Release Date: May 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rane (Madras) Ltd (BOM:532661, Financial) achieved its highest ever group aggregate sales for any financial year, with an 8% growth over the previous year, totaling INR7,200 crore.
- Revenue from domestic OE customers grew by 9%, and revenue from international customers increased by 4%, with organic exports growing by 15%.
- The company won new business worth more than INR500 crore across products and customers during the year.
- Rane Brake Lining achieved the highest sales for the quarter and fiscal year, with FY24 sales growing by 10%, supported by strong sales to the 2-wheeler segment and a 33% increase in export sales.
- The joint venture with ZF saw a 12% growth in the steering business and a 20% growth in the occupant safety business, with EBITDA margin improving by 33 basis points.
Negative Points
- The EBITDA margin of Rane (Madras) Ltd (BOM:532661) consolidated decreased by 38 basis points in FY24.
- The demand for the steering and linkage business was impacted due to a drop in passenger cars, particularly entry-level models, and the farm tractor segment.
- The EBITDA margin declined due to lower absorption of fixed costs and certain one-off provisions.
- Rane NSK joint venture's EBITDA margin was impacted due to an unfavorable mix, with some new businesses having much lower profitability compared to earlier programs.
- The company faced challenges with warranty claims, impacting financial performance, particularly in Rane Engine Valves and Rane Madras.
Q & A Highlights
Q: Can you talk more about the qualitative benefits of the merger of the three operating entities into one company?
A: The merger aims to create a larger company, serving as a platform for future growth. Immediate benefits include reduced compliance costs, stronger combined balance sheet, and tax benefits. Long-term benefits include operational synergies and cross-selling opportunities. The merger process is ongoing and will take several more months to complete. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What are your thoughts on utilizing extra resources to strengthen the balance sheet and business?
A: We are focused on reducing debt and will consider utilizing extra resources if required to strengthen the balance sheet and business. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What measures are being taken to address recurring warranty claims?
A: We are focusing on improving product development and manufacturing quality. The warranty issue with Rane Engine Valves is believed to be behind us, and no further provisions are expected. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: Why has there been a decline in export sales in recent quarters?
A: The decline is mainly due to the divestment of our US subsidiary and a slowdown in the off-highway vehicle segment in the US. However, exports have grown by 15% on an organic basis for the year. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: Can you provide more details on the acquisition of TRW Sun Steering Wheels and its impact?
A: The acquisition cost INR139 crore and adds steering wheels to our product portfolio, complementing our airbag and seatbelt business. The business has a turnover of INR140 crore with an 8.2% EBITDA margin. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What is the outlook for the tractor segment given the IMD's good monsoon outlook?
A: We are forecasting zero percent growth in the tractor segment this year based on feedback from major customers like Mahindra and TAFE. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What is the status of the Mexico facility and its expected revenue generation?
A: The Mexico facility is progressing as planned, with revenue generation expected to start in the second half of 2025. Customer audits have been positive, and we are working on securing additional orders. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What is the impact of the China+1 strategy on your export business?
A: The RFQ pipeline has increased in the last 18 months, indicating a positive shift due to the China+1 strategy. However, the full impact is still evolving, and we are yet to see a significant competitive advantage over China. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What is the outlook for Rane NSK's margins and any required cash infusion?
A: The next two years will be challenging for Rane NSK, but we are working on cost reduction initiatives and booking new businesses with better margins. No equity infusion is planned at this time. (Harish Lakshman, Vice Chairman & Joint Managing Director)
Q: What is the expected return on invested capital for the INR1,000 crore CapEx planned over the next three years?
A: We target a return on capital employed of 20%-plus for our investments, with some projects in the 15% range. The CapEx will be distributed across various projects with varying returns. (Harish Lakshman, Vice Chairman & Joint Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
