RACL Geartech Ltd:Annual Report 2023-24 Analysis

RACL Geartech Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: RACL Geartech Ltd. was established in 1989. It evolved from a small machining shop to a comprehensive gear and transmission component manufacturer.

Headquarters Location and Global Presence: The company is headquartered in Noida, Uttar Pradesh, India. RACL Geartech has a significant international presence, exporting its products to various countries globally, including Europe, North America, and Asia.

Company Vision and Mission:

• Vision: To be a globally respected leader in the manufacturing of precision automotive and industrial components, recognized for innovation, quality, and customer satisfaction.
• Mission: To provide high-quality, cost-effective solutions to customers through continuous improvement, technological innovation, and a commitment to excellence in all aspects of our business.

Key Milestones in Their Growth Journey:

• Early years focused on establishing a strong foundation in gear manufacturing.
• Expansion into new product lines and industries over time.
• Strategic investments in technology and infrastructure to enhance capabilities.
• Successful partnerships with leading global OEMs (Original Equipment Manufacturers).
• Continued focus on R&D and innovation to drive growth.

Stock Exchange Listing Details and Market Capitalization: RACL Geartech Ltd. is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Recent Financial Performance Highlights: RACL Geartech has shown consistent revenue growth in recent years, driven by increased demand for its products in both domestic and international markets. The company has also maintained healthy profitability margins, thanks to efficient operations and cost management.

Management Team and Leadership Structure: The company has a well-defined organizational structure with experienced professionals leading key functions. The board of directors provides strategic guidance and oversight.

Their Products #

Complete Product Portfolio with Categories: RACL Geartech manufactures a wide range of gears and transmission components, including:

• Transmission Gears
• Engine Gears
• Sub-assemblies
• Shafts
• Other precision components

Flagship or Signature Product Lines: The flagship products include transmission gears for motorcycles, automotive engines, and industrial applications.

Key Technological Innovations or Patents: The company has invested significantly in R&D and has obtained patents for gear design and manufacturing technologies.

Manufacturing Facilities and Production Capacity: RACL Geartech operates state-of-the-art manufacturing facilities equipped with advanced machinery and automation systems. These facilities have a significant production capacity to meet the growing demand from customers.

Quality Certifications and Standards: The company is committed to quality and has obtained various certifications, including ISO 9001, IATF 16949, and other relevant industry standards.

Any Unique Selling Propositions or Technological Advantages: RACL Geartech’s unique selling propositions include its ability to provide customized solutions, its strong focus on quality, and its commitment to innovation. The company’s technological advantages include its expertise in gear design, its advanced manufacturing processes, and its ability to meet the stringent requirements of global OEMs.

Primary Customers #

Target Industries and Sectors: RACL Geartech’s primary customers are in the automotive, motorcycle, and industrial sectors.

Geographic Markets (Domestic vs. International): The company serves both domestic and international markets. A significant portion of its revenue comes from exports.

Major Client Segments (agricultural, industrial, residential, etc.): The major client segments are:

• Automotive OEMs
• Motorcycle Manufacturers
• Industrial Equipment Manufacturers

Distribution Network and Sales Channels: RACL Geartech has a well-established distribution network and sales channels, including direct sales to OEMs and partnerships with distributors and agents.

Major Competitors #

Direct Competitors in India and Globally: Key competitors include established gear manufacturers in India and globally.

Comparative Market Share Analysis: RACL Geartech holds a significant market share in the Indian gear market and is gaining traction in international markets.

Competitive Advantages and Disadvantages:

• Advantages: Strong relationships with OEMs, focus on quality, and technological capabilities.
• Disadvantages: Intense competition, dependency on key customers, and vulnerability to economic cycles.

How they differentiate from competitors: RACL Geartech differentiates itself through its ability to provide customized solutions, its strong focus on quality, and its commitment to innovation.

Industry challenges and opportunities:

• Challenges: Volatility in raw material prices, technological disruptions, and increasing competition.
• Opportunities: Growing demand for electric vehicles, increasing outsourcing of manufacturing activities, and the development of new markets.

Future Outlook #

Expansion plans or growth strategy: RACL Geartech plans to expand its manufacturing capacity, invest in R&D, and develop new products to drive growth. The company is also exploring opportunities to enter new markets.

Sustainability initiatives or ESG commitments: RACL Geartech is committed to sustainability and has implemented various initiatives to reduce its environmental impact. The company is also focusing on improving its social and governance practices.

Industry trends affecting their business: Key industry trends include the growing demand for electric vehicles, the increasing use of automation in manufacturing, and the growing importance of sustainability.

Long-term vision and strategic goals: RACL Geartech’s long-term vision is to be a globally respected leader in the manufacturing of precision automotive and industrial components. The company’s strategic goals include increasing its market share, expanding its product portfolio, and improving its profitability.

Financial Analysis of RACL Geartech Limited #

3-Year Trend Analysis of Key Financial Metrics #

(Rs. in Lakh, except per share data)

Observations:

• RACL Geartech has demonstrated consistent revenue and profit growth over the reported periods.
• The increase in EBITDA indicates improved operational efficiency.
• Slight decrease in Return on Equity

Business Segment Performance #

FY 2023-24 Revenue Breakdown: Export: 73% Domestic:27%

Product wise breakup of revenue: 2-Wheelers 45% Recreation (ATV/RTV) 17% Tractor & Agriculture 12% Commercial Vehicles 9% Passenger Cars 9% E-Vehicles 3% 3-Wheelers 3% Inductrial Equipments 2%

Observations:

• Exports are the dominant revenue stream, highlighting RACL’s strong international presence.
• The company is seeing growth in new segments, particularly passenger cars and commercial vehicles, diversifying its revenue base.

Major Strategic Initiatives and Progress #

• Sustainability Focus: The Gajraula Plant achieving 100% green electrical energy compliance and Zero Water Discharge status is a significant milestone. This aligns with global trends towards sustainable manufacturing.
• Technology Adoption: Investments in AI, IoT, and advanced machinery (e.g., CNC helix, 5-axis gear shaving machines) signal a commitment to enhancing operational efficiency and product quality.
• New Market Entry: Nomination as a Tier 1 supplier for a German car manufacturer for EV parking lock mechanisms, and supplying gears for electric bicycle gearboxes, demonstrate successful expansion into new, high-growth segments.
• Production Linked Incentive: The Automobile and Auto Components sector has recieved an extension of an additional year for the PLI Scheme, benifitting the company.

Risk Landscape Changes #

• Geopolitical Risks: The report acknowledges increased geopolitical tensions and trade restrictions, which could impact export-oriented businesses.
• Supply Chain Disruptions: Mentioned as an ongoing global challenge.
• Inflationary Pressures: Noted as a risk factor, both globally and in India.
• AI Disruption: The rise of AI is recognized as both a challenge and an opportunity, particularly in the digital services sector.

ESG Initiatives and Metrics #

• Environmental:
  • 100% green electrical energy compliance at the Gajraula Plant.
  • Zero Water Discharge status with complete water recycling.
  • Investment in solar power plants (1203 kWp rooftop solar power plant, and a Power Purchase Agreement for 4MW of solar energy).
  • Reduction in CO2 emissions (over 720 tons annually due to the solar power plant).
• Social:
  • Emphasis on employee well-being, training, and a positive work environment.
  • Commitment to diversity and inclusion.
  • CSR initiatives focused on education and healthcare, including infrastructure support and scholarships.
• Governance:
  • Strong corporate governance framework, including various board committees (Audit, Nomination & Remuneration, Stakeholders Relationship, CSR, Risk Management).
  • Whistleblower policy and vigil mechanism.
  • Adherence to SEBI Listing Regulations and Companies Act, 2013.

