Rico Auto Industries Limited (520008) Earnings Call Transcript & Summary

Right, sir. Sir, any other one-off expenses, which you're currently including, which you are expecting to more incur -- you'd like to incur in the future? [indiscernible]...

Some of the things we wanted to narrow that, Govind, what I'm telling you is there would be a saving of at least about INR 20 crores at Dharuhera. And in the airfreight, last year, we incurred a lot of the airfreight and this year there would be a saving of at least about INR 20 crores to INR 25 crores there also. And the recovery of the lag of aluminum, that, of course, is the other thing that would impact us this year. And in the packing upgrade, we are targeting to save with a better utilization. We already have a plan in place. We've already started making the shipment about INR 10 crores there also. And of course, balances, of course, more efficiently using our current equipment that we have. So these are some of the direct savings that happen without any extra efforts that we need to put in. Besides that, let me tell you that we've already been able to reduce. Like last year, what happened was that because of the COVID situation last year, we went into a panic mode, and we had to -- a lot of people -- a lot of our people, I'm talking about last year. A lot of our people had left and gone to their villages, as a migrant labor. So we -- instead of migrant labor, we had to hire more people. And we had almost 400 to 500 extra people. We have reduced the people by almost 400 already, and there's a target of reducing the people by another 200, as most of the people have come back, number one. Number two, we've been able to better train the people that we had hired afresh. So that -- the 400 people have already been reduced. So these are the savings, which are already there now.

[Operator Instructions] The next question is from the line of Vivek Singh, individual investor.

I have a few questions. Can you share the revenue for FY '22? And what are the margin are we expecting for FY '22?

Like we had mentioned last time, maybe plus INR 2,000 crores this year. And we'll exceed the INR 2,000 crores in any case. And we had mentioned in the last meeting also that we should be back to our EBITDA margins of 11% plus.

Okay. Sir, I have another question. You earlier have indicated a CapEx of INR 80 crores to INR 90 crores. So will this be remained unchanged for this year as well?

No, the -- I think we had mentioned all this last time also, but I'm repeating it again, the same. Normally, what we do is we invest whatever our depreciation is. That's what the Board has given us permission now for. But this year, what is happening is there's a special project of Toyota, which is coming in mainly for the electrification of vehicles. These are for the hybrid vehicles, and these will be the first ones outside Toyota company anywhere in the world making those big components for Toyota. And both are meant for Toyota as well as Maruti Suzuki and also for exports back to Japan and also to Southeast Asia. So we will be making investment for that. The turnover of that will come only next year. So I wish to tell you that, but the investments will start happening this year. So we are expecting an investment of a total about INR 125 crores -- INR 120 crores this year. And we bought out INR 100 crores -- INR 110 crores this year, and the balance will be done in the next year, and before the production actually starts by June, July next year. So that would be the special Toyota project. That's a complete new project that's actually coming up.

Okay. And one more question that I have. Can you share me the export number as a percentage of revenue? What are we expecting this year?

We are -- normally, it's 25% to 30%. That's where we are. And see, what happens is that we are talking about direct exports. If you look at indirect export, whereas the indirect, I ship to PSA in India and PSA ships them further and/or I ship to Renault. And Renault ships it further. Earlier, we were shipping directly to Renault in France and Morocco and other places. But now Renault has started consolidating and started shipping from here. I'm not talking of the vehicles there assembled with our component. I'm talking about the components, which are shipped from here to the other countries to Brazil and other countries and on. We don't include those in exports. Those will be regarded as domestic component. So whatever direct exports that we regard for. So that is around 30% of our turnover.

[Operator Instructions] The next question is from the line of [ Bhaskal Batra ], individual investor.

Sir, actually I'm coming through this conference call since last couple of years. Especially in the last 3 years, actually, we are having some issues related to the process. So have you ever considered actually to take some kind of consultancy help to streamline the process? And just to avoid any kind of losses that year end...

