Rolex Rings Limited (ROLEXRINGS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rolex Rings Limited Q1 FY '27 Earnings Conference Call. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as of the date of this call. These statements are not guarantees of future performance and may involve risks and uncertainties that are difficult to [indiscernible] [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Hiren Doshi, Chief Financial Officer from Rolex Sings Limited. Thank you, and over to you, sir.

Thank you, Kim. Good morning, and a warm welcome to everyone present on the call. Thank you very much for sparing your valuable time and showing keen interest in our con call request. Along with me, I have Mr. Manesh Madeka, Chairman and Managing Director of the company; and Team SGA, our Investor Relations advisers. I hope you have all received our investor deck by now. Those who have not, they may check it on the website of the stock exchanges where we have already uploaded it. We enter fiscal '27 having delivered a quarter that tells a couple of stories at once. Production ran below its full potential for part of the quarter, and the demand environment underneath that stayed firm, and in some markets, it got strengthened. Allow me to take you through this story briefly. Coming to quarter 1 of the current fiscal, that is FY '27, we'd like to inform you that revenue from operations recorded came in at INR 304 crores, which is up by 4.3% precisely compared to quarter 1 of fiscal '26. Though this looks short of our guided growth, our order book through the quarter was healthy, and the constraint we faced was not demand. It was an execution issue. A shortage of labor on the shop floor meant we could not convert that order book into output at the pace we wanted to. We have already informed the seed factor in our last call also, and it's a general phenomenon in the first quarter or maybe particularly in the month of April, May, and until mid of June. We are glad to report that the situation improved from June onwards, June '26 onwards. And by the quarter starting from quarter 2, that is quarter 2 of FY '27, our operations were back to running normally. I would like to inform or pleased to inform that in month July '26, we recorded the highest revenue since the inception of our operations. In quarter 1, revenue from auto components grew by 13.5 percentage 13.50 compared to quarter 1 of FY '26, amounting to INR 163 crores, while revenue from bearing rings, it got declined by 6% compared with quarter 1 of fiscal '26, amounting to INR 118 crores. The softness in bearing rings was concentrated in the industrial business or in the industrial segment, particularly in the domestic and European market, an area where we have flagged our broader industry-wide stagnancy in the past, and it reflects the same labor-driven output constraint that affected quarter 2. Auto components, on the other hand, continued to gain share within our overall mix, and the shift towards higher value-added process products is a trend we expect to continue over the coming quarters. Looking at the geographical mix within each segment, our bearing ring remains predominantly domestic, with exports accounting for about 27% of the segment; this means 72%- 73% of our bearing ring business is from the domestic market. And it was the domestic-facing portion that saw the softness this quarter. Here also, I would like to mention that it is mainly in the segment of industrial segment and in high-volume, bigger-size components there that we face a bit of softness. Auto components, by contract is now a predominantly export-oriented business, with exports accounting for close to 72% of that segment's revenue, say, 28% in the domestic front. That is the part of our portfolio that delivered the strongest growth in this quarter. And it is a meaningful validation of the strategic shift we have been making, deliberately building out a higher-value export-facing precision machine components business alongside our traditional bearing rings franchise. What stands out most in export is a change in customer behavior. Buyers who had been a bit cautious and holding back through in fiscal '26, in a wait-and-watch mode as tariff uncertainty and certain adverse market factors played out, are now placing orders again with confidence. That shift matters because it tells us that demand overseas is genuinely picking up and that the relationship we have built with these customers, these multinationals over the years, remains intact and is now translating back to the order flow. As we had flagged and informed previously also, we have not lost a single customer through the tariff disruption or even the war impact in European markets in the last year or even previous to last