Rane (Madras) Limited (RML) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rane Group Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwaker Pingle from E&Y. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. Welcome to the Q1 FY '27 Earnings Call of Rane Group to discuss [indiscernible] and I'll answer your questions today. You have the management team from Rane Group, represented by Mr. B. Gnanasambandam, President Financial Group CFO; Mr. J. Ananth, Executive Vice President Financial and CFO Rane Holdings; and Mr. [indiscernible], Vice President, Corporate Planning Rane Holdings. Please note that the results and the presentation have already been mailed to you, and you can also read in the company's website. [indiscernible] , anyone does not have a coat presentation on your [indiscernible] please us and happy to you. Before we start, I'd like to say everything that I said on this call that reflects any outlook for the future, of which can be construed as a forward-looking statement must be read in conjunction with the uncertainties of details. These uncertainties and risks included, but not limited to what we mention the prospect in subsequently in annual reports, which you can find our web sample. With that said, I'll now hand over the call to Mr. P. Padmanabhan. Over to you, Sir.

Thank you, Diwaker. Good afternoon, ladies and gentlemen. Thank you for dialing in. I would like to welcome you all for this teleconference. I would like to start with a few comments on the industry. The Indian automobile industry began financial year 2027 on a positive note with several vehicle segments recording their highest ever first quarter sales. Exports across major vehicle segments also reached record levels despite the geopolitical uncertainties in West Asia. The strong performance during the quarter was supported by resilient domestic demand, lower GST rates, relatively softer finishing costs, a favorable base effect and continued new model launches. The Passenger Vehicle segment recorded strong growth led by sustained demand for SUVs, which continued to be the primary growth pillar. New model launches, lower costing costs and a favorable base further supported the segment. The Commercial Vehicle segment recorded healthy growth driven by growth in good carriers supported a continued replacement demand and sustained demand from the mining and cement level. Infrastructure activities and improving logistics demand also continued to support the segment. The Farm cat segment recorded healthy growth supported by continued government infrastructure, infrastructure spending and sustained rural demand. The 2-wheeler segment also performed well driven by robust domestic demand. improving export volumes and healthy entry-level sales. The continued increase in electric 2-wheeler option also contributed to the segment growth. Overall, Q1 financial year reflects the contrasting dynamics shaping the automotive sector, healthy volume and revenue growth alongside continued supply chain challenges and elevated input costs driven by restation crisis. Now for the key highlights. RMLs total revenue for Q1 financial year 2027 stood at INR 1,050.6 crores, compared with INR 884.4 crores in Q1 2026, representing a growth of 18.8%. During the quarter, the company secured new business with lifetime value of about INR 2,040 crores, reflecting continued customer confidence across the company's product portfolio. I would also like to update you on the acquisition of the friction business of Hindustan Composites Limited. As communicated earlier, Rane (Madras) Limited entered into a business transfer agreement with Hindustan Composites Limited to acquire its friction business on a slump sale basis. The transaction agreement was signed on June 30, 2026, and was subject to customary regulatory approvals and other closing conditions. We are happy to inform you that all conditions have now been fulfilled, and the transaction has been successfully completed. The acquisition strengthens RMLs position in the friction business and provides an opportunity to build further scale and capabilities in this segment. The integration of the business will proceed in a safe manner to maximize value for our customers and stakeholders, driving operational synergies while leveraging the complementary strengths of both businesses. The near-term outlook for the automotive industry remains positive, sorted by the onset of the festive season, which is expected to sustain demand momentum following the strong performance in Q1 financial year '27. At the same time, the industry is navigating more challenging cost environment. The sharp increase in commodity prices has emerged as a key area of concern with elevated input costs being closely monitored by the automakers. Geopolitical tensions, particularly in West Asia continue to place pressure on the supply chain for key commodities while also impacting energy and logistics costs. Against this backdrop, our focus will remain on sustaining growth momentum while continuing to strengthen operational efficiency, manage cost and maintain a disciplined approach to profitability. With these remarks, we will now open for any questions that you may have.

[Operator Inructions] First question is from the line of Nirma from Unique PMS.

I have two questions on Rane (Madras). So one is we had stated a target net debt to equity of less than [ 0.5 ]. But with our CapEx plans and the recent acquisition, is this target delayed? Are we doing anything? Are we accelerating plans to divest other land [indiscernible] too?

Do you want us to answer this question or wait for the second one also?

Yes, if you could answer this.