Now 1 minute. Thank you for asking this question. We have not -- it's not -- it is -- okay. For the electric vehicles that's a component, it's made of very special metal. This is not the normal aluminum metal, which is -- which we use on a daily business for all the auto components. And this metal behavior is entirely different. It's a -- there is a temperature, there is a pressure, it is in reverse pressure, and there is absolutely -- and we got through that cycle for almost about 1.5 year -- 1 year now. And we had a lot of rejections and a lot of challenges there. We mastered that now, and we are very confident that we would get out of it. And let me tell you, our customers also help us in that. BMW was involved. And even PSA was involved in finding the -- because for them also, it was a new metal and they also did not have the experience. But jointly, I think our teams have done a very good job. And I think another -- another month's time or so, you will see the massive gain that will happen in the rejections, et cetera, that are actually happening there. So it has been our internal team as well as BMW team as well as PSA teams, which have worked together to actually do it. For systems, we regularly have such helpers who help us in the system. That we engage in any case. And we -- even now, we have -- whatever system we have, there can always be a better system. So for that, we believe that there should be somebody who should be guiding us and holding our hands and make sure that we go to the next level. We are also taking up a project with BMW jointly to go to the next level of manufacturing. So that's the other project that is coming up. So this is a constant effort that we keep on having on updating our manufacturing facilities.

Got it. Yes, my issue is like more of the process, like how you procure, how your time line and everything kind of estimating what's going to happen if something like COVID happens in the future? So if you have the processes in place, then you will tend to mostly avoid the excesses that we have in current..

Well, even if we have very good processes, but when you start operating with the metal without any experience, the new -- that actually, we thought it is going to be normal aluminum and the life would be as normal as earlier. But it really surprised us also, it surprised PSA, it surprised BMW as well. And now all of us, we actually put our heads together and we -- be able to design a better process. No, we don't hesitate to ask for help. Let me be honest. In case there's an issue, we are open to consult. We are open to our customers who also have excellent manufacturing strength. We are also open to consultants who come from Germany. So we're open to all. And we do -- on a regular basis, do it so that we can go to the next level of manufacturing.

Got it, sir. And one more question is like as a retail investor actually I'm interested in the last 10 years, but I haven't seen in the last quarter, most of the -- like whether it's [indiscernible] or fixed mutual funds, they all actually move out of our company like they sold. So what do you think is lacking that we are not able to actually attract any mutual funds, any big funds and work in our company? What could be the reason things are like that? Why we are not able to attract any big investment funds [indiscernible] in part of our company? Because it's mostly like 53% -- 50.3% is [ promoter ], remaining everything is [indiscernible]?

Yes, yes. We are -- that we have many retail investors, but having said that there are mutual funds who started entering again. And now because of COVID, of course, there was -- travel was restricted. So I mean normally, we would actually go to Mumbai and other places and actually have parties, et cetera. And have one-to-one meetings with all the investors and those have stopped for the last 2 years. We will start doing it again because we are hoping that the third wave doesn't come. And we will -- we would certainly like to get all the mutual funds back into our hold. And we are fairly confident. I think when we see the performance of the company in this quarter and the next quarter, we will -- and we will also do marketing and meeting all the people there.

Right. Okay. One last thing to say there. I have seen a couple of -- like last 1, 2 years, we have related party transactions, kind of not a huge amount, it's kind of INR 200 crores on average. Do you think it's going to go down? I believe, like one of these things may actually [indiscernible] they would [indiscernible]. How like a COVID attacks and...

Let me give you a clarification, yes. The related party transaction that we talk of is almost 95% is 100% subsidiary, 100% or 97% -- 98% subsidiaries that Rico Auto own. And if you would recall, we have sent a notice to the Southeast state. And even this time we've sent a message, we put on our results, we've written that we are collapsing all the companies back into one. And so all the related party transaction from that itself will drop by almost about 90%. And 90% to 95%, I think we'll drop that. And subsequently, there will be 2 companies -- there will be 3 companies left. One will be Rico Auto. And we'll be collapsing [indiscernible] Rico Auto and [indiscernible] and RIN back into the company. And besides that, the -- after this process is over, I think another 2 years time, there will be 2 companies left. One is Rico Gen 5, which is a separate company making these, and there we have a partner who owns about 2.5%, 3% ownership there. But as an independent company, making one particular component, which is the deal of 2-wheelers. And then we have RF, Rico Fluidtronics, which is a pump manufacturing company, which we acquired. We have 50% partners there. And now, we bought over the company. And because Magna wanted to sell to 1 company in Korea and they offered us whether we wanted to buy or tag along, we offered to buy our shares. And that company also, I think sooner or later, will merge into our system. So we would like to operate a minimum amount of companies so that intercompany trial, intercompany transactions are not there or related budget transactions are also not there. So we also don't like it, and we would want to get out of it.

Yes. I feel like it will [indiscernible]...

