RACL Geartech Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Resilient quarter, back on track: Management described performance as "very resilient" and stated the company is "now back on track" to its original growth plans despite global headwinds, with EBITDA margins sustained in the 21-24% range.
• FY25 revenue guided to ₹525 crores ±5%: KTM was already factored in at a discounted rate, so any recovery is upside; the company is eyeing the ₹1,000 crore milestone in the next few years.
• The order pipeline is converting from prototyping to production: BMW electric car, ZF steering, BMW Motorrad, and Norton nominations all moved forward this quarter, laying the foundation for a multi-year ramp that begins in earnest from FY27.
• Premium and export demand is structurally shifting toward India: European cost inflation is pushing customers to diversify sourcing out of Europe, while India's domestic premium motorcycle segment is expanding on quality-conscious buyers, benefiting RACL across both channels.
• What to watch next quarter: Whether KTM's court-approved restructuring translates into resumed orders, the pace of inventory liquidation at that customer, and any concrete fund-raising announcement from the appointed merchant banker.

Demand Environment & Customer Health

• KTM restructuring progressing: KTM has a court-approved restructuring plan requiring creditor payments within three months and announced a return to full production by March 2025; RACL has already discounted KTM in its projections, so any resumption is a bonus, though huge existing inventory means the impact will show only quarter-to-quarter later.
• European CV demand recovering: One of RACL's largest European customers increased commercial truck production from March onwards, with orders and takeoffs already improving; from 2025 onwards Europe is giving good numbers, and 2026 projections show fast growth, partly driven by defense-system applications.
• Premium segment stable: Management argued the premium segment does not see large fluctuations in growth scenarios because buyers are super-rich or extremely rich and inflation does not affect them; the COVID-era surge in premium demand has now been removed from the system and the segment has returned to pre-COVID levels, with European and American premium sales not actually declining.
• Inventory and receivables improving: Other than KTM, everything is on an improvement trajectory; stocks had increased due to the Red Sea issue and demand slowdown, but things have started improving; KTM is in active recovery mode so the first step is to liquidate inventory.
• European cost inflation as a tailwind: Heavy inflation in Europe raised manufacturing costs, so customers who typically purchased from Europe are now looking beyond Europe and coming to India; this is a positive side effect of the slowdown and inventory corrections.

Mr. Gursharan Singh: "we are too small to comment on to such big topics happening across the world where all the big economies are starting from US to China to Europe, but if we really take it very holistic and very optimistic view you know in India, we are 140 crore peoples, 20% population of the world lives in India, so eventually we are a consumer's economy. No country, irrespective the US or EU, can live without India."

Project Pipeline & New Nominations

• BMW electric car plant inaugurated: The new plant for the BMW electric car project was officially inaugurated by senior BMW India management in mid-February; the plant is now operational for HVL, the first stage after initial prototypes, with sampling running for the next one and a half years and start of production at end of 2026.
• ZF steering components nomination: RACL was nominated for prototyping of steering components for ZF's joint venture with Rane, supplying an American OEM's pickup truck platform with an electric power steering system including gearbox; prototyping starts now with protos due by mid-May, and production begins at year-end 2027.
• BMW Motorrad shifting mechanism: RACL was nominated by BMW Motorrad for a shifting mechanism (auto and manual) for the R-1000 model, the 1-litre successor version; the company is involved from the technically pre-proto stage with concurrent engineering, and has already received the nomination for mass production.
• Norton drive train nomination: TVS nominated RACL for the entire drive train of the Norton motorcycle (gearbox assembly, shifting gears, shafts, everything moving in the bike); sampling is ongoing with initial samples submitted, testing starts in the next 3-4 months, and commercial production is expected by end of this year or early next year.
• TVS 450CC motorcycle: TVS launched an approximately 450CC motorcycle at the Auto Expo; mass production starts 8th March at TVS's new Mysore facility; RACL is a supplier.
• One large OEM super motorcycle: One of the largest OEMs other than TVS has approached RACL for their super motorcycle, tied up with an American moto brand, with potential start maybe early next year.
• Project Titan and Venus: Only Titan will be done at the Udyam plant; Venus was nominated later with timelines 3-6 months after Titan and will go to the same platform; a common building will be built by end of this year, with no separate plant setup required for Venus.

