Rico Auto Industries Limited

Rico Auto Industries reported a stable performance in Q2 FY26, with consolidated revenue growing by almost 5% year-on-year. The EBITDA margin for the quarter stood at 9.9%, an improvement from 9.3% in Q2 FY25, though slightly lower than Q1 FY26's 10.1%. Management expressed confidence in achieving 12-13% EBITDA margins by Q4 FY26, driven by better utilization of existing capacities and the introduction of new, higher-margin products and orders (above 14-15% margins). They anticipate a 'much more improvement' in margins during Q3 and Q4.

The company's long-term borrowings increased from INR 274 crores to INR 330 crores, primarily to fund a greenfield project in Hosur for capacity expansion and new business. Despite this, the total consolidated debt remained stable at INR 670 crores, similar to INR 672 crores at the end of the previous year. Management highlighted that they are continuously reducing working capital debt and annually repaying approximately INR 100 crores of borrowings. The Board is focused on debt reduction, and while long-term debt may see a slight increase this year, it is expected to decrease from next year onwards.

Rico Auto is targeting INR 2,600 crores in sales for FY26 and aims for INR 3,000-3,100 crores in FY27, with a long-term goal of INR 4,000 crores by 2028-2029. This growth is expected from a diversified customer base including Maruti Suzuki, Toyota (Aisin, Musashi), Tata Motors, Mahindra, Suzuki, Honda, Knorr-Bremse, BMW, and GKN. Maruti Suzuki is also transferring engine block business due to its own capacity shortages, further boosting Rico Auto's aluminum casting utilization. Exports to the U.S. are projected to grow by 40-50% this year and another 50% next year.

The company is on track to achieve INR 70-80 crores in revenue from the railway and defense segment in FY26. They are already delivering components to sub-vendors of the railways and expect to begin direct deliveries after receiving RDSO approval, with inspection scheduled for next week. Management indicated that the margin profile for new supplies in this segment is significantly higher, in the range of 18-20%, compared to initial stages of around 5%.

Rico Auto is actively pursuing the monetization of its 27-acre prime land. Management revealed they rejected a previous offer of approximately INR 400 crores, deeming it insufficient to satisfy shareholders and cover the substantial costs associated with relocating the plant. The relocation involves transferring equipment and approximately 2,500 employees, making it a complex and costly endeavor. The company is now targeting a valuation exceeding INR 1,500 crores for the property.

The company is focused on improving the utilization of its existing capacities. The iron foundry, which was running at 40%, is now operating at 50-52% and is expected to reach 65-70% this year, with a target of almost 90% utilization by next year. Similarly, the aluminum die casting operations, which saw utilization drop to 50% after efficiency improvements, are expected to creep up to 80-85% by next year with new orders. Management emphasized that approximately 85% of their investments are fungible, primarily in CNC machines, allowing for flexibility across different customer requirements.