year. What we are seeing now is those very relationships beginning to convert back into meaningful volumes and revenues. Coming to the margin side, as you must have seen, gross margins for the quarter have come up compared to fiscal '26 or on a quarter 1 of fiscal '26, reflecting both a favorable shift in product mix as well as disciplined raw material management and scientific production measures, cost control areas at our plant level. EBITDA for the quarter was INR 69 crores. I'm not considering other income, which is up by 12% on comparison with the quarter 1 of fiscal '26, with the EBITDA margin at a percentage of 22.6%, which is up by 100 basis points, again, on comparing with Q1 of FY '26. Profit after tax grew by 22% year-on-year to INR 60 crores, with PAT margin at 19.8%, again up by 290 basis points year-on-year basis. I want to emphasize that this margin expansion came through even in a quarter where our production was constrained because of labor and certain other matters. As volumes normalize and our order book converts fully into output, our margin trajectory should hold. And in fact, we expect it to strengthen further as value-added process products continue to grow as a share of our revenue mix. This is the third consecutive quarter of a year-on-year margin expansion for us, and it reflects a structural improvement in our business. On a capital allocation front, we followed through this quarter on a commitment that we made back in April '26. Would like to inform you that our INR 180 crore buyback of 1 crore equity shares concluded during the quarter, with the promoter group choosing not to participate so that the full benefit flowed directly to non-promoter shareholders. As of today, we are fully debt-free and clear of all legacy CDR obligations. Moreover, we are carrying cash surpluses. We see this buyback as the first of many steps in returning value to our esteemed shareholders in a business that today carries a far cleaner capital structure than it has at any point in its history. Looking ahead to the fiscal '27 for the remaining part, the trends we spoke about in May are playing out largely as we expected. With the labor situation now fully normalized, we expect Q2 FY '27 to reflect better strength of our order book without the execution constraint that held back this quarter's output. The U.S. market is coming back with the customers reengaging after a prolonged period of caution. Europe continues to fire on the back of our expanding automotive components presence there. And our domestic business, while soft this quarter in the industrial bearing link segments, retained strong underlying momentum. In the bearing wings with an end use of automotive applications. The bearing things, what we are supplying with an end use of automotive application, we have held our positions, and except for one customer, other customers have increased their wallet share and continue to add incremental volumes and new components from our existing customers at a steady pace of existing programs. Both this thing taken together, we remain confident in the mid-teen revenue growth guidance that we have given for fiscal '27. This quarter's headline number does not fully reflect that trajectory for the reasons I have just walked through. But the fundamentals underneath it a healthy order book, improving product mix, expanding margins, reengaging export customers, and a clean, debt-free balance sheet give us the confidence in the year ahead. We are also continuing to build for the medium term. The new customer programs onboarded over the past year are progressing well, and we expect these to ramp up further as the year progresses. In fiscal '26, we got a lesson, or rather it taught us that no business is immune to external disruption. But that a business built on strong fundamentals, deep customer relationships, and operational discipline can absorb the disruption and come out stronger. Q1 of FY '27 has, in its own way, reinforced the same lesson from a different angle. Even an internal operational constraint like a temporary labor shortage did not dent the underlying strength of our order book, our margins, our capabilities, and our customer relationships. We resolved, and we moved on. As I look ahead to the rest of fiscal '27, I see Rolex Rings as a company that is well capitalized, well positioned and well prepared for the next phase of growth. Our ambition remains unchanged to be the most trusted precision forging partner for the world's leading bearing and automotive Tier 1, Tier 2, and OEMs too. We are well on our way. With these words, I would like to pause my comments. Again, I would like to thank all the participants who have joined. I request Tim Korus and Tim SGA that we open the session for Q&A.