Mr. Prabh Mehar Singh: "this will put us to the road map of 1000 core journey which we are eyeing in next few years, this is if I can call it one of the game changers for us because BMW car is definitely a big achievement, but this is equally big because now this is steering systems"

Customer & Geographic Mix

• TVS relationship deepening: The relationship started four years ago via the BMW project when TVS shifted sourcing out of China to India; TVS has now surpassed Hero MotoCorp in volume and for the premium segment does not want to use its existing supplier base, so it is discussing many big projects with RACL.
• Kubota expanding India hub: Kubota acquired Escorts in India and is putting up a new factory in Uttar Pradesh to produce harvester combines and rice transplanters, making India a global production hub; RACL has been associated with Kubota for 21 years and is the preferred supplier wherever Kubota goes.
• Piaggio/Aprilia ramp-up: Piaggio launched the Aprilia RS457 brand; the motorcycle segment is doing really well in domestic premium and is in a ramp-up phase; RACL supplies to both Aprilia India and Aprilia Italy at the same pricing, with Italy only adding transportation cost.
• Other growing accounts: BRP has many new projects starting in Austria, Mexico and Canada; SML Isuzu is showing good numbers; General Electric is showing good growth.
• Domestic growth drivers expanding: Beyond TVS and Piaggio, ZF Rane will be a domestic business though exported out of India; another undisclosed company making products in China now wants to make in India and export as assembly to Europe; many projects at European quality but Indian pricing are shifting to India.
• KTM hedged: No encouraging growth numbers from KTM were taken in projections; if some customers do not grow, hedging will be taken care of by KTM's growth expected in the middle of the next financial year.

Mr. Gursharan Singh: "If numbers are an issue, companies like BMW and KTM and Kubota are our customers not for one day, it's for almost 20 years... They will evaluate the suppliers based on the performance and suppliers in the number of profitability. It is opposite Pratik, if the turnover is too big then I can defect the customer."

Financial Performance & Margins

• EBITDA margin sustained: Despite a slight drop, the company sustained EBITDA margins in the 21-24% range, attributed to diversity of products, clients, and value addition.
• Employee cost headwind: Hiring was done at the beginning of the year targeting higher turnover, but corresponding growth has not materialized due to the economic scenario, so employee benefit expenses are slightly higher versus last year.
• Finance and depreciation drag: Borrowing and CapEx were already undertaken, so depreciation and finance costs as a percentage are slightly higher versus last year.
• Manufacturing expenses improving: Manufacturing expenses overall came down in Q3 compared to Q3 of last year, though on a nine-month level they still need to catch up.
• Prototyping profitability: Prototyping of new projects (BMW, ZF) helps short-term profitability because customers are willing to spend extra on prototyping due to precautions, high rejection rates, and higher inspection frequency, leading to higher value addition and margins.
• Product mix shifting: The product mix is shifting from two-wheeler to four-wheeler car and commercial vehicle business, with commercial vehicles increasing more; raw material component is higher for commercial vehicles compared to two-wheelers and passenger cars.
• Domestic pricing discipline: Management stated pricing will always remain the same whether in India or exports; payment cycles in India are much faster, which is an added advantage sometimes shared a little with customers, but the company will not eat up margins on a large scale for domestic business.
• Fund raising underway: The Financial Affairs Committee has been given duty by the board, a merchant banker has been appointed, and the company is actively looking at all options; Capex will be judicious, prioritizing what is immediate and cannot wait, and will not delay any growth because of a funds issue.

Mr. Gursharan Singh: "whether in India or Exports our pricing always will remain same yes, in India this is an advantage that ours return cycle means the recoveries are payment cycles are much faster. So, technically we got an added advantage sometimes out of that we a little bit share with our customers also. But generally, we will not eating up with our margins in a large scale"

BMW Electric Car Ramp & Volume Trajectory

• Phased volume ramp: FY26 (first year): around 20% of peak volumes; FY27-28: 30-40% of peak; FY28-29: 60-70%; FY29-30: peak volumes.
• Sampling timeline: The plant will do sampling for the next one and a half years using serial process and serial tooling, with start of production at end of 2026.
• BMW R1300 parallel development: BMW is developing the R1300, its main bread-and-butter model, in parallel; this is under advanced stage and will be a kind of diversification for RACL.

Guidance & Commitments

Key Metrics