Rolex Rings Limited (ROLEXRINGS.NS) Earnings Call Transcript & Summary

So good afternoon, everyone.

Which page? [Foreign Language} page?

Yes. Good afternoon, everyone. On behalf of Equirus Securities, I welcome you all to the Q1 FY '26 post Earnings Conference Call of Rolex Rings. From the management side, we have Mr. Manesh Madeka, Chairman and Managing Director; Mr. Mihir Madeka, Full-Time Director; and Mr. Hiren Doshi, CFO. So without any further ado, I would like to now hand over the floor for opening remarks, post which we can open it for the Q&A session. So Hiren bhai, over to you.

Thank you, Mihir. Very good afternoon to all participants. We welcome you on the updates on the earnings of quarter 1 of fiscal '26. As you all are very much aware that global economy and the overall export business are just on an edge of certain kind of sword raised by respectable Trump [indiscernible] for -- in terms of reciprocal tariff and partial tariff what has been implemented and partial again to be by end of this month. And everybody is still uncertain or still not able to envisage that what would be the overall call and how much in total the import duty would be applied by U.S. for their imports or particularly the exports done by India to U.S. Anyway, looking to hope for the best for getting this thing without -- and we hope that it will not affect our business significantly, though we have not much dependency or overall weightage to the U.S. business. Today, as of date, we have almost 25% of our revenue, it is from the USA, 20-odd percentage something from the Europe, couple of percentage is from Canada, Mexico, which we are expecting to grow. At the same time, we are expecting to grow in Europe market. Europe market, a few people are aware that for the last couple of years, we were in the range of 14% to 16% of our overall revenue. But for this 4 months, we have already touched somewhere about 20% of our revenue contribution from the European side. Again, the new order winning and the new additional supply incremental dispatches that is majorly to the European countries. Taking you to the first -- the numbers of the first quarter...

Hiren, one thing I want to add that new programs, which we have been nominated are 50% for Europe only [indiscernible].

Right, sir. Okay. I'll take up the financial numbers and then we'll have a Q&A session where we would like to address the queries and the concerns of our investors. Here with me, Mr. Manesh Madeka, CMD of the company; and Mr. Mihir Madeka, Whole-Time Director in charge of entire marketing and supply chain is there with me. For the first quarter of this current fiscal FY '26, we have recorded revenue of almost INR 292 crores, which was INR 284 crores in the previous quarter, that is the last quarter of fiscal '25. If we compare the corresponding quarter of previous fiscal, which is June '25, it was somewhere about INR 311 crores. In terms of EBITDA, we have recorded INR 77 crores of EBITDA for this first quarter, which was 22% in the previous quarter and it was 24.6 percentage corresponding quarter of previous fiscal. Here, we do have gain in EBITDA margin -- overall EBITDA margin that is because of certain contribution added by the gross margin and we have recorded certain other income, which has given me a benefit, ForEx fluctuation, depreciation in euro that gains accounted over here. In terms of operating margins, profit before tax for this current quarter FY '26, first quarter of '26, it has recorded INR 68 crores vis-a-vis INR 49 crores of the PAT, which in March '25, it was -- the PBT was INR 49 crores and -- sorry, PAT was INR 55 crores and PBT was INR 49 crores. If we compare the number of previous years, the first quarter, corresponding quarter, my operating margin before tax, it was INR 67 crores and the PAT was INR 50 crores. If we see in spite of having 5-odd percentage decline of comparing with June '25 quarter -- June '24 quarter to June '25 in top line, but the overall margin remains same or it has gained to marginally also. In terms of revenue bifurcation, we have recorded bearing rings contributed almost 46% of our revenue and the auto components is growing and it has reached to 54% in this first quarter. In terms of overseas market and domestic market bifurcation, export has came down to 47% and domestic has increased or rather it has gone to 53%. Here, we would like to tell that as we are getting good opportunity in the domestic market also in last couple of years, though initially, the Europe market got down and now maybe we are envisaging marginal impact from the U.S. But the domestic market has significantly grown and we are expecting the couple of programs orders, which has already been alerted may be deferred by a couple of months or something, but we are expecting to have the same kind of numbers in terms of domestic market also.

