RACL Geartech Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Margin expansion despite muted topline: Revenue grew just ~2% YoY to ₹108 crores, but EBITDA jumped ~20% and PBT ~33%, driven by a richer export mix and operating leverage.
• The order book is pivoting to next-gen technologies: New wins span electric power steering, steer-by-wire, ERC, and premium motorcycle assemblies, positioning RACL for a structural shift toward complex, safety-critical systems where it claims a first-mover advantage.
• Export share dipped on paper, not in spirit: The export/domestic mix shifted from 70-30 to 60-40 because global customers now route through Indian consolidation hubs, improving receivables without diluting margins.
• Capex discipline remains non-negotiable: Management reiterated it never invests in anticipation, only after securing sales clarity, with ₹50 crores of fresh capex planned for FY26 at 75% debt funding.
• What to watch next quarter: Whether the two new nominations starting January 2026 (electric power steering and premium motorcycle) translate into firm capex and revenue commitments, and if KTM’s supply chain revamp accelerates inventory liquidation.

New Business Wins & Pipeline

• Indian premium 2-wheeler nomination: Won from a manufacturer that historically made these gears in-house; high-volume business for the premium segment with SOP expected in 3–4 months and commercialization from February 2026. Contract size not yet disclosed.
• BRP Canada shifting mechanism: A new product family (shifting drums) for an existing ATV customer, with ~150,000 parts per annum; commercial supply targeted for June/July 2026 on a faster onboarding track since the platform is already in market.
• ZF Rane electric power steering: Won a conversion project for a high-volume American pickup truck platform switching from hydraulic to electric steering; assemblies will happen in Mexico, with SOP in 2027–2028. RACL is Tier 3 on this project.
• BMW dual orders: Won both a parking lock mechanism and an electric drive train assembly for the same new BMW electric car platform launching in 2027; prototyping is ongoing with SOP next year.
• BHEL vendor registration: Allotted a vendor code enabling direct one-to-one RFQs for precision engineered components, bypassing the GEMS tendering process and low-end competition. Scale and timeline remain uncertain.
• Mass volume domestic order: A new domestic two-wheeler order won just two days before the call; production can start with existing capacity, but high volumes will eventually require capex, quantum still being calculated.

Gursharan Singh: "Technically we can be one to one RFQ from this customer BHEL to us. So technically we have got an upper edge or advantage that we need not to go to the tendering process."

Technology & Product Evolution (RACL 3.0)

• ERC scaling slower than expected: First launched on a high-end electric car (~₹4 crore), now expanding to ₹80 lakh–₹1 crore variants, but early adoption did not meet anticipated pace. Customer projections for 2027–2028 remain strong.
• Steer-by-wire / AKC exclusivity: Developed for Porsche; RACL is the sole supplier for both ERC and AKC for this customer, with the customer actively pitching the system to other platforms.
• Motorcycle platform deepening: Moving from standalone gears to critical assemblies: wheel axle, brake mounting housing, transmission assemblies, shifting drum mechanism, and an auto shift mechanism for the BMW R 1300 where RACL has first-edge advantage.
• Beyond automotive: Developing an automatic gearbox for Pinion’s e-bicycle (mid-drive type), a market where competitor Bosch has sold 0.2 crore units; products priced at €3,000–6,000, but the market is evolving slowly.
• ATV vertical as the highest segment: Supplying propeller shaft assemblies, turbocharger components, and axle shaft assemblies to a top-three global ATV player; no geopolitical impact so far, with room to expand to other players like Polaris.
• Three-wheeler strategic exit: Reduced dependence from 27% to 3% over 7–8 years, anticipating the EV transition that is now hitting the segment hardest.

Prabh Mehar Singh: "We can work at a 10% margin and supply to Indian companies and be happy with it. At the same time, we are a passionate company. We are passionate people who like to work on technologies which nobody else can."

Financial Performance & Mix Shift

• Revenue: ₹108 crores, up ~2% YoY from ₹105 crores, with exports contributing 60.31% and domestic (including other income) at ~39%.
• EBITDA: ₹26.8 crores, up ~20% YoY; margin expanded 372 bps YoY to 24.83% and 215 bps QoQ.
• PBT: ₹11.25 crores, up ~33% YoY; PBT margin expanded 245 bps YoY and nearly 200 bps QoQ.
• Export/domestic mix shift is optical, not real: The shift from 70-30 to 60-40 reflects customers setting up Indian consolidation factories (e.g., Escorts Kubota, Summit for Dalian), reclassifying some export business as domestic. This improves receivables (40–50 day payment terms) while premiumness and margins remain identical.
• FX tailwind: The euro appreciated significantly in the last three months; export receivables are reinstated at quarter-end rates, with borrowings adjusted below the line.
• Tariff exposure contained: No direct impact on costing since terms are ex-port; management views tariffs as short-term and believes India will emerge a net winner.

Gursharan Singh: "Nothing is stationary. So ours are anything between 20 or 25% is always our benchmark."

Key Customer & Platform Updates

• KTM restart progressing cautiously: Full production has resumed, but after 6–7 months of closure, KTM is revamping its entire supply chain systematically to avoid excess inventory after its bankruptcy episode. Old inventory is already liquidating and will be fully picked up by FY26-end; fresh production has started.
• TVS Norton launch imminent: The vehicle was jointly inaugurated by the Indian and British Prime Ministers; commercial market launch is set for November 2025, with parts under production in August and dispatch in September. Assembly happens in the UK, engines made in India, for export markets: not high-volume but high-margin.
• BMW motorcycle auto shift mechanism: Getting a huge response from the customer for the R 1300; when mass adaptation hits other platforms, RACL expects to capture more customers with its first-edge position.
• Premium motorcycle ecosystem: Management expects the remaining two or three premium motorcycle brands to come to RACL "very soon."
• KTM production shift to India is speculative: Management cautioned this is a futuristic possibility with a 2–5 year horizon; it may or may not happen. If any models shift, RACL benefits as an existing road supplier, but KTM is not expected to take a big stride in China.

Gursharan Singh: "These all are futuristic things. Nothing is going to happen overnight but he has two years, three years, five years, it may happen, it may not happen."

Capex, Investment Philosophy & People

• FY26 capex: ₹50 crores finalized, with 75% debt funding; the capex cycle for projects going live this year will finish within FY26.
• Beyond FY26: Next two years’ capex not yet finalized; management will calibrate based on business wins.
• No anticipation-led investment: RACL never makes large investments in anticipation; it hunts for sales and gets clarity first, then invests. Existing capacity utilization is always the priority.
• New mass volume order capex: No immediate capex required since existing utilization is low, but high volumes will eventually need investment; quantum not yet calculable since the order was received only two days before the call.
• Mindset as the moat: Management views its people, systems knowledge, and quality mindset as the core asset: technology takes one year to add, but the mindset to run it takes ten years.

Gursharan Singh: "Making investments is not a bad thing. Making risky investments is a bad thing."

Guidance & Commitments

Key Metrics