Raymond Limited (RAYMOND) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Raymond Limited Q1 FY '27 Earnings Conference Call hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Priyanka Trivedi from Antique Stockbroking Limited. Thank you, and over to you, sir.

Thank you. On behalf of Antique Stockbroking Limited, I would like to welcome all the participants to Q1 FY '27 conference call of Raymond Limited. . Today, we have with us from the senior management of Raymond Limited, Mr. Rakesh Tiwary, group Chief Financial Officer; Mr. Gautam Maini MD Engineering business; Mr. Sanjeev Sharma Linan KPTL; Mr. Navin Sharma, CFO, Engineering Business; and Mr. [indiscernible] Credit Investor Relations. Let me start with first of all, congratulating the whole team for doing a remarkable job in terms of the business and the growth opportunities explaining to investors and that's a superb job done so far. . Now I would like to hand over the call to Mr. Gautam Maini to take the discussion forward. Over to you only.

Thank you, [indiscernible] Good evening, everyone. Thank you for joining us today in our Q1 FY '27 results conference call. I hope everyone has had an opportunity to go through our financial results and investor presentation, which have been uploaded on the stock exchanges as well as on the company's website. Moving ahead, let me start by talking about the broader macroeconomic landscape that has influenced our performance and strategic decisions. India commenced FY '27 on a strong footing with Q1 RGTP expanding at estimated 7%, driven by sustained industrial momentum, robust GST collections and a sharp rebound in export activity. While the ongoing West Asia contract continues to introduce localized supply chain friction and energy market fluctuations, domestic manufacturing has demonstrated high structural adaptability. Crucially, the global care environment for Indian engineering exports have transitioned into a highly favorable phase. Look at the India U.K. Comprehensive Economic and trade agreement, the CTA, which entered into force on 15 July 2026. So there's a pivotal catalyst for India engineering and industrial sectors. By eliminating tariffs, which previously reached up to 18% on categories like machinery, auto components and metal work. The agreement grants India-based precision suppliers, immediate cost competitiveness in the U.K. market. Following the recalibration and subsequent rollbacks of punitive U.S. tariff measures earlier this year, trade clarity has returned to the North American corridor with destocking cycles, concluding the tariff uncertainties receding export orders for Indian automotive and industrial precision components are witnessing a sharp demand revival. Let's look at the export revival. Building on the record-breaking performance of FY '26, the domestic auto sector maintained solid momentum through Q1 of FY '27. On the international front, the automotive component export channel has shifted back into growth territory. The dual benefit of the U.K. FDA implementation and rolled back or restricted U.S. tariffs has restored competitive export pricing. Global Tier 1 buyers are actively rebuilding inventory buffers driving strong order inflows for complex machine components and drivetrain subassemblies. Aerospace, let's look at the accelerated lead ramp-up and sourcing and elution. The global aerospace sector has entered into a decisive ramp-up phase in Q1 FY '27 as major OEMs aggressively address historical order backlogs. OEMs recorded strong midyear momentum stabilizing at higher target production rates while titanium and aerospace grade alloy constraints persisted into late FY '26, raw material supply channels and engine production schedules have gradually unblocked in Q1 of FY '27, converting record order books into executable assembly volumes. India is positioned as a cooler aerospace manufacturing hub continues to expand, with global OEM sourcing commitments well on track towards multibillion-dollar milestones. Protected by [ Shenzen ] qualification protocols and a formidable compliance mode. Our precision aerospace engineering business remains uniquely insulated from low-cost competition, ensuring long-term value, revenue visibility and margin stability as global build rates accelerate. Let's look at the consolidated performance. So Raymond Limited continued its growth momentum, delivered a healthy quarterly performance, reporting a total income of INR 628 crores, reflecting a 13% increase compared to the same quarter of the previous financial year, and EBITDA grew by 14% Y-o-Y to INR 100 crores with an EBITDA margin of 15.9% in Q1 of FY '27 versus the total income of INR 555 crores in Q1 FY '26, delivering an EBITDA of INR 87 crores with an EBITDA margin of 15.7% in Q1 FY '26. Q1 FY '27 performance continued to be anchored by the Aerospace