RACL Geartech: From Gears to Systems

A deep dive into how a precision gear supplier is embedding itself into the drivetrain of tomorrow’s mobility platforms

Having tracked Indian equities for over two decades, I’ve often found the most enduring multibaggers hidden in plain sight: companies that quietly enable the growth of larger industries without ever hogging the spotlight. These are what are commonly known as proxy plays. Businesses that ride secular trends by being embedded deep inside their customers’ ecosystems.

Among these, automotive ancillaries have been particularly fertile ground for long-term wealth creation. From brake systems to lighting modules, transmission gears to chassis components, these businesses supply the invisible backbone of the auto industry. And when positioned in fast-growing niches with strong OEM alignment, they often end up compounding faster than the OEMs themselves. Their advantage? Once a part is validated and platform-integrated, the revenue flow is sticky, margins improve with complexity, and cross-selling across vehicle categories becomes natural.

Over time, what starts as a concentrated dependence on a few programs often evolves into a diversified, multi-OEM, multi-segment business model. RACL Geartech journey is similar and in this post we deep dive on its business. Below is the structure of the post:

• About RACL Geartech

• Transition from basic to complex products

• Business model strengths

• Recent financials and Way forward

• Future scenarios/ valuation

• Optionalities

• Forensics and our take

• Risks/ Conclusion

RACL GEARTECH: A PRECISION PARTNER FOR GLOBAL AUTO OEMs

Every once in a while, we come across a company that quietly compounds behind the scenes, not by chasing scale, but by consistently climbing up the complexity curve. RACL Geartech is one such business. It began in 1983 as a modest toolroom outfit, supplying jigs, fixtures, and loose gears to Indian two-wheeler manufacturers. Over time, through a focus on precision machining, metallurgical consistency, and process control, it built deep manufacturing expertise.

The big break came in the 2000s when it began supplying critical gear components to European performance bike makers like BMW Motorrad, KTM, and Piaggio, directly from its Noida plant. This wasn’t just about making parts; RACL was involved from the design and prototyping stage, building components with sub-15 micron tolerances and zero-defect reliability. At a time when “Make in India” was still a slogan on the horizon, RACL was already on the shop floors of Europe’s finest OEMs.

Today, RACL has gone far beyond gear cutting. It is a Tier-1 partner co-developing and supplying:

• Mechatronic parking lock systems for German EVs

• Gearboxes for high-end European e-bikes

• Rear axle subassemblies for premium electric scooters

Its client roster includes ZF, BMW, KTM, Kawasaki, and TVS, and it boasts what is arguably one of the cleanest quality records in the business: zero product recalls in its four-decade history.

CURRENT PRODUCT MIX AND TRANSITION

If you’ve tracked manufacturing businesses for long enough, you’ll know that value migration often follows complexity. In auto ancillaries, what starts as a high-volume, low-margin commodity gradually morphs into a precision-critical, platform-embedded product. Key requirement is getting the engineering, quality, and consistency right.

That’s exactly the story playing out at RACL Geartech. Over the last two decades, the company has evolved from supplying basic gears for mass motorcycles and tractors to becoming a trusted drivetrain solutions partner for some of the world’s most demanding OEMs. Let’s break this evolution down.

Core Product Categories: What RACL Makes Today

The above suite of products has been developed in various phases. We went through the historical annual reports and con call to figure the transition from low value added products to high value and complex products (see below table):

Product Transition: A Timeline of Strategic Shifts

The journey from gear supplier → transmission specialist → drivetrain partner, is rare in the Indian context, especially for a company of RACL’s size. This shows the continuous engineering prowess that management has built and sustained at RACL.

Complexity = Margin = Stickiness: How the Tier Shift Played Out

As RACL moved from Tier-3 to Tier-1 status, the economic profile of its business changed dramatically:

Entry-Level (Tier-3 to Tier-2)

• Loose gears, shafts

• High-volume, low-margin

• Multiple suppliers, commoditized

Mid-Level (Tier-2 to Tier-1)

• Pre-assembled gear clusters

• Requires exact tolerances, 5-axis machining

• Higher gross margins (~50–60%)

High Complexity (Tier-1 Only)

• Mechatronic parking lock (for EV)

• Integrated drive axles, gearboxes

• In-house robotic assembly, hard turning, heat treatment

• Gross margins can exceed 70% on these contracts

The company’s progression reflects a deliberate strategy to not just to move up the value chain, but to embed itself deeper into OEM platforms where replacement risk is minimal and trust-based engagement matters more than price.

