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

Ladies and gentlemen, good day, and welcome to Rico Auto Industries Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Gyanchandani from S-Ancial Technologies Pvt Ltd. Thank you, and over to you, sir.

Thank you. Welcome to Rico Auto Industries Q1 FY '23 Earnings Conference Call. From the management, we have today Mr. Arvind Kapur, Chairman, CEO and Managing Director; Mr. O. P. Aggarwal, Chief Adviser; Mr. Surendra Singh, President and COO; Mr. Rakesh Sharma, CFO; Mr. Sandeep Rajpal, Vice President, Marketing and Mr. B.M. Jhamb, Company Secretary. I request Mr. Arvind Kapur to take us through the key remarks after that, we can open up the floor for the Q&A session. Thank you, and over to you, sir.

Good evening. My name is Arvind Kapur, and I'm sitting here in the conference room of Rico with all my colleagues, who are also here to take on any questions that might arise out of this meeting. But in general, we are happy and the company is doing well this quarter. We have done better than the whatever we had budgeted. I think we had about almost 6% to 7% higher than what we had budgeted for this quarter. And we are hoping that in the second quarter also, we will be better than the budget that we had taken up. And there are couple of reasons for this. Fortunately, the GDP is good, and the monsoon is -- has been about 6% plus. And we are hoping a bit the festive season also around -- we are hoping that the next couple of months should be very good. And in fact, we should be much above the budget that we had done in the beginning of the year. The commodities are showing some signs of stabilizing, and we are happy about that because what was happening was that every time there were much lag impact that the recoveries we had to take from the customers. And that was actually stretching us in our finances also and -- but now it is stabilizing. The semiconductors, the availability is better, but we feel that it will take at least until the end of '23 before, I think availability would be in full. That would be because of the new plants which are coming up all over the world and new capacity, which will be created. And so I -- we are hoping that at least from the year after that, there will not be a problem. But the availability is going up and down. And in some cases, people are doing a very good job some of the customers they've actually been able to corner a lot of these semiconductors better than the others. But by and large, it is improving. Of course, the geopolitical situation, especially in what happened -- is happening around Taiwan, that is of concern, and -- as we all know that Taiwan produces almost, I think, 60% of the total semiconductors in the world. So that could become a major issue. It is like the oil in the Middle East there. I think a lot of security needs to be provided there. That is very important and critical. The Ukraine war, however, carries on and which is not a good sign and Europe, with the gas prices and everything going up, we do see -- we do see some signs of stress, which are there. But having said that, the sale of the cars still continues to do well. And our customers are doing pretty well. We have a bit of good news, the investments that we have done for Toyota last year and also it's still happening in Toyota. The production has started. We have started delivering and just the other day, we were given a message that they wanted almost about 30% capacity enhancement. And we are looking at increasing their capacity without any major investments to be done, it is by improving the efficiencies and also maybe some add-on equipment, but very little. For 30% to 35% increase, the total investment will not be proportional to whatever we had done in the past. It would be just a couple of crores, INR 1 crore to INR 5 crores. That's what we are estimating. Because the building is in place, the power and everything utilities are in place, the die castings are in place. The machining lines are in place. We are going to improve the efficiency of the machining lines further. And -- but there would be some capacity enhancement required in some of the machines which are bottleneck machines. So we are very happy and excited about the -- and the demand for the hybrid vehicles is tremendous. The response has been very good for Toyota and also Maruti is also is very happy with the response that they're getting from the customers. So it's a very good sign that is happening. So this is towards our electrification. This is going to be a major product. This is a major project for us. The 2-wheeler industry still keeps on suffering, and we are hoping that with the monsoons being called, the farm equipment going up, the rural areas would pick up, and we are hoping that the 2-wheeler industry actually grows this year. But having said that, we have grown by almost 34% quarter-on-quarter in the 2-wheeler industry, in particular, last year, we were INR 119 crores in the quarter, and this year, we are almost INR 200 crores, INR 192 crores. So there's a major growth we've done. And that's primarily because taking a larger share of the businesses. So that's how we have grown. And the other thing that has been added is the wheels that we supply, there, we've taken a major share also. And so we are happy as far as our growth is concerned. But in case the 2-wheeler industry bounces back, this growth will be even higher than whatever we have been able to do so far. We are very happy about the 4-wheeler industry. We grew by almost 50% this year over the last quarter in the car industry. Our supplies have increased, and it's all for the newer components and the newer models which are coming up, which are being introduced, which are doing very well, both in Maruti and at Kia and -- Kia does waiting of almost about 12 to 13 months in some of the models components we supply. And for Maruti also, there's a waiting in some of the models, new models that have been introduced. Toyota is exceedingly well. And so we are very excited to -- we think that the car industry will grow further. The chip shortage, that, of course, is always an issue. And as that gets eased out, I'm sure this is a lot go. So your company has also done very well in the commercial vehicles. We've grown by almost about 12% over last year. And in others, we've also grown. And in the electric vehicles, we have already crossed 15% of our turnover on electrification, and this will keep on going quarter-on-quarter that this number will keep on going up. We have it for the next version of the electric vehicles, and we are hoping that we'll get a fairly large share of that business also. So things are pretty good. And things -- we are hoping that it will continue like this. Some of the challenges, 1 is the sea freight which is a challenge and getting a refund for -- getting compensated from our customers, that's the challenge, and the customers do understand in some cases, they have already got it. And in other cases, we will get it. It's just taking a little longer time. Our results would have been even better, the freights have been paid back to us because the freight jump was tremendous from $4,000 has gone to $14,000. So that's the jump in the freight that has happened. And -- but we will get compensated from our customers only it's a matter of time. So recovery would actually take place. Our debt equity ratio is 0.5% better than -- less than 0.5% and the CapEx that we intend doing would be -- our depreciation normally, we match depreciation. Our depreciation in the group would be INR 90 crores, but our CapEx would be in the range of about INR 50 crore plus INR 5 crores. That's what we are targeting. That includes the maintenance capital and CapEx and everything else. So we are -- we will keep it under -- our target is to keep it INR 50 crores and because by and large, both things are in place. But this would mainly be on the -- equipment that is required as balancing equipment in some of the places and some replacement equipment that might be required. So this is in a nutshell what your company is doing. Our EBITDA in -- percentage-wise, we are still -- we are about the same as last quarter. And -- but we will be in the double digits in this current quarter. And our target is to be between 12% to 13% as far as EBITDA is concerned, which we are very confident of achieving. We have plans in place to do that. That's it from my side, and I think we can open it for questions and answers.