Management Outlook #

• Optimistic Growth: The management is optimistic about maintaining a healthy growth trajectory in FY 2024-25 and beyond, driven by strong domestic demand, easing inflation, and government spending.
• Focus on Innovation: Sharpening focus on technology, innovation, IoT, and AI to create value for shareholders and customers.
• Adaptation: Commitment to adapting strategies to mitigate the impacts of global uncertainties.
• ESG Commitment: Advancing ESG practices to contribute to a sustainable future.

Overall Assessment #

RACL Geartech Limited demonstrates a strong financial position with consistent growth, a focus on innovation, and a commitment to sustainability. The company is well-positioned to capitalize on opportunities in the evolving automotive landscape, particularly in the electric vehicle segment. However, it faces challenges from global economic uncertainties and needs to continue its focus on risk mitigation. The company’s strong ESG initiatives and good corporate governance practices further enhance its long-term sustainability.

Detailed Analysis #

Financial Analysis of RACL Geartech Limited #

Balance Sheet Analysis #

Three-Year Comparative Analysis of Assets, Liabilities, and Equity (Standalone) #

(Rs. in Lakh)

Key Observations: #

• Consistent Growth: Both total assets and total equity show a significant increasing trend over the three years, indicating growth in the company’s scale and retained earnings.
• Increased reliance on liabilites: Total Liabilities has grown as a % of Total Assets.

Significant Changes in Major Line Items (>10% YoY) (Standalone) #

(Rs. in Lakh)

Key Observations: #

• Significant Asset Growth: The largest increases are in Property, Plant, and Equipment, Other Non-Current Assets, and Inventories. These are major investments that need careful scrutiny regarding their utilization and potential for generating returns.
• Trade Receivables Increase: The substantial rise in trade receivables (36.3%) needs investigation. It could indicate strong sales growth, but it also raises concerns about potential credit risk if the collection period is lengthening significantly. Industry-specific DSO benchmarks are crucial here.
• Borrowings Growth:The significant growth of 25.5% of the non current borrowings shows company’s need for long-term financing.
• Other current assets. The big rise in other current assets of 94.69%, suggests that it would be valuable to understand what assets this is comprised of, to better evaluate if these are one-time changes, or are indicative of a trend.

Working Capital Trends (Standalone) #

(Rs. in Lakh)

Key Observations: #

• Decreasing Working Capital: RACL Geartech’s working capital has decreased significantly from previous year.
• Current Ratio slightly above 1: A ratio near 1.0 suggests the company is highly leveraged and only just has enough liquid assets to cover short-term obligations.

Asset Quality Metrics #

We’ll focus on metrics related to tangible assets (PPE), as those are most relevant for a manufacturing company.

• Fixed Asset Turnover Ratio: (Revenue from Operations / Average Net Fixed Assets). We need the opening balance of PPE for 2022-23 to calculate the average.

  • 2023-24: 41,527.08 / ((30,613.12+ 22,644.28)/2) = 1.55
  • 2022-23: 35,819.87 / ((22,644.28+ Need 2021-22 PPE)/2) = (Need prior year data)

  Interpretation: A higher ratio is generally better, indicating efficient use of fixed assets to generate revenue. However, the ideal ratio varies significantly by industry. Comparing to direct competitors in the automotive component sector is essential.

• Impairment Losses: There were no significant impairments related to PPE or Intangible Assets during the year.

• Depreciation Method and Useful Lives: The company uses the straight-line method, which is standard. The stated useful lives are generally in line with Schedule II of the Companies Act, but a review by technical experts is mentioned, implying some assets may have different lifespans.

• Inventory Turnover Ratio - calculated by dividing net sales by average inventory.

  • 2023-24: 41,527.08 / ((12,063.63+9,688.00)/2) = 3.8 times
  • 2022-23: 36,734.37 / ((9,688.00+7,442.35)/2) = 4.3 times

Industry Benchmark Comparisons: #

• The Inventory Turnover Ratio, has changed, but more details on the company’s product lines and customer base is required to determine whether the current ratio is appropriate, and in line with peer and industry performance.

Debt Structure and Maturity Profile (Standalone) #

(Rs. in Lakh)

Maturity Profile Notes (from Note 15): #

The company provided a summary of the repayment schedule in Notes to Accounts but the detailed repayment schedule year by year is not provided. The Interest expense are reported as (Rs. 2,174.65) Lakh

Key Observations: #

• Mix of Secured and Unsecured: RACL Geartech uses a mix of secured and unsecured loans.
• Variable Interest Rates: Exposure to interest rate fluctuations is significant.
• Short-Term vs. Long-Term: A substantial portion of debt is categorized as current borrowings. This can increase refinancing risk.

Industry Benchmark Comparisons: #

• Debt-to-Equity Ratio: Total Debt / Total Equity. This ratio must be benchmarked against other automotive component manufacturers. The 2023-24 ratio is approximately 1.38, and 1.21 for 2022-23. The ratio has increased, but still falls in line with industry averages.
• Interest Coverage Ratio: (EBIT) / Interest Expense. This helps assess the company’s ability to meet interest obligations. Needs to be compared within the industry. The interest coverage ratio as of 2023-24 is 3.25

Off-Balance Sheet Items #

• Contingent Liabilities: Rs. 3.10 Lakh related to an Income Tax demand. This is a relatively small amount compared to the company’s overall financials.
• Capital Commitments: Rs. 641.17 Lakh for property, plant and equipment. This is a significant amount and indicates planned future investments.
• Operating Leases Indicated in Notes to Accounts.

Overall Assessment and Recommendations #

RACL Geartech shows signs of growth but also areas that warrant further analysis:

• Growth: The increase in assets, particularly PPE, suggests expansion. However, the profitability and efficiency of these new assets need monitoring.
• Liquidity: The decreasing working capital and current ratio close to 1 raise concerns about short-term liquidity. The company may need to focus on improving its cash conversion cycle.
• Debt: The increasing reliance on debt, both short-term and long-term, requires careful management of interest rate risk and refinancing risk.
• Receivables: The increase in trade receivables needs to be examined in relation to sales growth and industry benchmarks.

Recommendations: #

1. Detailed Analysis of Asset Growth: Investigate the specific investments in PPE, inventories, and other non-current assets. What projects are driving these increases? What are the expected returns?
2. Working Capital Optimization: Focus on reducing the inventory holding period and potentially improving the collection cycle for trade receivables.
3. Debt Management: Given the variable interest rate exposure, consider hedging strategies. Evaluate the refinancing risk associated with the large portion of current borrowings.
4. Industry Benchmarking: Continuously compare key financial ratios and performance metrics with direct competitors in the automotive component manufacturing sector to assess relative performance.

This analysis provides a starting point. A more comprehensive assessment would require more detailed information, including industry-specific benchmarks, management discussions, and potentially, access to internal company projections.

RACL Geartech Limited Financial Analysis (FY 2023-24) #

Revenue Breakdown #

Segment Breakdown (FY 2023-24) #

• 2-Wheelers: 45%
• Recreation (ATV/RTV): 17%
• Tractor and Agriculture: 12%
• Commercial Vehicle: 9%
• Passenger Cars: 9%
• E-Vehicles: 3%
• 3-Wheelers: 3%
• Industrial Equipment: 2%

Passenger Car and Commercial vehicle were specifically mentioned for diversifying and increasing the contribution.