Defense and Precision Technology divisions. We are witnessing an accelerated transition as domestic engineering vendors migrate beyond standard component machining into high complexity subsystem, critical aero engine modules and precision engineered assemblies backed by strong trade tailwinds, capacity expansions and strict qualification barriers this evolving capability make significantly elevates contract stickiness, protects operating margins and provides unparallel long-term revenue visibility as global aerospace and mobility supply chain realign around preferred Indian suppliers. To further diversify revenue channels, we are capitalizing on our OEM grade manufacturing ecosystem and contract production capabilities for critical automotive components and white label products to establish an aftermarket business scheduled for commercial rollout in Q2 of FY '27. Going forward, we continue to remain optimistic about the future growth trajectory given our expansion strategy in new product categories and new geographies. Let's look at segmental performance, starting with the Aerospace business, JK Mini Global Aerospace Limited, JK and GELA at the segment level, the Aerospace & Defense business reported a robust performance with revenue of INR 123 crores which is 40.4% year-on-year growth and EBITDA of INR 26 crores, which is a 25.4% year-on-year growth and an EBITDA margin of 21.2% in Q1 FY '27 versus revenue of INR 87 crores with an EBITDA of INR 21 crores and an EBITDA margin of 23.7% in Q1 FY '26. The Q1 FY '27 performance was anchored by a major expansion in production capacity driven with higher revenue realization across key aerospace OEMs and Tier 1 programs. EBITDA margin saw a temporary compression as we incurred major R&D expenses and expenditures, which we naturally write off, as explained on earlier occasions, to unlock the 40% revenue expansion. As these newly developed programs sunninto steady-state production, EBITDA margins will stabilize. Forward-looking indicators remain positive with strong RSV activity as external supply chain fiction normalizes our enhanced capacity positioning and show seamless execution against a growing multiyear order book. We currently have a robust 10-year order book of INR 5,960 plus crores and an active RFP pipeline of INR 1,622 crores. On strategic initiatives, we have commenced mass production of precision defense components. Let us now move on to the precision technology and auto components, which is JK Mini, Decision Technology Limited, JKMPTL. At the segment level, the precision technology and other components reported a revenue of INR 444 crores, which is 11.5% year-on-year growth with an EBITDA of INR 61 crores, which is a 45.5% year-on-year growth and EBITDA margin of 13.8% in Q1 of FY '27 versus a revenue of INR 398 crores with an EBITDA of INR 42 crores and EBITDA margin of 10.6% in Q1 FY '26. The top line expansion during Q1 FY '27 was primarily driven by a ramp-up in our export revenues. This volume growth unlocks substantial operating leverage, which alongside targeted cost reduction initiatives led to a strong expansion in the overall EBITDA margins. Furthermore, on strategic initiatives to leverage our B2C brand heritage and Tier 1 OEM base we are launching an automotive aftermarket product line in Q2 of FY '27. We are leveraging China plus 1 tailwinds to diversify into high potential global markets and industrial verticals by driving integration synergies and operational efficiency, we are successfully scaling momentum across our domestic and global operations. Let's come to our CapEx and greenfield expansion. Our INR 1,000 crore 5-year CapEx plan, INR 510 crores basically in aerospace and INR 430 auto is progressing swiftly on schedule. And today's greenfield facility, the groundwork at our Gudipali facility near the Bangalore Airport is on track with commercial production targeted for late 2027. Prelaunched operational readiness to ensure rapid post-launch scaling, we're setting up an advanced training and production facility ahead of schedule near our greenfield facility. Debt and cash position at Raymond Limited. We continue to remain a net debt-free business with a net cash surplus of INR 129 crores as of June 2026, providing the financial flexibility required to fund future organic and inorganic growth opportunities. In conclusion, Q1 FY '27 strong performance serves as a solid foundation for the year ahead with our [ Andra ] facility on track, the upcoming Q2 aftermarket rollout and a debt-free balance sheet. We are well positioned to drive high-margin growth and create long-term shareholder value. We are executing our road map with precision and remain confident in our trajectory across all key segments. Thank you once again for your continued interest in Raymond Limited. We are now happy to take your questions.

