Rico Auto Industries Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Profit triples on cost control, not new sectors: EBITDA margin jumped to ~10.5% (from ~3.5% YoY) driven by ferrous capacity utilization and cost cutting, while Defense and Railways contributed negligibly.
• Revenue held flat despite OEM headwinds: Revenue stayed at ~INR543 cr even as key customers like Maruti and Hero slowed production, because Rico maintained or grew its share of their business.
• INR30-35 cr revenue lost to magnet shortage: Q1 missed budget because a magnet supply disruption delayed new vehicle introductions and component ramp-ups; those vehicles are now launched and ramp-up has begun.
• INR156 cr of new auto business confirmed for FY26: Orders already won with OEMs in India and overseas, with developed components now moving into production after sample approvals.
• What to watch next quarter: Whether the INR35 cr Q1 shortfall is recovered in Q2, the pace of the iron foundry export ramp, and any concrete progress on BrahMos component development.

Profitability Turnaround

• Tripled EBITDA YoY: Profitability improvement came from higher utilization of ferrous component capacity and cost-cutting initiatives, not from Defense or Railways, which remain negligible contributors.
• New products carry better margins: Management stated new businesses are at much better margins than before, and the margin uplift is from these introductions plus cost control.
• Quarter-on-quarter improvement expected: Profitability should keep increasing each quarter as revenue grows, with an EBITDA margin target of 12%-13% by Q4 FY26.
• Net profit trajectory: Net profit is also expected to improve quarter-on-quarter, supported by operating leverage as new programs ramp.

Arvind Kapur: "And the new businesses are at much better margins than before. On your question that the EBITDA margin is going up is not because of Defense at the moment or the Railways, it is mainly because of the new products which have been introduced and also the cost cutting, which has happened."

Revenue Resilience & Q1 Shortfall

• Revenue held at INR543 cr despite OEM volume drops: In 2-wheelers, Rico grew 4.4% while the market degrew 6.2%; in 4-wheelers, Rico degrew 1.9% versus a market degrowth of 1.4%, reflecting share gains from business won or maintained last year.
• Magnet shortage cost INR30-35 crores: A magnet supply disruption delayed new vehicle introductions by Maruti and others, which in turn pushed out the ramp-up of new components dependent on those vehicles.
• Ramp-up now underway: The affected vehicles have been introduced, and developed goods should now ramp up faster, with Q2 expected to achieve budgeted figures and the Q1 shortfall hopefully recoverable.
• Foundry mix shifting toward iron: Iron business share is rising from 15% to 24%-25% of the mix, while aluminium also grows in absolute terms; significant export orders for the iron foundry are under development with SOP this year or early next year.

New Business Pipeline

• INR156 crores of auto-component business confirmed for FY26: These orders, developed in prior years with samples submitted and approvals received, are with OEM partners in India and overseas.
• FY26 revenue budget set at INR2,652 crores: Based on confirmed customer orders, management is "fairly confident" barring further magnet or other shortages.
• Iron foundry export wins: Significant export business won, with programs under development; peak sales expected next year after SOP later this year or early next year.
• Hosur facility on track: Construction is on time, with first SOP from the Hosur facility planned for Q1 of calendar year 2026.

Defense & Railways: Early Stage, High Margin Promise

• Work has started, deliveries underway: Railways components are being delivered indirectly, with direct RDSO registration in progress; Defense shooting range manufacturing continues though dispatches were paused due to rains and flooding at delivery sites.
• 24-25 railway components developed: Initial samples submitted and some deliveries already made; first RDSO product registration expected by end of Q3 FY26, with new products registered as developed.
• BrahMos discussions at early stage: Company is registered with BrahMos and discussions are underway for mass volumes, but products are not yet developed; management declined to elaborate, citing secrecy.
• FY26 Defense & Railways target: INR80 crores: This is tender-dependent and subject to government pickup timing; FY27 revenue expected to be "almost double" that figure.
• Target margin range: 20%-30%: Management indicated this is the broad profitability range for Railways and Defense, though payments can sometimes be delayed; steady-state margin contribution will only be indicated in Q1 FY27 once mass production begins.

Arvind Kapur: "BrahMos is a very secret project; we cannot talk too much about it."

U.S. Tariffs & Customer Risk

• Tariff settlements concluded with key U.S. customers: For earlier increases, customers are bearing the cost; settlements have been finalized in Rico's favour where the U.S. has finalized its position.
• Mitigation options being explored: Management cited the garment industry's Vietnam model as a potential alternative, with duty-free repackaging from Vietnam as one route to protect business.
• Customer retention underpinned by switching costs: Customers have assured they will continue buying because switching vendors takes 2-3 years with significant cost, testing, and certifications.

Arvind Kapur: "We will also look at alternatives like to give you an example, the garment industry, a lot of them have started setting up in Vietnam and other places so that we will go from here to Vietnam as there is duty free and from there, it is repackaged and sold further. So, we'll also look at alternatives but we will not let the customers down, and we will not let the business go."

Land Monetization & Capital Allocation

• No sale until shareholders see significant benefit: Management will not monetize land unless it delivers meaningful value to shareholders, with a target profitability of INR1,000-1,200 crores referenced as the threshold, not a sale price.
• Tax structure: Standalone tax rate runs 25%-26.34%; consolidated rate is higher at ~29% because RJWL (merged with RFL) pays 34%, though accumulated losses reduce actual cash tax outflow.

Arvind Kapur: "till my shareholders don't benefit from it, we are not going to monetize the land. I think there should be a significant benefit to our shareholders."

Guidance & Commitments

Key Metrics