Geographic Breakdown (FY 2023-24) #

• Exports: Rs. 308.52 Crore (73% of total revenue)
• Domestic (India): Rs. 84.71 Crore (27% of total revenue)
• Other source: 29.81 cr.
• Key Export Markets: Europe, Asia-Pacific, North America, and other regions

Specific Country Breakdown (FY 2023-24 Export Revenue, in Lakhs) #

• Austria: 12054
• Japan: 3841
• Germany: 5281
• Switzerland: 2763
• Italy: 599
• Thailand: 889
• Vietnam: 538
• USA: 767
• China: 3085
• Sweden: 1034

Growth Rates #

• Total Revenue Growth (Standalone): 18.1%
• Total Revenue Growth (Consolidated): 13.05%
• Export Growth: Specific rates for segments are not provided, but overall growth can be implied from the total revenue increase.

Cost Structure Analysis #

Major Cost Components (FY 2023-24, Standalone, Rs. in Lakh) #

• Cost of Materials Consumed: 12,978.55
• Employee Benefit Expenses: 4,583.90
• Finance Costs: 2,017.89
• Depreciation and Amortization: 2,179.62
• Other Expenses: 15,166.69 (Includes job work, power & fuel, stores & spares, packing, etc.)

Cost of Materials #

• The data shows the cost of material has remained relatively flat as a percentage of total expenses.

Other Expenses #

• A relatively large component, suggesting a need for further breakdown to understand key drivers.

Margin Analysis #

Standalone (Rs. in Lakh) #

Gross Margin #

• FY 2023-24: 67.1%
• FY 2022-23: 71%
• There is a slight decline.

Operating Margin (EBIT Margin) #

• Approximate Operating Profit (EBIT): 7,475.30 cr
• Approximate Operating Margin (EBIT margin): 17.7%

Net Profit Margin #

• FY 2023-24: 9.41%
• FY 2022-23: 10.45%
• A slight decline.

Consolidated (Rs. in Lakh) #

Gross Margin #

• FY 2023-24: 66.5%
• FY 2022-23: 71.58%
• Slight decline.

Operating Margin (EBIT Margin) #

• Approx Operating Profit (EBIT): 7668.46
• Approx Operating Margin (EBIT margin): 18.47%

Net Profit Margin #

• FY 2023-24: 9.49%
• FY 2022-23: 10.2%
• There is a decline.

Trends #

• The profit margins have slightly decreased from last financial year.

Operating Leverage #

• RACL Geartech, as a manufacturing company, likely has a significant degree of operating leverage due to its investment in plant, property, and equipment (PP&E). This means that changes in sales volume can have a magnified impact on operating income.

Non-Recurring Items #

• The report does not explicitly mention any material non-recurring or exceptional items for the year ended March 31, 2024. The P&L Statement includes a line item for “Exceptional Items,” but it’s reported as zero for both years.

GAAP vs. Non-GAAP Reconciliation #

• The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), which are converged with IFRS. There is no need for a GAAP vs. Non-GAAP reconciliation in this context, as Ind AS are the applicable GAAP.

EPS Analysis #

Standalone #

• FY 2023-24:
  • Basic EPS: Rs. 36.92
  • Diluted EPS: Rs. 36.92
• FY 2022-23:
  • Basic EPS: Rs. 34.73
  • Diluted EPS: Rs. 34.73

Consolidated #

• Basic and Diluted are the same for FY24 at 36.54
• Basic and Diluted are the same for FY23 at 34.73
• Since Basic and Diluted EPS are identical, there are no dilutive potential equity shares (like stock options or convertible securities) outstanding.

Key Observations and Further Analysis Points #

• Growth: RACL Geartech demonstrates substantial revenue growth. Understanding the drivers of this growth (volume, pricing, new products, new markets) is crucial.
• Margins: While profitable, the company needs to monitor the slight decrease in margins. Further investigation into the cost of goods sold and operating expenses is needed to identify the reasons for the decline.
• Exports: The high percentage of revenue from exports (73%) indicates a significant reliance on international markets. This exposes the company to currency risk and global economic conditions. The company mentions “natural hedging,” but details on hedging strategies would be beneficial.
• Investments: The company is investing significantly in capital expenditures (as seen in the purchase of PPE). Understanding the nature of these investments and their expected returns is important.
• Working Capital: A review of the working capital cycle (inventory days, receivables days, payables days) would provide insights into operational efficiency.
• Debt: Debt level increased significantly and needs further analysis.

Data Needed For Further Analysis #

• Detailed breakdown of “Other Expenses.”
• Information on pricing and volume changes.
• Details on hedging strategies (if any).
• Quarterly financial results.
• Breakdown of Capex investments.
• Information on any significant contracts or customer relationships.
• Industry-specific benchmarks and competitor analysis.

Cash Management Analysis of RACL Geartech Limited #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, and FCF Components #

(Rs. In Lakh)

Key Observations #

• OCF Decline: While operating profit before working capital changes increased, a significant outflow related to working capital changes (primarily increases in inventories and trade receivables) led to a substantial decline in OCF. This is a major area of concern.
• High Capex: The company is heavily investing, with significant cash outflows for the purchase of PPE and advances for PPE. This signifies an expansion or upgrade phase, but the negative impact on free cash flow is considerable.
• Financing Dependence: The company relied heavily on financing activities (borrowings) to fund its operations and investments, as OCF was insufficient to cover ICF.
• Free Cash Flow: The company had a significantly negative free cash flow in 2024 due to the large Capex and reduced OCF.

Working Capital Management Efficiency #

• Deterioration: The large negative working capital change in the OCF calculation indicates a deterioration in working capital management efficiency. Specifically, large increases in inventory and trade receivables suggest:

  • Inventory: Potential issues with inventory management, possibly due to overstocking, slower-moving inventory, or production inefficiencies.
  • Trade Receivables: Difficulty in collecting payments from customers, potentially due to lenient credit terms, customer financial difficulties, or internal collection process issues.

• Working Capital Turnover: The provided report shows a declining Net Capital turnover Ratio, which went down by 27.5%. Which highlights the ineffeciency in working capital management.

• Key Metrics (from the provided data):

  • Inventory Turnover Ratio: Declined from 4.72 times to 3.69 times. This confirms the worsening inventory management, with inventory taking longer to convert to sales.
  • Trade Receivables Turnover Ratio: Decreased slightly from 4.44 times to 4.19 times, also signaling a minor slowdown in collections.
  • Trade Payables Turnover Ratio: Decreased from 7.2 times to 6.37 times. The company is paying its suppliers slower.

Dividend and Share Buyback Trends #

• Dividend: The company declared and paid a dividend of ₹1.50 per share in both 2023 and 2024, a payout ratio of 4.5% and 4.8% respectively. This suggests a relatively conservative dividend policy.
• Share Buyback: There is no mention of any share buyback activity in the provided document.

Debt Service Coverage #

• Debt Service Coverage Ratio (DSCR): Calculated as (Net Profit After Taxes + Depreciation + Interest Expense) / (Total Debt Repaid + Interest).
  • 2024: (3940.08+ 2392.59 + 2207.74) / (2369.44+ 2207.74) = 1.83 times
  • 2023: (3745.07 + 1853.16 + 2108.71) / (2683.85+ 2108.71) = 1.60 times
• The reported DSCR is 1.39 times. The calculation for the ratio in the report is different than the formula. *The ratios are somewhat over 1, but due to the operating cash flow decline and high CAPEX requirements, management should make sure that they have enough cash flow and a strong credit rating in case they need to borrow more.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio:

  • 2024: 26,797.05 / 24,633.88= 1.09
  • 2023: 19,935.70 / 17,448.45 = 1.14

• Cash and Cash Equivalents: The balance sheet shows a small amount of cash and cash equivalents, and the amount has decreased compared to last year.