[Operator Instructions] We have the first question from the line of Rishikesh from RoboCapital.

Sir, my first question is that you mentioned about... Am I Audible?

Yes, sir.

Sir, my first question is you mentioned about double-digit EBITDA margins in Q2 itself, right?

This year, we will cross double digit. And we might be able to get it in the second quarter also. That's -- we are all working on that.

Okay. But the 12 -- you mentioned 12% to 13%, if I'm not wrong.

No. I said the way will be in double digits and this year definitely. And -- but our target is to achieve 12% to 13%, which we are confident of achieving it, if not this year, certainly next year.

Okay. But sir, earlier we used to guide in [indiscernible] 10%. So on what basis exactly are we guiding -- are we upgrading our guidance?

This is based on whatever exercises we are doing in our plant. And if you look at the turnover going up, it's not without -- it's without any major investments which are taking place. So it's obviously better utilization of equipment, et cetera, et cetera, and also improving the efficiency level and in all the plants. And so everybody is working on it. And if you look at the inventory costs, our labor costs has come down. Our power cost, despite the oil prices going up, we've been able to save and maintain our power cost also oil and gas costs. This is the fact that gas cost has gone up by almost 20% to 30%, and we've been able to maintain it by efficiencies and by better utilization of our equipment. And by and large, it is better utilization and more turnout from the same equipment that we have that we will do the savings and utilizing the same manpower.

Okay. So basically, you're saying this year, we might touch double-digit number, and next year can be 12% to 13% with Q2 or Q3, maybe we can touch that double digits, correct?

That's a -- double-digit we will touch and the 12%, 13% we are talking of next year is certainly and -- but better this year.

Okay, sir. And what would be our...

[indiscernible] you will see a change.

Okay. Okay. And sir, what would be our revenue guidance for this year?

Like last time, we mentioned we'd be around INR 2,400 crores, which would be a growth of almost about -- almost 25%, 26% in the group.

Okay. Okay. And sir, what would be our debt outlook?

