Rajratan Global Wire Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Thailand volume collapse, strategy pivot: Thailand volumes fell ~14% YoY to 30,000 tons as Chinese competitors slashed prices and export demand evaporated. Management has now decided to compete on price where it contributes to the bottom line, targeting a recovery to 40,000 tons in FY24.
• India steady, margin guidance intact: India grew volumes ~8% to 60,000 tons and is projected to add another 10–15% in FY24, supported by sole-supplier status at Michelin and customer business plans pointing to 10%-plus tyre industry growth.
• Consolidated margin target of 18%: India EBITDA margin guided above 18%, Thailand recovering to 14–15% from a Q4 trough of ~8.5%, yielding a consolidated 18% EBITDA margin with 15–20% overall business growth.
• Chinese competition called temporary: Management argues the Chinese pricing aggression is a demand-supply squeeze, not a structural shift, and that the worst on pricing is already over, with Q1 showing more competitive positioning.
• What to watch next quarter: Whether Thailand’s Q1 volume pickup materializes toward the 8,000-ton quarterly target, whether Chinese competitors sustain or retreat from current pricing, and whether the Chennai plant begins trial production on schedule in August/September.

Thailand: The Volume-Margin Tradeoff

• Export demand dried up: Thailand’s tyre plants, which sell 70–80% outside Thailand, operated at only 40–45% capacity for roughly six months of the year as the Ukraine war and US recession crushed European and American demand. Direct bead wire exports to both regions became minimal.
• Chinese competitors took share: A Chinese supplier dropped prices by ~8,000–9,000 baht per ton, and management initially refused to match, losing volume at Chinese-owned tyre counters and seeing market share dip to ~16–17% from a normal 24–25%.
• Strategy flipped to volume-first: Management now calls the prior stance a mistake and will supply wherever contribution is positive, including to Chinese-company counters it previously walked away from, describing Chinese buyers as monthly-quotation opportunists it will match opportunistically.
• Recovery path assumes operating-rate normalization: Even without new customer approvals, a simple improvement in customer plant operating rates from last year’s half-volume levels lifts volumes; good order book and much improved Q1 expected.
• Margins troughed at ~8.5%: Q4 EBITDA margin hit that level purely on low volumes; management calls 8.5–9% the worst-case floor and guides to maximum 14% for FY24, driven by higher throughput and improved prices.

Yashovardhan Chordia: "I would term all of the situation as a temporary situation with no permanent damage in the strategy. Maybe last two quarters were bad, but from here on, we definitely see an improvement."

India: Steady Growth, Defensible Position

• Volume grew ~8% to 60,000 tons: Management expressed satisfaction with India’s performance given global turmoil, and the business compares favorably to global competitors.
• FY24 volume guided to 70,000 tons: A ~15% increase built on annual business plan discussions with key customers (MRF, CEAT, Apollo) whose own plans point to 10%-plus tyre industry growth.
• Michelin sole-supplier win: Rajratan became the 100% supplier to Michelin in India last quarter after receiving approval, capturing any increased passenger tyre requirements.
• Import substitution opportunity: 20,000–25,000 tons of bead wire entered India from Vietnam and Malaysia last year; management is discussing with customers to meet those requirements domestically.
• India margins resilient: EBITDA margin guided above 18% for FY24; no competition seen in India, and the plant operated at good utilization levels. Raw material prices have softened further in Q1, with a 2% reduction bargained, and the steel price outlook is soft.
• Customer partnerships deepening: Signed an MOU with Ceat for their Grand Deming Journey and an agreement with JK Tyres for their Grand Deming Award pursuit, signaling quality-driven stickiness.

Sunil Chordia: "There is a lot of approval required with that, but everybody in India has burnt fingers with Chinese suppliers. Okay. And I don't see there are sentiments to buy from China."

Chinese Competition: Temporary or Structural?