• The Current Ratio is getting close to 1, which is low, but still not a significant risk at this point.

• Cash Conversion Cycle (CCC): It’s highly likely that the CCC has increased, meaning the company is taking longer to convert its investments in inventory and other resources into cash.

Free Cash Flow Yield Trends #

• Free Cash Flow Yield: The Company’s FCF is at negative 5402.2 lakhs

Summary and Recommendations #

RACL Geartech is in a period of significant investment and expansion, but this is putting a strain on its financial performance.

• Deteriorating Working Capital Management: The company needs to urgently address its working capital management. This includes:

  • Inventory Control: Implement better inventory forecasting, reduce excess stock, and optimize production processes.
  • Receivables Management: Strengthen credit policies, improve collection efforts, and potentially review customer payment terms.
  • Payables Management: While slowing down payments to suppliers can temporarily improve cash flow, it’s not a sustainable solution and can damage supplier relationships.

• High Capital Expenditure: While investment is necessary for growth, the company needs to carefully evaluate the returns on these investments and ensure they align with the overall strategic goals. Consider:

  • Prioritization: Focus on the most critical and strategically important projects.
  • Phased Approach: If possible, phase the investments to better manage cash flow.
  • Financing Mix: Explore a mix of debt and equity financing to optimize the capital structure.

• Dependence on Borrowings: The company’s reliance on borrowings to fund its operations and investments is a concern. It increases financial risk and interest expenses.

• Monitor Key Metrics: Regularly track and analyze key financial metrics such as OCF, FCF, working capital ratios, DSCR, and liquidity ratios.

• Communicate with Stakeholders: Maintain transparent communication with investors, lenders, and other stakeholders regarding the company’s financial performance and plans.

RACL Geartech needs to strike a balance between its growth ambitions and its financial health. Addressing the working capital issues and carefully managing its cash flow will be crucial for its long-term sustainability.

Financial Analysis of RACL Geartech Limited #

Profitability Ratios #

Calculations #

• ROE: (Net Income / Average Shareholder’s Equity) * 100

  • FY24: (3940.08 / ((20527.84 + 16669.71)/2)) * 100 = 19.22%
  • FY23: (3745.07/((16669.71+14062.64)/2)) * 100 = 23.32%

• ROA: (Net Income / Average Total Assets) * 100

  • FY24:(3940.08/((58399.51+44413.81)/2))*100= 6.75%
  • FY23: (3745.07/((44413.81+35786.78)/2)) *100 = 8.14%

• ROIC: Net Operating Profit After Tax (NOPAT) / Invested Capital.

  • FY24 NOPAT= EBIT*(1-Tax Rate): (5140.83+2165.73)*(1-(1200.75/5140.83))= 5654.59 Invested Capital = (Total Assets - Non interest bearing current liabilities)=58399.51-7871.67=50527.84 ROIC: 5654.59/30,250.06*100=18.69%

  • FY23 NOPAT: (5371.70+2116.54)*(1-(1626.63/5371.7))=5244.71 Invested Capital = (44413.81-7744.1)=36669.71 ROIC=5244.71/22761.95*100= 23.04%

• Gross margin: (Gross Income) / Revenue)*100

  • FY24: (41527.08-12980.43)/40645.41 *100 = 68.56%
  • FY23:(35819.73-12280.68)/35819.73*100 = 69.82%

• Operating Profit Margin: (EBITDA/Revenue)*100

  • FY24:(5140.83+2643.59+2165.73)/41527.08*100 = 24.17%
  • FY23:(5371.70+1989.57+2116.54)/36734.37*100= 25.83%

• Net Profit Margin: (Net Income / Revenue) * 100

  • FY24: (3940.08 / 41527.08) * 100 = 9.49%
  • FY23: (3745.07 / 35819.73) * 100 = 10.45%

Analysis #

• RACL Geartech shows strong profitability, but all profitability ratios are declining from the past year.

Liquidity Metrics #

Calculations #

• Current Ratio: Current Assets / Current Liabilities
  • FY24: 26871.67/ 24662.44 = 1.09
  • FY23: 19599.44/ 17470.87= 1.12
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities
  • FY24: (26871.67-12190.83) / 24662.44 = 0.60
  • FY23:(19599.44-9452.76)/17470.87= 0.58
• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities
  • FY24: 41.24/ 24662.44=0.0017
  • FY23:18.30/ 17470.87 =0.0010

Analysis #

• RACL’s liquidity position is concerning because all ratio are either declining or almost constant and are very low.

Efficiency Ratios #

Calculations #

• Asset Turnover Ratio: Revenue / Average Total Assets

  • FY24:41527.08/((58399.51+44413.81)/2) = 0.77
  • FY23:36734.37/((44413.81+35786.78)/2) = 0.91

• Inventory Turnover Ratio: Cost of Goods Sold / Average Inventory COGS= Revenue-Gross Income=41527.08-28467.71=13059.37

  • FY24: 13059.37/((12190.83+9452.76)/2) = 1.21
  • FY23:13519.58/((9452.76+5905.27)/2)= 1.76

• Receivables Turnover Ratio: Revenue / Average Trade Receivables

  • FY24: 40,645.41/((10722.78+8449.03)/2) = 4.28
  • FY23: 35,819.73/((8449.03+6955.91)/2) = 4.62

Analysis #

• Declining asset and inventory turnover ratios show less efficiency.

Leverage Metrics #

Calculations #

• Debt-to-Equity Ratio: Total Debt / Total Equity
  • FY24: 28464.59/20527.84= 1.38
  • FY23: 20146.56/ 16669.71=1.21
• Interest coverage ratio:
  • FY24: (7306.56/2165.73)=3.37
  • FY23:(7488.24/2116.54)=3.54

Analysis #

• Increasing debt to equity indicates higher leverage.
• Declining interest coverage ratio indicates risk.

Working Capital Ratios #

Calculations #

• Working Capital: Current Assets - Current Liabilities
  • FY24: 26871.67- 24662.44 = 2209.23
  • FY23:19599.44- 17470.87=2128.57
• Days Sales Outstanding (DSO): (Average Accounts Receivable / Revenue) * 365
  • FY24: (((10722.78+8449.03)/2) / 40645.41 ) * 365 =87.82
  • FY23: (((8449.03+6955.91)/2)/35819.73)*365= 77.99
• Days Inventory Outstanding (DIO): (Average Inventory / Cost of Goods Sold) * 365
  • FY24: (((12190.83+9452.76)/2) / 13059.37) * 365 = 303.34
  • FY23: (((9452.76+5905.27)/2)/13519.58)*365= 206.40
• Days Payables Outstanding (DPO): (Average Accounts Payable / Cost of Goods Sold) * 365
  • FY24: (((4723.13+3766.02)/2)/12980.43) * 365 =119.25
  • FY23: (((3766.02+2901.81)/2)/12280.68)*365= 98.75
• Cash Conversion Cycle (CCC): DIO + DSO - DPO
  • FY24= 303.34+87.82-119.25=271.91
  • FY23= 206.40+77.99-98.75=185.65

Analysis #

• The working capital is increasing, indicating need for additional financing.
• DSO, DIO, DPO and Cash conversion cycle are increasing indicating less efficient working capital cycle and requires additional scrutiny.

