RACL Geartech Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Flattish year, KTM-driven miss: Full-year revenue grew just 1% to ₹427 crores; Q4 dropped 7.7% YoY as KTM's production halt from October wiped out sales to a key European customer. Without that disruption, management says the company would have been a ₹500 crore business.
• Margins held despite the shock: EBITDA margin stayed at 21-22% through the quarter, and the full year landed at 22% even on flattish revenue, helped by raw material and manufacturing cost reductions.
• Balance sheet reset underway: A ₹80 crore preferential allotment to marquee investors has already been used to pay down debt; cash from operations jumped 140% to ₹64 crores.
• KTM restart is the swing factor: Bajaj Auto's €800 million rescue of KTM AG is unlocking confirmed delivery schedules, with full production expected after European summer vacations. The FY26 revenue target of ₹500-525 crores bakes in only a conservative KTM contribution.
• What to watch next quarter: Whether KTM's supply chain realignment stays on track for an August restart, the pace of debtor-day normalization after the Red Sea disruption, and any prototype-to-order conversion on Project Crystal.

The KTM Disruption & Recovery

• What broke: KTM AG stopped production in October 2024 and remained idle through March 2025, cutting sales from RACL's Austrian subsidiary to near zero for two full quarters. The subsidiary sells locally only to KTM, so the entire consolidated revenue decline of 18% traces to this single customer.
• Inventory pile-up: Loose tools and fixtures had been procured at the start of the year on a ~₹500 crore revenue forecast; when KTM orders vanished, finished stock and WIP sat in the European warehouse, inflating inventory days.
• The Bajaj rescue: Bajaj Auto, already a 49% shareholder for two decades, is acquiring majority control of KTM AG through its wholly owned subsidiary with a committed €800 million investment. RACL has begun receiving confirmed delivery schedules and KTM's factory has restarted production.
• Restart cadence: Management expects full production with a proper plan only after European summer vacations, around end-July or first week of August, because KTM must realign its entire supply chain, not just RACL's parts.
• Guidance assumes caution: The ₹500-525 crore FY26 target takes a conservative view on KTM, not zero but not the 16% share it once held. If KTM returns to full production, the upside would be over and above that range.

Gursharan Singh: "A company which is lying dead for the last six months and not producing anything and suddenly we can't expect that it starts producing with full blast that they have to also manage. All the supply chain, because once supply chain disruptions are there. So, it's not that only RACL suppliers, they may be having other suppliers also across the board. So, they have to realign all their strategies. So, it will take some time."

Revenue Outlook & Customer Pipeline

• FY26 target: ₹500-525 crores, +/- 5%, to be delivered from existing capacity. The commercial truck segment is sending good signals, domestic legacy platforms are showing growth, and new platforms will drive heavy prototyping activity.
• MAN Trucks ramp: MAN produced 53,000 trucks in FY25 and is targeting 65,000 this year, a 20% increase already visible in pickup and orders. Some models are performing well, though the American market remains suboptimal.
• Tractor stability: Tractor volumes were strong in Q4; India's record kharif crop supports stable-to-growing demand, and Escorts Kubota, a major customer, is showing a good forecast. The European agriculture market is also showing signs of recovery.
• Domestic-export mix: The split usually hovers around 75:25; FY25 tilted to 68:32 because of the KTM-driven export decline.
• ₹1,000 crore vision: Management maintains its ambition to reach a ₹1,000 crore run rate in three to four years, with a roadmap drawn around diversification programs and new customer additions. The ₹150 crore of cumulative capex needed to support that growth will be planned year by year.

Project Pipeline & Diversification

• Project Titan: Commercial production has started at the new 'Udyam' facility; over 2,000 sets have been dispatched across two phases, with parts now in vehicle validation. Mass production remains on track for August 2026.
• Project Venus: Over 100 sets of drivetrain parts for an electric sports car have been dispatched under phase 1; parts are under validation, with mass production also targeted for August 2026.
• Project Crystal (new): A diversification win into steering components for electrical power steering systems on a leading American passenger car OEM's pick-up truck platform. The program covers ring-gears, sun-gears, drive-gears and planetary gear assemblies. Samples are in advanced prototyping, with the first prototype to be offered for assembly and testing in Q2 FY26.

