Rico Auto Industries Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Revenue target missed, railways the culprit: FY26 will not reach the INR2,600 crore target, partly because the INR60-70 crore railway guidance is off track and partly because U.S. export growth was capped by tariff tensions.
• Margins improve but path to 13% is unanchored: EBITDA margin expanded on cost initiatives and utilization, but management declined to give a timeline for the 12-13% target, citing commodity-driven denominator effects.
• A large government tender was withdrawn: Rico was the front-runner on a multi-year electronic fuses tender that the government ultimately pulled back, reverting supply to PSUs.
• EV/hybrid mix dipped as IC engines surged: EV and hybrid share fell from 9% to about 7% of turnover, with IC engine growth accelerating in Europe and the U.S. after Europe relaxed its 2035 ban.
• What to watch next quarter: The FY27 budget, which management says will be ready by the next call, and whether Q4 delivers the promised momentum.

Revenue Performance & Misses

• FY26 target abandoned: The INR2,600 crore revenue target will not be met, with management citing the railway shortfall and U.S. export headwinds from Trump-era tariff tensions as the two drags.
• Railway guidance explicitly missed: The INR60-70 crore railway revenue target for FY26 is not on track, an admission management made directly when asked.
• Why railways fell short: A large electronic fuses tender, on which Rico was the front-runner, was withdrawn by the government after 3-4 years. The government reverted to its old policy of awarding the work to PSUs, and Rico will now likely supply those PSUs indirectly rather than directly.
• RDSO approval secured: The RDSO has approved a couple of components for direct railway supply, with another inspection underway for more components. Direct supply to railways will begin this year.
• U.S. exports grew, but below potential: Export programs launched during the year will enter production in Q1 and Q2 of next year, but management said U.S. exports would have been much higher absent the tariff tensions.

Arvind Kapur: "No, no, we are not on track there, but '27, definitely we'll be crossing that."

Margin Dynamics

• EBITDA margin expanded: The expansion reflected internal cost initiatives, productivity improvements and better capacity utilization, partially offset by pricing pressure from customers.
• The RM pass-through denominator problem: Raw material prices are indexed with customers and reset quarterly or monthly, so RM cost increases do not hurt absolute profit but do depress the EBITDA percentage, because Rico only captures the clean differential in pricing. This makes the margin target a moving target.
• No timeline for 12-13%: Management says there is a very clear path to achieving 13% EBITDA margin but declined to commit to a timeline, citing commodity volatility and the denominator effect. The Q4 target of 12-13% was not achieved.
• Other income declining: The contribution of other income is coming down, and the targeted EBITDA improvement is structured to be achieved without reliance on it.
• Surplus capacity ready: Surplus capacities will start getting used, which management expects to reflect directly in the bottom line.

Tariffs & Competitive Positioning

• U.S. customers absorbed the tariffs: Management stated that all U.S. customers agreed to transfer the total tariff increase to Rico. In return, Rico committed to pass back any tariff reductions in full.
• Advantage over Vietnam and China: When Rico was paying 25% tariffs, Vietnam faced 19% and China approximately 33-34%. Management argued Rico held an advantage over Vietnam because of its supply capacity and established customer confidence.
• Clarity still sought on duty exemptions: Asked about which products qualify for the special 0% duty mentioned by the commerce minister, management said there is confusion and they are still seeking clarity.

Arvind Kapur: "whatever reduction has been given, but firstly, I must appreciate our customers, all the customers in the U.S. we requested them for the total price increase, the total tariff to be transferred to us, they all accepted, they all agreed. And so now in full honesty, we will return whatever tariffs have been lowered, we will return it back to the customer."

Product Mix & Segment Trends

• IC engine resurgence: IC engine vehicles grew faster than EVs and hybrids, pushing the EV/hybrid share of turnover down from 9% to approximately 7%. Europe's relaxation of the 2035 IC engine ban is driving IC engine growth in both Europe and the U.S.
• EV/hybrid growth expected next year: Management is hoping for double-digit growth in EV/hybrid next year, driven by hybrid growth, and sees potential for close to double-digit or above.
• New programs launching: A couple of new programs will launch in Q4, with peak revenue expected in subsequent years.
• Railway revenue to cross guided level in FY27: Management committed to INR60-65 crores in railway revenue for FY27, with an internal target that is much higher. Direct and indirect supply should make Rico a regular railway supplier by Q2 FY27.

Outlook & Market Sentiment

• Double-digit auto growth expected: Management expects double-digit growth this year across both export and domestic segments, at more than 10-12% and possibly 15%.
• Q4 called promising: Management described Q4 as very promising, with market buoyancy and excitement among OEMs and customers in both urban and rural areas.
• FY27 budget pending: The budget exercise for next year is being concluded, and management will provide top-line and bottom-line targets on the next call. A clearer picture on growth will be given after the budget meeting.
• FY27 INR3,000 crore target reframed: The earlier INR3,000 crores-plus target for FY27 is now being planned over the next 3-4 years. Management says a lot has changed and they might do even better.
• Medium-to-long term optimism intact: Rico sees itself well positioned to benefit from continued OEM localization, increasing content per vehicle and a gradual recovery in export markets.

Arvind Kapur: "There was a big tender we participated in. And that finally, the government withdrew that tender after almost 3 to 4 years, and there was a lot of excitement because we were definitely the front runners there."

Guidance & Commitments

Key Metrics