Rico Auto Industries Limited (RICOAUTO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rico Auto Industries Q1 FY '26 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Hazel Rathod. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone, and thank you for joining us for Rico Auto Industries Q1 FY '26 Earnings Conference Call. From the management, we have with us Mr. Arvind Kapur, Chairman, CEO and MD; Mr. Kaushalendra Verma, Executive Director; Mr. R.K. Miglani, Executive Director; Mr. Rakesh Sharma, Chief Financial Officer; and Ms. Ruchika Gupta, Company Secretary. I now request Mr. Kaushalendra Verma 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.

Thank you. Good evening all. This is Kaushalendra Verma, Executive Director, Rico Auto Industries Limited. I'm participating in this call from the Rico Corporate Office Boardroom, along with our Chairman and main director, Mr. Arvind Kapur.

Good evening.

Our CFO, Rakesh Sharma.

Good evening.

And our CF, Ruchika Gupta, along with other colleagues.

Good evening.

To start with, we have a very positive news from the market on -- with respect to our GDP growth. IMF has raised India's economic growth forecast to 6.4% for 2025 and 2026, up from its earlier projection of 6.2% and 6.3%, respectively. With this declaration, India retained its position as the world's fastest-growing economy. The revision is based on more favorable external environment and resultant domestic conditions. Whereas the global growth projections to 3% in 2025 and 3.1% in 2026, RBI maintained the repo rate at 5.5% and the retail inflation in India slipped to 1.5% in July 2025, the lowest since 2017 -- June 2017 and below the Reserve Bank of India's comfort band of 2% to 6%. China growth still maintains 4.6% in 2025 and 4.2% in 2026. Also, the U.S. is expected to grow by 1.9% and 2% in 2025 and 2026, respectively. India's contribution is about 18% of global growth, which is more than the U.S. contribution, which is up around 11%. India-U.K. trade agreement is expected to significantly benefit the Indian automobile and auto component industry with the tariff-free access. We are having -- keeping a close watch on the tariff -- U.S. tariff issue. and evaluating our position with respect to our customers on a regular basis. We are able to conclude with our key customers in the U.S. on the recent tariff implications, and we are in constant touch with them on the progress, which move forward on these tariff issues. This quarter, we have done a revenue close to INR 543-plus crores, which is similar to the previous -- same quarter previous year. In spite of that, there is a slow volume production at our OEMs, including Maruti and Hero. But because of the larger share of business, which we maintained or we won in the last year, we are able to maintain the same revenue. Our cost control efforts, which we are doing since last couple of months has resulted into a much increase in the profitability in this quarter. And subsequently, these efforts will result into the more profit as our revenue goes up in the subsequent quarters. Just to give you a figure that the -- if we talk about year-over-year performance, the market has -- automotive market has degrown by 3.5%, but we have grown by 1.4%. If we talk about the 4-wheeler market then the 4-wheeler market has degrown by 1.4% whereas we have also degrown by 1.9%. But in the 2-wheeler, we have grown 4.4%, where the market has degrown by minus 6.2%. The key products on which we have made the significant volume progress is on the alloy wheel and the EV and the hybrid components and the pump business, which we are doing with our key customers. I would request Rakesh ji to take you on the financial numbers.