It may increase.

And it may increase even. As we have informed initially also even in the last few quarters that we are facing the subdued demand in the bearing ring business, particularly in the industrial application, overall infrastructure application, where the demand is very much lower on the bearing ring side and that is even particularly more from European side. As I was mentioning that tariff implications, touch wood, till now we didn't have any kind of indication from our customers and nothing deferment or holding of the consignment. We are in dialogues with our customer how we are going to take up the things. The first incremental tariff, it has already been adjusted and the customers have accepted that. It has -- and we are going to get the implemented tariff and the realization at Rolex level. But down the line, end of this month, we are eagerly waiting for the final outcome if any changes and any kind of fluctuation or changes may be proposed by U.S. government. As I mentioned that domestic business continues to show traction and we are adding back a couple of more customers. And the good part is that Europe is reviving and we are getting -- as our MD sir just told that majority of the new program, more than 60% of our new program, new business that would be from the European side. And it has already started in marginally in the first quarter revenue. The revenue bifurcation in terms of end user industries, almost 50% majority goes for the passenger vehicle segment, 16.5% that is for industrial. As I'm mentioning that industrial is facing some kind of subdued demand and the pressure. Commercial vehicle, heavy commercial vehicle, almost on the same line what we had; 2-wheeler, very less and the electric vehicle and hybrid, we are at the almost same kind of percentage what we had in last quarter. Overall operations, as I was mentioning, we have recorded INR 292 crores, out of that INR 126 crores revenue that is from the overseas and INR 165 crores revenue that is from the domestic market. If you see the same numbers in the previous fiscal or maybe in FY '24, the exports is much on a higher side. It was INR 636 crores vis-a-vis domestic was INR 586 crores. As we are getting good response from the domestic, we are expecting further to grow in the domestic market -- domestic business and again, with the same kind of operating margin. EBITDA margin, if we compare overall with the previous fiscal's, this first quarter is INR 77 crores EBITDA, which is somewhere about 26.5% gross EBITDA, what we have recorded earlier for last year, it has averaging to 23% for the fiscal '23, '24, '25. We are expecting the sustainability of this EBITDA definitely in the range of 23 to 25 percentage. Profit before tax, profit after tax for the particular first quarter, it is INR 68 crores before tax and INR 49 crores. If you annualize with the 4 quarters or with the previous fiscal, it is more or less same or a bit on a higher side compared to the previous fiscal numbers. Company has good sound cash flows, averaging almost INR 225 crores of cash flow on a year-on-year basis for last 3 years, where the company did CapEx of somewhere about INR 50 crores in the previous fiscal. And in this current quarter, that is the first quarter of fiscal '26, where we have spent somewhere about INR 16 crores to INR 18 crores in terms of CapEx. Net debt, as you are aware that it is already negative debt. Company do not have any kind of debt and company is having certain surplus fund, which it is being parked in certain investments. Company have certain fixed deposits and having a quite good sound cash flow and the liquidity position. Return on equity, it was 16%, 17% in last couple of years, as my top line is more or less on the same -- for last couple of years, it is on the same momentum and we are getting the same kind of even the margin. That's why our return on equity is being a bit under pressure, but we expect that down the line FY '26 and FY '27, this again will go up. These are the detailed numbers what we have already submitted. These are the last 5 fiscals as well as comparing with the current quarter, the balance sheet numbers for the last 5 fiscals. With this, I would like to thank you, the investors for their patience hearing. And now we are opening session for the Q&A and would like to address your concerns.

[Operator Instructions] So the first question is from the line of Jason Soans.

So first off, just wanted to -- the breakup of the bearing -- both the segments, export and domestic for Q1 FY '26 and Q1 '25 as well. Just wanted that split which you give for bearing rings, automotive components and scrap export incentives as well.

Okay. Domestic bearing ring for this first quarter of FY '26, it is INR 90.5 crores or you can say INR 906 million. INR 906 million for the domestic bearing ring contributed in the current quarter. Export bearing ring, it was INR 355 million, domestic auto components, it was INR 527 million and export auto component, almost INR 909 million. Scrap is INR 184 million and export incentive is rounding to INR 35 million. All put together is INR 2,916 million.