Overall Summary and Deviations #

• Profitability: RACL Geartech demonstrates strong profitability, with a healthy ROE, ROA, and ROIC. However, all profitability ratios are declining, which is a significant concern.
• Liquidity: Liquidity is a major point of concern. The current and quick ratios are low, suggesting potential difficulties in meeting short-term obligations.
• Efficiency: Efficiency, as measured by turnover ratios, is also showing a decline.
• Leverage: The debt-to-equity ratio has increased which is also concerning and should be scrutinized.
• Working Capital: The components of working capital have increased with DIO and DPO increasing significantly.

Key Recommendations #

• Investigate Declining Profitability: The reasons for the drops in all profitability ratios must be understood.
• Improve Liquidity: RACL needs to improve its liquidity position.
• Address Efficiency Declines: Investigate and address the declines in inventory and asset turnover.
• Control Debt: The rising debt-to-equity ratio needs to be carefully managed.
• Detailed Working Capital Analysis
• Compare with Industry Data: Get information from the industry related to the ratios to check if the trends are significant and material.
• Review Policies and Procedures

RACL Geartech Limited Performance Analysis FY24 #

Revenue and Profitability Metrics #

• Total Revenue (Standalone): Increased to ₹423.03 Crore, a growth of 15.16%.
• Total Revenue (Consolidated): Increased to ₹415.27 Crore, a growth of 13.05%.
• Profit Before Tax (Standalone): Increased to ₹54.43 Crore, a growth of 4.69%
• Profit Before Tax (Consolidated): Increased to ₹52.84 Crore, a growth of 1.63%
• Profit After Tax (Standalone): Reached ₹39.81 Crore, growth of 6.29%
• Profit After Tax (Consolidated): Reached ₹39.40 Crore, growth of 5.83%
• EBITDA (Standalone): ₹101.92 Crore, a 12.4% increase.
• Dividend: Rs. 1.50 per equity share.

Market Share and Competitive Position #

• RACL Geartech is a leading automotive components supplier in India and globally, a Tier 1 supplier to major OEMs and system manufacturers.
• Holds a strong position in the competitive gear market, with a niche focus, technological upgrades, and strong relationships with key global customers.

Key Products/Services Performance #

• Product Category Split:
  • 2 Wheelers: 45%
  • Recreation (ATV/ RTV): 17%
  • Tractor and Agriculture: 12%
  • Commercial Vehicle: 9%
  • Passenger Cars: 9%
  • E -Vehicles: 3%
  • 3 - Wheelers: 3%
  • Industrial Equipments: 2%
• Passenger Cars: Contributed 9% of the total sales. High Growth.
• Commercial Vehicles: Grew from 2% (FY22) to 9% (FY24) of overall business.
• New Product Categories: Parking Lock mechanism for EV, gears for electric bicycles.

Geographic Distribution and Market Penetration #

• Exports: Accounted for 73% of total sales (₹308.52 Crore).
• Domestic Sales: Accounted for 27% of total sales (₹84.71 Crore).
• Key Export Markets: Europe, Asia-Pacific, and North America (Germany, Japan, Thailand, Austria, Switzerland, Italy, China, USA, Sweden, Vietnam).
• Presence of one international subsidiary (RACL Geartech GmBH in Austria).

Segment-wise CAPEX #

• 1203 kWp Roof Top Solar Power Plant
• Roof Top Solar Water Heating System
• Investment in energy efficent machinery.

Operational Efficiency Metrics #

• Energy Conservation: Compliance with green energy at the Gajraula Plant (100% compliant with green Electrical energy w.e.f. 1st January 2024). Zero Water Discharge.
• Technology Absorption: Continuous adoption of new technologies (CNC machines, 3D laser marking, ECM deburring).

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Expansion into new product segments (EV components, electric bicycle gears).
  • Focus on technology, innovation, IoT, and AI.
  • Strengthening relationships with existing global customers and acquiring new ones.
  • Investments in sustainability (green energy, water recycling).
  • Focus on skill development and human resources.
• Challenges:
  • Global Economic Challenges: Supply chain disruptions, inflationary pressures, geopolitical tensions, and trade restrictions.
  • Competition: Highly competitive automotive industry.
  • Technological Shifts: Rapid rise of AI and the transition to electric vehicles.
• Dependence on Key Customers: A high degree of reliance on a few major clients could pose risks.

Risk Analysis: RACL Geartech Limited (FY 2023-24) #

This report analyzes RACL Geartech Limited’s risk profile based on the information available in the 41st Annual Report (FY 2023-24), categorized as strategic, operational, financial, compliance/regulatory, and emerging risks.

Strategic Risks #

Definition #

Risks that affect the company’s ability to achieve its strategic objectives.

Analyzed Risks #

• Geopolitical Instability: Impacts on trade flows, export challenges, and economic stability, especially in Europe.
• Technological Disruption (AI & EV Transition): Threats to cost advantages, need for rapid adaptation in EV technology, and competition from new entrants (especially from China).
• Market Concentration: export vs. domestic revenue
• Industry Transition to EVs: Changes in demands, increased labor, reduced market value.

Analysis #

Quantitative Metrics & Trend #

• Export Revenue: 73% of total sales (FY24), up from 69.78% (FY23). Indicates increasing reliance on international markets, heightening geopolitical risk.
• R&D Expenditure: Not disclosed in the provided data. This is a critical gap for assessing the company’s ability to mitigate technological disruption.

Operational Risks #

Definition #

Risks arising from internal processes, people, systems, or external events that disrupt day-to-day operations.

Analyzed Risks #

• Supply Chain Disruptions: Ongoing global issues, including geopolitical tensions and shipping problems.
• Quality Control: Maintaining high quality to retain customers, especially in the face of increased competition.
• Environmental Risk: High usage and waste of water, high energy usage.
• Labor Relations: Maintaining harmonious industrial relations and managing a workforce of 670+ employees.
• Safety Risk: Risk of accidents.

Analysis #

Quantitative Metrics & Trend #

• Employee Turnover Rate: 6% for permanent employees in FY24, up from 7.9% in FY23. A stable or decreasing trend is positive.
• Safety Metrics: In 23-24 there was one right hand injury. in 22-23, LTIFR for employees was NA.

Financial Risks #

Definition #

Risks related to the company’s financial health and stability.

Analyzed Risks #

• Foreign Exchange Risk: Significant exposure due to high export revenue (73% of total).
• Interest Rate Risk: Exposure to fluctuating interest rates on borrowings.
• Credit Risk: Risk of default from customers (trade receivables).
• Liquidity Risk: Ability to meet short-term obligations.
• Commodity Risk: Fluctuation in prices of steel.

Analysis #

Quantitative Metrics & Trend #

• Debt-to-Equity Ratio: 1.38:1 (FY24), up from 1.21:1 (FY23). Indicates increasing leverage, potentially increasing financial risk.
• Current Ratio: 1.09:1 (FY24), down from 1.14:1 (FY23). A slight decrease, but still indicates sufficient current assets to cover current liabilities.
• Interest Coverage Ratio: Improved from last year.

Compliance/Regulatory Risks #

Definition #

Risks associated with non-compliance with laws, regulations, and industry standards.

Analyzed Risks #

• Environmental Regulations: Compliance with stringent environmental laws in India and internationally (e.g., pollution control).
• Labor Laws: Compliance with various labor laws, including the Sexual Harassment of Women at Workplace Act, 2013.
• Data Privacy: Compliance with data protection regulations (although no specific laws mentioned, this is implied given the company’s global operations and use of IT systems).
• Tax Compliance: Maintaining proper Tax documentation.
• Trade Regulation: Maintaining compliance with trade restrictions.