Yes. This is Rakesh Sharma, Chief Financial Officer from Rico Auto. Regarding the numbers, like Mr. Kaushalendra Verma has briefed you about the numbers, one significant part that is there is that our profitability has tripled as compared to the same quarter last year. So that is a very encouraging part. And we are quite hopeful that this improvement in profits will continue, yes, especially on 2 fronts. One is that our utilization of especially the ferrous components is going to increase quarter-on-quarter. And there, we will be able to utilize our existing capacities, which are available with us. So that will result in profitability improvement. And along with that, our efforts on cost front also are yielding results. As costs have come down, you would have noticed that our top line has maintained almost equivalent to previous quarter as well as same quarter last year also, but our profitability has increased. This is on these 2 fronts. So basically, cost saving has also resulted in this. And so this way, we are quite confident that our profitability should keep on increasing, and we are in line with our target of achieving 12%, 13% of EBITDA margins. So quarter-on-quarter, this should keep on improving. That is our hope. And apart from that, the same thing is reflecting in our EPS also, which is INR 1.24 this quarter as compared to INR 0.54 last quarter and INR 0.42 the same quarter last year. So that way, this is all encouraging. And the revenue part also, wherever some of our customers have degrown, but we have been able to push our growth through other products and other customers. So that is also encouraging. As far as Mr. Kaushalendra Verma has already spoken about U.S. tariffs. So there also, we are keeping a constant touch with our customers and with some of the customers, we have already settled in our favor as far as whatever has been finalized by U.S. And whatever development happens in future also, we'll keep our contact with the customers. And accordingly, we are quite hopeful that there also, we should be able to get amicable solution for the same. And I think now we should be open for queries.

[Operator Instructions]

While we're waiting for the question, this is Arvind Kapur. And I'd like to add here that we have -- we did write to the stock exchange regarding our involvement in Railways. The work has started, and we started delivering indirectly at the moment, but we are also registering directly with the DRDO -- with the RDSO. And so there is a lot of progress that is taking place, and I think Railways will grow pretty fast now. And as far as the Defense is concerned, we are delivering the shooting ranges that we had mentioned last time, and we have a license for those. And those get dispatched in batches of 25 or 30 or 10 or 15 depending on -- now because of the rains, the dispatches were stopped primarily because where there to be kept to, those places were flooded and so we could not deliver. We were not -- we were asked not to deliver. And -- but we are collecting and we are manufacturing. I think next quarter onwards, we'll start delivering all the containers to them also.

[Operator Instructions] Our first question comes from the line of [ Prafull Rai from Arjav Partners] .

This is Prafull. I have a few questions. A, on the margin side, when we said the margins will increase to 13%, what is the time frame you have in terms of margin getting to 13%? In case can you give us some sequential uptick? That is one. Second question is on the revenue composition. Is the margin expansion happening because of increasing Railway and Defense work, which is leading to a better margin? That is second question. And third is on the -- any outlook on the growth side of it, especially given that U.S. tariff impact is there on all auto components in some way or the other. So can you just throw light on these 3 or 4 things?

Okay. Regarding the projection of margins. So it is -- we are hopeful that by the last quarter of this year, we should be able to achieve these figures. And in -- at annual level also, next year, definitely, it will be there. But on quarterly level, we should be able to achieve it by the end of the year. And whether these are coming from Defense and Railways, these are currently not coming out of Railways and Defense because our business is very less. Railway has just started, so it is negligible right now. But both these sectors are good margin businesses that we'll be getting. So in future, this will definitely help us improve our margins. And regarding the U.S. tariffs, like we said, that U.S. tariffs, there are 1, 2 factors that affect us. One is the demand for Indian products when tariffs go high. So one good part in our case is because we supply to our OEMs only. We are not there in the aftermarket or general public market, we are not there. So OEMs, we are in constant touch. And whatever was increased earlier, for that we have already settled with the customers and they are bearing the cost. And in future also, we are keeping constant touch with the customers. Whatever developments happen, we are quite hopeful that we'll be able to settle this amicably with our customers and should not impact us negatively.

In terms of growth outlook, that is one.

So growth, if you have gone through our earnings release, we have given our order book that is pending for execution is already more than INR 1,000 crores per annum. At peak level, this is the business that is already on. And we are -- every quarter, we are adding to those businesses. So growth is going to be good. And so -- and as far as export thing is concerned or U.S. tariffs on our growth, see, we are quite hopeful that because we are keeping contact with our customers, and they are assuring us that they will continue to buy from us because in our type of product, it's not easy to introduce new vendors. It's a time-taking proposition. So it takes 2 to 3 years. And a lot of cost and a lot of testing, et cetera, a lot of certifications are required to be there. So it's a kind of hindrance for changing quite frequently the vendors. So that should go in our favor.

