the customer

8…Intend to keep growing the company at > 20 pc CAGR for the foreseeable future


=Received best supplier award for 100% Delivery by Kubota India in for CY 22

=Gajraula Plant is TISAX & ISO 27000 certified. Probably one of the first few in India for a company of our size.

=Moving from lose component manufacturer to highly precisioned oriented manufacturer.
-The more complex the part is, the more margin RACL is able to command



RACL Plant Visit Notes (2.0) - 29th October 2023

Thanks to notes from other Colleagues (as@solidarity.in for one) who also visited the plant.

Maybe some of the details are useless for you as a reader, ignore them and take whatever makes sense to you.

Our movement through the plant was from 1- 6 mainly (as numbered on the map below)

It is a 26 Acre plant with ~50% utilized for actual production.

We were split into 2 groups of around 11 people each and one went clockwise 1-5 and the other group anti-clockwise.

But even before getting into the Plant Visit I want to mention a few things about the entire process leading up to the Visit itself.

Firstly, the management was extremely methodical with the application (fill out a form, enter how many shares you have etc) which seemed a little too much in my view.

Then, to those who received a confirmation they sent out an email which was again very precise about where to come, what the itinerary would be, contact details and getting our own SAFETY SHOES and having a proper DRESS CODE

Once we got to the Gate, we waited for quite a bit as our photographs were taken, IDs were checked and a safety jacket (neon color) was provided which took a good 45 mins - 1 hr.

They even stuck stickers on our phone cameras both on the front and back to restrict photographs. Photography is restricted at most plant visits but being THAT PRECISE (stickers & All) AND METHODICAL was something even more experienced investors who were there were surprised.

Anyway, not sure how you should interpret it but it made sense post the visit WHY they were so, some may call it finicky about Everything.

" because how you do one thing is how you do everything" - Somebody.

Anyway, let’s get into the visit itself.

1 - CHETAK : The Main Building (built in 1983) - This is where the office is and where the boardroom etc is along with the oldest unit.

This unit is where the co’ focuses on products for the Agriculture and CV segment where relative to newer products (2W - premium etc) precision handling and cleanliness requirements are lower.

  1. Forging Unit - The forging unit is basically the beginning point since this is where the Raw material - Steel billets (for example) are beaten into the desired shapes for some of the products.

Domestic Steel mills supply the billets

Basically, billets are first cut using a machine (Indo-tech machines).

Then they are pressed (it’s literally a giant press) by a Forging press (chinese equipment) into the core part for what later most likely turns into something like the products highlighted below

Co’ says that the forging design i.e - the shape of the press into which billets are pressed into are proprietary

Up to 15 Kgs of pieces can be forged in house.

The co’ has introduced a new product - Yokes, which was born out of a need.

One of the suppliers to the Customers (BMW vendor in France) had gone bankrupt and the co’ was approached by the Customer to forge these components.

The product has not yet taken off and currently contributes nothing to the Top line.

Basically Yokes are the component which make it possible for a bike wheels to rotate without a chain, its a new technology.

Despite these being ‘higher end’ forgings, It maybe (not 100% sure but likely) lower margin than the current consolidated margins of RACL consolidated.

It’s going to be a “high volume lower margin product”. Too early to say what the contribution will be to sales.

Approximately 50% of Forging requirements are met in house and the remaining are outsourced to 8 suppliers including MM Forgings etc

As for a high-level understanding of shifts from Europe, we are mostly aware that the Energy crisis in Europe had rendered steel production unviable which is reflected in super-normal steel prices over the last 2-3 years, which also shows up in increase in realization of most steel companies in India between 20-21 approx.

Steel Industry in India and Auto Ancillaries have been beneficiaries of this trend : Euro+1

We had met Menon bearings about 1.5 months back and the CFO/Director highlighted the same point. Their export orders had shot up during that period. And while there is increasing interest in Indian Auto Ancs, maybe the supernormal period of 20-22 may not be repeated.

Besides that, MAN Trucks & Buses is shutting their machining and forging unit for ICE and RACL believes that they will do all of these products by 2025 for MAN Trucks.

  1. OJAS - Built 2021 - Dedicated to ZF

This is the latest plant/unit built by the co’ and is completely dedicated to ZF

They have 7 products here which no one else makes for ZF. Exclusive supply (Thanks @Worldlywiseinvestors )

ZF is a Tier 1 Supplier to Mercedes, Aston Martin, BMW and they are present in both CV & PV

Co’ is in talks for a product which is patented and co’ is hoping to win that order.