Analysis #

Quantitative Metrics & Trend #

• No fines or penalties reported for non-compliance in the past three years.
• Zero complaints related to labor practices, health & safety, and sexual harassment in FY24.

Emerging Risks #

Definition #

Newly developing or changing risks that are difficult to quantify but could have a significant impact.

Analyzed Risks #

• Cybersecurity: Increasing reliance on IT systems and data makes the company vulnerable to cyberattacks.
• Climate Change: Extreme weather events could disrupt operations and supply chains.
• Rapid Technological Advancements: The quick evolution of AI, and other related technologies, poses a future challenge.

Analysis #

Quantitative Metrics & Trend #

• No reported data breaches in FY24.
• Capital expenditure for roof top solar plants

Overall Risk Assessment and Recommendations #

RACL Geartech demonstrates a strong awareness of various risks and has implemented several mitigation strategies. However, there are areas for improvement:

• Formalize and Quantify: While the report mentions various risks and mitigation efforts, it lacks specific quantitative metrics and year-over-year comparisons for many risk areas. Developing a more robust risk scoring system (e.g., using a risk matrix with defined probability and impact scales) would allow for better tracking and prioritization of risks.
• Cybersecurity Policy: The company is in the process of developing a cybersecurity policy. This should be a high priority given the increasing threat landscape.
• Supply Chain Risk Management: The company mentions diversifying suppliers, but more details on the supplier assessment process (especially regarding ESG factors) would be beneficial.
• R&D Investment Disclosure: Disclosing R&D expenditure is crucial for understanding the company’s commitment to innovation and mitigating technological disruption risks.
• Climate Change: A ZLD, and 100% green compliant Gajraula plant shows a strong commitment to climate change.

Financial Impact Summary #

The financial impact has been categorized and mentioned in the tables above. It is seen across multiple risk areas. Geopolitical risk, Environmental Risks, Technological advancements, and Safety risk, are a few of the high impact areas.

By strengthening its risk management framework, particularly in the areas of quantification, cybersecurity, and supply chain resilience, RACL Geartech can further enhance its long-term sustainability and financial performance.

RACL Geartech Limited Strategic Analysis #

Long-Term Strategic Goals and Progress #

• Sustainability Focus: RACL Geartech demonstrates a strong commitment to sustainability, with the Gajraula Plant achieving 100% green electrical energy compliance and maintaining a Zero Water Discharge status. The company actively pursues ESG practices and carbon emission reduction.
• Market Expansion and Diversification: RACL Geartech is expanding its product portfolio, transitioning from a component supplier to a system supplier. It now directly supplies a German car manufacturer (Tier 1) for electric vehicle parking lock mechanisms and focuses on the Passenger Car (started in FY23) and Commercial Vehicle segments, which contributed 9% each to the overall business in FY24.
• Technological Advancement: RACL is increasingly focused on technology, innovation, IoT, and AI to create value, demonstrating a forward-looking approach.
• Growth in Revenue and Profitability: RACL Geartech has exhibited strong growth in revenue and profitability compared to the previous year.

Competitive Advantages and Market Positioning #

• Tier 1 Supplier Status: Nomination as a Tier 1 supplier to a major German car manufacturer provides a significant competitive advantage, signifying high trust and capability within the global automotive supply chain.
• Niche Market Focus: RACL’s specialization in high-precision gears for specific niche market segments (primarily two-wheelers, recreational vehicles, and agricultural machinery) allows for deep expertise and strong customer relationships.
• Global Presence: RACL Geartech supplies to major OEMs and key system manufacturers globally, with a strong presence in Europe, Asia-Pacific, and North America.
• Customer Relationships: The company boasts a “dedicated customer base” and “100% on-time deliveries,” indicating strong, long-term relationships with key clients.
• Certifications: RACL Geartech holds various certifications in the fields of quality, safety, and environment.

Innovation Initiatives and R&D Effectiveness #

• Technology Absorption: RACL Geartech invests in new technologies, including CNC helix shaping machines, 5-axis gear shaving machines, CNC CBN cylindrical grinders, ECM deburring machines, and 3D laser marking for traceability.
• In-House Development: RACL Geartech develops assembly stations with Poka Yoke (error-proofing) and billet loading conveyors, showcasing internal innovation capabilities for process improvement.

Management’s Track Record in Execution #

• Consistent Growth: The reported increase in revenue and EBITDA (12.4% year-over-year) indicates successful execution of growth strategies.
• Awards and Recognition: RACL Geartech received an award for “Highest Export Performance” and recognition from key customers.
• Sustainability Milestones: Achieving 100% green energy compliance and zero water discharge status indicates effective execution of sustainability goals.

Capital Allocation Strategy #

• Dividend Policy: The Board recommended a dividend of Rs. 1.50 per share, demonstrating a commitment to returning value to shareholders. The company has a Dividend Distribution Policy.
• Investment in Technology: A significant portion of capital is allocated to acquiring new, advanced manufacturing technologies, indicating a focus on long-term competitiveness.
• Retained Earnings: The Board decided to retain the entire profit for FY 2023-24, suggesting a focus on reinvesting for growth.
• Power Purchase Agreements: Entering long-term power purchase agreements for solar energy shows a strategic approach to managing energy costs and ensuring sustainability.

Organizational Changes and Their Impact #

• Risk Management Committee: Formation of the Risk Management Committee in 2023 demonstrates proactive risk management.

RACL Geartech Limited ESG Analysis (2023-24) #

Environmental Metrics and Targets #

• Metrics:
  • Energy Consumption: Details total energy consumption, broken down by renewable and non-renewable sources (Joules). Energy intensity per rupee of turnover provided.
  • Green Energy: Gajraula plant is 100% compliant with green electrical energy (as of January 1, 2024) and sources solar power.
  • Water Withdrawal & Consumption: Data disclosed on water withdrawal by source (surface, ground, third-party) and total consumption in kiloliters. Water intensity metrics presented.
  • Zero Liquid Discharge: Maintains Zero Water Discharge status with water recycling.
  • Air Emissions: Data presented on NOx, SOx, and particulate matter.
  • Greenhouse Gas (GHG) Emissions: Scope 1 and Scope 2 emissions provided (metric tons of CO2 equivalent). Carbon emissions calculation started in FY 23-24.
  • Waste Management: Details on waste generation (plastic, e-waste, hazardous, other), with quantities. Waste recovery and disposal methods disclosed.
• Targets:
  • GHG Emissions: Achieve net-zero scope 2 GHG emissions for Gajraula plant by 2026.
  • Water Management: Maintain 100% wastewater recycling annually.
  • Supplier Evaluation: Achieve 100% supplier evaluation on environmental criteria.
  • Renewable energy: Addition of rooftop solar power plant generated significant savings of INR 23.39 Lakh and reducing over 720 tons of CO2 emissions annually.
  • Power Purchase Agreement: Signed a PPA with Sunsure Solarpark Ten Private Limited on 7th July 2023 for 4MW of solar energy. Also entered into a PPA with Oriana Power Limited for installation of solar photo voltaic power plant in Gajraula.

Social Responsibility Programs #

• CSR Focus: Primarily in education and healthcare.
• Programs:
  • Bright Tomorrow, Akshar Gyan, Computer Education Program: Providing infrastructure and scholarships, benefitting 393 students.
  • Shining Stars: Focuses on employment-enhancing vocational skills.
  • School Infrastructure Support: Renovation of classrooms and installation of water purifiers.
• Stakeholder Engagement: Highlights processes for identifying and engaging with key stakeholder groups.
• Employee Well-being: Measures detailed include health insurance, accident insurance, maternity/paternity benefits, and day-care facilities (100% coverage for some benefits).
• Workplace Safety: Implementation of an occupational health and safety management system (ISO 45001 certified), hazard identification processes, and employee training. Lost Time Injury Frequency Rate (LTIFR) data reported.
• Human Rights: Commitment to human rights, with training programs for employees and a Whistle-Blower Policy.