[Operator Instructions] We have our first question from Jason Soans from IDBI Capital.

Congratulations on a healthy set of numbers. So, sir, the first question just pertains to, in terms of the numbers, the split that you normally give: export bearings, export automobile, domestic bearings. Just wanted that split for Q1 and Y-o-Y, Q1 FY.

Yes. So, Jason, kindly, no doubt. Domestic bearing ring for Q1 FY '27, it is INR 86 crores. Domestic auto components rounding up to INR 45 crores. Export bearing ring, it's INR 32 crores; export auto components: INR 118 crores, with a scrap and export incentive of INR 23.2 crores. You need the same for Q1 of FY '26, right?

That's right. Yes, sir.

Okay. In domestic bearing ring, it was INR 90 crores in Q1 of FY '26. Domestic auto component, it was INR 53 crores. Export bearing ring, it was INR 35 crores. Export auto component, it was INR 90 crores, and INR 21 crores of scrap and export incentives.

The next question just pertains to wanting to understand, sir, any reason for the shortage of labor on the shop floor? Just wanted to know what the exact reason would be for this?

No, there is no specific reason because it's a general phenomenon, and it's a hot summer in our region. And we do have a good amount of out-of-state labor force also. You better know, it's a vacation period as well as wedding season. And it's an agricultural, what you say, coke season where these people used to visit their native places and they take more than 15, 20 days, 30 days or something like that. But these are quite common phenomena in our industries or rather overall in this thing. And while we are facing this temporarily because of that, these are all our semi-skilled workers and spend a good amount of time with the company. So that was the only reason.

And sir, the next question pertains to -- I mean, we have been speaking about the slowdown in the bearings business. You spoke about industrial, some slowdown in the industrial and the large-sized business. So I just wanted to know how you see it going ahead? Do you see the slowdown continuing? Or do you see any improvement going ahead for this business? For the bearings, I'm talking about in particular?

Yes, yes. As I told you, in the month of July, it has improved. And as I told you, because of certain production floor constraints, we were not able to execute to some extent also. But the guidance that we are getting from our customers in the particular industrial segment for the next couple of quarters, it would be having marginal growth. But on the other side of the bearing rings, that is the automotive bearing ring business, we are getting a good amount of positive turnaround.

Okay. And sir, again, in terms of auto components, you've been doing very, very well. I mean, that's tremendous performance. So just wanted to know what the clients are saying, let's say, Allison, Jetrag, and what is the feedback from their side for increasing sourcing from Rolex? How is the outlook for that?

See, as I told you, you named a couple of our customers. One of our customers, which went down by almost 35%, 40% in fiscal '26 compared to fiscal '25. That is again on track, or rather recovered by more than 30%. So we are almost on track with fiscal '25 numbers with that U.S. customer. So that is definitely recovering. And for the other customer, where we got a new order for the new plants, an incremental order for the existing programs also, and certain programs, what we have started gradually in the last quarter of last fiscal, that is also being ramped up in this quarter and further in the next 3 quarters. Maybe 1 or 2 plants, again, in the third quarter, we are going to start the supply. So we are getting quite positive and very confident on these particular customers. And we are getting a good response, and they are offering additional volumes, new programs, so on.

And sir, just in terms of the revenue mix in the presentation, there's an 8% others component. So you have bearing and bearing ring, of course, auto components, and 8% of others. So what does that 8% pertain to?

That is my scrap revenue.

That's your scrap revenue. And sir, also you were speaking about the tariffs, the duty drawback, some refunds going to come in from the U.S. with the HS codes and everything. Has something come in this quarter? What's the status of that?

Yes, it has already started, and we successfully registered with the U.S. customs authority. And though it has not started in full swing, some marginal amount that we have received as a U.S. customs duty refund, which has already been accounted for in this number. But the major chunk is yet to be received.

And just finally, sir, I wanted to understand, I mean, of course, you spoke about a lot of improvements: tariffing is behind us, macro, et cetera, which is improving. So, sir, any guidance for '27, '28 margins as well as revenue? You did speak about mid-teens, but I wanted 27% and 28% and margins as well. And margins, when you speak about core margins, not including other income?

Yes. As we have already mentioned while telling operating numbers to you people, we are not considering this other income. The EBITDA margin, what we have recorded, is 21.5% in this particular quarter, June '26. Let me tell you conservatively, we expect that to be in the range of 21% to 22% in this fiscal FY '27 conservatively. And we will be having even a marginal growth, subject to our increasing our operations; then it will have a significant positive upward impact on our margins. On the revenue part, as I have indicated, mid-teen; we are a bit confident till now for fiscal '27 and maybe more than mid-teen or coming close to the 20% number for fiscal '28.

