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Rajratan Global Wire Ltd
| Q4 FY26 Earnings Conference Call
Summary : Rajratan Global Wire achieved record sales despite challenges, targeting significant volume growth through capacity expansion and new products, while navigating raw material volatility and competition.
Management Perspective positive : Management expressed happiness with performance despite difficulties, highlighted highest-ever sales, and set ambitious growth targets for the coming year, while acknowledging challenges.
Concall Report Analysis & Insights
Business Overview
- The company achieved its highest-ever sales tonnage, increasing sales by 18% year-on-year.
- Total sales from three locations exceeded 133,000 tons.
- EBITDA margins were impacted by sudden raw material price increases and energy costs in Q4 FY26.
- The company successfully passed on price increases to customers in the current quarter.
- Market share in the Indian tyre sector has recovered to 42-43%.
Future Growth Prospects
- Management targets 17-18% volume growth for the current fiscal year.
- Chennai plant capacity is being doubled to 60,000 tons per annum by Q2 FY27.
- New steel cord product trials for conveyor belts will start in Q2 FY27, with significant revenue expected by FY29.
- Strong demand is observed across India, Thailand, and global markets.
- Significant export growth is projected for North America (30%) and Europe (50%).
Management Insights
- The company performed well despite global volatility, achieving record sales tonnage.
- EBITDA margins were affected by unpassable raw material and energy price hikes in Q4 FY26.
- Management expects margins to normalize to 13-13.5% in the current quarter as price increases are passed on.
- Working capital borrowing will continue as it's seen as profitable for business growth.
- The steel cord project is a pilot to identify new growth areas, leveraging existing wire drawing expertise.
Signs of Skepticism
- Management stated that specific information on export opportunities is difficult to provide.
- The full impact of geopolitical issues on demand is uncertain, with management keeping 'fingers crossed'.
- Management is cautious about committing to higher margin targets (18-20%) due to competitive market conditions.
- Uncertainty surrounds the approval and benefits of the PLI scheme, with no assurances given.
Risk Factors
- Geopolitical situations and war in GICC countries affect global businesses and supply chains.
- Sudden increases in raw material prices and energy costs negatively impact EBITDA margins.
- Competition in the market creates pricing pressure, especially with excess capacity.
- Longer working capital cycles are observed due to increased US exports and shipping times.
- Uncertainty remains regarding the approval and benefits of the PLI scheme.
Good To Know
- The company's US subsidiary (Rajratan USA) incurred INR30 crores in costs for six months, now merged into the balance sheet.
- The steel cord project involves an investment of INR70 crores, with INR50 crores already invested.
- Thailand operations receive income tax exemption after 36,000 tons of sales, resulting in an effective tax rate of 13.9%.
- Working capital cycles are longer for exports (45-60 days) compared to India (50-60 days) and Thailand (30 days).
- The company continues to borrow at 7-7.5% for working capital, viewing it as a profitable investment.
Key Drivers
- Highest ever sales tonnage achieved.
- Targeting 17-18% volume growth.
- Chennai capacity doubling to 60,000 tons.
- New steel cord product trials starting.
Key Analyst Discussions
Competitive Environment
- The market currently has more capacity than demand, leading to competition.
- Management believes competitors are already losing money at current prices.
- The company maintains a higher price point than competitors due to strong relationships and product quality.
- Consolidation is happening in the global wire industry due to competitive pressures.
- The company aims to maintain market share and profitability in a competitive environment.
Market Trends & Consumer Behavior
- Demand remains robust across India, Thailand, and globally despite geopolitical issues.
- The auto industry slowdown has not negatively impacted the company's sales to tyre customers.
- Management anticipates a potential slowdown in April/May but has not seen it yet.
- US demand remains robust, unaffected by geopolitical issues so far.
- Europe and Japan are emerging as new opportunities for bead wire exports.
Financial Highlights
- Management expects EBITDA margins to return to 13-14% in the current quarter.
- The Chennai plant capex is INR25 crores to reach 60,000 tons capacity.
- The steel cord capex is approximately INR70 crores, with INR50 crores already invested.
- Thailand's effective tax rate is 13.9% due to income tax exemptions for sales over 36,000 tons.
- Working capital requirements are expected to increase due to volume growth and longer export lead times.
Product Composition
- 70% of development efforts are focused on the tyre segment, but non-tyre volumes are substantial.
- The steel cord project is for conveyor belts, a niche product with high realization.
- The steel cord product is considered a type of wire rope, sharing similar manufacturing processes.
- The company is exploring new verticals like steel cord to diversify growth beyond existing clientele.
- Wire rope volume for FY26 was 14,000 tons from the Indore factory.
Strategic Considerations
- Chennai capacity will double to 60,000 tons, with gradual ramp-up expected.
- Exports from India are projected to increase to 15,000 tons in FY27.
- Thailand's volume growth is expected to be 10-14% due to capacity constraints.
- The company prioritizes borrowing over equity dilution for capital needs.
- Management is expanding customer approvals across various geographies, including US and Europe.