Rico Auto Industries Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Growth pulled forward, not lost: Q2 grew over 7% versus a flat guide, absorbing the Q3 target early; domestic gains of ₹150-200 cr more than offset a ₹75 cr export drop.
• Aluminum lag masks underlying strength: The quarter’s profit hit is a timing mismatch on raw material pass-through that reverses this same quarter, so annualized profit stays ahead of last year.
• Order book at a record high: Annual orders received hit ₹490 cr, the highest in a single year, giving management confidence to call 8-10% baseline growth through FY29.
• Margin ambition gets a board mandate: The board has set an explicit 13% EBITDA target for next year, up from ~11% this year, with the question now being how soon it can be crossed.
• What to watch next quarter: Whether the promised Q3 growth of 1-3% materializes on top of the pulled-forward Q2 base, defence cash conversion, and any progress on the land parcel sale.

Domestic Share Gains

• Customer wallet share expanding fast: At Maruti, share moved from 80% to 100% on some components because competing suppliers could not deliver; at other customers, share rose from 50% to 60-70%.
• Two-wheeler clutch R&D paying off: A 4-5 year investment cycle is now yielding approvals from Hero, Piaggio (Italy), and Japanese OEMs for precision material, opening new revenue streams.
• Export capacity diverted to domestic: Surplus capacity originally built for exports has been redirected to domestic production to keep assets working rather than idle, accelerating domestic turnover.
• Domestic growth running ahead of plan: The domestic market grew faster than anticipated, with full-year domestic revenue now seen around ₹2,100 cr and 10-12% growth expected this year.

Kapur: "we lost about INR75 crores there, but we gained almost over INR150 crores- INR200 crores on the domestic side."

Export Headwinds & Recovery Path

• Geopolitics drove the export drop: Exports fell ~15-16% (₹75 cr) due to wars in the Middle East and Europe; European EV volumes dropped almost 40%, and the company is still seeking compensation for investments made.
• Annual export decline contained: Full-year exports will be about ₹72 cr down, but more orders have been secured with supplies starting by end-Q3/Q4, and management expects to return to previous export figures next year.
• Full-year export revenue seen at ₹375-400 cr, a sharp step-down from earlier expectations but now stabilized.
• Recovery timeline is long-cycle: Export turnover takes 6 months to 1 year from investment to booking, so the investments made now will show up with a lag.

Defence: Early-Stage, High-Visibility Bet

• Initial orders in production: The company is making containers and shooting ranges for the Navy and Army; about 35 containers are to be delivered by March-end, with ₹8-10 cr of work completed this quarter.
• Pipeline building quickly: Bidding for another 100-150 containers is expected to finalize before January or February, suggesting a step-change in order intake is close.
• Revenue target is wide but material: Management estimates ₹50 cr plus/minus ₹20 cr this year, with an internal target to cross ₹75-100 cr, making defence a potentially meaningful contributor within a single year.
• Cash flow timing is the open question: The payment cycle runs 3-4 months (80% on delivery, 20% after inspection), so full cash realization on dispatches made this year may spill into next year.

Kapur: "I'm happy to announce that we have actually grown by over 7% in the second quarter. We are happy with the growth. And so whatever 7% growth that we have anticipated in the third quarter, we have been able to prepone it to the second quarter."

Order Book & Long-Range Revenue Visibility

• Record annual order intake: Orders received stand at ₹490 cr on an annual basis, the highest in a single year, with an internal target to convert that to ₹750-800 cr.
• Multi-year revenue floor established: Orders in hand total ₹2,920 cr for FY26-27 and close to ₹3,200 cr for FY27-28, giving a baseline growth of 8-10% across FY25 through FY29 before any new wins.
• Including RFQs, growth accelerates: Management sees 15-18% growth when RFQs are included, targeting ₹5,000 cr revenue by FY29-30.
• Hosur plant timed to Toyota’s EV/hybrid cycle: Ground preparation has started, construction begins next quarter, and the plant is dedicated to Toyota and its suppliers for hybrid and electric vehicles, aligning capacity addition with a specific OEM ramp.

Margins: The 13% Bridge

• This year’s target is 11% plus: Management expects EBITDA margin around 11% or slightly above for FY25, better than last year, with the aluminum lag reversing this quarter to help.
• Next year’s board mandate is 13%: The board has explicitly set a target to cross 13% EBITDA next year, and the discussion is now about achieving it sooner rather than later.
• Rico Production System is the efficiency lever: The system aims to reduce manpower by 40-50% and has been implemented in 30% of large production areas, with rollout underway to all other areas; electricity and labour cost improvements are also expected.
• Raw material pass-through mechanics: Raw material is a pass-through with a lag, so the material consumed last quarter is paid this quarter, meaning results improve as the lag catches up.

Kapur: "Our target is to cross 13% in any case. That's what our internal targets are. And that's the target that has been given by the Board also to our teams. Yesterday also, in discussion, this was the main discussion that was taking place that 13%, how can we do it sooner than later?"

Land Parcel: A Patient, High-Stakes Option

• Management is holding out for a much bigger number: The differential on offer was ₹300-400 cr, but the company is targeting at least ₹1,000 cr so that shareholders benefit meaningfully from what it describes as a huge plant.
• No development at the moment: When asked directly about news on the sale, management confirmed there is no current progress, making this a binary, un-timed catalyst.

Kapur: "I did mention last time that the differentials that we were getting was about INR300 crores to INR400 crores. And I don't think it is worth doing that because this is a huge plant. And we are looking at a differential at least about INR1,000 crores so that the shareholders also benefit from that."

Guidance & Commitments

Key Metrics