RICOAUTO - RICO Auto Industries Ltd. Share Price

The management of Rico Auto Industries outlined a cautiously optimistic outlook for FY26 and beyond, emphasizing growth drivers and challenges:

Key Points:

1. Market & Economic Factors:

   • Expects domestic auto component industry growth of 8"“10%, supported by budget-led consumption incentives and RBI rate cuts.
   • Geopolitical risks (e.g., U.S. tariffs) and EV slowdown in Europe impacted Q3 exports (-Rs.100"“120 crores), but recovery signs are emerging. Aluminum/steel price stability in India is anticipated due to U.S. tariffs.

2. Growth Initiatives:

   • New Orders: Secured Rs.720 crores/year in confirmed orders (Rs.510 crores domestic, Rs.210 crores exports), with production ramping up from Q4 FY25. Peak revenue from these orders expected in 3 years.
   • Capacity Utilization: Iron casting utilization to rise from 50"“52% to 70% in FY26; freed 15% aluminum capacity via productivity gains, enabling future expansion.
   • EV/Hybrid Push: EV component production starts March 2025; Toyota/Aisin hybrid programs delayed to mid-2025 but expected to boost volumes.

3. Financial Targets:

   • FY26 revenue target: ~Rs.2,600 crores (vs. ~Rs.3,000 crores by FY27). Exports to rebound from Rs.360 crores (FY25) to Rs.500 crores (FY26).
   • Margin Improvement: Aims for 13% EBITDA (current pressure due to export slump); new orders carry 13"“20% margins. Cost reductions via solar/wind energy and operational efficiency.

4. Diversification:

   • Defense: Shipped 9 shooting range containers; targets 100+ in FY26 (18"“20% margins). Expanding into railways and other defense components.
   • Global Risks: Monitoring U.S. tariff decisions post-PM Modi's meeting; exploring contingency plans.

5. Challenges:

   • Delayed customer launches (Toyota, Aisin) impacted FY25 revenue by ~Rs.100 crores. Export recovery hinges on European EV demand and geopolitical stability.

The management remains confident in long-term growth through domestic expansion, export recovery, and diversification into defense/railways, while navigating near-term headwinds.

Question 1:
"Hello, sir. Good evening, everyone. Thanks for the opportunity. So, I just had this one question. Like, going forward, what are your expectations and how should we see FY '26?"

Answer Summary:
FY26 sales are projected to reach Rs.2,600 crore, with exports expected to rise to Rs.500 crore (from Rs.360 crore in FY25). Domestic growth will be driven by new orders (Rs.510 crore/year) and capacity optimization. Margins are targeted at 13% through operational efficiencies, reduced manpower costs, and higher-margin export orders. Defense and railway segments are emerging growth areas, with defense aiming for 100+ container shipments in FY26.

Question 2:
"Sir, like last quarter, you mentioned that the margin will improve in this quarter, right, Q3 compared to Q2. But again, we are back to 8%. So, could you please tell me why we couldn't be able to reach like double digits that you mentioned in the last call? And what we can expect in Q4 on margin side?"

Answer Summary:
Lower exports (down 40% due to EV slowdown in Europe) and delayed domestic orders (postponed launches by Toyota/Aisin) impacted margins. Exports typically yield 17"“20% EBITDA vs. 13"“14% domestically. Margins are expected to improve in Q4 as postponed programs resume (EV components from Feb '25, hybrid from May '25) and defense/railway orders scale. One-time expenses (Rs.6.8 crore) also affected Q3.

Question 3:
"In Q4, because we would be able to deliver at least 20 of them, do you think we would be able to see at least lower double-digit kind of margins, or that is also difficult because of the investments?"

Answer Summary:
Defense margins (18"“20% long-term) are expected to improve in Q4 as shipments ramp up (20+ containers). Initial delays were due to inspection processes. FY26 targets include 100+ containers, with revenue growth tied to volume. Margins will rise as fixed costs are absorbed; Q4 defense revenue is projected but not quantified.

Question 4:
"Is there any movement on the Gurgaon's site?"

Answer Summary:
No progress due to low net benefit (Rs.300 crore after costs) for shareholders. The 27-acre land sale requires large buyers, and the Board prioritizes higher-value transactions. Talks continue, but no immediate plans.

Question 5:
"What is the progress of this new plant for Toyota?"

Answer Summary:
The Hosur plant for Toyota/Aisin components is under construction, with building completion by June '25. Sampling starts in October '25; full production begins mid-2026. This will shift existing Chennai volumes initially, adding incremental revenue from late '25.

Question 6:
"On this defense product, what did you mention? What is it exactly that you are shipping and have already shipped?"

Answer Summary:
Rico supplies modular shooting ranges (20"“40 ft containers) to defense/paramilitary forces. These sound-controlled ranges reduce noise (<80 decibels) and are used for training. Orders include Navy (300+ units), Army, and others. Nine containers shipped in Q3; 20 more planned for Q4. FY26 targets 100+ units.

Question 7:
"You mentioned something, 720 crores of new orders? Can you explain the nature of those orders?"

Answer Summary:
Rs.720 crore/year new orders include domestic (Rs.510 crore) and export (Rs.210 crore) auto components. Customers include Maruti, Toyota, GKN, Tata, and Daimler. Orders cover EV/hybrid parts, engine components, and transmission systems. Full revenue impact expected by FY27, pending no tariff disruptions.

Question 8:
"Is there any chance in the next one, two years to buy back [shares]?"

Answer Summary:
Share buybacks are periodically discussed by the Board but not finalized. Management prioritizes growth investments (defense, railways, capacity) and improving margins. Any decision will be communicated to shareholders.