Rico Auto Industries Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Sales miss driven by EV export collapse: Exports fell sharply as Germany and France EV demand dropped ~40%, directly hitting supplies to BMW and PSA; domestic growth and new order wins could not fully offset the ~₹100-120 cr export loss.
• ₹720 cr of new orders confirmed, but launches delayed: New domestic and export business worth ~₹720 cr per year at peak was won, yet customer postponements (Toyota, Aisin, Musashi) cost another ~₹100 cr of planned revenue this year.
• Defense production finally started, with a large pipeline: 9 containers shipped, 20 more to deliver, and a confirmed order book of 100 containers; management is betting heavily on Navy demand for 300 ranges immediately.
• Margin target missed, recovery promised from Q1 FY26: EBITDA margin stuck well below the 13% Board target due to the export mix shift; management expects margins to "improve dramatically" once volumes cross ₹2,500-2,600 cr.
• What to watch next quarter: Whether the 20 defense containers ship and generate the expected 18-20% margin, whether EV component production ramps smoothly from February, and any clarity on US tariff risk to the large order book.

Revenue Headwinds: Export Collapse & Launch Delays

• EV export volumes collapsed in Europe: Electric vehicle demand in Germany and France fell by almost 40%, directly cutting sales of EV components to BMW, PSA and others; this was the primary driver of the export shortfall.
• Export revenue dropped ~₹60-120 cr: Exports fell from ₹422 cr last year to an estimated ₹360 cr this year, a loss of ₹100-120 cr against plan; exports carry better margins than domestic sales, so the mix shift pressured profitability.
• Domestic launches postponed by key customers: Toyota, Aisin and Musashi delayed new program launches: hybrid vehicles moved from June 2024 to mid-May 2025, and EV components from July 2024 to February 2025, costing another ~₹100 cr of budgeted revenue even though investments were already in place.
• Germany recovery uncertain: Management cautioned that BMW and others may not return to previous volumes; newer motors are being introduced and volumes are picking up only slightly.

Arvind Kapur: "But the electric vehicles in Germany and in France, they just collapsed. They came down by almost 40%. And we have been supplying a lot of electric vehicle components to BMW and PSA and others. And that had a direct impact on our sales."

Order Book & New Business: The ₹720 cr Offset

• ₹720 cr of new annual orders confirmed: New domestic business of ₹510 cr per year from Maruti and other domestic customers, plus export business of ₹210 cr per year, totaling ~₹720 cr at peak; by March end the figure was estimated to reach ₹810-815 cr.
• Customer base broadened significantly: New orders span Maruti, Aisin, Toyota, GKN, Tata, Narbheram, Bendix, Maruti two-wheelers, Case New Holland, Musashi, Cummins, Daimler, and Greaves.
• Peak revenue in third year, with caveats: The ₹710 cr peak assumes US tariffs do not impact export flows and customers do not postpone launches further.
• EV component production starting imminently: Production was set to begin by end of February 2025, with one month of output in March; next year EV components are expected to run "full blast."
• Toyota hybrid ramp begins May 2025: Production start shifted to May 2025 onward; a new Toyota plant building will be ready by June, samples submitted in October, and volume production starts mid-2026, with some volumes supported from the Chennai plant initially.

Defense: Production Started, Large Pipeline, Margin Inflection Ahead

• First containers shipped after inspection delays: 9 containers of active shooting ranges delivered, 20 more to be shipped; deliveries started in January after inspection delays pushed the timeline out.
• Order book of 100 containers confirmed: 20 already in production; next year's target is to ship about 100 containers, with an internal revenue target to cross ₹40-50 cr.
• Navy demand is the big bet: The Navy alone has a requirement of 300 ranges immediately; this is the first order being processed, and management is "betting absolutely on that."
• Margins expected at 18-20%, with volume inflection: Once annual volumes cross 80-100 containers, margins will be "even more"; Q4 defense margins were not confirmed specifically, described only as "definitely on the positive side."
• Product scope is broad: Active shooting ranges for Army, Navy, BSF, CISF, police, and Air Force; totally enclosed with electronic controls and decibel levels below 80; sizes range from 26-foot to 150-foot containers.
• License obtained for almost 20 defense items: Collaboration with DRDO is underway for some defense items.

Arvind Kapur: "The Navy alone has a requirement of 300 ranges immediately. And so I am only talking about Navy in particular. This is the first order that they are trying to get out. And we are betting absolutely on that."

Margins: Pressure Today, Recovery Promised Tomorrow

• Export mix shift drove the margin miss: Exports carry better margins than domestic sales; the substantial export decline created direct pressure on profitability; management stated that if another ₹150-200 cr of budgeted sales had materialized, margins would have been in the assured region.
• Board target of 13% EBITDA still stands: Management acknowledged they "got stuck" and would have been in the region of 12% this year had the export collapse not occurred; the 13% target remains the Board's clear directive.
• Recovery timeline tied to volume threshold: Margins are expected to "improve dramatically" from Q1 of next year, and once the company crosses ₹2,500-2,600 cr in revenue, margins will "change dramatically."
• Cost reduction efforts ongoing: Free time in the last six months was used to improve efficiencies and technology: reducing manpower, utilizing manpower better, and making lines smoother; selling and distribution costs have been declining in percentage terms.
• One-time tax impact of ₹6.8 cr: Recorded on account of unused fixed assets sold, following the decision to switch to the new tax regime.

Arvind Kapur: "You see a change, even the current, we would have been in the region of 12% this year. Definitely we could not achieve this. That's why we got stuck."

Capacity, Efficiency & New Verticals

• Iron casting utilization set to rise sharply: Currently at 50-52%, expected to go to 70-72% next year and 85-89% the year after; iron component share will rise from 15% to almost 25-26%.
• Aluminum capacity freed through technology: About 15% of aluminum capacity freed via improved technologies and productivities; no investment in casting required for the next 3-4 years; future investment will be primarily for machining and inspection.
• Railways business initiated: Castings and other components for railways; deliveries expected to start in another two to three months; management expects this business to ramp faster than the defense startup.
• Subsidiary consolidation underway: Plan to merge all subsidiaries into the main company; no further subsidiaries planned except the defense subsidiary.
• Gurgaon land sale on hold: The difference between the offer and value is only about ₹300 cr after adjustments for shifting and new buildings; the Board saw no shareholder benefit and would only consider a deal with a margin of about ₹1,000 cr.

Guidance & Commitments

Key Metrics