OEMs entrust such projects only to suppliers with zero-defect records, precision tooling capabilities, and long-standing reliability. RACL has become one of the few Indian companies to cross that trust threshold with global OEMs.

Based on our reading of all the calls and annual reports, we also understood the inherent change in the product architecture which we try to capture in the below table:

Product Architecture Evolution at RACL

In essence, RACL’s transformation is not just about adding more SKUs. It is about moving up the strategic hierarchy of the auto value chain. From being a build-to-print supplier of commoditized gears, it has become a co-creator of mission-critical drivetrain modules, embedded deep into OEM platforms. Today, its components don’t just meet specifications. They enable performance, ensure safety, and reduce system costs for customers. In an industry where scale is commoditized, but precision is prized, RACL has chosen the harder, more rewarding path. This is not just a margin story. It is a moat story.

As RACL has climbed the value chain, it has not just improved its gross margins. It has also built meaningful competitive advantages that are hard to replicate. This is where the company’s strategy starts to create real defensibility and which gets us to the next section.

BUSINESS MODEL STRENGHTS

• High complexity equals fewer qualified competitors, which directly translates into pricing power and better terms of engagement.

• Systems integration reduces OEM assembly cost, making RACL more than just a vendor. It becomes a value-adding partner.

• Proprietary process know-how such as hard-turning after heat treatment, robotic chamfering, and in-house assembly automation creates an execution advantage that cannot be bought off the shelf.

• EV shift is already underway, and RACL is not playing catch-up. It is already inside the drivetrain of premium EV platforms at BMW, TVS, and leading German e-bike manufacturers.

• Minimal disruption risk from the EV transition in its core segments like ultra-premium motorcycles, performance bikes, and off-road vehicles where ICE powertrains remain dominant.

• Co-development business model with OEMs ensures engineering alignment and early involvement in the product lifecycle, which significantly improves stickiness.

• Clean track record with zero recalls or warranty claims, reinforcing trust with global customers and reducing switching risk.

These strengths do not just protect margins. They deepen customer engagement, extend contract lifecycles, and make RACL a difficult supplier to replace once embedded.

RECENT FINANCIALS AND WAY FORWARD

Source: RACL Geartech, Screener

While RACL has done well over the last 5-6 years, FY 24 and FY 25 were clearly not as per what the management guided. Back in March 2023, RACL Geartech’s management had laid out a confident roadmap, projecting FY24 revenues of ₹470 crore. Reason for this guidance was on account of new program nominations across EVs, premium two-wheelers, ATVs, and European drivetrain platforms. The expectation was that these complex, high-margin assemblies, such as parking lock systems, e-bike gearboxes, and axle modules, would scale rapidly and drive both topline growth and margin expansion. However, reality turned out differently. FY24 ended significantly below target, and even FY25 revenue came in at just ₹417 crore, well short of prior guidance. Even EBITDA margins took hit and impacted overall profitability.

The gap wasn’t due to demand weakness but rather program execution delays. Several high-complexity export orders were pushed out due to extended customer validation cycles, regulatory certifications, and OEM-side ramp-up delays, especially in EV platforms. Compounding this mismatch was the fact that RACL had already invested heavily in anticipation of growth. Over FY23 and FY24, the company incurred around ₹150 crore in capex, building automation lines, precision assembly infrastructure, and expanding its manufacturing footprint. These investments were necessary to meet future program requirements but loaded the P&L with depreciation and fixed costs, even as revenue lagged.

As a result, margins came under pressure. Despite a more advanced product mix, under-absorption of overheads and operating deleverage dragged down EBITDA performance. While the margin dip was structural, not symptomatic of competitive or pricing issues, it highlighted the classic mid-transition stress of a company front-loading capability for rear-loaded revenue.

Management remains firm that the core thesis is intact. Most of the delayed programs are now underway, and FY26 is expected to show full-blown benefits of the capex, complexity, and platform integration. Moreover, the company has reiterated its long-term aspiration to reach ₹1,000 crore in revenue. This target that will be driven by a maturing pipeline of high-value, co-developed programs.

While no fixed timeline has been declared for this ₹1,000 crore milestone, the building blocks are falling into place. Several recently announced programs like BMW’s electric sports car drivetrain to TVS Norton’s complete gearbox platform, are expected to contribute meaningfully over the next 12–24 months. The last two earnings calls, particularly the Q3 FY25 call, provide detailed insight into these initiatives. For investors tracking long-term transitions, these are worth a close read.

