Rane (Madras) Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Margin story dominates: RML aspires to full-year double-digit EBITDA margin for FY27, expecting to hit it in Q3, but Rane Steering Systems margins stay muted all year on legacy low-price orders.
• Acquisition closed, accretion promised: The Hindustan Composites friction business slump sale completed June 30, 2026, and management pegs its EBITDA at 13-14%, above RML's own, which should help the double-digit push.
• Commodity costs are the squeeze: Sharp input-cost inflation from the West Asian crisis hit margins, with customer pass-through recovering only with a lag over the next couple of quarters.
• Order book healthy, disclosure changed: New business wins carried lifetime value of about ₹2,040 crore in Q1, and management has shifted from per-annum to lifetime value reporting to match peers.
• What to watch next quarter: Whether commodity pass-through actually lands in Q2, whether the Hindustan Composites integration stays on its 12-18 month path, and whether RML's Q3 double-digit margin target still holds.

Margin Walk & Profitability

• RML double-digit aspiration: Management wants full-year double-digit EBITDA margin for FY27 and, based on current Q2 volume and demand, expects to achieve it in Q3. The Hindustan Composites business, with slightly better margin, is expected to help reach that target.
• Rane Steering Systems drag: EBITDA margins remain muted for the current financial year because earlier orders were taken at low prices, and last year's corresponding quarter had one-time retrospective price increases that were absent this quarter. PAT was negative. Improvement is expected only from FY28.
• ZF Rane sequential decline: The margin drop was mainly adverse product mix within Occupant Safety, where seat belts carry lower margin than airbags, so higher seat belt sales compressed profitability.
• Cost-side pressure: Premium price and overtime partly drove the operating expense increase; these are being targeted for reduction, while minimum wages cannot be recovered and must be mitigated internally.
• Professional fees weigh: ₹49-50 crore went to external agencies for the three-company merger, aftermarket team restructuring, and cost transformation. These expenses continue through the current year, with full-year benefits expected in FY28.

P.A. Padmanabhan: "Given the current dynamics, we are definitely aspiring to go to a double-digit number."

Commodity Costs & Pass-Through

• The squeeze: Sharp commodity price increases emerged as the key concern, driven by the West Asian crisis, with geopolitical tensions pressuring supply chains for key commodities and impacting energy and logistics costs.
• Why margins lag export momentum: New export lifetime value kicks in only 18-24 months from now, while the industry faces significant cost increases across material, logistics, and other elements. Commodity pass-through has a lead-lag in recovery from customers.
• Pass-through mechanics: Some price increases were already passed in Q1; some will be recognized in Q2. Where raw materials are indexed and clearly agreed with the customer, the lag occurs when claims lodged toward end of quarter move to the next quarter.
• Recovery timeline: Management expects lead-lag recovery from customers to happen over the next couple of quarters, and intends to recover as much as possible from customers while reducing some operating expenses internally.
• Deemed exports caveat: Some export billing is in Indian rupees, so no forex benefit is received on those.

Hindustan Composites Acquisition

• Deal closed: The business transfer agreement was signed June 30, 2026 on a slump sale basis; all conditions are now fulfilled and the transaction is successfully completed. The business will feature in Rane (Madras) results from now onwards till end of year.
• Margin profile: Management believes current EBITDA of this business is around 13% to 14%, after allocating unallocated costs that appear in annual report segment reporting. This is higher than RML's own margin, so it is expected to help reach the double-digit target.
• Integration path: Integration will proceed in a phased manner over a 12-18 month window. Management intends to run it as an independent division and is hopeful of sustaining 11-12% margins, though the sustainability question on the large railway share was not directly addressed.
• Railways angle: The acquisition helps expand and penetrate into railways, which is tender-driven with visibility of about 12 to 14 months. Management sees good opportunities to grow there.
• Margin outlook: Management will constantly endeavor to keep improving Hindustan Composites margin, which will depend on product profile: the mix of railways, CV friction products, and aftermarket.

P.A. Padmanabhan: "We believe the current EBITDA of this business is around 13% to 14%."

Segment & Market Performance

• Growth vs industry: Management says no loss of market share in segments supplied. Growth differences come from technology migration (LCV mechanical to electric/hydraulic steering), vehicle model mix within segments, and some OEMs or models growing faster than industry where Rane may or may not be present.
• Aftermarket: Price increase has been taken in aftermarket, and management has good aspiration to increase sales there, with synergies from integrating multiple aftermarket businesses.

Balance Sheet, Debt & Capital Allocation

• Net debt commitment: Management maintains the path to reach 0.5 net debt to equity by March '28, expecting to reach it in 18 months, and is committed to bringing down debt levels in the next 12-18 months.
• Peak debt: Peak debt is expected around ₹1,100 crore for a brief period; by year-end it should come below ₹1,000 crore. Debt-to-equity is expected to be 0.5 by end of FY28.
• Land sales: The Velacheri property sale is already in process, with amounts being received in a phased manner. Shareholder approval has been taken for sale of other land parcels, which will be taken up as and when right value is obtained.
• Capex pull-forward: RML capex increased versus the previous estimate because order advancement required pulling forward capex that was otherwise planned for next financial year into the current year. Steering capex advancement relates to project timeline advancement, particularly for exports, including rack and pinion, ball joints, and other programs.
• ZF capex unchanged: The capex plan is unchanged after the split of Steering Gear and Occupant Safety into separate entities; individual companies will raise debt as needed. Management did not directly address whether ZF's shelved hive-off decision itself had any impact.

P.A. Padmanabhan: "We remain committed to bring down our debt debt levels in the next 12 to 18 months and reach the desired level by March '28."

JV, Tax & Structural Items

• LifeTec JV warranty provision: The provision by and large remains the same as December '25 except forex changes increased it; the dollar/euro value remains the same. Discussions are still ongoing with no updates. Management initially said "\$23 million" then corrected to "EUR2.3 crore."
• Recoverability: Management says it is too early to comment on recoverability from vendor and insurance, and is taking all necessary steps to mitigate the cost, with updates to come as developments occur.
• Tax rate: RHL's effective tax rate was higher this quarter because last year's corresponding period had deferred tax utilized, which was not the case in the current quarter. Going forward, the normal rate is 25% under the new regime, lower if loss recoveries occur in those periods.
• Rane Holdings restructuring: No plans as of now to merge all entities up to Rane Holdings; restructuring will be done in the interest of all stakeholders at the appropriate time if required.
• Disclosure changes: Group-level vehicle-wise and business-wise revenue breakup will now be updated only once a year, as management considers this more appropriate since group sales are not discussed in other metrics.

P.A. Padmanabhan: "It's a bit very early to comment. We are taking all necessary steps to mitigate the cost."

Guidance & Commitments

Key Metrics