[Operator Instructions] The first question is from the line of [indiscernible] Paramesh from Claradine management.

Got some high management team, congratulations on a great quarter. I just had 2 quick questions. The first 1 is on the preferential issue that was saved recently. I believe in Q4 FY '26, the management had commented that the internal accruals, the operating cash flow as well as the debt capacity is sufficient enough for capacity expansion and the CapEx plan. And only if something organic opportunity were to come up, then there would be an equity raise. So just curious as to how the company is evaluating inorganic opportunity, whatever you are able to provide at this stage? Any color on that? The second question is on the supply chain constraints that pretty much most area players are facing. There was 1 U.S.-based aerospace component supplier who had to significantly revise down their expectations just because 2% of that components, mainly casting and forging had very big supply chain bottlenecks. So are we exposed to these same bottlenecks? Or are we able to bypass these?

Okay. What I'll do is I'll take up the second question first. And Rakesh, if you can take the next one. The first one. So basically, I mean, we are today not exposed as much because a lot of those kind of businesses haven't transferred yet, which are more on the critical side. So we are in a phase where I believe that there is a large backlog. And we also find that the more backlog you clear, the larger the backlog debts, which also gets me to feel that the supply chain is so constrained that typically, if you do a good job, you'll just get more business. So like I've always maintained, this is an execution game. And if you can execute the business correctly, you will always be in the winner seat. And I think that's something that I have always maintained over the last several calls, and I continue to maintain that the market is very large. The customers are out there looking for suppliers. So if you know how to execute, you will be in the front. And that's our whole aim is to execute well. Rakesh, do you want to take up the first one or Sunil? Sunil?

Yes. Okay. Great. So with respect to the question on the warrants that were issued, basically, the whole idea is that we as a company keep evaluating various opportunities across our 2 businesses from an inorganic growth standpoint. They may, may not captive. As and when we are close to closing and giving information about the success stories of our potential acquisitions, we will come back to the market. When it comes to the overall aspect of what are we targeting, the targets are across our segments like the aerospace business, auto components and defense. So whichever side where we find there could be synergies and opportunities for us, we can evaluate those. And that is the reason we have gone ahead with the warrants, which allows us with that additional flexibility. I hope that answers.

The next question is from the line of Nishant from Sapphire Capital.

Yes. So I wanted to understand RFQ pipeline in Aerospace, but you have INR 1,632. So like are the [indiscernible] these orders? Or when can we expect these orders to convert.

So like I've always explained, I said aerospace business for us is a daily growth business because we are getting our FCs on a daily basis. We are making new product developments on a daily basis. We are ramping up on a daily basis. There may be a time lag depending on how critical these components are -- so this is an active pipeline as of a recent number. Obviously, it changes on a daily basis. So these are live items. Our goal is always to try and go for what suits our production. What suits our margins, what shoots are ROCE, et cetera, so that we can keep in line with commitments we have made to our board and our investors. So we are quite confident to use the active RSU pipeline to generate the level of business that we need to make sure that we can keep the momentum that we already have generated, as you've seen and we would keep closing these orders as they come. So today, it's a question of choice from our side rather than a constraint. And like I said, the market is quite large. And therefore, you also don't want to disappoint a lot of customers. So you want to make sure that you have something more than you can grow, but not go and do something where you will disappoint customers in execution. So it's also important to keep a balance and at the same time, to ensure that you have the right mix in the right segments. So there's a lot of activity that goes on behind at a strategic level to ensure that you can pick the right businesses.

Yes, Mr. [ Sanklecha, ] you can go ahead with your question.

Yes. Yes. Understood. So actually, my line was dropped. So if you can please reiterate what was said?

Sorry, can you clarify what you want?

My line was actually dropped when you were explaining the whole point.

Okay. No worries. Yes. So basically, when you look at our pipeline, like as far we grow business on a daily basis, we get RFPs on a daily basis. We make new products on a daily basis and we scale manufacturing on a daily basis. With care lag times depending on what kind of products you have. So our goal is always to keep a good balance. We choose our businesses. We make sure they have the right margin, the right ROC. So our investment patterns, our ramp-up patterns are all showing growth on a daily basis. That's how we try and do our business. So depending on the -- we have enough RFPs for us to do more than the growth we want at the conditions we want. So as we continuously expand, we will keep deciding how we can increase the RFQ pipeline because that will -- we don't want to disappoint customers in case we have to do something much more than we can do because today, the demand is so much ahead of its supply that -- it's very important you don't disappoint customers. And I come back to the same game of how well can you execute. So the execution is not only about finally giving the product. The execution is also about ensuring that right from RFP stage to the delivery stage, how you can manage the expectations of all these customers who seriously want to grow in the company country like India. I hope I've answered your question.

Yes, yes. And my next question is on our EBITDA margin. So we have been expanding our EBITDA margins quarter-on-quarter since past and Q4 quarters. So what can we expect our EBITDA margin to light in FY '27, we expect them to be in the same range of around 12%, 13%.

Yes, we can -- I mean we can expect the EBITDA margins to have the same trend as we've shown now at a consolidated level. I would say you can expect the same. You can see that our terms are better than the previous year. So we expect to keep the same momentum.

The next question is from the line of Rajit Chada from Centra Insight LLP.

Congratulations on the great quarterly results. I have 2 questions. currently remunerated that 20% of your revenue comes from the aerospace and defense sector. So how much are you expecting it to grow by the end of the year?

Well, you know that aerospace definitely has a higher growth rate than the other sectors, and the base is also smaller, so it's easier to grow at a percentage level and therefore, it will marginally keep increasing quarter-on-quarter to a small extent, considering the smaller pick it has considering the high growth rate that we've been able to achieve, you will definitely see it incrementally going up over a period of time.

But could we expect the revenue to be by the end of the year? Can you give us an estimate?

