Rico Auto Industries Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Revenue missed, cleaned house: The INR 2,600 crore target was missed as export programs ended early and domestic OEMs disappointed, but management used the year to cut white-collar headcount by 400+, surrender low-volume legacy parts, and redeploy equipment to growing customers.
• EBITDA held up despite the top-line hit: Gross contribution lost INR 58 crores, yet EBITDA margin improved 50-60 bps through permanent cost savings in sales, repairs, power and manpower.
• Guidance bets on a program-start surge: Management guides 15% revenue growth and 11.5% EBITDA margin for FY25, anchored on delayed programs from Aisin, GKN and BMW finally beginning production from Q2 onwards.
• Defence ambition remains large, execution remains unproven: The company targets INR 60 crores in defence revenue for FY25, with an internal goal above INR 100 crores and a fuse opportunity that could scale in FY26, but election-year approvals and a history of delays keep the timeline uncertain.
• What to watch next quarter: Whether the promised Q2 program ramp actually materializes, any early defence order clearance post-elections, and the pace of the margin climb toward the 12%+ internal target.

Revenue: What Broke and What Was Fixed

• Export programs ended abruptly: GKN and PSA stopped production immediately despite earlier assurances they would continue through year-end, pulling revenue forward into a cliff.
• Renault Nissan let them down: The OEM asked Rico to retain capacity but did not pick up sales as expected; management has now discounted their figures, removed equipment from those lines, and diverted it to Maruti Suzuki and other customers.
• Recovery through share gains: Rico clawed back some of the lost revenue by winning a larger share of business from Maruti Suzuki and Toyota, and by adding new components from Knorr-Bremse, Case New Holland and Piaggio.
• Legacy cleanup completed: The company surrendered low-volume aftermarket components for OEMs whose life was over, freeing idle equipment for current capacity utilization.
• GKN restart imminent: Samples have been approved and components are set to start in June, which should return export supply to previous levels.

Arvind Kapur: "Had it not been for some of the collapses of our customers that took place this year, our results would have been far better."

Cost & Margin Management

• EBITDA margin improved despite revenue loss: A gross contribution loss of INR 58 crores was more than offset by INR 25 crores saved in sales and distribution, INR 10 crores in repairs and maintenance, plus major savings in power, fuel and sourcing.
• White-collar headcount permanently reduced: Over 400 persons were let go, delivering permanent manpower savings, though one-time settlement costs of INR 3-4 crores hit the standalone P&L.
• PBT fell on higher depreciation and interest: Depreciation rose around INR 7 crores as prior-year capex was fully capitalized, and finance costs increased despite INR 100 crores of debt repayment because RBI rate resets pushed up the cost of term loans.
• Solar and power savings now in place: Solar installations were introduced at main plants, contributing to the permanent cost structure improvement.
• FY25 margin path: Management expects no further interest cost increase, with INR 90 crores in additional debt repayment and stable rates; the internal EBITDA target is 12%+, guided conservatively at 11.5% for the full year, with progress visible over time and a year-end exit at 12%+.

Arvind Kapur: "Our internal EBITDA margin is plus 12%, but here we'll like to come in at 11.5%."

The FY25 Growth Bet

• 15% revenue growth, confidently guided: Management is "very confident" of achieving and exceeding this figure, anchored on a slate of delayed programs that are now scheduled to begin production.
• Program-start calendar is back-loaded to Q2: Aisin programs delayed almost one year will start this year; BMW electric vehicle components begin partly now and partly before year-end; GKN restarts by June-July; Maruti, Hero and Suzuki two-wheeler volumes improve from June onwards.
• Order book build is conservative: The company expects to build INR 50-70 crores in new orders this year, with an internal target above INR 150 crores, but has budgeted only INR 50-60 crores.
• Hosur land acquired at Toyota's request: Toyota asked Rico to acquire land in Hosur, Tamil Nadu to get closer, enabling Toyota to transfer component businesses to Rico's plants; equipment will be transferred at a depreciative price while Rico constructs the building and utilities.
• Rural demand tailwind assumed: A good monsoon is expected to lift the rural market, helping two-wheeler and low-end vehicle segments.
• Credibility question hangs over the guidance: An analyst noted that for three years the company has expected 12-15% growth but has not progressed, that INR 700 crores was estimated last quarter but only INR 530 crores achieved, and that defence revenue has been talked about for years without materializing. Management did not directly address the pattern of missed guidance.

Arvind Kapur: "So all the cleaning has taken place last year and you will see that this year, the buzz is absolutely different. The excitement is there and we are very confident that we'll exceed the targets that we are talking of today."

Defence: Large Ambition, Slow Execution

• FY25 defence guidance is deliberately conservative: Management confirms INR 60 crores, says the internal target is above INR 100 crores and should be about INR 120 crores, but is anchoring low because last year's delays eroded credibility.
• Election-year standstill is the near-term bottleneck: Defence projects have been at a standstill for the last 2-3 months due to the election year; products are lying ready and waiting for clearances that are not under the company's control.
• Fuse tender is a large, indirect opportunity: The government cancelled a huge INR 10,000 crore fuse tender due to confusion from the mindset change from PSUs to the private sector, but management argues that whoever wins the tender will need to buy fuse housings from Rico because of its large manufacturing capacity.
• Fuse revenue expected in FY25, scaling in FY26: Management says fuse revenue will "certainly" happen in FY25 though it is not taken into guidance, with big scaling in FY26; DPSUs have no choice but to buy because they incur heavy penalties if they do not deliver.
• Training ammunition provides a machining foothold: Rico positions on the machining side where it is the number one supplier to one DPSU for training ammunition used by the Army.
• FY26 ambition is multiples of FY25: Management states defence revenue will be "much above INR 200-300 crores" in FY26 and will "double, triple every year."

Arvind Kapur: "We have taken a very conservative figure. And what we are saying is that we'll cross INR 100 crores, but INR 60 crores, is what we are confirming at the moment. Otherwise, we should be about INR 120 crores or something. But we are confirming INR 60 crores because last year, the whole thing got delayed and we don't want to end up in the same situation again."

New Business Wins & Capacity Moves

• Maruti Suzuki share rising: Rico won more business and a larger share from Maruti, with equipment redeployed from Renault Nissan lines to support the expansion.
• Hero diverting business to Rico: Hero is shifting components to Rico due to issues with other suppliers.
• New OEM and component additions: Orders won from Knorr-Bremse, Case New Holland, Piaggio (clutches), and Suzuki two-wheeler (diverted components); BMW electric vehicle components are expected before year-end.
• Aisin programs finally starting: These were delayed almost one year but are now set to begin, representing an important addition to the order book.
• Capacity expansion underway: Capacity is being expanded for Toyota and Maruti Suzuki, with the Hosur land acquisition adding a new geography to serve Toyota more closely.

Guidance & Commitments

Key Metrics