RACL prefers to work directly with OE but made an exception given the ZF scale. Although, ZF was happy with the technological capabilities from Day 1 it took a while to crack ZF since they had never worked with an India player for Gears.

Another trend playing out with European Auto/Auto Component makers is that they are moving towards higher ‘value added’ and lower capital intensive work, such as Designing and consistently moving out of component manufacturing and focusing more on ‘subsystems’.

Whatever the difference is between the two, I wouldn’t know :stuck_out_tongue: but there is a trend playing out here which is likely to benefit RACL.

When we entered there was a showcase cabinet with all the parts made in this unit.

Mr. Prabh Meher Singh Explained one of the parts and why it was so difficult to make it.

It was a part used in a technology launched just in 2015-2016 by BMW (Verify) which basically balanced out the car when its turning so as to reduce jhatke from potholes etc.

Now, this part looks like a cylinder but the tricky thing is that the thickness of this cylindrical looking part varies throughout the length of the component.

This variability in the diameter/thickness along the length of the component is hard to achieve and even harder to consistently make the component within ‘tolerance limits’

Anyway, this unit was state of the art. Like really state of the art.

The data was centrally available on each machine on a software and ZF could monitor this data from Austria or wherever their monitoring unit is.

It was air-conditioned and machinery was automated and it was super clear, almost like a lab.

Although, I did not understand the nitty gritty of what was being done there lol it looked like it was an extremely high tech operation.

Prab mentioned how components made here (for BMW/ZF - verify) were subject to extremely stringent checks for example, one of their shipments/batch was rejected because it had a fingerprint on it

This unit gave business in 1 year what they had projected in 2-3 years time. During Covid, they enjoyed higher realization because of supply disruptions etc. (outlined earlier also)

As far Raw Material Costs are concerned, not everything is a pass through but Steel & Currency fluctuations are.

Competitors include Hero, Hi-tech Gears, Sundaram Fasteners etc

The 2 Red lines marked on the map show where Solar panel boxes were stacked, they seem to have been recently delivered.

Currently, the co’ consumption is 3.55 MW and 6% of Energy is from Renewables, and co’ is targeting this % to go up to 60%

This will reduce the Energy cost from ~ 7.5 Rs/unit to 3.5/unit

4. This was the heat Treatment plant and I think following the experience at least, in comparison it seemed not as exciting but this is where the components were, well, heat treated.

There were large furnesses which baked components so they could retain their performance at high temperatures.

5. Tejas : Built in 2011 is where 2W export parts were manufactured. Again, quite high tech looking like a lab.

All throughout the visit, Mr. Prabh mentioned the word ‘mindset’ one too many times almost as if it were a gospel and it made sense when you see it in the context of the process itself.

Every little detail counted and one needed to have a ‘mindset’ that allowed for such an operation to become high quality in the first place and remain high quality.

LUNCH @ Building 6 (on map)

The canteen was clean, and the food was absolutely top notch. There was a big banner on the wall recommending optimal sugar intake for Men & Women.

Post Visit management Q&A

The First question on whether co’ plans to raise funds through QIP etc was shot down by the Chairman and he was of the opinion that these things can be discussed in concalls also, let’s talk about the operations based on what you have seen etc.

But it was a great question, given that debt is 1.2X and because they plan to invest 250+ Cr over the next 2-3 years and CFO may or may not be enough to meet the Capex requirements (depending on the growth).


  1. The next question was on ICE vs EV and how well prepared the co’ was for that shift.

Management was of the opinion that because they are in the premium segment, it is going to be a while before they need to worry about that because the EV drive is going to first hit the economy segment for bikes, small CVs, passenger vehicles etc and they are not so much in the Commuter segment. Plus companies likes BMW (bikes) have given them a schedule till 2036 and they are very precise in terms of their planning and have been largely accurate thus far so that gives them comfort as far as substitution risk is concerned.

  1. Third question on how the idea of manufacturing ‘yolks’ came into the picture. This is where GCS explained how the Supplier to one of the customers went bankrupt and the customer asked them to make these parts.

As mentioned earlier these yokes are basically part of the tech that makes it possible for the rear wheels to turn without a chain.

Similarly, customer also asked co to provide a component with a ‘paint finish’ and they have hired consultants etc to setup a painting shop which is at par with Yamaha painting standards (shown on the map on top left side with a note)

That’s all. Then we took a picture and boarded our bus back to Noida.


Thanks for the plant visit update. In the greenfield area next to new painting unit, did you see any factory building construction coming up for next plant or is it still barren land?