We have our next question from the line of Varun Jain from Dolat Capital.

Congrats on a strong set of margins. So on the auto component export side, sir, our business was in decline for the past 2, 3 years because of Allison. So right now, will Allison reach the INR 250 crore level in FY '27? I think it fell from INR 290 crore to INR 300 crore in that range. So how much recovery will happen? And secondly, we had this Allison acquiring Dana, so we expected that because we didn't supply to Dana before, but now we wanted to supply. So has that started?

See, on the first part of your question, you asked me about this revival of Alison. Let me tell you the numbers that you have told till in these 4 months of business; if I'm going to annualize that thing, it has already crossed the number that you have mentioned, right? So we are almost touching the number that we had in fiscal '25. Their acquisition as far as Dana business is concerned, we had a very senior level meeting with the Dana management along with the Alison, and they are very much eager or rather they are very much inclining to explore the potentials for the higher size or higher volume product withdralex, but the development and all these things, it has gradually started or rather initial discussions, initial dialogues have been initiated. But on the revenue front, or rather coming to the same on paper, it will take maybe from now, maybe 12 to 18 months minimum.

So in FY '27, can we touch INR 500 crores in auto component exports? Is that on the cards?

FY '27, yes, INR 500 crores; even I had an auto component export in March '26 only. It would be more than that.

I'm referring to only export of auto components, not bearing wings without bearing wings. Only auto component exports in FY '26 were INR 350 crores.

You're talking only for the export market, not overall auto components.

Yes, auto components exports last year, '26 made INR 350 crores.

Yes.

So can it touch INR 500 crores in '27?

Not INR 500 crores, but I'm a bit confident to cross INR 400 crores in '25 or between INR 425 crores to INR 450.

But sir, you have already done like close to INR 117 crores in this quarter. So even if I just annualize this, that only will take about INR 450 crores.

Yes. INR 450 crores, I'm telling you INR 450 crores as of now.

And sir, due to this labor impact, how much revenue was lost? And was this revenue lost or was it deferred?

No, no, no. It's a temporary hold, not even a discontinuation, but the lesser amount of production output is there. It's nothing we lost. It might be deferred by a month or something like that only. There is no loss of business, and we try to manage many things with the extra labor by managing the situation. But because of the environmental front and all these things, even the output capacity of human beings was a bit less, particularly in the month of April and May, which is very hot in our region.

Yes. And sir, on the domestic auto components business, business has fallen close to 13% year-on-year. So why is this? Is this because Stellantis is going through a slowdown? How is our business with Mahindra? And what is the outlook for this portion for this year and next year?

See, domestic auto components- what it was there with me in the last year, it was somewhere about INR 52 crores. And here, it is INR 45 crores in this Q1 of FY '27. That is mainly because of the deferring of certain production plans of a couple of OEM of automotive. And Stellantis, again, they started with the revenue, though it is not at the level we had last year. But gradually, it is picking up, and it will be on track with what we had in '25 or even better than that.

And sir, this year, I'm expecting that exports like auto component exports will be a higher share, and the margins there are the highest. So can the margins be closer to 22% for this year, and going forward next year, they could increase by 50 bps or so. Is that something that is possible?

Definitely, the second portion, 50 basis points up on the FY '27 number, would be there in FY '28. As I indicated earlier also that I would like to be on a number in between 21 to 22 percentage because there are certain abnormal factors also affecting which, as you better know, because of this hormoes and because of this Europe, Iran, U.S. thing, the ocean freight and the availability of the ocean freight to U.S., et cetera, has gone up more than 2x or 2.5x to 3x. So for the time being, it may impact to some extent also. So that's why, conservatively, I would like to be there in between 21% and 22%.

And sir, on the bearing wings export side, like this quarter, business fell by close to 10%. So is this intense continued weakness affecting us? Or is it something else?

Major factor is that.

And when do we expect this to rebound? and will it start growing or stay flat because it has been falling for quite some time now.