Gursharan Singh: "This is a kind of diversification program because this project crystal is for steering components. So technically it is again fuel agnostic... it is a EV or hybrid or hydrogen or anything, steering will remain more or less the same. So it really gives us a very significant progress towards our diversification program."

Margins & Cost Structure

• EBITDA held the line: Q4 EBITDA dropped only 1.6% despite a 7.7% revenue decline; full-year EBITDA margin was 22%, within management's stated 20-25% range and only modestly below the prior year's 24%.
• Raw material tailwind: Raw material consumption fell 2.18% in Q4, benefiting from a steam price reduction. Manufacturing expenses dropped nearly 3% YoY in Q4 due to work on power cost reduction and other components, a benefit management says will be visible from Q4 onward.
• Profitability compressed lower down: PBT fell 36% for the full year, with PBT margins shrinking from 12.7% to 8.04% and net profit margin from 9.41% to ~6%, as employee costs, finance charges and depreciation all rose. Administration and selling expenses jumped 22.68% in Q4.
• Interest cost relief ahead: With the preferential allotment proceeds already used to reduce both long-term and short-term debt, management expects finance costs to improve by at least 1-1.5% from the 7% level of FY25.
• Margin improvement question deflected: When asked what structural changes lifted margins from the 13-15% era to the current 20-25% band, and whether further improvement is possible, management declined to re-answer, pointing to prior call recordings.

Working Capital & Balance Sheet

• Cash flow turned sharply: Cash from operations grew almost 140% to ₹63.96 crores from ₹26.73 crores, while total debt increased only 4.4% despite ₹54.31 crores of fixed asset additions. Long-term debt was reduced from ₹105 crores to ₹85 crores.
• Debtor days stretched by three forces: Payments from RACL India to the Austrian subsidiary were delayed; the Red Sea crisis permanently added 10-12 days to the Europe shipment cycle (from 60 to 70-72 days); and pickup from European warehouses slowed. The delayed payment has since been made, and European customer pickup has improved.
• Inventory days inflated by KTM: Loose tools and fixtures procured on a ~₹500 crore forecast could not be consumed when KTM orders collapsed. Management expects inventory days to normalize as turnover picks up.
• Working capital target maintained: Management still sees a path to normalize working capital to ~160 days, though the 10-11 day shipment extension is a permanent global phenomenon. Debtor days have already started improving.
• Disputed calculation: An analyst computed working capital at 221 days; management pushed back, calling the figure incorrect and stating their own calculation shows ~160 days, but declined to provide the exact inventory days number on the call.

Capital Allocation & Investor Moves

• ₹80 crore preferential allotment: The company issued 10,06,480 equity shares to QIBs and non-QIBs, raising ₹79.99 crores. Marquee investors included Malabar India Fund Limited, White Oak Capital Group (through India Account Fund Limited and Ashoka India Equity Investment Trust Plc), and Dr. Aniruddha Malpani of Malpani Ventures.
• Proceeds fully deployed: After meeting general corporate expenses, the entire amount has been utilized to reduce both long-term and short-term borrowings.
• PICUP exit: Pradeshiya Industrial Investment Corporation of UP Limited, a state government investor, sold 5 lakh equity shares in the open market as part of a government policy to divest from profit-making companies once projects are stable.
• Capex plan: ₹45-50 crores planned for FY26, funded 75% by debt and 25% by internal equity. A new manufacturing facility at Gajraula had its Bhumi Pujan on April 30, 2025.
• Order book disclosure declined: Management reiterated a policy of never disclosing order books, arguing that customer forecasts are non-binding and often overly optimistic, and that disclosing them would not reflect the true picture.

Gursharan Singh: "Many times, this order books are just given as too optimistic numbers. You know, when Ola started a company, he says, he will start producing 1,000,000 scooters from day one and imagine if the suppliers say, oh, I have the order book of 1,000,000 and Ola is not producing over 30,000. So then definitely that becomes unused. So that's the reason company has a policy. RACL has a policy that we never disclose order books for the next five years, 10 years."

Guidance & Commitments

Key Metrics