SmallCap Spotlight throws the spotlight on Remsons Industries Ltd. where we catch up with Whole Time Director, Mr. Rahul Kejriwal on the company outlook – acquisitions and JVs in FY24, reaching a revenue target of 500 cr, diversifying into new business areas and lots more. Tune in to the entire conversation!
Rumela Banerjee: Hi, this is Rumela Banerjee and joining me today is Rahul Kejriwal, CMD at Remsons Industries Ltd to talk about the company’s outlook. Thank you for joining. Let us start talking about your revenue target. FY24 has been an eventful year for Remsons, starting from acquisitions to joint ventures. A year ago, the management talked about reaching a revenue target of Rs 500 crore, diversifying into new business areas, EV play, etc. with media publications. Now that the year is over, where do you think you stand? By when can you achieve these targets?
Rahul Kejriwal: So this year, we’re going to be very close to our targets. Our target was last year, as of last year, three years to reach 500 crores and then push through harder. But I think by the end of this year, we will be very close to our targets and for sure by next year, we will have surpassed these targets as well. I think by the end of this year, we should fall somewhere on the 430 plus bracket of our revenue.
Rumela Banerjee: So you had also mentioned in an interview that half of the revenue is expected to come from new businesses. If you can tell us which areas you’ll be looking at within the auto ancillary space and will the expansion be largely organic or inorganic?
Rahul Kejriwal: The expansion would be a combination of both organic and inorganic. There’s no particular stress point we’ve played in. We are looking to add products which give us a more tech value angle into the business. We’re moving from a more mechanical based product into a more electronic and tech angle based product company.
We see a lot of change in the market that’s happening. So we want to stay ahead of that curve. So it’s going to be pretty much a lot of the product range currently will come from the current products.
So a lot of it will be organic. But going into the years, maybe two or three years down the road, it may balance off to an equal proportion.
Rumela Banerjee: Going forward, will joint ventures and acquisitions be your key growth pillars to meet your growth goals? If so, how do you plan to fund these? Given the company had completed a fundraise of Rs 63 crore already in FY24.
Rahul Kejriwal: We are trying to grow organically as well as inorganically. We are always on the lookout for a good technologically based company for an acquisition which adds value to our product, whether it is a synergistic or a non-synergistic product, but within the automotive space. So, like I said, we will grow for sure with a combination of organic and inorganic with no stress point on either one side of it.
As far as funding is concerned, we raised Rs 63 crores from which we reduced our debt as well, as we mentioned in our letter that part of it was going to be used to reduce debt, part of it for acquisitions, which is still going on. And if you do any further acquisition or something, it would predominantly be a mix of debt and equity. We would not go very heavy on equity for acquisitions.
Rumela Banerjee: A good part of the last few years was spent on transforming Remsons into a more integrated corporate set. Fresh talent, culture change, strong leadership. Now with the new partnerships added to that, have you seen a meaningful change in the overall performance? Where is your content per vehicle at and how do you plan to grow it further?
Rahul Kejriwal: We’ve seen a very good impact on this from our customers in terms of their outlook towards our company.
So adding new tech products, we’ve raised interest from a lot of customers. They are looking at us, taking us more seriously, looking at multiple products sourcing from us. So the content per vehicle is going to go three or four times X in the coming few years.
Right now the content per vehicle is going to be the same towards the end of the second quarter as it was in the previous quarter. The change will come from the higher value product range that we are going to be targeting coming through. But yeah, the customers definitely have taken a very sound view of what we’ve had to offer and have looked at it very seriously.
So we see that as a very positive sign going forward.
Rumela Banerjee: I also wanted to know how your journey has been since you took charge. What have you learned about the industry dynamics over the years? What have been the major challenges that you faced?
Rahul Kejriwal: What we learned over the last few years, you know, along with the COVID coming in and everything coming in is that we have to be very frugal with our approach.
We have to accept change all the time with the changing economic scenario globally, with the geopolitical scenarios, with lots of things happening at the same time. We need to make sure that we are well attuned to adapt to change and modify even in the COVID times. Since we were not very debt heavy, we were able to manage things very successfully.
And that’s how I think we will be going forward is not very debt heavy. The challenges are on a daily basis. There are different sets of challenges we keep incurring on a daily basis.
It could be the loss of sales for elections. It could be COVID, like I said. It could be exports drop because of Russia-Ukraine war.
So there’s never a dull period in the automotive sector, with the semiconductor sometimes and travel restrictions. So I mean, there’s never a dull period. So we just have to keep modifying ourselves and keep looking at the positive sign and keep moving forward is what we really learned.