Yes. Okay. See, we maintain our path to reach that point debt equity, as you mentioned. But as we have been mentioning earlier, the time frame we are expecting for it to happen is March of '28. We expect that in 18 months, we will reach this program. As you know, we have already embarked on the [indiscernible] Property sale, and that is in process, and we are receiving the amount in a phased manner. We will take up sale of other land parcels as and when we get the right value for that land parcels. As you know, we have taken the approval from the shareholders for this land parcel, but we are just exploring the market and as and when we get the value, we will post them. We remain committed to bring down our debt levels in the next 12 to 18 months and reached the desired level by March '28.

Okay, sir. And second is, so our exports have been doing then. The mix of exports is increasing. Even in the new business wins, our export programs account for now about 54% of LTV. Again, LMC business has also picked up operational that was a drag. So with these two doing well. Why are the margins still not picking up? So current as also debt resi you look at in the past 1, 1.5 years. So what is wrong with our margin?

Yes. So particularly there is a good momentum in terms of the export orders that we have received, right? So LTV that we have actually indicated is for the future business, that would kick in probably 18 to 24 months from now. If you look at the current quarter, so we, as indicated in the opening remarks, that we, as an industry, have faced significant cost increases across various elements, material costs, logistics and other elements. And that is what is actually the main reason for us to have this kind of a margin. However, we continue to work on various initiatives to improve our profitability. And of course, the mix is one element of that. and of course, increasing our cost reduction initiative, which will mature over a period of time. And we also have some commodity pass-through lead lag, right? So there is a -- so there are back-to-back arrangements with most of the customers. We are also having a lead lag in terms of recovering from the customer. So that would also happen over the next couple of quarters. So these are broadly the reason for the margin, not necessarily the mix alone, right? Mix is improving in a better manner, both exports is also improving. And also the aftermarket is also improving. With that, we hope to have a better margin in the upcoming quarters.

So with this cost pass-through and with the improved mix and other initiatives, do you expect double-digit margins this year?

Yes. So given the current dynamics, we are definitely aspiring to go to a double-digit number.

Next question is from the line of Raj Kumar Venata from RK Invest.

I good to see that Rane is taking a lot of initiatives to improve. First of all, I want to congratulate for that. So the first question is on the Rane steering, I just wanted to what happened this quarter because the margin sitting down and even your PAT has also become negative. So just wanted to know what is causing this?

One second. See, as far as Rane Steering Systems is concerned, as we have already mentioned earlier, for the next 12 months or so, it's going to be muted EBITDA margins only because of the legacy reasons, what the earliest orders which were taken at a low price, in the corresponding period of last year, there were some price increases, onetime price increases with respect to FX, we got, which sort of helped in the same quarter of last year. So this is a normal steady-state basis. And so that advantage was not there in this quarter. Our all efforts are on to bring down the cost as much as possible. And we are hopeful that from the coming financial year, the margins will improve much better than what it is right now.

Okay. So for the current financials, the numbers are going to remain what we have seen in Q1? Is that what you're saying?

Yes, yes, for the current financial year, it's going to be a bit muted. But from the coming financial year, we will see some improvement.

Okay. Got it, sir. And secondly, sir, this second question is on your tax rate for the Rane Holdings. This quarter, you've shown almost 20% effective tax rate. So what is happening there? Because if I compare any quarter, generally, the tax rate is to be very low, but why this time is almost 38%.

You're referring to Rane Holdings?

Consolidated, Yes.

1 second.

So basically, I want to what your strategic effects in that statement because that is kind of [indiscernible] Our at this quarter was significantly.

On this point, on the tax point, last year corresponding period, there was some deferred tax that was utilized, which is not the case in the current one. That's why there's a difference. But the rate is 25%, which is normal as per the new regime motor rate is applicable is a normal rate of tax that's applicable for RML.

So [indiscernible], I'm asking.

RSL aslo. Yes, also, it is 25% only.

So going forward, we'll see a tax rate of 25%. That's what you are saying right?

Yes. Yes. It will be 25%. If there are any loss recoveries in those quarters or periods, there will be a lower tax. Otherwise, the standard rate applicable is 25%.

Okay. Got it. Okay. The last question is on the warranty provision with the LIFETEC JV. So I just wonder what is the total provision that we are carrying as [indiscernible] Any provisions in each [indiscernible]

The provision by enlarging the same what we provided in December '25, except for only due to forex changes, the loan has increased it. Otherwise, the provision in terms of dollars remains the same. And we are still in discussions. And as of now, we don't have any updates. As and when there are updates, we will inform you.

What the dollar value? Do you have the dollar value to provision?

See, dollar value is around $23 million.

Okay, sir. And sir, any update on the recoverability of this with respect to the vendor and the insurance project we are working on?