Sure. And sir, same corresponding figures for Q1 FY '25, the last quarter?

Corresponding...

For Q1 FY '25, yes.

Q1 FY '25, that is April to June '25 or you want March '25 numbers?

No, sir, April to June '25. April to June '24, I mean.

April to June '24, right?

Yes, yes, yes.

And then domestic bearing, it was INR 857 million, export bearing ring INR 450 million, domestic auto component, INR 460 million, export auto component, INR 1,072 million, whereas scrap was almost INR 224 million and export incentives INR 44 million.

Okay. Export incentives INR 44 million and scrap, sir, you said INR 224 million, right?

Yes, yes. All put together, it's INR 3,107 million.

Okay. Sir, next question just pertains to this. In the Q3 presentation, you had alluded to certain programs, which were -- which could add up to around INR 1,750 million or INR 1.75 billion in FY '26. And so just wanted to know the progress on that in FY '26. Is that -- do you see that revenue coming through? And how will it scale up in FY '27?

See, the order envisages or the program what we won and we have disclosed or we have informed, those are live as of now. And if you recall, we categorically mentioned that the majority of the order would be starting from the second quarter of this current fiscal, that is July '25 onwards. Let me tell you, partially, a few of the orders have already been started. And there are a few programs which are from U.S. And those customers because of this tariff uncertainty and all these things, they have just hold their stand as of now, unless and until they got clear picture for this thing final, maybe in the month of September or '25, they will be able to tell us. Meanwhile, they have hold these things.

I would like to...

Yes, Mr. Mihir Madeka would like to add.

But they are very much positive that it is just for the time being, they hold, means like they are doing waiting and watching. So -- but they are very much positive that within another 1 or 2 months, we are going to get the green signal. They are not going to divert to any other player in another country. That is for sure.

One thing I want to add here, yesterday, I had a call from one of our customers that this MCA Mexico, Canada and America, their 60% of the raw material, what they consume, if it is domestic, then the Chapter 232 is applicable. So there is no duty, 40% is only their export -- import content. So that also we are going to clarify more, but this is what basic we have information.

It is as per U.S. MCA rule.

Suppose we are supplying semi-finished component and it is used in the gearbox. So the complete gearbox, if the content of import is only 40%, then this tariff will not be applicable.

Okay. Okay. So that will -- so our products do comply with that 40%, [indiscernible]?

Yes.

Okay. So you're saying some projects have been held in terms of the tariff uncertainty and we will get more clarity going ahead, right?

Maximum within 1.5 or max...

No customer has stopped the supply. They have not asked us to stop the supply.

Yes.

And see, this auto component or whatever we are exporting, it takes a long time to start the bulk supply. So there is a very big, means long validation time and more than 1.5 years. So if they change the supplier with them also, they have to follow the same rule. So we don't think that they will stop supply because it is very tedious activity for them to evaluate the product from other suppliers. And like China, there is 30% duty, Mexico, 35%, Canada, 35%. So we don't think that I think this problem will be resolved shortly.

Okay. Okay. Okay, sir. Okay. Sir, my next question just pertains to this right of recompense. Sir, just to understand correctly, I mean, in a very basic sense, INR 228 crores is the amount which is being contested, INR 50 crores, INR 51 crores we have provided. So the rest of the thing is still under contention. Is that understanding correct? So the rest would be probably around INR 178 crores on. So that is still under contention and this legal thing is going on and we will finally get a settlement on this. From this INR 178 crores, how much is going to get basically expensed to the P&L?

See, basically, the story is like that bankers -- lenders have claimed INR 227 crores, wherein we have asked that, no, it is not applicable as they have calculated on a compounded basis kind of thing. Looking to our agreements and looking to our documents executed with the lenders, we are in belief that compounding would not applicable. And even the -- thereafter, the bank has appointed one legal adviser or one -- taken an opinion from a legal expert, which itself also sees that this compounding would not be applicable and the demand would be restricted to so-and-so. Now this matter is lying on the table of the directorate of Union Bank of India, which is our lead bank. We are in touch with them for the last 1, 1.5 months. And we expect to get some kind of a response maybe before end of this month from the bank. But as of now, it is as per our understanding, as per the -- backed by the legal advice also, we have provided the maximum as per our view, which is INR 50.6 crores and which I mentioned in our CDR approval letter also that has been provided. Beyond that, any kind of amount, any settlement amount, that would be hit back to my P&L, obviously.