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in the area mentioned (paint shop) yes but the remaining field was still vacant. No civil works nothing yet. The yellow area (paint shop shed) had Civil work and steel columns setup already.


Just adding to the notes

-They mentioned willingness to grow in other location for diversifying their revenues (no dependence on one plant)l & current land is enough for next 3-4 years of growth).

-Competitors mentioned include:- Sundram Fasteners, Hitech Gears, Sona Blw.

-Really respect the work both Sona Blw and Sansera are doing in the industry. When I asked them which competitors do they respect.

-Plan to do 60 crore capex per annum going forward (what they stated in the concall).

-Some of the employees were there in the company since 1990s.

-The plant built for ZF housed 7 products which exclusively RACL is doing. 100% supplies. The difference between Japanese and German work culture is:- that Japanese will come to the plant and sit together to rectify mistakes. In one of the past instances a batch of products was rejected due to finger print and also have been rejected due to wrong boxes!

German customers- straight away reject and deduct the amount.

-Observation from visiting other set ups:- plant & machines were noiseless and machinery was mainly from Europe and China.

-Trying to get into differential gears. Lost out on one contract to a large domestic competitor.

-Plans to get into industrial gears. Already supplying:- stated one example how entire Paris can go through a black out as their gears are used in electric circuit of the customer they have supplied to.

-Biggest challenge they face is that of manpower. Training the employees and making them understand the Quality culture is a challenge. Japanese monitor the plant using some software (don’t remember the exact name). They keep checking Quality of each and every product. As all products have a QR code on them.

Promoters strategy was extremely clear when Gursharan sir said this:-

We are a company that is purely focused on niche segments. This is what gives us the gross profit margins. We are not and never will be a mass market company.

Disclaimer:- strictly not a recommendation to buy or sell. Just sharing what I learned on top of notes shared by @First_Principles


Now company informed BSE about shareholders plant visit…


Both @First_Principles @Worldlywiseinvestors beautifully covered all points in their very detailed post .Almost nothing left to cover .

My top of mind thoughts (I didn’t make any notes )….

1)Racl is about “specialized machining as their core competency “ (very high tech plant )hence as per me they may extend from their core of "Gear "to adjacency like “'differential gear and industrial gear”’

  1. Bcos of EV ,market is moving to noiseless car and hence “gear grinding “becomes key -demand is more than what they can supply -getting 3 machines on war footing (against 3 now from Japan ) -total machines in 6 sub factories is whopping 225 !!

  2. Man (a Volkswagen company ) shutting their machining and forging unit for ICE hence those orders may come to Racl in next 2/3 years

  3. My hunch RACL would start planning for next milestone of 1000 cr from next year ,hence being future ready

  4. the promoters have put huge skin in the game (most of their net worth invested in RACL )by investing close to 200 cr in last 3 year ,my hunch is there will be QIP in future instead of increasing further debt

  5. excellent culture in the organization (one needs to see to experience ) to me it’s about customer focus ,quality consciousness ,care and concern ,global outlook etc …these softer aspects is understated in investing world but makes a big difference

Discl : Hold more than 1% + of the company ,hence view may be biased ,please do your own due diligence


Do you think it’s a good time to enter RACL now and buy in SIP mode? I’ve not owned this stock particularly. Would be keen to learn thoughts of the community


Hi @Harshit_Marwah
Buying n selling decision should always be your own. Its a personal choice.

  • Do you like the valuation it is trading at?
  • It has lot of debt, are you ok with this?
  • Do you see a clear vision where the company will go in next 5 or more years?
  • Its a microcap company, so during bear market phase, it may show huge correction with no fault of its own. Are you ok with that? What’s minimum drawdown you can handle?
  • what is your exit criteria?

Since many people have added detailed plant visit notes, i just wanted to add some top of mind things which personally have helped me build conviction after the plant visit. I will structure it in a Q&A fashion.

Question: Given that EVs use lesser transmission gears, how do we think about terminal value of RACL?
Answer: Through a very insightful discussion with Gursharan & prabh sir, we realized that current set of EVs are poorly designed, this is very well exemplified by Ola scooters which find it hard to climb on flyovers & even though rated speed might be 100 kmph but its very difficult to drive at that speed during all conditions. This primarily happens because the Power torque curve when not using transmission gears are distorted. In fact, they are seeing newer generation of EV designs are increasing number of transmission gear modes from 0 to 1 to 2 etc. The value reduction in transmission gears when going from ICE to EV might not be as high as current flawed EV design imply and this is an active area of mechanical engineering research & has to be tracked.