It's a bit very early to comment. We are taking all necessary steps to mitigate their cost. As and when there is any development, we will keep you posted.

Next question is from the line of Sunil Kothari from Unique PMS.

One second. On the previous one, EUR 23 million, not dollar, on the previous question. EUR 23 million provision, not $23 million. Yes, please go on. Sunil please.

Sir, I think last quarter, if you look at stick industry which is growing more than 15% on most [indiscernible] Is why. And we are part of every segment, mainly particular vehicle. So if you look at our growth rate which is below industry levels. So I would like to understand, we are losing market share or foregoing some low-margin business, what is happening to collectively elaborate, that will be really helpful.

Yes. So there is, I would say, 2, 3 different things, right? So when we look at addressable market, right? So from a technology standpoint, when you look at steering, there are migration of technology within the steering happening. And if you look at it from a CV or MCV kind of segment, there are some minor changes that happened. So largely, we are actually saying that we are in line with the market growth, both in terms of the served from a technology perspective as well as from the served customer perspective. However, there are a few customers and a few vehicle models, which actually increase little higher than the injury growth as well, right? What we have seen with some customers like Mania and a few other customers. There has been a slightly higher growth either OEM as well as the vehicle model level. So that could also play an impact when you look at it overall level, right? Whether we are present in that model, not present in that model. There is no loss of share in all the segments that we have actually supplied. There could be some changes here and there in terms of the technology. As well, if you look at it from some of the models within Heavy and Medium Heavy Commercial vehicles. The PAT values will also change. So if you like look at a tractor trailer, the PAT value will be slightly higher. If you look at it as [indiscernible], you will be different. So from a value perspective, those kind of differences will always be there in terms of which part of the segment actually grows faster or grow slower. So these are the only changes which is actually reflected in our overall value number. Otherwise, the market share and the new business that we are continuing to win remains same.

Basically, what you are seeing, are you just some different technology or need some models where we are not present and those are growing higher. So are we trying to follow up those new technology, new vehicles, new customer, new products or we are in a segment where we were?

We are in the segment where we are, right? The technology migration is a very small one. That is particularly in the LCV segment, where the mechanical systems are moving to electric and hydraulic. So otherwise, there is no big change in that technology. Even in the tractor, the hydraulic technology generation, the steering is also at a reasonable level where we are also in a steady market share position. So that change is not mainly because of the changes because of change within the Vehicle segments -- within Vehicle segment, there could be some changes in terms of which portion of that grows faster. Based on that, our PAT value to that segment will also be trend. And the second reason is from a Passenger Vehicle segment, we are model and the OEM combination will grow much better than the normal other vehicle [indiscernible] These are the two broad reasons.

And one more question is about last year's professional fees, the fees we paid roughly INR 1,450 crores, compared to [ INR 45 crores ] in the previous year. And what I understand is we are taking the help of some consulting also to reduce cost and on these things. So if you can elaborate what type of these barges we paid is one time up to which year we are going to pay those? And what are the benefits by when -- little bit will be helpful.

Yes. So this is the general professional services that we take from an external agency. And they have actually helped us in -- one is related to the merger of three companies. The other one is related to helping us in reimagining the structure for the aftermarket product team. And there are also some areas where we are taking help in terms of cost reduction and cost transformation related initiatives. So there are multiple initiatives where we are actually taking support of the external agencies.

And what type of benefits we are seeing maybe start to medium term?

Yes. So of course, the aftermarket project, our growth rate you would have seen, it is slightly better, and we have a good aspiration to increase sales in the aftermarket. So that is one benefit and synergies by integrating multiple aftermarket businesses. The second is the cost reduction. So cost reduction, we have a lot of new ideas, which we are actually pursuing in terms of identifying both direct, indirect, in terms of logistic cost, tracking costs, every other cost element is being looked at more closely, more paranarly to get its benefit. And these are some of those pathways, which will actually take up to the double-digit profitability in the coming year.

And this cost will continue in terms -- so this cost will continue in this current year also?

Yes. This year, it will continue. The expenses will continue. And the benefits of this on a full year basis will happen in the year -- next year, it would be FY '28.

Next question is from the line of Pragya from Omni Management LLP.

You to throw a bit more light on the merger? How it would be like margin accretive? What is the EBITDA margin of the current business and what kind of revenue growth do you see in the business?