SCENARIOS, VALUATION & FAVORABLE ENTRY PRICE DISCUSSION

At its current scale, RACL Geartech operates a ₹400 to 420 crore topline business built on high-precision drivetrain components for premium two-wheelers, ATVs, agri-equipment, and early EV programs. However, this headline number does not reflect the company’s true earning potential. A combination of execution delays, extended validation cycles, and ramp-up mismatches meant that several large programs originally projected for FY24 to 25 are only now beginning to gather steam.

Simultaneously, a slate of new high-value programs, including drivetrain modules for BMW EVs, steering systems for US pickups via ZF, and complete gearboxes for Norton motorcycles, are set to transition from prototype to scale over the next 12–24 months. These projects not only carry higher complexity and margin potential but also position RACL as a deeply embedded systems partner across multiple OEM platforms. Against this backdrop, our valuation framework doesn’t merely extrapolate current numbers, it factors in both under-monetized capabilities and high-visibility growth drivers that are now entering the revenue curve.

The further part of this section is reserved for our clients, please reach out to gaurav.a@nineonecapital.in to know more.

Source: Nine One Capital

OPTIONALITIES & UNPRICED UPSIDE

Beyond the visible growth pipeline, RACL Geartech offers several optional levers that could drive outsized returns over time. These are not embedded in near-term numbers but hold significant strategic value.

1. Premiumisation of Indian OEMs: As Indian auto majors move up the value chain, RACL stands out as a ready partner. Its proven track record with European OEMs makes it an easy choice for domestic platforms now demanding drivetrain sophistication as seen with TVS moving sourcing from China to India for Norton.

2. Engineering Fit for Aerospace and Defence: RACL’s core strengths in sub-10 micron tolerances, robotic hardening, and system integration, make it a natural candidate for aerospace-grade work. If successful, this could open up long-term adjacencies in defence and precision machinery.

3. New EV-Native OEMs: RACL has so far catered to ICE-to-EV transitions. A direct partnership with EV-first companies could expand its base and accelerate drivetrain system adoption across two-wheelers, e-bikes, and compact CVs.

4. Supply Chain Realignment: With OEMs consolidating suppliers and diversifying away from China, RACL is well placed to become a systems-level partner across platforms delivering more value per vehicle, not just more volume.

FINANCIAL RED FLAGS AND OUR TAKE

Reserved for our clients, please reach out to gaurav.a@nineonecapital.in to know more.

RISKS

• Delayed Program Ramp-Ups: Several high-complexity programs, including MAN Trucks and ZF, faced delays in FY24 due to late equipment deliveries from overseas vendors. This slowed down project execution and directly impacted revenue realization.

• Customer Volatility: Despite confirmed orders, a few European clients unexpectedly pulled back in FY24, leading to a ₹20 crore shortfall. Notably, even after committing capex for KTM’s program, the ramp-up didn’t materialize due to challenges at the customer’s end. This highlights the uncertainty in export-dependent models.

• Margin Volatility: While raw material costs are largely pass-through, sharp steel price movements and an unfavorable product mix (e.g., agri and CV parts) have dented gross margins in select quarters.

• Client Concentration: Though RACL has diversified across platforms and products, a meaningful share of revenue still comes from a few marquee customers. Any strategic sourcing shifts or regulatory issues at their end could affect growth trajectory.

CONCLUSION

In the spirit of Howard Marks, the essence of investing lies in understanding the difference between perception and reality, not predicting outcomes, but assessing where the odds may be mispriced. RACL Geartech presents an interesting case study of a company navigating a complex transition: from a component supplier to a drivetrain systems partner, embedded in high-precision, high-complexity programs across EVs and premium vehicles. While recent performance has lagged earlier expectations, the underlying direction of the business, with its shift toward OEM co-development, deeper technical integration, and elevated capex, raises important questions about future scalability, profitability, and resilience. Our analysis here is not a recommendation, but a framework to understand a business that is evolving meaningfully beneath the surface.

Disclaimer

This note presents an independent analytical overview of RACL Geartech Ltd., based solely on publicly available information such as investor presentations, conference call transcripts, regulatory filings, and third-party research reports. No management interaction or physical verification of facilities has been undertaken as part of this analysis.

The objective of this document is to provide a structured framework for understanding the company’s business model, product evolution, recent developments, and potential business trajectory. It does not represent a recommendation to buy, sell, or hold the stock. Readers should interpret this note as an informational resource and not as investment advice. We strongly recommend that investors consult a SEBI-registered investment advisor before making any financial decisions based on the views expressed here.