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

Ladies and gentlemen, good day, and welcome to the Rico Auto Industries Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Hazel Rathod from S-Ancial Technologies. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone, and thank you for joining us for the Rico Auto Industries' Q4 FY '24 earnings conference call. From the management, we have with us Mr. Arvind Kapur, Chairman, CEO and MD; Kaushalendra Verma, Executive Director; Mr. R.K. Miglani, Executive Director; Mr. Rakesh Sharma, Chief Financial Officer; and Mr. B.M. Jhamb, Company Secretary. I now request Mr. Arvind Kapur to take us through the key opening remarks, after which we can open the floor for the question-and-answer session. Thank you, and over to you, sir.

Good evening. My name is Arvind Kapur, and thank you so much for joining the Rico Auto investor conference. I'm pleased to be here to discuss our financials, and we will talk to you very transparently on what happened this year. My gratitude to all our shareholders, customers and employees for their unwavering support and commitment. This year, we are all aware of the macroeconomic challenges that are there. We -- there is a fluctuation of the raw material pricing, there's a supply-chain disruption that took place because of the Red Sea that has been happening. So all these things are happening, but beside that we are trying to meet our customer requirements and also stand by our commitments. Our efforts to expand into electric and hybrid vehicles is on, that is yielding very good results. We have been able to get more orders from companies like BMW and Toyota and Aisin, et cetera. And our focus is on expanding on the market -- the future market, which is the electric vehicle and the hybrid vehicles. However, this year, we faced many challenges. We had promised a target of almost INR 2,600 crores. We did not achieve it this year. The reasons I'm going to share with you. One is -- one was the early end of program of GKN and PSA. This is in our export program. Both the companies, they had told us earlier that these programs will carry until the end of the year, but they had to stop this immediately. However, having said that, for GKN, we've already received the new orders, which will -- the start of production would be somewhere in the middle of 1st August. Renault Nissan was the other disappointment that we had in India. Their sales in India did not pick up at all and they kept on telling us that -- to retain the capacities and that they will be able to achieve the targets, but that was a total failure. So as a result of which, we have removed a lot of equipment from those lines, and we're going to use them for many other -- the other programs -- the new programs that we have and also use them for the capacity expansion that is required for Maruti Suzuki and the other customers. And there was also a delay in start of production for new programs at our customers' end. We were ready for it. We had made the investments. But the customers, they delayed the programs. And in some cases, they've delayed it almost about 1 year. And -- but now we see some movement taking place there. Despite that, we did manage to recover some sales through -- by getting a better share of business through Maruti and also through Toyota. Toyota, of course, 100%, but through Maruti, we got a better of the market and sales did go up in Maruti. We are projecting revenue growth of -- conservative revenue growth of 15%. Last year, we projected a much higher revenue. But this year, we are target -- we are very conservative on our figures. This year, we are very, very confident that we will receive them and -- because in this year, we will also be starting the -- some of the delayed programs of Aisin which got delayed by almost a year, that will start this year. BMW has, in some cases, started and some of the programs will start by the end of the year. GKN would start by June-July this year. And we are also expanding capacity for Toyota and Maruti Suzuki. In particular, Maruti Suzuki, we've won more businesses and also got a larger share of the current businesses that we are supplying. Besides this, we have also added new components from Knorr-Bremse, Case New Holland and Piaggio. These are some of the companies that I'm naming here. We -- as we look ahead, we remain cautiously optimistic. The global automotive market is poised for transformation with advancements in autonomous driving, electrification and connectivity. Rico Auto is well positioned to capitalize on these trends, leveraging our technological expertise and strategic partnerships. In conclusion, I would like to reiterate our commitment to delivering long-term value to our shareholders. We are confident in our strategic direction and the capabilities of our dedicated team. Had it not been for some of the collapses of our customers that took place this year, our results would have been far better. And we will go into details -- before we take the question-and-answers, we would like to talk to you on the details of the events that we have done this year and the cost impact that were there. Rakesh -- my colleague, Rakesh Sharma, would be talking about it.