Yes. So this acquisition of the friction business of Hindustan composites is very, very complementary to the existing very component division. So Break Component Divisions has a very good healthy share in both Passenger Vehicle as well as 2-wheeler. Whereas Friction business of Hindustan Composites is having a strong share in Commercial Vehicle as well as Railway. And this will definitely help us to scale up our business much faster, that is one benefit. The second benefit is there are a lot of synergies that we can actually see. We have a new footprint that we are getting in two new plant rotation in Maharashtra. And as Railway as a segment, we see good opportunities to grow and which will further help us to expand and penetrate into Railways. From a margin perspective, the acquired business margin is accretive. We have a higher EBITDA margin than our business. And that will actually help us once we actually start planning for the integration. And there are the other news in terms of looking at how we will bring in their brand in terms of aftermarket. And what could be the synergies in terms of new formulations that we can actually take from there. So there are multiple things that we can potentially do in terms of evaluating the [indiscernible] . The direct benefit is the immediate growth that comes in. And over a period of time, we will actually plan to absorb these synergies as part of the integration plan, which will be run over a 12 to 18 months kind of a window.

Okay. And sir, for this business, for the business like we are acquiring, what is the share of Railways in the current revenue?

With about 40% of the Friction business of Hindustan Composites is into Railways.

Even after such a huge Railway business, the company is having like EBITDA margin of around, say, 11%, 12%, if I back calculated somehow. So do you think that these margins would be sustainable for the company?

I didn't get your comment on the EBITDA margin. The EBITDA margin is healthy in terms of the Hindustan Composite Friction business.

No, I mean that -- like what would be the -- what would be the approximate margins for this business? Around 11%, 12%?

Yes, it will be in the range of 11%, 12%. And we intend to run it as an independent activities, so independent division. So we are hopeful of sustaining the same margins going forward as well.

Next question is from the line of Manish Goyal, from Thinqwise Wealth Managers LP.

I have a few questions. First on -- coming back on the margin, sir. So you said there was a material cost increase in energy costs and various cost increase. So if you have passed through [indiscernible] , by when do you think that we will be able to recover the -- or may get the price hike? Will it start reflecting from Q2? And will you be able to pass on the full cost increase? That was my first question, sir. And probably has it happened across the three companies?

Yes. So we have already started passing on the price increases. So some amount of that is already in Q1 itself. So there is some which will actually get recognized in Q2, but it is an ongoing activity as and when there is an increase in terms of raw materials, which are indexed and then it is very clearly agreed with the customer. So we will actually launch a claim and then they will actually give that price corrected into our thing, and then that will flow in. So this is an ongoing exercise. So the lag portion comes only on wherever we are actually doing it towards the end of the quarter, actually moves to the next quarter. That kind of element is where there is a lag.

Manish, to the extent of commodity prices, we'll be able to recover it will lag. But when it comes to certain operating expenses, where there have been increased things like premium sight and over time. We are seeing how we can reduce it. So hopefully, these expenses should come down as we move on. Partly, the increase in expenses also because of this kind of operating events.

So like if there is an energy cost increase then is it possible to pass on?

Yes, some of it they're agreeing some of it. For example, because of the [indiscernible], we had a situation of LPG, for which many of the customers have actually agreed, right? So these are just based on the customer to customer, element to element. So our intent is to actually try and get as much recovered from the customer.

Right. No. So where I'm coming from is that when in Q4 at EBITDA level, we were at 9.5% margin or maybe if I remove other income, it is 9.3%. And this quarter, 6.4%, 90 bps decline. So is it possible to recover entirely in the coming quarters? That is like the [indiscernible] of monthly basis or a quarterly basis?

Varies from customer to customer. Some of them are monthly, some of them on a quarterly. The operational expenses -- some of it, we will not be able to recover, right? So for example, if there is a minimum wage, we will not be able to recover. So that we will have to actually internally work on various initiatives to mitigate the cost.

Okay. Okay. So when you said at RML we aspire for double-digit margin. So, are we looking at quarter 3 or quarter 4 as possible in putting those kind of numbers?

Yes. So the aspiration is on a full year basis, this would be a double-digit number, right? So based on the volume and demand that we are seeing currently for the Q2, right? I think we should be able to try and achieve in Q3.

Okay. Okay. Okay. And the factoring the merger of Hindustan Composite, right?

Yes, Yes.

Put together, Manish, this is a slump sale. So from now onwards, this sale will start featuring in Rane (Madras) from now on till the end of the year. And since that is a slightly better margin, we are hopeful that, that will also help us to reach this targeted number.

Okay, okay. And can you please tell us about the CapEx plan for each company for the current year? And what is the roughly capacity utilization and also for Hindustan Composite, yes? What is the capacity utilization?

[indiscernible]

Sorry, your voice is breaking.

For RSL, subsidiary company will be around [indiscernible]