Rico Auto Industries Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Margins dipped slightly but recovery is promised: EBITDA margin slipped to 9.9% from 10.1% QoQ, but management expects sequential improvement every quarter, targeting 12-13% by Q4 FY26.
• Exports are surging despite tariff fears: U.S. sales are growing 40-50% this year, with another 50% jump expected next year, as 95% of exports remain unaffected by additional tariffs.
• Revenue guidance intact, H2 catch-up required: Consolidated revenue target of ~₹2,600 crores for FY26 is maintained, with a ₹58 crore H1 shortfall to be covered by new product introductions and increased share from existing customers.
• Land monetization is a high-stakes waiting game: Management rejected a ~₹400 crore profit offer, holding out for over ₹1,500 crores, with the same party now returning at double the earlier bid.
• What to watch next quarter: Whether November volumes confirm post-GST demand recovery, the pace of margin expansion from better capacity utilization, and any progress on RDSO railway approval.

Margin Trajectory & Operational Levers

• Q2 dip was temporary: The 9.9% EBITDA margin was slightly down from Q1's 10.1% but improved YoY from 9.3%. Management had guided that the first two quarters would see a slight decrease before improvement kicks in.
• Utilization is the primary lever: The iron foundry is moving from 40% to 50-52% utilization, heading to 65-70% soon and ~90% next year. Aluminum die casting, after efficiency improvements dropped utilization to 50%, is now creeping up toward an 80-85% target next year.
• New orders come with better margins: All new orders are being booked above 14-15% EBITDA margin, which will lift the blended profile as they ramp up.
• Hero 2-wheeler business is a deliberate filler: This low-margin segment utilizes idle capacity and can be dialed down when higher-margin products need the space. Management targets increasing Hero supply share from 50% to 70-75% on a zero-investment basis.
• Maruti engine block transfer helps absorption: Maruti is running short of in-house capacity and transferring engine block business to Rico, which will utilize idle aluminum casting capacity.

Arvind Kapur: "What is happening is the better utilization of our equipment that is -- where the investments have already been made. We had mentioned to you that the third quarter and fourth quarter are going to be very good, mainly because of our new products, which are going to be introduced both for the domestic and the export market."

Revenue Growth & Customer Expansion

• H1 consolidated revenue grew ~5%: Exports grew 22% YoY driven by U.S. sales, while domestic demand remained healthy across key automotive segments.
• Growth comes from three vectors: Better share from existing customers (Maruti, Toyota, Mahindra), new customer additions (Knorr-Bremse, Bosch), and export ramp-ups (BMW, GKN). Customers have historically picked up larger quantities than they were asked to invest on.
• Single-source status with Maruti: Rico is the sole supplier for critical components like oil pumps and water pumps on all newer Maruti models, creating a sticky revenue base.
• Toyota group expansion underway: Supplies flow to Toyota including Aisin and Musashi, with Aisin supplies also reaching Tata Motors, Mahindra, Suzuki, and Honda.
• Knorr-Bremse ramping for exports: This relatively new customer has been supplying for a couple of years with good export ramp-up now happening. Bosch is also being looked at as a new customer.
• U.S. growth defies tariff expectations: Despite the 28% tariff (borne by customers), U.S. sales are increasing 40-50% this year with another 50% increase projected next year.

Arvind Kapur: "I think Mr. Donald Trump forgot to include the auto components in that. So we are very lucky that we are paying only 28% at the moment."

Capacity & Capex Strategy

• Utilize first, invest later: Management's philosophy is to "flog all the assets" before committing fresh capex. 85% of all investment is fungible across products, with only 10% requiring some additional investment and 5% going to waste.
• Greenfield project in Hosur: Long-term borrowings rose to fund capacity expansion for Toyota, ICE/hybrid products for Mahindra, Tata, Maruti, and EV components. Short-term borrowings reduced in the same period.
• Customer co-investment is standard practice: Management makes customers co-invest except for prime customers (BMW, GKN, Toyota) where Rico makes high-technology components that customers previously produced in their own plants in Japan and are now willing to pass to Rico rather than to their Japanese partners in India.
• Debt trajectory: Long-term borrowings will increase this year due to the greenfield project but will come down from next year onwards. The Board is "very particular" about debt reduction and management says results will start showing now.

Arvind Kapur: "We actually make the customers co-invest. And these are some of the prime customers where we are making components which are of very high technology, which they make in their own plants in Japan and other places and now are willing to pass on those components to us and not to their Japanese partners in India."

New Verticals: Railways & Defense

• Railway supplies have commenced: Deliveries to sub-vendors have started with ~34-36 components. Margins on these supplies improved from ~5% to 18-20%. RDSO approval inspection is scheduled for next week.
• ₹80-90 crore FY26 guidance maintained: Management confirmed this target is intact, with railways progressing faster than defense. Per an analyst's math, the average margin on this revenue will be a little less than 18-20% but newer supplies are at that level.
• Defense is a slower burn: Discussions are ongoing for BrahMos and other ammunition programs, and Rico currently supplies shooting ranges. Management gave no specific timeline for defense revenue, stating only that railways will be "much faster."

Land Monetization

• A high-value asset with a high threshold: Rico holds ~26-27 acres of prime land. Management rejected an offer yielding only ~₹400 crores profit because shifting the plant (2,500 people, equipment, machines) involves significant costs and disruption.
• Negotiation leverage is building: The same party that made the earlier offer is now coming back offering double. Management wants to cross ₹1,500 crores in any case and will not proceed until they get value that "gains for shareholders."
• Timeline is conditional on price: After any settlement, shifting will take about a year to 1.5 years, but the clock does not start until an acceptable offer arrives.

Arvind Kapur: "The offer that we got a couple of months back or we've been getting over time, the total profit that we were earning was just about INR400 crores or something. I don't think that was enough to satisfy my shareholders."

Guidance & Commitments

Key Metrics