• Management’s core argument: In 25 years, China has entered and retreated from the bead wire market many times; the current pressure is a demand-supply situation driven by Chinese lockdowns, a weak domestic economy, and very bad international demand in the last 2–3 quarters.
• Policy supports not restored: The 13% export rebate China previously offered remains absent; policy-wise, nothing has changed that could create a bigger structural impact.
• Pricing called unsustainably low: Chinese competitors are selling at \$900–\$950 per ton in some locations, which management deems unviable; the worst is already over, with no chance of prices going further lower.
• Q1 showing improvement: Prices are already more competitive than Chinese at some counters in Q1; the priority is to be present in all counters and not lose customers.
• Counter-view fragility: Management could not provide verifiable Chinese competitor capacity data, calling Chinese disclosures unreliable, and acknowledged the competitors are much larger in scale (Shandong Daye estimated at 300,000–350,000 tons).
• De-risking tailwind: Many companies are strategically looking to de-risk from China, viewing India and Southeast Asia as alternate sources; Rajratan is seen as one of the only bead wire companies investing in new technology currently.

Sunil Chordia: "No, I don't see it is going to make a big change in long-term, because in 25 years of this product, I have seen China coming and going back. Okay. Many times."

Capacity Expansion & Capex

• Chennai plant on track for H2 FY24 start: Building is ready, machines are arriving, installation is underway. Trial production expected August/September, with commercial production in the second half. No Chennai volume is factored into FY24 projections.
• Chennai capex nearly complete: ₹135 crores of the ₹160 crore total commitment is done; another ₹30–40 crores needed to start production, with the remainder in the following year. Full capacity utilization will take three years.
• Thailand capacity expanded to 60,000 tons: Major capex is not required now; if the market turns buoyant, only ₹5–7 crores may be needed for a few more midrange machines.
• PLI timeline shifted by one year: The company presented to the steel ministry and received agreement to shift the production timeline; PLI claims will now cover years 2-3-4-5 instead of 1-2-3-4. No PLI will be claimed in FY24 even if 5,000–7,000 tons are produced.
• Long-term aspiration: The plan is to have three viable capacities globally to supply 15% of global bead wire demand.

Demand Environment & End-Market Signals

• US recovery emerging: US customers were sitting on high-cost inventory (product plus logistics); both costs have come down, stocks are depleting, and inquiries are coming in. Management expects buying to resume this year.
• Europe demand picking up: The war and energy crisis are no longer dominating discussion; tyre companies are exporting in a big way. OTR (off-the-road) remains under pressure.
• India tyre demand healthy: Tyre business likely to grow 10% this year based on customer business plans; Indian tyre companies sell 80–85% domestically, insulating them from global volatility.
• European marketing office opened: Started three months ago to develop customer relationships, but the bead wire approval process is long (~1 year to start volumes), so no incremental volume from new prospects is factored into this year’s plan.
• EV impact neutral to positive: Pneumatic tyres continue; lightweight and low-noise tyres are being developed, but bead wire requirements are unchanged. Tyre consumption may increase due to battery dead weight.
• No disruptive technology risk: Continuous quality improvements (higher tensile strength, better adhesive strength) are ongoing, but no fundamental change in bead wire technology is foreseen.

Margins & Raw Material

• India margin dip explained: Fell ~130 bps QoQ despite 20% volume increase because of raw material price changes; the delta (cost difference between wire rod and wire) remained the same.
• Thailand gross profit per ton fell significantly: Lower volumes and price pressure were the drivers; the company was not able to achieve required volume.
• Raw material outlook soft: Prices further softened in Q1; steel companies are under price pressure, and the market outlook going forward is soft. India realization of ₹95,000–96,000 per ton is expected to sustain if raw material stays at current levels.
• Price corrections flowing downward: Currently, prices have come down; nothing is pending from customers; rather, the company is now expected to correct prices downward.
• Consolidated margin math: India doing ~20% EBITDA on bigger volumes, Thailand recovering to 14–15%, yielding a consolidated 18% EBITDA margin.

Sunil Chordia: "We are in the lowest cost country. So viable, even the discussions with the European customers, of course, the business will come after one year, but the price and the indication of price is very profitable."

Guidance & Commitments

Key Metrics