Rajratan Global Wire Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Chennai losses masked a strong underlying quarter: The plant lost ₹11–12 crores at EBITDA level, but the core business rebounded sharply after management stopped a costly freight mistake from Q3, lifting gross margin 2 percentage points.
• Volume growth guidance of 15% for FY26: India is expected to add 15,000–18,000 tons and Thailand 5,000–6,000 tons, driven by new customer approvals and a strategic shift of export flows.
• Wire rope is the new growth vector: A ₹50 crore pilot project using a used Continental Tyres plant marks the company's first diversification beyond bead wire in decades, with a 10,000-ton initial capacity and a path to 40,000–50,000 tons if successful.
• US tariffs are a net opportunity, for now: Higher tariffs on China (57–59%) versus Thailand (25%) make Rajratan more competitive in the US market, though a 90-day tariff pause and the risk of Chinese circumvention via new overseas factories create uncertainty.
• What to watch next quarter: Whether Chennai hits its 1,000–1,100 ton monthly breakeven volume from May/June, the pace of Bridgestone trial conversions into commercial orders, and any tariff policy shifts after the 90-day pause.

Chennai Ramp-Up: The Drag That Is About to End

• Losses quantified: Chennai posted an EBITDA loss of ₹11–12 crores for the full year, with ₹10 crores capitalized as trial-run losses under IND-AS. High depreciation and finance costs from the ₹240 crore investment compounded the bottom-line hit.
• The Q3 freight mistake, now corrected: In Q3, the company sold large quantities from Chennai to North India, incurring a 10% freight penalty. Stopping those sales in Q4 was the primary driver of the 2-percentage-point gross margin recovery.
• Customer approvals secured: MRF, Apollo, and BKT have approved multiple products from Chennai, with CEAT approval expected this month. These approvals came faster than competitors' new capacity additions.
• Volume ramp visible: Management expects 1,000–1,200 tons per month starting Q2 FY26, with H1 volumes of 6,000–7,000 tons and H2 volumes of 12,000–13,000 tons. The full-year target is up to 20,000 tons.
• Breakeven imminent: At 1,000–1,100 tons per month, Chennai breaks even. Management stated losses should stop from May or June, and the plant will be profitable at the PBT level in FY26.
• Strategic export role: Chennai will serve export customers who do not mind shifting sources, freeing up Thailand capacity for higher-value European and US markets. Approvals for these export customers came in just 2–3 months.

Sunil Chordia: "I was seeing a clear-cut volume of 1,000 to 1,200 tons starting quarter 2 from Chennai... And we have done some calculation that 1000, 1100 tons, we break even in Chennai. So Chennai losses will stop. I think from May, June, we should not be making losses in Chennai."

Thailand: A Muted Year Gives Way to a Growth Thesis

• FY25 underperformance: Thailand had a muted year, capped by a major plant breakdown in the last 10 days of March that cost roughly 1,000 tons of already-ordered sales.
• FY26 volume growth of 5,000–6,000 tons: Growth will come from multinational customer approvals already received in initial trial lots last year, which are expected to convert into much larger volumes.
• Customer profile upgrade: The mix is shifting toward multinational tyre companies, which management says will improve profitability. Margins are guided to 10–11% in FY26.
• Export flow re-routed: Existing Thailand customers are shifting to Chennai for freight and lead-time advantages, allowing Thailand to redirect exports from Southeast Asia toward Europe and the US at better realizations.
• Utilization strategy intact: Management reiterated its commitment to running Thailand at the highest possible utilization, stating it does not want to leave any market open for competitors.
• Chinese circumvention risk: If Chinese tyre makers set up factories in other countries to bypass US duties, it could disrupt the local Thai market. Management acknowledged the risk but noted it has survived it so far.