The only company that would remain independent is AAN, which is a defense outlet. And we'd like to keep it independent because when companies don't like to operate with companies that they're dealing it depends like some of the OEM companies. So that would -- that company will remain separate. But let me tell you about AAN. Okay. Besides this, we have 2 subsidiaries, 1 in U.K., and 1 is in the U.S. And these U.K. and U.S. subsidiaries, we had to bring them up. Now they are fairly old, they're over 15 to 20 years old. The U.K., earlier we were shipping our bots from here as we were giving to our agents and the agents were delivering to the customers. And so we were actually losing control of the goods and the payments that were coming to us would be delayed by 6 months, 3 months, 4 months, 8 months, and then setting up accounts to become a big challenge. So now when we ship goods, we ship to our 100% subsidiary in the U.K. and our U.S. And the goods are totally under our control and those companies that deal only with Rico, we ship to them and they ship to the customer. The money comes in that company and the money -- 100% of money comes here. There is no other transaction that takes place with those companies there. And -- but having said that, we are trying to reduce that also because now some of the customers have started accepting consignment sales, and like BMW and some of our big customers. So we are shipping directly to them, not through our subsidiaries so that we can avoid that. And we buy even if it's shut down, one of the U.K. subsidiary soon because there are 2, 3 customers left who are -- we are pursuing even now to buy directly rather than buy through our subsidiary in the U.K. In the U.S., we have supplied to all the companies through our subsidiary there. And that also, we are pursuing with the companies that they should buy directly and rather than through our company. We would not like to maintain it. But we are doing it so that we don't lose control over the goods. That's the main thing. These are the 2 subsidiaries we have overseas. The transaction is 100% with Rico Auto in India and nobody else in the world.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Well, thank you so much, gentlemen and -- ladies and gentlemen, and we are very confident we are back. And the premium trade, et cetera, that we had not to the extent we had last year, we are getting absolutely out of those. And our -- the plants are performing much better. The profitability of individual plant is monitored on a fortnightly basis and all the companies are doing well. Fortunately, the demand is there in all the plants and the pressure is on us to meet the total demand of all our customers. And even in the 2-wheelers, despite the market not picking up we've been able to get -- the 2-wheelers that normally have a policy of having dual sourcing, 2-sourcing or 3-sourcing suppliers. And we've been able to get a larger share of business. We actually -- despite the month of May actually being a washout and as most of the OEMs are closed in the month of May, our sale has actually gone up with the 2-wheeler -- in the 2-wheeler business also. That's primarily because of larger share of business. And in the passenger vehicles also, we are getting more businesses and the largest share of businesses. And so we have bought very aggressively utilizing our capacity to the full. And fortunately, this year, the commodities are more stable, and we should have recovered our total losses that we had last year. And besides that, we are going to shorten the period of the commodity. It's a pass-through process, but the pass-through should happen sooner than later. The 6 months, we will bring it down to 3 months and be 3 months, we started talking to customers that can be taken monthly. One of those customers have agreed, and we actually have -- [indiscernible] agreed and we started doing, and Bajaj is also doing it. And -- but the car vectors at the moment are still been 6, 3, monthly commodity price change. And once you recover amount, we will still keep on putting pressure on these companies, too, so that the process can happen much faster rather than get delayed by 3 to 6 months. So like that, our focus is on the technology items, like we are talking of the -- like we mentioned, the Toyota project and the -- that is going to be a very, very strategic project that I had mentioned earlier also, that was allotted to us in competition with the Japanese makers in India and also in Japan. And so Toyota actually, got 3 set of [indiscernible] made from the company who were going to supply. And we were the first one who could deliver and deliver them quality of those highly technical components. Each [indiscernible] in that would weigh almost about 58 tonnes and [indiscernible] cost is about INR 4 crores to INR 5 crores each. So you can imagine the scale and size of those components. And we were the one who are successful and we finally got the total order from Toyota. And with the commitment that in case they don't run in India, the first, they are supported to Japan. They'll continue to export to Japan and Southeast Asia. And but they are very confident that in India also the sales will pick up dramatically, and they would like to use this in all the smaller passenger vehicles as well, whether be it Suzuki or be it India [indiscernible]. So I think that we are in -- this year and next year onwards is going to be a very aggressive growth and good profitable items that are actually coming up. Thank you so much. We hope that there's no third wave, and I would want everybody to remain safe and be healthy. And wear a mask always irrespective whether you got a double dose of the [ jab ], and please be say. Thank you so much.

Thank you very much, sir. On behalf of S-Ancial Technologies Private Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.