Hi, everyone. Yes, so talking a little in detail about the financials like at consol level, we lost around INR 140 crores of revenues. And because of that, we had to bear the loss of gross contribution to the tune of INR 58 crores. However, in spite of that, we have been able to maintain our EBITDA levels and improve a bit. So it is around 50, 60 bps, we have been able to improve upon the EBITDA level. The reason for that is that we have made major savings in sales and distribution expenses to the tune of around INR 25 crores. And in repairs and maintenance also, since we have new machineries in place and all these expenses were incurred earlier, so this year, we were able to save around INR 10 crores in case of repairs and maintenance also. Simultaneously, in case of power and fuel and sourcing space also, which are variable expenses as far as manufacturing is concerned, we have been able to make major savings. And that resulted in this maintenance of EBITDA level. However, at the PBT level, we lost, majorly because of the gross contribution loss and apart from that, we -- our costs on account of depreciation and finance costs, these increased. The reason is very obvious in case of depreciation because last year also, we did a lot of CapEx, and last year, during the year, gradually, these expenses got capitalized. But this year, for the whole year, we had to bear the depreciation cost for that. And that resulted in an increase of around INR 7 crores of depreciation. And in case of finance cost, although we have made repayment of around INR 100 crores during this fiscal. In spite of that, we had a lot of savings on that account, but since it was gradual, quarter-on-quarter, we made repayments totaling to INR 100 crores in a year, we had to incur some additional costs on front of the rate increase by the government. If you remember, last year, regularly, RBI was increasing the rates last year and last to last year, but our arrangements were such that, especially in case of term loans, in many cases, it was earlier than when it has to be reset. So we got advantage of that last year that the rates got reset after a long time, where the arrangement as was for 1 year. In some cases, it was 6 months also. So because of the rate increase, we had to increase this cost of debt. So this year, again, we are expecting that there will not be much of increase in the interest cost, rather we'll be able to save on both the accounts, one, since we are repaying and this year, again, we will be repaying around INR 90 crores of our debt. So -- and the interest cost also if not going down at least it won't increase. That is our expectation. So that will be good this year. Apart from these two costs, in manpower also there is a bit of increase. Although we have been able to reduce our white-collar numbers by around 400 -- more than 400 person, the headcounts have been reduced, and that is going to give us the permanent savings. But as far as this year is concerned because it was full and final and other settlements were done, so one-time costs, we had to incur because of that reason at consol level -- at a stand-alone level, around INR 3 crores, INR 4 crores additional costs we had to bear apart from the savings that we could get. And at consol level since our turnover in our subsidiary companies increased substantially reason because of that, in absolute terms, some manpower cost increase was there. However, in percentage terms, it was not much. So that, I think, explains about our profitability position.

So we are confident this year since we will be increasing by a minimum 15% this year, and the other thing that we did last year was that we did a lot of cleaning up. There were some very, very small volumes of components that were going as aftermarket for the OEMs, which were on this 10-year -- the life of which was over by almost about 7, 8 years or 10 years. And the requirement was very low. We were keeping a lot of equipment idle for that. And that also we've surrendered or we've -- or given enough quantities to the customer. And so -- and been able to spare that equipment also for utilization on the current capacity. So all the cleaning has taken place last year and you will see that this year the buzz is absolutely different. The excitement is there, and we are very confident that we'll exceed the targets that we are talking of today. In the defense, last year, we could do -- bill about INR 4.5 crores, INR 5 crores only. And this year, the orders are much higher, but we are taking a conservative look. We think we will bill around INR 50 crores to INR 70 crores this year. And our internal target is, of course, over INR 150 crores. But in the budget, we have taken only INR 50 crores, INR 60 crores, I think, taken, yes. And that's what we've taken in the budget. And on the -- some of the customers who did not perform last year, mainly Renault Nissan, we have -- we are not going by the figures that they have given us. We have taken a conservative view on their -- the supplies to them. And -- but on GKN, on the export front, we are okay because the samples have been approved and the components would start in the month of June, and we should be able to come back to the supplies that we were doing for our exports to these -- to GKN and BMW and the other customers. Now we are open to questions.