Yes. What we are doing, or rather our strategy, is to develop new customers, and we don't want to depend on a particular group or a particular plant as far as this business is concerned. No doubt, it was a huge business. And unfortunately, at the customer level, their business has also significantly reduced. So our strategy is to develop new customers for the bearing rings segment, whether it is in auto or industrial segment in the overseas market, particularly because in domestic market, major players are already there in my customer basket. So we are trying to expand our base in the U.S. and Europe, particularly in Europe, where we have good strength on the auto side. There we would like to develop further on the bearing ring business also. But I don't want to be dependent on one particular customer or a group of customers like that.

Just one last bookkeeping question. For Q1 FY '26, can you give us the scrap revenue, export incentive, and end-user mix? For which period have you asked? For this quarter, this quarter.

I told you it is INR 23 crores or something.

No, I was asking for the breakup of the scrap and export.

Scrap is somewhere about INR 20 crores, and export incentive is near INR 3 crores. And the split in terms of end application is 50-odd percentage towards passenger vehicle segment, 20-odd percentage is commercial vehicles and heavy-duty vehicles, then 14% to 16% is there on the industrial segment, 7-odd percentage is there in EV and hybrid and so on.

We have our next question from the line of Disha from Sapphire Capital.

A couple of questions. Firstly, sir, so obviously, you mentioned conservatively because of the ocean freight and the geopolitical situation currently. But going ahead, sir, with our export mix increasing and our product mix shifting more towards auto components, what steady-state margins are you targeting internally going ahead?

See, first of all, I would like to tell you whether it is an auto component or a new bearing ring business, wherever the more value-added processes are there, even in the bearing ring business, certain bearing rings for the EV hybrid vehicles or new critical bearing rings, we have the same margin. So it's not only auto components where we'll be having this margin. So margin trajectory, as I indicated and replied in our earlier questions also, is considering all this inflationary trend in the entire or other fuel market, then this freight portion and other things, which have a cascading impact on our production cost structure. Sometimes it is not feasible, possible, or practical to approach the customer for each and every price hike or something like that because our contract price or our programs, our commitments, are generally not on the value-add part. It is always on the raw material and ForEx; what the fluctuation is passed through or to recover. So that's why, conservatively, I would like to be there in between '21 and '22 because the simple reason in the month-end of June or mid of June, the ocean freight has started shooting up. We have a good amount of exports in the U.S., and that ocean freight has significantly increased. And even at this level, by paying that much amount, the availability of containers for a particular vessel is a bit difficult. So that's why our spend towards margin is maybe near 21.

Sir, my next question is: what is our current utilization level?

We are at the same 63% to 65% utilization, you can say.

What are we targeting by this year?

We target to touch somewhere about 70%, 72%, yes.

And sir, given our mid-teens growth, even if I assume 15% growth, it should be around INR 1,300 crores top line. What mix are we looking at? Will the contribution from the auto segment be higher than from the bearing segment? If you can provide some on that?

Sorry, your voice was not clear. Can you come again?

Yes. Can you hear me now? Yes. Yes. So for a mid-teen growth, assuming 15% sort of growth if we do for this year, so it will be around INR 1,300 crores. Out of that, could you help me with how much will that mix be between the auto segment and the Baring segment?

For this particular fiscal, 65% to 70% would be from auto components.

And out of that, can you give me a percentage of how much will that be from exports?

Again, of that 70%, more than 75%, it is from exports.

And sir, will this be the steady state level? What is the ideal steady state mix that we target between these 2 segments?

See, we don't have a specific target that whenever the new order where my facility suits the product, I do have available capacity. If I get a good quantum of the order, program size of 5 to 7 years with a desired level of margins, I would be happy to accept whether it is bearing rings or auto components, because my capacity, or rather the facilities and equipment, are very much fungible, and we are able to produce auto components as well as rings both.

And what is the CapEx, sir, our target for this year and for the next year?

In the range of INR 30 crores to INR 40 crores.

On an annual basis?

Yes. No, no, on an annual basis, year-on-year.

[Operator Instructions] We have our next question from the line of Salil Desai from Marcellus Investment Managers.