So in effect, you are saying...

We are maintaining good rapport with our customers, yes.

See, that is they have said Rico has been old established company. So I don't think we'll have a problem in having some rapport. My question was, suppose we continue with this higher level of elevated tariff, given that our product is a critical product to what they do, do you think we'll be still able to get through some kind of supply through some channel or whatever?

We will -- this is Arvind Kapur. We will also look at alternatives like to give you an example, the garment industry, a lot of them have started setting up in Vietnam and other places so that we will go from here to Vietnam as there is duty free and from there, it is repackaged and sold further. So we'll also look at alternatives as to -- but we will not let the customers down, and we will not let the business go. And the new businesses are at much better margins than before. And one -- your question that the EBITDA margin is going up is not because of Defense at the moment or the Railways, it is mainly because of the new products which have been introduced and also the cost cutting, which has happened. And Railways and Defense, once they both cross about INR 100 crores, INR 150 crores each, they will contribute sizable to the profitability also.

Sir, if I may be allowed, can I ask one more question?

Yes, please.

Yes. See, by Q4 FY '26, what proportion of our revenues are likely to come from Defense and Railways put together?

At the moment, see these are mainly tender businesses, so it's very difficult to predict. But this year, I think we are estimating around INR 80 crores to INR 90 crores. That's what we had budgeted. And -- but these are a little -- we are pushing a lot, and let's see what happens.

And sir, next year, will this number be much higher than this?

Next year, we will be entrenched in the Railways and our setup would be there, and we'll be utilizing the current capacities as well. And next year, hopefully, we'll be almost double of that. That's...

Sir, one question probably we didn't get answer. The growth side of -- one question probably is the overall growth, we said we have INR 1,000 crores order backlog. How -- what it translates to the current year revenue, some kind of estimate which we may have?

Yes. we have that estimate...

Over INR 2,600, INR 2,600 crores.

And this year, there's an addition of INR 156 crores on the new businesses. And next year, the same business translates into INR 550 crores. And the year after that is around INR 800 crores.

And overall revenue estimate for the current year...

In '25, '26, we add INR 156 crores to production out of the new businesses. And okay, this is a business that we've declared. Having said that, we are also taking up other businesses, which are immediate before the 2-wheeler industry and the other industry, where we are taking a larger share of the business and/or we're taking adjacent businesses. So that is also being added, but that has not been included in this. But this year, our estimate is INR 156 crores. The only issue that comes here is that the -- our turnover would have been much higher had the magnet issue was not there. Maruti and others were to introduce many new vehicles, which got delayed. Now they've been introduced. And now hopefully, those -- whatever goods that we had developed, they will go to -- they'll ramp up faster.

And sir, this year as a whole, we'll end up doing INR 2,600 crores kind of a revenue and next year, we'll build on top of that.

But unless something drastic happens, this is what the budget is and budget is based on the confirmation that we have from all the customers.

[Operator Instructions] Our next question comes from the line of Maitri Shah from Sapphire Capital.

Hello, am I audible?

Yes.

Just one clarification. So the new businesses' top line that you mentioned of INR 156 crores, that is from Railways and Defense. Is that correct?

No, no, no. What we are declaring here is the business that we've already confirmed with our OEM partners, India and overseas. These are the new business that we got for the auto parts -- auto components.

Okay. And what sort of revenues do we expect from Defense and Railways for this year, FY '26?

I just mentioned that we are estimating around INR 80 crores, and that's what -- it all depends on the tenders and how soon the government wants to pick up the material.

Okay. And the registration with the RDSO, when do we expect that to happen?