So debt equity ratio would be 0.5%, 0.6%. And we will maintain the lows. We will -- by and large, we are not taking any more loans. That's -- the working capital requirement actually goes up as our exports go up. And our exports have gone up by almost about INR 100 crores from -- this year would be about INR 100 crores more than the previous year. And our exports payments, you might utilize we get the -- it's a 30-day -- it is 10 days to the port. And another -- for Europe, it is almost about 30 to 40 days for shipment. And for U.S. including the waiting is taking us almost 8 to 10 weeks to 12 weeks to get our good in to the docks. And we maintain 30-day stock at our warehouses there. And after delivering to the customer, it takes us 30 days to get. So it's a cycle of almost 120 days. So as exports go up, our requirement for working capital for exports goes up. Otherwise, by and large, they will be in the same.

Okay, sir. And also, I don't know if I heard it correctly or not. In your opening remarks, you said that 50% of your revenue is towards electric vehicle segment?

No, no. So it is 15% -- we've already crossed 15%, 1-5. And we are heading -- and every quarter, there's a change that is happening. And you will see this percentage going up quarter-on-quarter. But our target is to touch 40% in the coming years.

Coming as in FY '23 or FY '24?

'23, '24, and maybe '25 also because some of the orders have been released now for deliveries in the year, '24, '25. So that is important.

Okay. So around that time line, we can do 40% of EV contribution?

Yes. But I hope the IC engine also keeps on growing, and we grow faster even in the current businesses. We are hoping for that also.

We have the next question from the line of Mukesh Modi from Modi Fincap.

Congratulations for the good results, sir. I've got a couple of questions. I think many of them asked my previous question, but some of which are left are so in this quarter, what will be the breakup for export and domestic?

Just a minute, just a minute, we'll give you the details. Yes, just a minute, I have the figure for this year, we are growing about almost 25%, 30% in the exports. It's about INR 127 crores -- INR 129 crores and...

INR 129 crore export?

Yes.

Okay. And sir, it seems mostly the -- it has been -- the rise has come from the volume. Is there any price contribution also in this growth?

Both. It is volume as well as the price and also new components, which have gone.

Okay. So value price will be around almost if you can give, if it is possible?

Value -- what do you want?

I mean the breakup of volume and value.

What is the volume increase? What is the... I have -- I won't be able -- I would like to -- have it a guess, but we can share the figures later on, surely. See the commodity price increases is 1 part which we get quarter-on-quarter -- okay, 1 minute. I'll give you an approximate idea. For the prices, it is almost about 10% increase. And for volume, it is about 19% increase.

1-9?

But we'll work out the exact details and share it with you. And earlier, the price increase because the variation in the commodity prices was tremendous. That used to be much higher. But now as the commodity prices are easing out, but that is also stabilizing. But having said that, the freight is 1 thing that is going to impact because the freight costs have gone up tremendously, and we would -- we are taking compensation for those freight and also the for export, we are also seeking compensation for that as well. But there has been an increase in volume and also new customers which have been added and where the volumes are also going up.

And sir, last time, you said the air lifting we are -- you have to receive around INR 30 crores to INR 40 crores stated as spending. Any of them has come in this quarter?

I add -- they are adjusting part of it in the pricing itself and then part of it is coming -- we've got INR 5 crores, INR 7 crores in that additional and -- but more is coming. And I think August, September, we should get most of it. But some of it would also get adjusted in the prices over the year.

Okay. That's fine. August, September, maximum we'll get?

August, September, maximum [Foreign Language] That will be over and above the increases that we've asked for or energy costs and for the freight costs.

Okay. yes. And sir, you said about this Toyota plant, which has started. So I mean, can you just give a ballpark? I mean what contribution it can give for this quarter and the year as a whole from Toyota plant, our Chennai plant?

Any details you give break up?

Just approximate, high-end so that we can get the idea of how much contribution...

Yes, we're expecting a turnover about I think over INR 100 crores from Toyota project. It's about INR 120 crores if I remember. And with the volume further going up at 30%, 35%, that is going to further enhance it. And so -- but the exact number I don't have in front of me, but we can share those numbers with you. But here, I would like to add another thing that the Toyota, it was about 100 -- INR 100 crores, INR 120 crores a year. That is the peak turnover, and that will go up by 30%, 35% based on the new volumes that are coming up. But that -- and as volume will start from next year onwards. And then we also have received further orders for Toyota through their subsidiary which is also about INR 49 crores, 50 crores. That orders come, and that should start in production and I think '24 end. So that would be an add-on to -- we have not taken -- that is not part of the figure that I'm telling you. And besides that -- okay, these Toyota figures I'm giving you are primarily only the Toyota figures from Chennai on new project -- we added investment. This does not include what we supply from North India to Toyota. Those are additional amount.

So INR 120 crore, that means we have around the asset turnover of around 1:1, right? We have invested around INR 120 crores.

