RACL Geartech Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Record quarter, milestone wins: Revenue grew ~15% YoY to ₹115 crores, with exports now ~75% of turnover, while the company secured its first Tier-1 passenger car nomination and a complex EV parking lot mechanism order.
• Margins improving, PBT lagged: Nine-month EBITDA margin improved to 25.12% from 24.75% last year, but Q3 PBT grew only 4% YoY as higher depreciation from past capex weighed on the bottom line.
• Capex cycle is normalizing: Capex will drop from ₹80-85 crores in FY24 to ₹60 crores in FY25, not because growth is slowing but because one-time infrastructure upgrades are complete; future spend will focus on plant and machinery for mass production.
• The EV bet is now concrete, not aspirational: Two major EV platform wins (park lock mechanism for a sports car, parking lot mechanism for a European OEM) give RACL a Tier-1 entry point into passenger cars, with SOP starting 2026-27 and project lives of 7-8 years.
• What to watch next quarter: Whether the ₹548 crore FY25 budget (20-25%+ growth) stays on track given Middle East disruptions adding two weeks to lead times, and any further detail on the parking lot mechanism volumes once confidentiality constraints ease.

The Tier-1 Breakthrough: Two EV Platform Wins

• Park lock mechanism for an electric sports car: RACL was nominated as a Tier-1 direct supplier for the first time in the passenger car segment, supplying an entire subsystem rather than a sub-component. The customer is new, the car launches in 2027, and the project life is 7-8 years from SOP.
• Parking lot mechanism for a European OEM: Won via a global bidding process for an EV platform, this is a complex, high-value-added, high-volume product where RACL is the sole supplier. Mass production is expected to start around 2027, with real capex for this project coming in later years.
• Tier-1 status is now real: The parking lot mechanism customer has nominated RACL as a Tier-1 supplier, a status that management argues reflects technology and engineering capability that "money can buy" but "brains cannot be bought by money."
• Design ownership is build-to-print: The basic design for the parking lot mechanism is owned by the customer, not RACL; the company does concurrent engineering for an exclusive customer and has no non-compete agreement, so it remains free to work with others on similar designs.
• Sample development runway: The next 1.5 years will involve six rounds of sample development before the park lock part is assembled into the fully launched car, meaning revenue from this win is back-end loaded.

Gursharan Singh: "I would say the milestone, the foot, the foundation stone has been set through this project and looking forward that how we are able to grow this vertical and this segment into a fully bigger business opportunity."

Capex Normalization & Capacity Readiness

• Why capex is falling: Past 3-4 years included major one-time investments in infrastructure improvement and replacement of legacy equipment (housing colony, electrical upgradations). Those are now complete, so future capex will be only for plant and machinery.
• Capacity has already tripled: Over six years, capacity increased by 300% due to these infrastructure investments. Once the current electrical installation is complete, the company can utilize this capacity over the next couple of years without repeating the infrastructure spend.
• Capex trajectory: ₹80-85 crores in FY24, dropping to ₹60 crores in FY25. The ₹90 crores invested this year will cater to production requirements of FY25 and onwards; the ₹60 crores in FY25 will be utilized for mass production in FY26. Real capex for the EV parking lot mechanism mass production will start in coming years, around 2027.
• Debt reduction begins: For the first time, the company is reducing debt; repayments will be higher than money raised, and long-term debt will reduce tentatively.
• Captive solar power incoming: Expected to start from March or April onwards, serving about 35% of the company's energy requirement, adding to the Gajraula plant's already-achieved 100% green electrical energy compliance.

Operational Expansion: Noida, Austria & Digitalization

• New Noida plant (Unit 2) inaugurated: A brownfield expansion of 26,000 sq ft (1.5x the existing plant), formally inaugurated on the day of the call. The first export order from this plant will be for an electric bicycle project, with a dedicated team making it a separate profit center.
• Austria warehouse now operational: Taken on rent via the 100% subsidiary RACL GmbH, with an understanding with KTM Austria to provide warehousing and just-in-time supply. Formal billings have started, and management expects the warehouse to help win business from other clients as well.
• Liability shift to India parent: Liability for KTM business was shifted from RACL Austria to RACL India, as KTM wanted documented assurance that the Indian parent company would take liability if something goes wrong at the Austrian subsidiary.
• Digitalization push: An online HRMS application is now live on both App Store and iOS for paperless employee management. On the shop floor, tablets with face-mapped operator login provide real-time efficiency dashboards, and the company is moving toward IoT/smart factory with machine sensors attached to PLCs for real-time data.

Gursharan Singh: "One way we have now killed competition from India for our product export to KTM because you know not many Manufacturers of our size can our ready to ready-made solutions for warehousing that to in a land 7000 kilometers above."

Demand Environment & Geopolitical Friction

• Export momentum driving growth: Exports now account for ~75% of turnover and are growing faster than domestic business, which is also growing but at a lower percentage rate. Sequential quarterly turnover grew 12-15% QoQ across Q1, Q2, and Q3.
• ZF business is stable: Some end customers' models are performing well, some are not, but at a balance it is not affecting RACL. Management declined to disclose the amount of business done with ZF or expected in FY25, citing confidentiality.
• Ramp-up delays are resolved: The temporary and transitory delays for new customers (Man and ZF) discussed in the previous call are behind the company. All technology and machines have arrived at the factory, and backup capacity is now available.
• Middle East tensions adding friction: Geopolitical disruptions are increasing lead times by about two weeks. Customers are demanding extra material, and safety stocks are being reduced from 4-6 weeks to 2-4 weeks, creating temporary local disruptions and some benefit from rushed material. Management insists growth guidance remains unchanged.

EV Strategy & Competitive Positioning

• The gear-maker's hedge: Management frames the EV transition as an opportunity, not a threat, arguing that "no EV without a gear" means the core business is structurally protected regardless of powertrain shifts.
• Tier-1 entry is a deliberate vertical move: The park lock and parking lot mechanism wins represent a shift from sub-component supplier to subsystem supplier in the passenger car segment, a higher-value position that management intends to grow into a "fully bigger business opportunity."
• Complexity as a moat: The parking lot mechanism is described as a "very, very complex product which involves really very high engineering," positioning it as a challenging project that creates barriers for competitors.
• Customer diversification in progress: The electric bicycle project from the new Noida plant adds a non-automotive EV vertical, with a dedicated team treating it as a separate profit center to enable group turnover growth.

Gursharan Singh: "We're lucky that we're gear maker, so no EV without a gear. So our business will never go down."

Guidance & Commitments

Key Metrics