[Operator Instructions] First question is from the line of [ Rahil Shah ] from Crown Capital.

Firstly, how has quarter one been so far? And what are your expectations when it comes to numbers for quarter 1 apart from you've already said for the year you're expecting at least 15%, you're targeting that and you're confident to achieve. So -- but if you can give a general idea how has quarter 1 being so far, so we can understand how the year can be? And secondly, also, if you can guide us on EBITDA margins for the entire year as well? Those are the first 2 questions.

The quarter 1, you see, most of the programs start from quarter 2 onwards. In quarter 1 also, there is an improvement in Maruti and -- our supplies to Maruti and to Hero also and to also -- another customer we've added as Suzuki 2-wheelers. So our sales have already started there. And -- so we -- there's a lot of traction that's taking place. From June onwards, you will see a big jump that would actually happen. So most of the investments we have done last year, those will start using from June onwards. And our internal EBITDA margin is plus 12%, but here we'll like to commit 11.5%.

So the corrections which you're expecting will be from June onwards, so the amp up in -- like the jump in numbers will be seen from June onwards. Is that what you're saying?

From June onwards, yes, absolutely.

Okay, okay. And you're saying 11.5% for the whole year, you're expecting, EBITDA margins?

Yes.

Any ups and downs, like will it be consistent throughout the quarters? You'll be seeing like to start with...

At the end of the year, it's probably 12%-plus you will see the progress taking place over time. And this is based on the savings that we've already done and incurred this year, mainly on the white-collar front that Rakesh mentioned and that's the permanent change that has happened. And the power cost savings is also there. Solar has also been introduced. The main plants already have solar, so there'll be a lot of power saving there also. So most of the actions have been done or are in the process of getting completed.

Okay. And sir, what's wrong with the defense orders? You're saying the orders are good, but then you're actually saying that you will be executing like also...

We get worried about the defense mainly because the [Foreign Language] then the approval that takes quite a time. We're getting used to it. And now since we are in that cycle, we -- this year, our target is above 100, but [Foreign Language] I'll let my colleague, [ Ish ], also talk on this. He's looking after defense.

Hi, good evening. Just to add on to what Chairman shared right now. So we are absolutely confident on what we are taking on internally. Essentially, as a target, what we shared, which is around more than INR 60 crores is something because of the gestation time of project. What's happened is on -- in this election year, so most of the projects, which actually have seen, it takes about 2 years for the project to be assigned and on financial requirements and then it come up as a tender. So most of these are valid tenders which have actually entered the market. And we are the leading players in the tenders we pick up. Those tender, those files for the last 2 to 3 months have been at a standstill. And that's the reason from that standpoint only, we've kind of just hedged on the target. Otherwise, internally, we are very confident. We are very confident now with whichever way the results go. It is a continuation, those projects stand to go, and we are very, very well poised to move towards that target.

[Operator Instructions] Next question is from the line of [ Verma Datala ], who is an individual investor.

This is [ Verma ]. A quick question on actually like the target of this year, the revenue and the profit side. Since last year, we saw mostly it is in the same theme, right, it's 12% to 15%...

Can you speak a little louder, please?