Yes. That doesn't go up to around -- say, it go to about another 30% will be added by minimal investment. So we got about -- almost about -- it will be around 1:1.

And lastly, about this Rico Gen 5 and Fluidtronics sir, your guidance for INR 319 crores for Gen 5 and INR 130 crores for Fluidtronics. [Foreign Language] 2,400, which we are giving it seems to be quite conservative, sir, I think my calculation were around 2,700 plus.

[Foreign Language] We hope to go to 3,000, but we rather be conservative and cross that rather than give you a larger figure [Foreign Language] so we are giving a conservative figure. And INR 130 crores -- they are -- from INR 60 crores, they're going to INR 130 crores, almost doubling in Rico [ RFL ] and in Gen 5, they are also going up from, I think, INR 150 crores to almost -- and my view it is all 2-wheelers, we are snatching the business from others from China and other places.

Sir, here, we are...

In Rico Gen 5 as 2-wheelers, but RFL is all Maruti and the all for cars -- for passenger vehicles.

And 1 more. Sir, the other expense this year in spite of such a big rising in the -- I mean the sale, other expenses reduced, is there any Forex gain we are calculated here?

Are you talking about yearly figure or quarterly?

[Foreign Language]

Yes, yes, quarterly. I'm talking about Q-on-Q basis and even Y-o-Y, both -- I'm sorry, Y-o-Y basis from INR 39 crores, we have come to INR 37 crores, INR 38 crores.

Yes. So quarter-on-quarter, there is an increase because of..

Yes, quarter-on-quarter is an increase.

Yes [Foreign Language]. That is for the freight because not being compensated by the customer so far. And year-on-year, it is because of the savings we have made in packing and air freight also.

Yes, the other expenses have increased.

Last year, we -- every call we were talking about the airfreights and some other issues we had with our customers. Those are behind us, and those are not coming into the figures now.

Got it, sir. Got it. Sir, this working capital you have been talking about, there is an increase in working capital requirement. So I mean, I'm just -- I just want to know, I mean, increased finance costs, which we are calculating is it going to remain stagnant? Or it will be continuously rising? I mean quarter-on-quarter basis, what is your expectation, sir, about this finance cost?

Now if the RBI -- I hope they don't -- they have stopped increasing the interest rate because [Foreign Language] So that, hopefully, that should stop now. And because that has a direct impact on whatever borrowings we have from the bank. And we are hoping that [Foreign Language] at least they bring it down to 0.25 and then gradually stops doing it. And so there are -- that is a direct impact on that.

Yes, because that is a thing as a major portion of our profit like...

Yes. But borrowing [Foreign Language] our mandate is to be in the limits that are already been there.

We have the question from the line of Deepak Poddar from Sapphire Capital.

Am I audible?

Yes. Now you are.

Sir, first off, I wanted to understand the tax rate. I mean, how do we see the tax rate this year than next year?

In case of tax, as of now, we are under MAT we are paying. So it comes around 18%.

Okay. But in P&L, it is currently 40% plus, right?

There is some deferred tax adjustment would be there. So that's all.

So that will continue, right? So on a reported basis, 40% plus tax rate would be fair to assume?

No, it will remain -- see, on an average, it comes to around 23% in our case. But we have been under MAT because some accumulated losses were there. And after merger, also, we'll get some benefit on that account of accumulated losses from subsidiaries. So it will be around 18%, 19% only.

Because FY '22, it was about 37%, right?

I'll have to check that again. Some deferred tax adjustment would have been there. So -- but we'll come back to you on the exact reasons for that.

Okay. Fair enough. And I understand. And my second question is on your margins. Now when we said double-digit margin you're expecting to double-digit margin for entire FY '23. That's what you are kind of indicating?

That is -- we are at 9.8%, approximately 9.8%, 9.9% and 10% we'll definitely cross over and 10%. And hopefully, by the end of the year, we should be around 11% and 11.5% and that we are -- and if not more. Unless there are some surprises that come on the way, like there's another war which starts off, I think we are in line and -- this year itself, we might be able to cross 12%.

By fourth quarter, maybe, yes.

Yes, yes.

So -- but this outlook includes your other income, right?

Yes. So percentage is calculated after a denominator also other income is included and numerator also.

[Operator Instructions] We have the next question from the line of Ankur Agrawal from RC Wealth Solutions.

Sir, [Foreign Language] INR 2,400 crore turnover by '23. [Foreign Language]