RACL Geartech Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Strong Q1, broad-based growth: Consolidated revenue grew 31.5% YoY, with exports at 66% of sales and domestic automotive segments performing well across two-wheelers, passenger cars, agriculture and commercial trucks.
• KTM recovery is a material tailwind: The key customer has bounced back to pre-COVID volumes, model-year 2027 production starts in September, and new business opportunities are already flowing from KTM Austria.
• BMW entry is now in pilot supply: Conditional shipping has started and parts are going into customer cars, with the final approval visit scheduled for 24th October; commercial supply begins that month.
• Heat treatment overhaul is on track: The new electric-based plant will be commissioned by end-FY27, replacing 30-year-old LPG equipment and cutting scope 1 emissions significantly.
• What to watch next quarter: BMW final approval outcome, the pace of ZF volume recovery as the product shifts to a higher-volume SUV platform, and any materialization of the two potential customers on the Arc Technologies tie-up.

Demand & Revenue Drivers

• Exports resilient despite macro noise: Europe contributed 66% of net sales on a net sales basis and is on a growth trajectory even though the European economy is not growing by Indian standards; automotive and two-wheeler industries there are doing well.
• Domestic market firing across segments: Two-wheelers, passenger cars, agriculture machinery and commercial trucks are all growing well, helped by past initiatives to focus on domestic markets.
• KTM volumes back to normal: The customer has reached almost pre-COVID levels and model-year 2027 vehicles begin production from September with very good plans; the new Duke 790 launched with good US market acceptability, and RACL supplies the entire kinematic for that bike.
• Royal Enfield ramping steadily: Commercial supplies started in January and have reached 7,500–8,000 sets per month against a nomination of ~10,000 sets/month for a 350 CC engine; multiple new projects are under development for upcoming variants and engine changes.
• ZF recovery taking shape: Volumes are recovering after sluggishness last year because the end-OEM car was not doing well; the product has moved from a high-end premium car to the main bread-and-butter SUV (X5), and traction is coming back, though utilization is still at 50–60% of installed capacity.
• ZF assembly relocation a net positive: The customer shifted the assembly plant to a low-cost country in Eastern Europe, which helps the customer be more competitive and gives RACL a bigger share of the project.
• No product at end of lifecycle: When one project ends, successor models with higher value addition replace it; in the past five years, no customer project has ended without an alternate project of same or higher revenue.

Gursharan Singh: "KTM has bounced back and it is really doing very good numbers. And in coming time, we'll be able to see very positive impact on our performance of not only the Indian operations, even our Austrian operations from where we are serving our KTM as a prime customer."

New Business & Pipeline

• BMW (Project Venus) in pilot supply: Level one approval is done, conditional shipping has started, and parts are now being put into customer cars rather than just validation vehicles; the final approval visit by the customer team is scheduled for 24th October, and supply will start from October.
• ZF electric power steering on track: The project is progressing toward commercial supplies by end-2027 or mid-2028, going to an American OEM, and is expected to be a big project.
• ZF exploring China opportunity: The customer is talking to another OEM for a similar project for the Chinese market, though this is in very early, fancy stages.
• Arc Technologies tie-up progressing: The company is working with two potential customers on the build-to-print to concept-to-print upward value chain movement; disclosure will come when something materializes.
• One existing project ending, successor already in development: A customer project ends next year, but its successor model is already under development with higher value addition for RACL.
• Customer addition cadence: Historically, every 2–3 years one new customer is added, while existing customers keep adding new models; management hinted that "time has come, maybe you will get to know, eventually, we'll be adding both."

Prabh Mehar Singh: "Earlier gears of such critical products, why remained in source were because there was not a very credible and established supply chain which were able to meet such specific moderate volume batch type... Like we are now creating a niche of our own in the premiumization of this entire product portfolio of these companies."

Non-Auto Diversification

• Four focus areas identified: Aerospace for civil aviation (Airbus focus), actuators and small micromotors, robotics (exploring within the European continent), and industrial manufacturing, where a pilot is already running with BHEL and others.
• Incubation-first approach: Management will not splurge on these new areas; the strategy is to incubate, test the track, make it stable, and only then scale up; zeroing in and starting action plans will take a few months to one or two years.
• Acquisitions may be needed: When opportunities in civil aviation, actuators, robotics, industrial components or defence arise, acquisitions may be required to enter those spaces.