Diversification: Wire Rope as the Second Leg

• The strategic logic: With bead wire growth eventually capped, management sees wire rope as the product needed to sustain long-term expansion. The company has considered this move for 25–30 years but lacked the financial and management capacity until now.
• Pilot project details: The board approved the purchase of a used plant from Continental Tyres in Europe, a fairly new facility that was operational until July last year. Machines are being shifted to Pithampur, where freed-up bead wire capacity creates space. Total investment is ₹50 crores.
• Timeline and scale: Production will take about one year to start. Initial capacity is 10,000 tons, and the product can be sold immediately upon production. If the pilot succeeds, expansion to 40,000–50,000 tons would be at least 2–3 years away, requiring new land, a fresh plan, and stronger management capability.
• Export potential: The wire rope product has export potential, and there is a possibility Rajratan could become a supplier to Continental Tyres, though management declined to commit to that outcome.
• Learning curve advantage: Management believes wire rope is less difficult to manufacture than bead wire, so the ramp-up should be faster than the company's historical experience with new products.

Sunil Chordia: "Frankly, I have been thinking of making wire rope for the last 25, 30 years, but we could never do that because all the financial capacity, management capacity and the market was available for bead wire."

Volume Growth & Market Position

• FY26 volume growth guided at 15%: India is expected to contribute 15,000–18,000 tons of growth and Thailand 5,000–6,000 tons. India's 12% volume growth in FY25 came from tyre industry expansion and taking larger share from bigger customers.
• Market share ambition is measured: India market share can move from 40% to 42–43%, but management does not see a path to 60% anytime soon. The company is deliberately staying away from the Ludhiana cycle market, which has become unprofitable due to new capacity additions.
• Bridgestone volumes building: Q1 FY26 orders from Bridgestone are already much higher than Q4 FY25. Trial lots to Bridgestone Europe and Bridgestone America are on the way, with some commercial volumes expected in H2 FY26.
• Export push gaining traction: The company is targeting 7,000 tons of additional exports from Indian ports to the US and Europe, after two years of groundwork in export markets.
• Growth pace deliberately capped: Management sees 15–20% growth without stressing financials or leveraging the balance sheet as the right speed, and does not want to go faster.

Sunil Chordia: "We have enough on the plate, 15%, 20% growth, I think, without stressing or stretching the financials and without leveraging the balance sheet is a good growth. We don't want to be going faster than this, honestly, yes."

Margins: Gradual Improvement, Not a Step Change

• EBITDA margin outlook: Management expects a 1–2 percentage point improvement in EBITDA margin, driven by better capacity utilization reducing manufacturing costs. Prices will remain under pressure due to excess industry capacity.
• Chennai as the margin lever: As Chennai utilization rises, overall manufacturing costs come down. The plant's location saves ₹3,000–₹4,000 per ton in freight versus Pithampur for southern customers and raw material sourcing.
• Thailand margin recovery: Margins in Thailand are expected to improve to 10–11% in FY26, up from a muted FY25, as the customer mix shifts toward higher-value multinational accounts.
• No revenue guidance given: Management declined to provide a revenue number, offering only volume growth and directional EBITDA commentary. When pressed for consolidated debt figures, the CFO did not supply them.
• Working capital stretched: The working capital cycle increased to 63 days, partly because larger export volumes tie up material for roughly 45 days in transit plus a one-month payment cycle.

US Tariffs: Opportunity With a Clock

• Direct impact is favorable: Bead wire itself is not directly affected by tariffs. With US tariffs on China at 57–59% versus 25% on Thailand, Chinese bead wire is now much more expensive in the US market, creating an immediate opening for Rajratan.
• Customer traction accelerating: The company has seen increased interest from US customers since the tariff war started. The US is one of the largest tyre-producing countries, and building a substantial presence there is a longer-term goal.
• The 90-day pause creates uncertainty: A 90-day tariff pause is in effect, and management acknowledges the need to see what happens after it expires. Indirect effects could also arise if tariffs on finished tyres disrupt customer demand.
• Chinese circumvention is the wildcard: If Chinese tyre makers respond by building factories in other countries to bypass US duties, it could disrupt Rajratan's local market in Thailand. Management acknowledged this risk without minimizing it.

Yashovardhan Chordia: "With the older tariffs also, we were competing with China and getting into customers. And now with the change in tariff till the time the tariff remains same, China is going to be much, much more expensive than us."

Guidance & Commitments

Key Metrics