If anyone has studied past 4 years of this company, a clear pattern emerges. Alternate years are very good followed by flat years. For forecasting EPS for 23-24 and 24-25, I used available details like est sales of 550 Cr in FY 24-25.
| Financial Year |
EPS |
Change |
| 2019-20 |
15.71 |
|
| 2020-21 |
21.77 |
38.5% |
| 2021-22 |
22.12 |
1.6% |
| 2022-23 |
34.71 |
57.0% |
| 2023-24 Est |
37.22 |
7.2% |
| 2024-25 Est |
52.08 |
39.9% |
If you plot stock prices along with this, you will notice that as earning rise, market is rerating this stock and providing higher PE. This also means current year FY 24 is the year of consolidation and stock would start moving up in FY 25 with earning and PE rising in tandem providing good 35%+ potential upside from current price. Needless to say, this assumes no geopolitical event or election related issue in US or India.
Disoclosure - Part of my long term folio held over last 3 years. Continues to add during current downturn.
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Racl Geartech has been nominated as Tier I series supplier, by a Premium Car manufacturer in Germany for supply of Parking Lock Mechanism for electric cars, which is a mechanical device coupled with Electric vehicle.
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RACL continues their growth trajectory (17% sales and flat EPS) and are confident of reaching 548 cr. sales in FY25 (implying 37% absolute growth). Concall notes below.
FY24Q3
- Nominated as a Tier 1 supplier for passenger car segment for the first time. This is for entire subsystem for park lock mechanism and from a new customer for an electric sports car using a new platform coming in 2027 ($38mn business over 7-8 years starting FY27). Competitors were Chinese and European companies. This can change the trajectory of RACL’s business (from 500 to 1000 cr.). Will be manufactured in Gajraula plant (which is now running on 100% green energy)
- Inaugurated plant 2 in Noida (26k sq.ft vs 11k sq.ft of earlier Noida plant). Equipped with clean rooms and invested $1mn capex. Doubled manpower from 120 to 250. Will export new electric bicycle product, earlier plant was only catering to domestic market
- For the electric bicycle product, their customer’s competitor is selling 2mn bikes/year
- Started invoicing KTM Austria locally on a weekly just in time basis
- Capex: 80-85 cr. in FY24, 60 cr. in FY25. Have invested 25 crs. in last 2-years for housing colonies for engineers and managers.
- Still have 10 acres of land
- Sales should reach 548 cr. in FY25
- With 22 customers, RACL is present in every segment (100 cc 2-W, 49 ton truck, passenger cars, tractors, off-road vehicle for sand, snow, etc.)
- With EVs and their low-weight requirements, have seen manufacturers shifting to non-ferrous materials (aluminum, titanium, etc.). Also have seen huge increase in demand for precision machining
Disclosure: Invested (position size here, bought shares in last-30 days)
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RACL Stock Story Link
Thanks @Donald @sahil_vi @ayushmit for your inputs and guidance.
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Racl geartech is down 10%. Margins seems to be the issue. Anyone have any insights?
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Lower sales and lower margins could be due to delayed shipments as well as some impact of red sea issue. Considering the product quality and customer profile, I would not be too worried about the P&L (except interest cost)
More than margins, rising debt level is the bigger issue here. Receivables have risen faster than sales in this quarter. High inventory levels (being 75% exports company) along with increasing capex makes this a highly capital intensive company. Promoters reluctance to raise equity is making the matters worse for the company. Any steps to reduce debt burden can be positive trigger for sustainable future growth
Discl - invested for last 3 years and forms part of my core PF. Hence biased. Transactions in last 2 weeks
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