Gursharan Singh: "We always work on a concept of incubation. We'll never splurge, okay, I'll give you 25 days and now we spend 50 crores or 40 crores or 100 crores in this project. No, we just incubate. Then we test the track. If track is bumpy or curvy, in any case, in today's business, no business is going to be without pumps and costs, but yes pumps and costs which we can withstand, will incubate, will make it stable, and then we will scale up."

Operations & Capex

• Heat treatment plant timeline: Foundation laid on 21 January 2026; building completion by October 2026; equipment arrival September–October 2026; installation and commissioning October–December 2026; trial production January 2027; full switch to the new facility by end-FY27.
• Technology shift to electric: The new plant will run completely on electric-based furnaces, replacing outdated LPG-based technology; existing heat treatment equipment is mostly over 30 years old and at end of life.
• ESG impact: Once the heat treatment plant shifts to electric, LPG consumption and scope 1 carbon emissions will go down significantly; the Gajraula plant already runs on 100% green energy with zero carbon emission from electricity, and Noida unit rooftop solar is planned to reduce scope 2 emissions.
• FY27 capex of ₹77 crores: ₹35–40 crores for heat treatment replacement and ~₹35 crores for capital expansion; this expansion will come into force partly in FY27 and partly in FY28.
• Capex is structural: Gear-making is capital-intensive; if the company is to grow, it must keep investing, and management described it as a regular feature; next year's capex figure will be announced in January.
• Energy crisis managed collectively: A severe energy crisis started in March 2026 and extended into the current period; India is still not energy-crisis free; the company faced these challenges collectively with supply chain partners, employees and customers.

Profitability & Margins

• PBT grew ~50% YoY: Consolidated PBT rose from ₹11.26 crores to ₹16.82 crores, supported by operating leverage and lower finance costs.
• Finance cost down sharply: Finance cost has come down significantly to 4.81% of revenue due to loan payoffs last year.
• Tax rate elevated in Q1, normalizing for the year: Q1 effective tax rate was 47% (₹8 crores on ₹16.8 crores PBT) due to higher current tax liability from depreciation and gratuity differences under the Income Tax Act, plus higher deferred tax liability from a change in the surcharge rate; the full-year blended rate is expected at 25.62%, implying lower rates in subsequent quarters.
• Margin variability accepted: Management aspires to maintain basic profitability but noted that 2 percentage points of variation quarter-to-quarter or year-over-year will always happen; "nothing remains stationary."
• Raw material cost clarification: Raw material consumption is about 28%, not 22–23% as an analyst observed; stock in transit had increased, affecting consumption figures.

Gursharan Singh: "You can always see that nothing remains stationary, so either we go up or we go down... Today's world is very, very volatile. Today's world is very, very, I'll say, inconsistent. So we can't really say that everything will go very good. We can't really say that, yes, things are going very bad. We have to always remain optimistic."

Strategy & Business Model

• Cautious, sustainable growth philosophy: Management will not participate in a "rat race of throwing the numbers" without ensuring sustainability; growth will be at a much faster pace now that the business is stable, but the approach remains step-by-step.
• Multi-supplier customer strategy: For the domestic customer with a committed volume target of 20,000 units (up from 10,000), the company is currently at 8,000 units and will scale up cautiously, step by step, only after confirming demand sustainability; management will not jump by putting additional capacities for customers where demand can go down tomorrow.
• Supplier rating matters in downturns: When a customer's model fails, an A-rated supplier gets support; a C-rated supplier gets dropped; RACL positions itself as an A-rated supplier.
• Revenue doubling ambition: The company is targeting to double revenue in the next 3–4 years from current levels.

Gursharan Singh: "Our business model is always will work with a part of caution, will always work with a sustainable growth because we do not want to feed into the rat race of throwing the numbers without ensuring that whatever we do, we do it in a sustainable way."

Guidance & Commitments

Key Metrics