And that’s how we take the company, okay, if there’s a problem, okay, let’s see what we can do it or we can fix it. And then let’s move forward.
Rumela Banerjee: In your investor presentation, you had mentioned the target of growing your sales three times over the next three years. What will fuel this growth?
Rahul Kejriwal: Acquisitions that we’ve done now and organic growth, we will be growing at a particular rate, but to hit our ambition of 3x over three years, we are looking at a sizable acquisition, which would happen because this definitely cannot happen through organic growth of 3x in three years time. So like you mentioned, this growth will be fueled by a major acquisition. We are in the hunt, we are in discussions with a couple of companies, and we’ll take a call when one of them falls through correctly in our scope of things.
And of course, we are going to, we’ve added only premium products to our product line, wherever we’ve gone through. So yes, the value add, and the cost per vehicle, I mean, the wallet share per vehicle is going to grow, which is also going to help us leverage the 3x over three years.
Rumela Banerjee: Is there an outlay that’s been planned to make the shift to more premium offerings?
Rahul Kejriwal: Of course, we’ve planned it. It’s part of our strategy to move from mechanical product range to a more sophisticated electronic product range or tech product range. That’s already part of our strategy for the last couple of years. And with a lot of discussions with partners and all, since last year, we are seeing the fruits of that.
Rumela Banerjee: India accounts for around 76% of your business currently. With the new JVs and acquisitions, will the revenue mix change? How do you see the domestic market position and overall revenue mix evolve over the next two to three years?
Rahul Kejriwal: So revenue mix will of course change. India predominantly will still be on the higher percentage of business because of the two-wheeler industry in India.
The volumes of the two-wheeler industry are not matched by any kind of other volumes globally. So even with the revenue change, we don’t see it in the next two or three years going over 50% skew. So we may add 20-25% of the revenue, additional revenue from exports and other activities. But yeah, 50-55% would definitely be the Indian revenue.
Rumela Banerjee: In FY21, your debt has seen a surge mainly due to Magal Cable’s UK acquisition. Could you give us an update on the debt position now? You had completed a fundraise of Rs.63 crore in FY24. Any further fundraise planned in the future given your ambitious growth plans?
Rahul Kejriwal: So see, our debt equity ratio had gone to 2.1 in the year FY21 because of the acquisition. Right now, it’s down to 0.11. So we’ve already reduced our debt to absolute minimum and definitely the 63 crore has helped in doing that.
Like I said, for any future fundraise plan, it depends on the opportunity that we get or we see that we are getting. Based on that, we would be planning any future fundraise.
Rumela Banerjee: The auto industry has faced several challenges in recent years as we all know. How do you see it shaping the coming years? What’s the biggest risk you are penciling in at the moment that could possibly derail or slow down your growth plans?
Rahul Kejriwal: See, how I see it shaping in the next few years is, of course, there’s going to be a lot of technology shift that’s coming in. All this talk about the major thrust with the battery vehicles and then the slowdown in the battery vehicles globally. There’s a lot of confusion right now as to what technology would be in the future.
So I think that’s what we are all waiting for and seeing how everyone shapes that out to come based on which all the investments, all the product technology and all will be moving forward. However, we do believe that change in technology is going to be the future. So we have to be ready for it whenever it comes.
The biggest risk for slowing or delaying growth is basically the geopolitical crisis. I mean, the way the things are moving right now, slowdowns in Europe predominantly, export restrictions to quite a few countries and also the geopolitical crisis, we see the biggest possibility of a slowdown plan.
Rumela Banerjee: After generating multi-bagger returns, doing a stock split, multiple M&As, what should your investors expect from Remsons in the next couple of years? What kind of returns run rate are you eyeing for the medium long term?
Rahul Kejriwal: So all that we’ve done in terms of stock split, multiple M&As is all for at least a two or three year outlook growth.
I’m sure that the auto industry has a minimum gestation period for any of the products launched, for any of the products acquired, for any new product to be launched in it. And that’s the time we give ourselves also to kind of look at the medium long term. So in the medium term, I would say two to three years. In the long term, I would say five years.
We’re expecting healthy returns. We’ve already touched an EBITDA of about 10% in the last year. We would be trying to up the game and go into the higher digits of EBITDA, but that will be over a period of between year three and year five. But till then also, we would be looking to deliver good results. If something happens out of the ordinary, then it becomes a little difficult. But we’ve also shown in dire terms of COVID, we’ve still delivered fairly good returns. So I’m very confident that we should be doing well.
Rumela Banerjee: All right. Wish you all the luck with your growth plans. With that, it’s time to wrap up the discussion. Many thanks for joining.