Governance Structure and Effectiveness #

• Board Composition: 7 directors: mix of executive, non-executive, and independent. Board diversity (2 women directors).
• Board Committees: Audit, Nomination and Remuneration, Stakeholders Relationship, CSR, and Risk Management Committees.
• Board Evaluation: Annual evaluation process for the Board, individual directors, and committees.
• Risk Management: Risk Management Committee oversees risk processes and systems.
• Code of Conduct: Code of Conduct for Directors and Senior Management Personnel in place.
• Compliance: Compliance with corporate governance norms, listing regulations, and Secretarial Standards.
• Whistle-Blower Mechanism: Policy described.

Sustainability Investments and ROI #

• Investment of 1203 kwp rooftop solar power plant, generating savings of 23.39 Lakh INR for FY 23-24 and reduction of CO2 emissions of over 720 tons annually.
• Solar water heating systems, saving approximately 2.5 Lakh INR in FY 23-24 and projecting 4 lakh in annual savings.
• Investments were made in new, energy efficient technologies, machines, and a state of art Pre-Tool setting and inspection machine.

ESG Ratings, Peer Comparison, and Certifications #

• Certifications: Includes Quality Management Systems (IATF 16949:2016), Environmental Management Systems (ISO 14001: 2015), Occupational Health & Safety Management Systems (ISO 450001: 2018), and other core areas of the business. Dun & Bradstreet certified and also hold Quality Management System (ISO 9001:2015) certification from BSI and TISAX.

Regulatory Compliance and Future Preparations #

• Compliance: Compliance with various regulations, including the Companies Act, SEBI Listing Regulations, environmental laws (Water Act, Air Act, Environment Protection Act), and labor laws.
• Extended Producer Responsibility (EPR): Acknowledges EPR applicability and confirms the waste collection plan is aligned with submissions to Pollution Control Boards.
• Business Responsibility & Sustainability Report (BRSR): Includes a detailed BRSR, indicating compliance with SEBI’s reporting requirements.
• Future Preparations: Ongoing efforts in areas such as sustainable sourcing, evaluating supplier, developing a “sustainable supply chain program”.

Financial Analysis: RACL Geartech Limited (FY 2023-24) #

This report analyzes RACL Geartech Limited’s (“RACL”) financial performance, strategic initiatives, and market outlook based on the provided 41st Annual Report document, focusing on management guidance, market forecasts, strategic plans, CapEx, efficiency targets, and potential challenges/opportunities.

Management Guidance and Assumptions #

• Overall Growth: Optimistic tone, citing “considerable growth and resilience” and a commitment to “driving consistent revenue and profit growth.” Anticipate a “healthy growth trajectory in FY 2024-25 and beyond.”
• Indian Economy Resilience: Belief that India will remain resilient despite global economic challenges. Highlighting strong domestic demand, government infrastructure investments, and a robust manufacturing sector.
• Focus on Technology & Sustainability: Emphasis on technology, innovation, IoT, AI, and ESG practices. Gajraula Plant’s 100% green energy compliance and zero water discharge status highlighted.
• Export Market: Acknowledgment that exporting may become “increasingly challenging,” necessitating a focus on logistics efficiency and product quality.
• Assumption of Continued Domestic Demand: A core assumption is the continuation of strong domestic demand within India.
• Assumption on PLI Scheme’s benefits: The Production Linked Incentive will have benefits, according to the management.

Market Growth Forecasts #

• Global Automotive Market: Projected to grow from USD 29.09 billion in 2023 to USD 42.86 billion by 2032 (CAGR of 4.4%). The Asia-Pacific region is identified as the leading growth area.
• Indian Automobile Industry: India holds a strong position in heavy vehicles and rapid growth in passenger vehicle sales (14% growth in January 2024). The EV market in India is projected to reach US$7.09 billion by 2025 and US$50 billion in EV financing by 2030. The EV market is expected to grow at a CAGR of 36% until 2026, and the EV battery market is projected to grow at a CAGR of 30% during the same period.
• Indian Auto Components Industry: Turnover was Rs. 2.9 lakh crore (US$ 36.1 billion) in H1 2023-24, with growth of 12.6% compared to H1 2022-23. Exports grew by 2.7% to Rs. 85,870 crore (US$ 10.4 billion) in H1 2023-24.

Planned Strategic Initiatives #

• Technology Focus: Prioritizing investments in technology, innovation, IoT, and AI to enhance offerings and improve operational efficiency.
• Sustainability: Committed to advancing ESG practices, reducing carbon emissions, and achieving 100% green energy compliance across all facilities.
• Product Diversification: Diversifying product portfolio, with a particular focus on the passenger car segment and EV components. New nominations as a Tier 1 supplier for a German car manufacturer (parking lock mechanism for EVs) and for electric bicycle gearboxes are highlighted.
• Partnership: Partnered with BMW motorrad.
• Concurrent and Value Engineering: Continuous improvement is assured, with an emphasis on high-quality products and 100 percent on-time deliveries.

Capital Expenditure Plans #

• Energy Conservation:
  • Commissioned a 1203 kWp rooftop solar power plant in February and December 2023 (OPEX model, no upfront capital investment).
  • Commissioned a solar water heating system (12 KL capacity).
  • Entered a Power Purchase Agreement (PPA) with Sunsure Solarpark Ten Private Limited for 4MW of solar energy.
  • Entered into a PPA with Oriana Power Limited for a solar photovoltaic power plant in Gajraula.
• Technology Absorption:
  • Enhancements in capacity through the addition of various CNC machines (gear shaping, shaving, turn mill center, cylindrical grinder).
  • Addition of a pre-tool setting and inspection machine, 3D laser marking machine, CNC video measuring machine, and ECM deburring machine.
  • In-house development of assembly stations and billet loading conveyors.

Efficiency Improvement Targets #

• Energy Savings:
  • Power Factor Improvement: Saved 48,221 units and Rs. 3.6 Lakhs in FY23-24.
  • Automatic Control of Motors: Saved 237,700 units and Rs. 17.82 Lakhs in FY23-24.
  • Rooftop Solar Power Plant: Savings of INR 23.39 lakh in FY23-24.
  • Solar Water Heating System: Approximate savings of INR 2.5 lakh in FY23-24, with projected annual savings of INR 4 lakh.
• Productivity and Quality: Investments in new machinery are aimed at achieving higher productivity, better quality, and flexibility, particularly for EV applications.
• Traceability: Installation of technology allows for end to end traceability of parts.

Potential Challenges and Opportunities #

• Challenges:

  • Global Economic Uncertainty: Geopolitical tensions, trade restrictions, supply chain disruptions, and inflationary pressures.
  • Export Market Challenges: Exporting may become increasingly difficult.
  • AI Disruption: The rise of AI is recognized as a potential threat to cost advantages in the digital services sector.
  • Intense Competition: The automobile industry faces fierce competition.
  • Economic Slowdown: Economic uncertainty, recessions, and unemployment are noted as potential long-term risks.
  • Fuel Price Fluctuations: Significantly impact consumer choices and market growth.
  • Employee turnover: Higher attrition rate than other sectors.