Yes. Just need some guidance on revenue and the profit side because since last 2 years, we are expecting to grow 12% to 15%, but mostly actually haven't done any progress on that front. That is first question. The second one is on the defense side. Since last couple of years, you are kind of estimating some 100, 100-plus, but never materialized it, right, in the defense side. To be honest, last quarter con-call that we had actually some time in end of February or end of April then more than half of third quarter gone, you expected that we could get INR 700 crores revenue, right? I repeatedly, asked couple of times, the estimated revenue the consolidated would be around INR 700 crores. But still, we got only INR 530 crores. So I'm just a bit confused with the guidance, actually could you please confirm like how much we can expect this year, not statistically, just in terms of realistic way, how much you can expect this financial year, the total revenue and the margins? And also on a defense side, do you really need to actually consider any revenue at all from the defense front? Because last 2, 3 years -- yes, defense different side, do you really anything at all in this year? Because the last 2 years, it's not actually that much, right, INR 25 crores, INR 40 crores of -- we talk a lot about defense, but contribution-wise not much, right, in revenues. So it's kind of giving a wrong signal to investors like me. We expect a lot, but at the end of the quarter, we get the -- usually getting disappointed since the last few quarters.

On the defense side, if you look at the tenders which are there or what we are bidding for, so it's quite a very large order that we are bidding for. And in fact, the orders we had received last -- in the month of February and those -- what will be -- because it a very slow process in getting the approvals and everything, so that -- but whatever we could manage, we did manage, and we are still going through the same cycle. And many of the products are already lying ready and we are ready to ship, waiting for the clearances. So defense is at the moment, not under our control, but we are pushing it. We are getting into that cycle and mode, and also understanding how to handle the people and everyone. So that, you will see major results happening this year itself. And every quarter, I think, we'll show you some better graphs as far as defense is concerned. On the other side, last year, we had taken an aggressive figure, and we were confident that we'll exceed whatever we were promising. And this is absolutely based on the commitment by the customers also. And PSA and GKN, their end of program came in much earlier than whatever was anticipated. Of course, they do compensate for us for the early closure. But that portion of our revenue actually came down. And Renault Nissan, they let us down, absolutely. Because in Chennai, our major investment is for the Renualt Nissan OEM plant that is there in Chennai. And so this time, we have discounted the sales of Renualt Nissan. If they do well, the capacities are already in place, we'll utilize those capacities, but we have removed a lot of equipment so that we could divert it to the other capacity that we require to use, where we need [indiscernible]. So we are very confident that the figure that we are -- 15% guidance we're giving you, we'll achieve this, and we do much better than this.

And just for confirmation, like if you remove the defense at all from this financial year, how much revenue are you expecting?

Pardon?

If you remove the defense from this year -- this year excluded defense, how much revenue you're expecting to get this financial year?

The total figure that we are getting is close to INR 2,530 crores, and the defense we have taken only INR 60 crores in that. So it comes to about INR 2,470 crores -- INR 2,480 crores.

Okay. So basically, we are expecting INR 2,450 crores around that for the financial year of gross revenue?

[indiscernible].

Next question is from the line of [ Mohan Kumar ], who is an individual investor.

So I just wanted to ask you one question, sir, that what are your comments on the rural uptake since several other companies are reporting good growth from the rural market?

Please come again.

Hello? Am I audible?

Yes, you're audible. Can you repeat your question please?

So what are your comments on the rural uptake, since several other companies are reporting good growth from the rural market?

There is a lot of excitement in the rural market, and it is being predicted that bulk of the increase will actually come from the rural market and there's -- and we are expecting a good monsoon also this year. And so I think the rural market will probably do a better job -- better than the -- but it actually helps us because then the 2-wheeler market will also improve and the low-end vehicles, cars, also go up. So that is a lot of benefit to us. And so at the moment, the market looks good, even though there is -- in some cases, there's extra stock of cars and low-end motorcycles which are lying in the market, but we are hoping that after the elections, there would be a lot of traction that will then take place.

[Operator Instructions] Next question is from the line of [ Pratik Patel ], an individual investor.

So my question is regarding what is the repayment plans for FY '25 and FY '26?

During this current year, we'll be repaying around INR 90 crore of turnover -- not turnover, term loan, sorry. Next year, around INR 80 crores it is.

Okay. And during FY '26?

INR 80 crores. Currently, we repaid around INR 100 crores.