Okay. Okay. Sure, sir. And sir, just lastly, wanted to understand, sir, this -- I mean, you are seeing some improvement in the domestic side for the bearing rings business as well as the auto comps business, that's what you have alluded to. And so in a nutshell, domestic seems to be improving and auto components is improving on both domestic as well as overseas markets. Is that understanding correct?

Yes. Yes, definitely. See, let me tell you, overseas market from Europe, major chunk or more than 70%, it is from the auto components business. In domestic, it's a combination of that, certain of bearing ring as well as mainly the auto components. So our growth as of now it is auto driven -- auto component-driven only. And we expect that the bearing ring business, which has been suppressed, but down the line a couple of quarters, it will gradually improve.

So the next question is from the line of [ Rajesh Goyal ].

This is [ Saumil Shah ] from [ Paras Investments ]. I was losing my manager's account, so it's showing Rajesh Goyal. I would like to know what is the current order book position in auto components and in bearing rings?

See, as of now, what we can have an order book broadly in the range of INR 110 crores to INR 120 crores on a monthly basis, wherein you can say almost INR 60 crores to INR 65 crores is towards the auto components and INR 45 crores to INR 50 crores is for the bearing rings.

Okay. And what would be the capacity utilization for both the segments?

See, first of all, we have quite common capacity available for the bearing ring as well as auto component. If I want to increase my auto component business significantly, definitely I can because we have those kind of fungible equipment. Overall, we are at the range of 62 to 64 percentage of utilization.

Sorry, what did you say, 60% to 65%?

62 to 64 percentage of overall capacity as of now in terms of forging we are using. Still we have certain capacity available in the certain kind of products. But there are certain kind of products where our facilities which are occupied more than 85% or something like that, where we are adding those kind of forging lines.

Okay. Okay. So is there a need for further capacity expansion or for 1, 2 years, we can continue with the same capacity?

No. Yes, definitely, it is a need-based kind of thing. The spare capacity, which is available to us is on the bigger size of components and the high-volume components or which are majority required for the industrial applications, windmill applications, marine applications and such on. But apart from that, the automobile applications, mainly, you can say, from a 2-wheeler to 4-wheeler LCVs, there we have capacity utilization is somewhere about 75%, 80% or something. And if I want to set up any new facility, I need to give a lead time of almost a year or so. So there would be an addition in anticipation of incremental business of certain kind of products, we are going to add forging lines. In last couple of years also, we have added 3 small forging lines, which are almost at the level of 65%, 70% utilization because for those kind of components, the orders have already won and it was started as per the schedule.

Okay. And can we have some sort of a guidance on revenue and EBITDA for this financial year and for FY '27? I mean, internally, what are we targeting for?

For fiscal '26, what we were mentioning that it would be somewhere about mid-teen growth for this FY '26 and definitely higher teen growth in FY '27. Just to have an exception or rather the comment over here is to have the impact of this tariff. Maybe to some extent, my U.S. business may pace down or maybe defer to some extent, but not for the short-term kind of thing. But for FY '27, if something would be beyond 50% tariff and this thing, again, it would be a call from my customer how they are going to take up, that may impact to my overall projection because one of my main auto customer is based at U.S. So maybe if their contribution would go down because of this, which we are not envisaging at least for this fiscal, then it may go down to some extent. But at the same time, we are expecting the new orders and the new -- this one upward rising from the domestic and Europe. So I think we are able to get these numbers.

And on the EBITDA side, I think this quarter, you did an EBITDA of -- if you include other income, the EBITDA is around 27%. So what are we targeting for this financial year?

See, the other income is not that constant. There are certain investments, there are certain -- it's a ForEx gain, foreign currency fluctuation. So if I'm neutralizing that portion, our EBITDA would be in the range of 23 to 24 percentage.

This is excluding any ForEx gains or losses?