RACL Geartech Q1 FY27 earnings call

RACL Geartech Limited reported a strong Q1 FY27, with consolidated turnover reaching ₹132.6 crores, marking a 22% year-on-year growth. Consolidated Operating Revenue also saw a significant increase of 31.5% to ₹132.35 crores. The company's consolidated EBITDA grew 18% YoY to ₹32.19 crores, maintaining a margin of 24.27%, while consolidated PBT surged 50% YoY to ₹16.82 crores, with a PBT margin of 12.68%. Standalone figures also reflected robust growth, with turnover up 18.4% to ₹127.82 crores and PBT up 48% to ₹16.66 crores.

The company highlighted strong performance in both export and domestic segments, with export turnover up 66% and domestic business up 34% YoY. KTM's business has bounced back to pre-COVID levels, with new models launching in Austria under Bajaj's ownership, creating new business opportunities for RACL. The Royal Enfield project, involving 350 CC engine models, has seen commercial supplies start, reaching 7,500 to 8,000 sets per month towards a nominated 10,000 sets. The BMW SOP project is on track, with level one approval complete, pilot supplies initiated, and final approval expected by October 24, 2026.

RACL is undertaking a significant modernization of its heat treatment plant, transitioning from outdated LPG-based technology to state-of-the-art electric-based furnaces. The total capex for this project in FY27 is ₹77 crores, with ₹40 crores allocated for replacement and ₹37 crores for additional capacity. Construction is expected to be completed by October 2026, equipment to arrive by October 2026, and commissioning is slated for October to December 2026, with trial production commencing in January 2027. This move aims to enhance efficiency and reduce the company's carbon footprint.

The company presented its Q1 FY27 ESG dashboard, reporting Scope 1 carbon emissions of 750 tons and Scope 2 emissions of 321 tons. The Gajraula plant operates on 100% green energy, generating no carbon emissions. Efforts are underway to reduce Scope 2 emissions at the Noida unit through rooftop solar. A significant portion of Scope 1 emissions (73%) currently comes from LPG for heat treatment, which will decrease with the new electric plant. In CSR, RACL continues to sponsor the education of 400 children and women empowerment programs, and has expanded support to 14 students for higher education in fields like cloud computing, AI, and radiology for FY27.

RACL is actively exploring diversification into non-automotive sectors, identifying aerospace for civil aviation, actuators, and robotics as key focus areas. Management noted the significant demand for gears in robotics and the potential to leverage existing skills for aerospace, particularly with Airbus's growth. The company adopts an 'incubation' strategy for these new ventures, starting with human resource deployment and testing the market before significant capital outlay, expecting initial progress within one to two years.

The company's FY27 capex plan is ₹77 crores, primarily for the heat treatment plant replacement (₹40 crores) and additional capacity (₹37 crores). Finance costs have significantly reduced due to loan payoffs in the previous year. Management reiterated a long-term revenue growth target of 15-20% per year and expects to maintain current EBITDA margins. The full-year blended tax rate is guided at 25.62%, implying a lower effective tax rate in the remaining quarters compared to Q1 FY27's higher rate due to deferred tax liability adjustments.

RACL emphasizes its role as a sole supplier for components in its export business, a model that ensures long-term partnerships with global OEMs. For domestic customers, who often employ a multi-supplier strategy, RACL maintains a cautious approach, committing to specific volumes and focusing on quality to secure business. Management confirmed that customers generally support suppliers in case of project failures through compensation or alternative business, especially for A-rated partners, highlighting the importance of strong relationships.