JainMatrix Investments presents an Investment Report on RACL Geartech Ltd.
- 16th Aug 2021
- CMP: ₹482
- Sector: Auto Ancillary
- Small Cap – Mkt cap of 520 Cr.
- Advice: BUY with a May 2023 target of ₹740, a 54% gain in 2 years
Summary
- The Auto & Auto ancillary sectors in India are a fast growing & globally competitive.
- Why RACL: It has a good client roster and a high quality perception in automotive gears. RACL works closely with customers to develop new products per specifications, and so should have sticky relationships, and be able to grow with its clients. Older clients have worked as strong reference for RACL, for new clients. The business segment mix indicates a lower cyclicity in revenues. While revenues are small at ₹204 crores, there is ample room to grow for RACL.
- Why Now: In the last 3 years, RACL has grown much faster than the domestic industry. It has customers in India and abroad, and in fact exports are higher. RACL is undertaking high capital expenditure, of ₹50 Cr. preparing for visible high growth.
- RACL looks overvalued, but a high growth in the next 3-4 years easily justifies a BUY at CMP.
- Key Risks: 1) Covid related disruptions, in the factories as well as customer demand 2) High receivables 3) Client concentration 4) Rising commodity prices can impact margins.
- Opinion: BUY with a May 2023 target of ₹740, a 54% gain in 2 years
Other Auto sector reports
RACL Geartech – Description and Profile
- RACL Geartech Ltd. is a leading automotive gear manufacturer located in New Delhi.
- In FY’21, RACL had an income of ₹203.61 Cr. from Revenue as compared to ₹212.33 Cr. in FY’20. RACL PAT is ₹23.38 Cr. as compared to ₹16.98 Cr. in FY’20. See Fig 1(a).
- RACL is engaged in the business of making auto components like transmission gears and Shafts, Sub-assemblies, Precision Machined Parts and Industrial Components.
- RACL has mfg. units is located in Gajraula and Noida. Current Capacity utilization is 70-75%.
- Export sales of the RACL rose to 67.05%. Customer segments are mapped in Fig 1(b).
- RACL has invested over 74 Cr. in developing its mfg. unit stretched across an area of 8000 sq mts and comprising machines and equipment.
- RACL has already procured machinery and technology for BS6 & EV, which will allow the firm to smoothly transition into the new technologies.
- RACL has a long list of satisfied clients in countries like Japan, Germany, Italy, Switzerland, Austria, Thailand, UAE & Sri Lanka. See Fig 2(a).
- RACL is doing a 50 Cr. capex to venture into new segments i.e. EV, industrial gears for electrical switch gears, circuit breakers, winches and cranes. Auto Ancillary companies can do an Asset Turnover of 3-4X on fixed asset. The new capex can generate additional revenue of 200-250 Cr.
- RACL has 25 acres of surplus land within its existing plants, which can facilitate future capex.
- RACL is known for its high performance products, it has proven capabilities to achieve up to DIN grade 7 & JIS grade 4 gear accuracies with gear shaving process. See Fig 2(b).
- RACL has capabilities to produce complex gears & shafts up to DIN grade 5 or JIS grade 2 gear accuracies with state of the art FASSLER gear power honing process. (DIN is the short form for Deutsche Institut für Normung, or the German Institute for Standardization. On the other hand, JIS stands for Japanese Industrial Standards).
- RACL gives importance to quality, this uncompromising stand for excellence has been recognized and been awarded with ISO TS 16949 and ISO 14001 certifications.
- Current shareholding are Promoters 53%, MF/FII 0.1%, Retail/Individual 28.25%, HNI/Individual 6.49%, Other Public 11.84% and Others 0.01%.
- Key Leaders: Gursharan Singh (Age 59, CMD), Dev Raj Arya (Age 70, Director & CFO), Narinder Paul Kaur (Age 58, Non Exe. Non Ind. Director), Raj Kumar Kapoor (Age 67, Ind. director).
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Disclosures and Disclaimer
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain has no personal shareholding in RACL Geartech Ltd. as on Aug 2021. In addition, JM has no known financial interests in RACL or any related firm. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) and compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.
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