Rico Auto Industries Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Revenue miss on export drag: Turnover grew just 2.5% as exports fell from ₹500 cr to ₹351 cr, driven by a 40% drop in BMW EV business in Europe.
• FY26-27 targets are aggressive: Management guided ₹2,652 cr revenue in FY26 (up 20%) and ₹3,100 cr in FY27 (up ~15%), betting on new orders, capacity ramp-up, and export recovery.
• Margin inflection promised this year: 13% margin is "doable" at ₹2,600 cr revenue, with utilization gains, power cost savings, and aluminum price benefits all converging.
• New businesses are small but real: Defence and railways together target ₹100-150 cr plus, with defence ramping to two containers per day and railways awaiting RDSO approvals.
• What to watch next quarter: Whether the Hosur plant delivers samples on time in July, whether Toyota/Aisin programs actually launch without further delays, and whether export order flow supports the ₹380 cr FY26 target.

Export Decline & Recovery

• BMW EV collapse was the core shock: Rico was the single-source supplier for BMW EV components to Germany; when BMW EV sales in Europe dropped 40%, shipments stopped and excess stock built up in Germany.
• PSA program extended but unrealized: Goods are ready and consumption is expected to start this year, but the program did not contribute in FY25.
• Renault Nissan and Kia underperformed: Both performed worse domestically than the prior year, adding to the export drag.
• FY26 export target of ₹380 cr: Management expects shipments to exceed this figure because Rico will stock inventory in the U.S. for sales starting January-February next year.
• Tariff risk is being absorbed by customers: Management stated customers "don't have a choice" and must pay the tariff; settlements have been reached with some customers and are in progress with others.
• FY27 export ambition crosses ₹500 cr: Management aims to return to FY23 export levels, though the broader European EV demand concern was not directly addressed when raised.

Arvind Kapur: "This year, the exports are going up to INR380 crores or INR351 crores, but our shipment will be much more, primarily because we will be stocking in the U.S. for the sales to start from January-February next year onwards."

Capacity Utilization & Margin Levers

• Iron foundry at only 50% utilization: Freed up partly by efficiencies and partly by the reduction in export orders; management targets 60-65% this year and over 80% next year.
• Aluminum utilization improving to 75%: Efficiency gains of about 20% per machine per day allowed some machines to be shut so remaining ones run at full capacity.
• New orders filling the gap: Railways and Knorr-Bremse components will push iron casting to almost 90% utilization in two years; the plant currently runs 15-16 days per month and will move to 20 then 24-26 days.
• Power cost savings materializing: Investments in solar, hybrid windmill power, and efficient furnaces will show full impact this year.
• Aluminum price tailwind: A carryover of ₹14-15 cr in aluminum inventory will be realized as an advantage as prices come down this year.
• Working capital and debt reduction: Long-term debt repayment of ₹140 cr is planned this year; the Board target is to reduce debt by about 10%, though no specific timeline was given.

Arvind Kapur: "13% is doable, and so we worked it out. And once we are at about INR2,600 crores, our utilization capacity is much better, and you will see the change this year itself."

Hosur Plant & New Program Ramp-Up

• Hosur plant timeline: 12 acres of land bought; building under construction; first portion ready by July-August for equipment installation; samples to be delivered by July; production deliveries starting November-December.
• Hosur customers and products: Catering primarily to Toyota and Aisin Seiki for hybrid and electric vehicle components that Maruti and Toyota will produce.
• Hosur investment: ₹70 cr this year, ₹100 cr next year, with the balance in the third year; expected turnover of ₹350-400 cr.
• Toyota/Aisin program was delayed: Capacities are already in place for a program worth almost ₹100 cr; management says Toyota is now pressing Rico to deliver on time because their hybrid sales are suffering.
• GKN order ramp: Sales increasing from ₹80 cr to ₹120 cr this year, catering to Ford, GM, and BMW in the U.S. and other customers.
• Knorr-Bremse supplies started: New addition now picking up, helping utilization of the foundry.
• Order book strength: Orders worth ₹720 cr plus were picked up last year from domestic and export customers; some will start production by September-October this year.

Defence & Railways: New Growth Vectors

• Defence business performing well: Shooting ranges have been delivered; production ramping from one container per day to two containers per day.
• Defence revenue still small: Q4 defence sales were ₹6.8 cr; management did not provide a standalone defence margin figure, only stating margins are "definitely better than auto any day" and will improve over time.
• Orders being pursued with Navy and Air Force: Management is trying to seal additional defence orders.
• Railways entry underway: Rico has started supplying to companies that supply to railways, using existing casting and machining capacity; RDSO and other approvals are being obtained.
• Combined defence and railways target: ₹100-150 cr plus, with railways alone targeting ₹70-80 cr plus this year, if not ₹100 cr.

Arvind Kapur: "The defence and the margins are definitely better than auto any day. And so, since we are ramping up and the margins will keep on improving over time."

Margin & Guidance Detail

• Export margins: 15-20% minimum.
• Domestic margins by segment: Car components at 13-15%; two-wheelers are commoditized with lower margins; domestic average at 11.5-12%.
• No overall margin guidance provided: Management gave revenue targets but did not commit to a specific margin percentage for FY26 when asked directly.
• Revenue targets exclude additional orders: The ₹2,650 cr FY26 and ₹3,100 cr FY27 targets are based on current orders in hand and programs being implemented; additional orders already picked up will add to these figures over the next year.
• Capex for FY26: About ₹150-155 cr including dies.

Unanswered Questions & Risks

• European EV demand concern not addressed: When asked what gives comfort on export demand given European EV sluggishness and Chinese competition, management cited specific customer examples (GKN, Knorr-Bremse) but did not engage with the broader demand question.
• Gurgaon land monetization is aspirational: Management is in talks with large builders but is "mentally ready" only if the profit is ₹1,000 cr, not ₹200 cr; no commitment or timeline was provided.
• Debt reduction timeline absent: The Board target of 10% reduction is monitored quarterly, but management did not specify whether this plays out over 1-2 years or 2-3 years.
• Trade agreement timelines are uncertain: The U.S. trade agreement target of September is "not very sure"; the U.K. FTA is signed but implementation "might take a while"; bilateral agreements with the EU have no date.

Arvind Kapur: "If I'm making a profit of INR200 crores, we are not going to do it. If I'm making a profit of INR1,000 crores, we are certainly going to do it so that the shareholders also benefit from that."

Guidance & Commitments

Key Metrics