Question: Why does RACL get & retail prestigious customers like ZF?
Answer: I have only heard about this aspect from Charlie Munger when describing the founder of BYD Wang Chunafu. That is the ability to visualize, design, conceptualize & plan the process required to make an auto component when you see one. Because this is all RACL gets from ZF, a drawing of a part. Then, they need to think of the optimal combination & sequencing of different processes like forging, laser cutting, heat treatement, welding, Gear Milling, Hobbing, Threading, dethreading in order to create that part for the customer. There have been instances, where RACL was able to make complex parts with multiple gears using simpler & more efficient processes than even their clients like ZF. ZF specially is a very prestigious client because ZF is itself a gear making company. The very fact that ZF is buying finished gears from RACL speaks volumes about their processes. To me the moat is in the core team led by gursharan sir who spends a lot of his time thinking about what new core capabilities & technologies to incorporate & add to RACL’s repertoire of capabilities. (I believe it would be wisest to ask gursharan sir questions about technologies in concalls and not next year Capex etc).

Question: How will this 25% type growth be realized?
Answer: While their clients like ZF, Man trucks, BRP are growing & outsourcing more parts to RACL (incrementally of complex nature & thus higher gross margins), personally i believe the next leg of non-linear growth will come from working direcly with PV companies like BMW, mercedes. Right now, RACL supplies to PV through ZF & is thus a tier 2. The jump from tier 2 to tier 1 wont be easy, but can be very rewarding since the TAM is larger (higher ticket size & volumes). Personally, i dont think they should have much difficulty to grow to 1000 cr in few years doing what they are doing currently. But if they can crack PV tier 1 market, then the TAM becomes much larger & in my biased opinion the path from 1000 cr to 2000 cr becomes easier (The reason i am thinking about such questions is to ask myself what can be their growth advantage period & thus what might be a good valuation). They also have enough land here to go to 1200-1500 cr Revenue IMO. There is enough land nearby for them to do brownfield nearby if they choose to do so. The business conditions under new UP government have improved dramatically in every way one can imagine.

Question: When there is recession like conditions & high inflation in Europe, how is RACL growing?
Answer: Because of their core capabilities, their culture of excellence , that very thing which drives high gross margins & high cross cycle ROEs, that is the very thing which drives their growth as well. While Auto anc suppliers in Europe are becoming uncompetitive & going bankrupt due to high cost of energy, now credit, high cost of steel, labor cost was always high, no such problems in Bharat. Favorable macro conditions in all of these factors of production of course drive shift in economic value towards us. Core capabilities like RACL’s (culture, innovation, core team, 0 defect policies, we could see this everywhere in the plant, low tolerance for pollutants, willingness & ability to deliver above & beyond what client asks for. Faster, cheaper, better designed) allows them to capture that economic value.

Question: What are the key risks i see?
Answer: They are running on a fast paced treadmill. This particular high growth treadmill requires large capital expenditure. And we saw why. State of art machines. Very high machine to employee ratio. high degree of automation. When they create a new plant, they make sure that machines in older plant are also upgraded every once in a while so that any customer doesnt feel short-changed. All of this capex, a growth rate higher than ROE, and unwillingness to dilute equity forces them to increase debt. This remains to me, the biggest risk. The balance sheet risk. If for whatever unseen once in a decade/century reason their clients stop giving them orders, then debt costs can become higher than cashflows can support.

Disclaimer: I am invested, biased. I do feel there can be some near term headwinds (in terms of growth rates going from 25% to 15%) but the long term permanent economic value creation opportunity here are very attractive.


RACL has 44 Mazak machines, the highest number of a single brand machines . First machine is 15 years old and still functional with 100% good performance.


Compared to Father, son looks like more sort of business guy than a technical one. Do we foresee any lack in the vision atleast technically once Gursharan hands over. Did we had any interaction with other CXOs who can carry the vision on the lines of Gursharan singh, which hardly anyone talked about


I believe results are below expectations.

Results are below expectations, i was expecting anything around 130-140, looks like kavad yatra had a impact on the sales, more details are awaited.



What does Kavad yatra has to do with the business? Pardon my ignorance.

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CMD RACLGeartech


RACL - registration link for Q2FY24 call is out.
however there is some technical issue at present as servers are being upgraded, so please try after 2 hours time

Is there Concal of RACL done this time ?

Yes. On 8th Dec. 2023.
Announcement under Regulation 30 (LODR)-Analyst / Investor Meet - Intimation

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The Investors/Members may register themselves for the Conference Call at investor@raclgeartech.com
before the closure of working hours on Wednesday, December 6, 2023