Rico Auto Industries Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Export shock from European EV collapse: European EV demand fell 30% against a 10% growth expectation, a 40-point miss that left export capacities underutilized and forced a pivot to domestic customers.
• Domestic recovery offsetting export losses: Rural market improvement and share gains with Maruti, Hero and Bajaj are covering the export shortfall, with quarterly sales set to rise 7–8% sequentially in Q2 and Q3.
• Order book quality is transforming: New orders won in Q1 carry 18–20% EBITDA margins, not the legacy 12–13%, and the company targets another ₹400 crores of orders this year to reach a record ~₹900 crores annual intake.
• Raw material lag compressed margins: Aluminum prices rose ₹20–30/kg, creating a ~₹9 crore lag that will reverse this quarter if prices hold or fall, supporting the promised margin recovery from Q2.
• What to watch next quarter: Whether the ₹35–40 crores of defence dispatches actually ship, whether aluminum prices cooperate for the margin rebound, and whether European export demand shows any stabilization.

European EV Demand Collapse & Export Fallout

• The 40-point miss: European customers guided for ~10% EV demand growth in CY24, but actual demand contracted 30%, driven partly by subsidy changes and partly by severe end-user dissatisfaction with real-world range.
• Range disappointment killed confidence: Vehicles promising 400 km delivered barely 100–120 km on a full charge, and charging stations failed in extreme weather, pushing buyers back toward hybrid and ICE powertrains.
• Export revenue impact: Older EV models reaching end-of-life (10–15 years) and the demand collapse together drove the export decline; new orders for newer components have been received but ramp-up takes time.
• Freight headwind compounding the problem: Middle East geopolitical disruption increased freight rates and shipping time to Europe and the U.S., adding cost pressure on whatever export volume remained.
• Export recovery bet: Orders in hand and customer commitments point to ~₹600 crores of exports next year, the highest ever, but management flags that this depends on the Ukraine war staying contained and Middle East tensions easing.

Kapur: "What we have been told by our customers in Europe is that the demand will grow by almost 10% in this current year, but we have seen a 30% drop in the demand. So there's actually a 40% impact that has come in the electric vehicles in Europe."

Domestic Market: The Offset Engine

• Rural demand driving two-wheeler recovery: Sales of Hero, Bajaj and TVS in rural areas have gone up, and Rico gained orders for newer components and increased share of current components from these customers.
• Maruti share gains: The company won more orders from Maruti, and vacant EV capacity is being redirected to serve domestic customers like Maruti and Hero, though with an inevitable lag.
• Sequential ramp-up trajectory: Q2 sales are expected to rise 7–8% QoQ, Q3 another 7–8%, and Q4 almost 20%, based on current manufacturing schedules received from customers.
• Domestic covering export losses: Management stated explicitly that the domestic market is covering losses incurred in exports, a structural offset that kept the quarter from being worse.

Order Book Transformation

• Record order intake in sight: Q1 added ₹458 crores of annualized new orders; combined with last year's ₹450 crores, that is ~₹805 crores per year. Management targets another ₹400 crores before year-end, which would make ~₹900 crores the highest annual order intake ever confirmed.
• Margin profile step-change: New orders are not in the legacy 12–13% EBITDA range; they are being won at 18–20% EBITDA, a structural uplift that will flow through as these orders enter production over 2–3 years.
• Toyota becoming a cornerstone: The company won orders from Toyota in competition with Japanese suppliers, and management expects Toyota to become probably the largest customer in years to come, driven by hybrid vehicle demand.
• Hybrid excitement vs EV caution: Acceptability of hybrid vehicles is increasing in India, with UP granting tax discounts and waiting periods building, while the company is being cautious on EV investments because customer volume promises are unproven.

Kapur: "The orders that we are getting are all, they are not in the 12%, 13% range of EBITDA, they are in the range of 18% to 20%. That's what we are targeting."

Margins: The Raw Material Lag & Recovery Path

• Aluminum price hit: Raw material prices rose, with aluminum up ₹20–30/kg, creating a ~₹9 crore lag because indexation-based price revisions apply with a one-quarter delay.
• The lag works both ways: Last quarter's higher aluminum prices applied to this quarter's supplies; if aluminum prices remain constant or fall in the current quarter, Rico gets a raw material pricing advantage next quarter.
• One-time retrenchment cost: A settlement with 49–50 workers at the Dharuhera plant, where no manufacturing was occurring, added a non-recurring charge that will not repeat; the facility will be repurposed for oil and water pump capacity expansion.
• Margin improvement promised from Q2: Management stated improvements will start from Q2 onwards as costs come down and the raw material lag reverses.

Capacity Rebalancing & New Facilities

• EV capacity repurposed for domestic ICE/hybrid: Flexibility in the system allowed vacant EV lines to be redirected to Maruti and Hero, though utilization is not instantaneous.
• Chennai plant underutilized: The plant was set up solely for Renault Nissan, whose sales are dwindling; some components are being shifted to other lines, but large capacity machines remain idle. Toyota model postponements to January and April next year will eventually lift utilization to ~80%.
• Hosur land acquired: Land purchased close to Bangalore/Hosur, nearer to customers Toyota and AISIN; production starts in 2026 with peak value in three years from start.
• Dharuhera repurposed: The settled plant will expand RFL's oil pump and water pump manufacturing capacity.

Defence: A Nascent Second Leg

• Dispatches stalled by inspection cycle: Defence items require inspection and clearance taking a month or two; goods are lying ready and under inspection, with ₹35–40 crores of dispatches expected this quarter for the Navy and Air Force.
• Revenue lumpy by nature: Turnover may not be visible month-wise or even quarter-wise because of inspection overlap, making the segment inherently uneven.
• Guidance raised: This year will cross the initial ₹50–60 crores guidance, and next year is expected to double this year's figure, supported by a changing mindset among defence authorities toward domestic industry and Make in India products.

Guidance & Commitments

Key Metrics