• Opportunities:

  • Strong Domestic Demand in India: This is seen as a key strength.
  • EV Market Growth: The rapid expansion of the EV market presents significant opportunities.
  • Government Support: The Production Linked Incentive (PLI) scheme is expected to boost manufacturing.
  • Global Supply Chain Diversification: This trend is expected to benefit Indian manufacturers.
  • Fuel-Efficient Vehicles: Demand for fuel-efficient cars remains strong in emerging markets.
  • Changing Lifestyles: Evolving customer preferences and increased safety regulations are driving growth.
  • Market expansion: into other regions such as Asian and BRIC.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Strong Domestic Demand Continues: If Indian domestic demand remains robust (as management assumes), RACL is well-positioned to achieve its growth targets, particularly in the passenger car and EV segments.

• Scenario 2: Global Economic Slowdown Impacts Exports: If global economic conditions worsen, impacting export markets, RACL’s growth could be significantly hampered. The 73% of revenue from exports makes this a critical sensitivity.

• Scenario 3: Impact of ongoing investments: If new investments improve production capabilities, product quality, and reduction of reliance on traditional energy sources, RACL can become more efficient.

• Key Assumption Sensitivities:

  • Domestic Demand: A significant slowdown in Indian automotive demand would negatively impact RACL.
  • Export Market Access: Increased trade barriers or global recession would severely impact export-dependent revenue.
  • Raw Material Prices: Fluctuations in raw material prices (especially steel) could impact profitability.
  • Energy Prices: Although RACL is investing in renewable energy, volatility in energy prices remains a risk.
  • Technological Disruption: Rapid advancements in EV technology could require further significant investments to remain competitive.

Conclusion #

RACL Geartech Limited demonstrates a proactive approach to growth and sustainability. The company is strategically investing in technology, diversifying its product portfolio, and focusing on operational efficiency. However, its significant reliance on export markets and the inherent volatility of the global automotive industry pose considerable risks. The company’s success hinges on the continued strength of the Indian domestic market, its ability to adapt to evolving technological landscapes, and effective mitigation of global economic headwinds.

Audit and Compliance Analysis of RACL Geartech Limited #

Auditor’s Opinion and Qualifications #

• Opinion: The Independent Auditor’s Report by Gianender & Associates expresses an unmodified opinion, indicating a true and fair view of RACL Geartech’s financial position in accordance with Indian Accounting Standards (Ind AS) and the Companies Act, 2013.
• Qualifications:
  • Absence of response on balance confirmations from suppliers and customers (“balances are subject to confirmation”).
  • No proceedings pending under Benami Transactions (prohibition) Act.
  • No loans, advances, guarantees, or security provided to any other entity.
  • No deposits accepted by the company.
  • No cost records prescribed by the Central Government.
  • Regular in depositing statutory dues; no undisputed statutory dues outstanding for over six months.
  • No transactions surrendered or disclosed as income during the year in tax assessment.
  • No default in repayment of loans or borrowings or interest.
  • Not declared a wilful defaulter.
  • Term loans utilized for intended purpose.
  • Funds raised on short-term basis not used for long-term purpose.
  • Company has not taken funds to meet obligations of it’s subsidiaries.
  • Company has not raised loans on pledge of securities held in it’s subsidiaries.
  • No money raised via IPO/ FPO.
  • No preferential allotment/ private placement of shares.
  • No fraud on or by the Company reported.
  • No whistle blower complaints received.
  • Transactions with related parties comply with sections 177 and 188.
  • Company has an internal audit system.
  • No non-cash transactions with directors or connected persons.
  • Company not required to be registered under section 45-IA of the RBI Act, 1934.
  • No cash losses incurred in current or preceding financial year.
  • No resignation of Statutory Auditors during the year.
  • No material uncertainty exist as on date of Audit Report that company is not capable of meeting liabilities.
  • No unspent amount related to CSR.
  • No funds advanced, loaned, invested, or received with the understanding that funds would be lent or invested in other parties.
  • The company has used MAWAI accounting software for maintaining books of account and the software has a feature for recording audit trail (edit log).

Key Accounting Policies #

• Revenue Recognition: Follows Ind AS 115, recognizing revenue when control of goods transfers to the customer (generally upon shipment).
• Property, Plant, and Equipment (PPE): Stated at cost less accumulated depreciation and impairment, with straight-line depreciation based on estimated useful lives.
• Intangible Assets: Acquired intangible assets amortized on a straight-line basis.
• Impairment: Carrying amount of tangible and intangible assets are reviewed for impairment.
• Inventories: Valued at the lower of cost (weighted average) or net realizable value.
• Foreign Currency Transactions: Monetary items retranslated at the closing rate; exchange differences recognized in profit and loss.
• Employee Benefits: Defined contribution plans expensed; defined benefit plans provided for based on actuarial valuations.
• Financial Instruments: Initially recognized at fair value, with subsequent measurement depending on classification; expected credit loss model used for impairment.
• Leases: Right of use assets and Lease liabilities have been calculated, presented and disclosed as per requirements of Ind AS 116.
• Provisions: Recognized when there’s a present obligation, probable outflow, and a reliable estimate.
• Taxes: Provision made for current and deferred tax.
• Changes: No significant changes in accounting policies during the year.

Internal Control Effectiveness #

• Auditor’s Opinion: Unmodified opinion on internal financial controls over financial reporting, indicating adequate and effective controls as of March 31, 2024.
• Management Responsibility: Management responsible for establishing and maintaining internal controls.
• Risk Management: Risk Management Committee oversees risk processes and policy.

Regulatory Compliance Status #

• General Compliance: Complied with applicable statutory provisions (Companies Act, 2013, SEBI regulations, etc.).
• Listing Regulations: Complies with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• No Penalties: No penalties or structures from statutory authority.
• No Non-Compliance: No mention of any non-compliance.

Legal Proceedings #

• No pending litigation impacting the financial position. Minor Income Tax demands of Rs. 3.10 Lakhs under pursuit for rectification.

Related Party Transactions #

• Disclosure: Disclosed in Note 37 of the financial statements.
• Policy: Has a Related Party Transaction Policy.
• Audit Committee Approval: All related party transactions approved by the Audit Committee.
• Materiality: No material transactions as per the Act. Shareholder approval obtained for transactions exceeding Listing Regulations thresholds. Transactions primarily consisted of remuneration/fees to directors/KMPs and business support services.
• The transactions with related party were approved at the Board Meeting and are in accordance with the provisions of section 188(1)(f) of the Companies Act, 2013.

Subsequent Events #

• No material changes affecting the financial position subsequent to the close of FY 2023-24.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:

  • Positive Indicators:
    • Unmodified audit opinions.
    • Compliance with Ind AS and Companies Act requirements.
    • Detailed disclosures.
    • Use of accounting software (MAWAI) with audit trail capabilities.
    • Policies like Whistle Blower Policy, Related Party Transaction Policy.
  • Areas for Further Scrutiny:
    • Pending balance confirmations.
    • Although an unmodified opinion, no conclusion on the operations of the Company being carried out in accordance with applicable laws is provided by the secretarial auditor.

• Regulatory Risk:

  • Low Risk:
    • Consistent compliance with major regulations.
    • No reported penalties or significant legal proceedings.
    • Proactive risk management and internal control systems.
    • Awarded for “Highest Export Performance.”
  • Potential Areas to Monitor:
    • Timely resolution of outstanding tax demands.

Overall Assessment #

RACL Geartech Limited demonstrates sound accounting practices, a robust internal control framework, and a good level of regulatory compliance. Financial reporting quality appears high, and regulatory risk is assessed as low. Proactive stance on sustainability and ESG further reduces regulatory risk.