That I think by the third quarter, I think we should manage to get our registration for -- see, in RDSO, you got to get almost -- any new product you develop that needs to be registered there. So we'll be registering ourselves again and again -- for the first product would be by the end of Q3. And as we pick up new products, there, we'll keep on getting our registration done.

Okay. Okay. And the last question was on the land monetization. Do we have any updates on that?

At the moment, see, discussions keep on taking place. But if I tell you that till my shareholders don't benefit by it, we are not going to monetize the land. I think there should be a significant benefit to our shareholders. And that's what we are working on. At the moment, I did mention last time that there was [ impetus ] that was being offered. The total saving would have been just about INR 400 crores or something and savings after the shifting of equipment and everything. But we are looking at least INR 1,000 crores, INR 1,200 crores for our shareholders.

[Operator Instructions] Our next question comes from the line of [ Prafull Rai from Arjav Partners ].

Thanks a ton for taking my call again -- question again. This 13% margin, which you are talking, hopefully, we'll be able to achieve in the quarter 4. Now when the next year Railway scales up as we spoke of and some Defense also happens, what will be the steady-state margin we can end up having, say, in next 2 years because the composition is also getting better?

See, they will add to it at the moment. To predict how much would be the contribution, I think we need to wait and watch. And once we get into production and into mass volume, that's the time we'll be able to tell you. Probably in the first quarter of next year, we'll give you a good indication as to what the Railways and the Defense are going to add to the profitability.

But at some blended level, sir, it is a little higher than what it is, right? Our steady state margins...

To give you a very broad picture. Railways and Defense, the profitability is all 20% to 30%. That's what the range that one works on and because sometimes the payments get delayed. So that's where the levels are. Now in that, now we are also waiting and watching. And so once we get into it start supplying, we'll be able to improve there. But having said that, let me tell you, the new components, one of the reasons that the profitability is going up is also because of the introduction of the new components which are coming in. They are at a much better margin than the earlier components. So that is the other add-on, which is also there.

[Operator Instructions] Our next question comes from the line of [ Mohit Jangid from Inved Research ].

First of all, congratulations on a good set of numbers. So I had one question on the guidance that we are giving this year. So to do INR 2,600 crores of turnover, I think in the next 3 quarters, we would have to achieve a revenue run rate of roughly INR 700 crores. So how confident are we on achieving these numbers? And will it have any benefit to our EBITDA margins because operating leverage will also come into play?

See, if I tell you what has happened in the first quarter, we actually -- because of the magnet shortage and the introduction of the new component, which did not come in because of the magnet shortage, we did lose about INR 30 crores of revenue -- INR 30 crores, INR 35 crores of revenue. And now the ramp-up has started to take place. And for the second quarter, we're hoping that we'll achieve the budgeted figures that we had. Now INR 2,652 crores is the budget that we declared to our Board. And that's what we are working on quarter-by-quarter, that's the Board is monitoring. Now all depends on the introduction of the component. We are ready. The development has taken place. We are ready for start of production. And if there is no hiccup as far as magnets is concerned or any other shortages created for the domestic market, we are fairly confident that we'll be there. At the moment, in the first quarter, we are INR 35 crores short and which we -- hopefully we will recover. We have picked up new orders around the same figure of about -- around INR 25 crores, which are an add-on to whatever the other figures that we had given to you earlier. So we are -- if we lose something, we try to gain from somewhere else either by getting a larger share of the market and/or winning new business, which can start immediately. Any new product to be developed -- these products get developed for -- now the products which are being introduced this year were developed last year and the year before last year. So that's how the productions are coming up now. And next year, the add-on is where the developments have already taken place, samples have been submitted and the approvals have already come. And that's why we are confident that next year, we -- there should be an additional INR 500 crores, INR 550 crores in the revenue. In the third year, '27, '28, we are seeing INR 800 crores. That is the -- some of the components of development will start by the end of this year and by the -- in the first quarter next year. And the peak revenue will come in the year '27, '28. So that's how the development is taking place.