So we have committed 25% growth. We are a little bit ahead of what we have committed, but we expect to keep momentum, but I would still say that a 25% growth in aerospace is a good growth. And of course, we have exceeded it in the first quarter. All right.

My second question is, currently, on limited is producing North of components for the land so is the future going to produce more components or to get into the subassembly sector where you directly assemble parts of the engine and supply to [indiscernible]

So our goal is definitely to continuously upgrade and go up the value chain. There are several stages that it takes to go up the value chain so today, we are in a stage where we reached a fairly good level to make critical components. So the mix of critical components will keep increasing and the subassemblies will keep increasing. So it is our definite goal to go up the value chain. We're also going to be adding special processes and they're going to bring in treatment and other things in our facility in [ Andhra. ] So being more vertically integrated will help the customers to have more confidence in us, and we expect them to be able to go higher up the value chain.

Right. And my final question is, are there any new certification entrainment has applied for?

Well, we just -- it's just been information very, very new, but -- but just today, we got our certification for making medical components because medical components also need the same titanium and seamless deal, and we have been working on that certification, and we got it today.

My question also is related more towards aerospace. Are there any new certifications you are trying to get in the aerospace sector?

Well, most of the certifications that we need are already there. We've also got our build to spec, design certification now. So at the moment, whichever new customers we are adding, we obviously get certified by them. But as of now, we have all the necessary certifications to ensure that we go up the value chain.

The next question is from the line of Navin Vijay from NS Capital.

My first question is on the order book. Compared to the last presentation, where we had mentioned INR 2 or INR 350 crores with a 5-year horizon we now seem to have mentioned INR 5,960 crores to the premier horizon. So that's a significant jump up in the RL book. Could you please talk about it for a minute, sir.

No, it's just that aerospace businesses are long term in nature. So I think the 5-year period is very small. So we just wanted to give you a longer visibility on what potentials we have over a period of time. And therefore, we changed the period to a 10-year period, and therefore, you have a larger number there.

Got it. And you also briefly mentioned about R&D expenses being expensed and the written off. Do we have a percentage that we also capitalize -- or is it fully written off?

No, we don't capitalize any R&D expense. So as of now, so for instance, if we increased our speed of new product development, that's what got us -- so all of the new product that we developed and all of the expenses related to the development of new products are all written off in the same quarter. So that's where you see a slightly lower percentage of margin. But like I said, those -- as those products become over time, they become more the efficiency will come, first of all, on those products, and they'll get more mature, it will all stabilize. But if you want to grow as a percentage that we actually grew in the quarter, we needed to do a lot more on this product development, which we write off.

Got it. My last question is on the M&A front. Is there anything that you are actually pursuing. I'm not asking for names, but in terms of competencies are some kind of --

Can you just repeat, I lost you for the beginning for a second?

My last question is on the payment activity, sir. Are we on the lookout for any competencies that would add to the aerospace and other sectors?

Yes. So you're talking about competency, did I read it correct?

Yes. Particularly with respect to M&A, mergers and acquisitions marches and acquisition.

Okay. Is it like Panu mentioned, the company is going to be looking at opportunities. And as and when we really get something that's more definitive in nature. We will definitely come back and inform all of you. Sunil has already clarified that we are looking at mergers and acquisitions in that space.

So just to add to what Gautam said again, to answer your question, the lookout for inorganic growth is a business as usual. We keep evaluating various companies across both our business segments. And that is what I had mentioned in the previous question.

The next question is from the line of Vatsal Kotari from Alfa [indiscernible]

All right. So I have a couple of questions. My first question is, is it possible for you to just pay your asset turnovers on a segmental basis. So what are the typical asset turns that you've been enjoying in Aerospace [indiscernible] in your view and the precision vertical?

The aerospace a typical effect turnover for the new business that we are winning right now is hovering somewhere around 1.8 to 2.2 kind of. And for automobile, it is somewhere between 2 to 2.5. The way we are closing business is now, we are aiming for better EBITDA margins and high-tech businesses. So that kind of asset turns are expected at this point. Historical asset terms had been a little higher. But as I said that we are looking for a higher EBITDA margin products. So asset turns a little bit would be on a lower side, but on a better EBITDA margin, thus, it's still giving us a similar kind of rose that we are in doing so far.

Understood. Then typically, what stable as EBITDA margins are we looking at or over the longer term?

In Aerospace business, we aim at somewhere around 25%. That's our aim. At a mature level and then in our precision manufacturing business, somewhere around 12%, 13%. That's a decent margin that we are looking at. And of course, there can be an upside, but these are the margins that we are looking in the now in the to [indiscernible]

Understood. And what is the current customer concentration in aerospace specifically? So what would be your top 3 OEMs as a percentage of your top order book -- and what is the kind of order intake growth which we can be looking at on a yearly basis over the next 3 to 4 years?