Rico Auto Industries Limited

Rico Auto Industries delivered a strong Q3 FY26, with consolidated revenue growing 14.1% year-on-year to INR 632 crores. This performance was underpinned by a supportive macroeconomic environment, including duty exemptions on lithium and cells, and incentives for semiconductor manufacturing, which are expected to reduce EV production costs. The company's EBITDA saw a significant increase of 33.2%, with the margin improving to 10%, reflecting the positive impact of internal cost initiatives and enhanced capacity utilization.

For the nine-month period of FY26, Rico Auto reported consolidated revenue of INR 1,806 crores, representing a 7.7% growth. EBITDA for this period grew by 23.2%, and net profit more than tripled, demonstrating strong operational leverage. Management expressed optimism for the medium- to long-term prospects of the Indian automotive sector, citing continued localization by OEMs, increasing content per vehicle, and a gradual recovery in export markets as key growth drivers.

While the overall auto sector is projected to grow at mid to high single digits in FY27 (PVs 5-7%, 2-wheelers 6-8%, CVs 4-6%, 3-wheelers 9-10%), Rico Auto's EV/hybrid share of turnover is currently around 7%, with IC engines showing faster growth. The company anticipates double-digit growth for hybrid vehicles next year. The railway segment, which had minimal direct contribution in Q3 FY26, is expected to contribute INR 60-65 crores in FY27 and become a regular direct and indirect supplier by Q2 FY27, indicating a strategic diversification.

EBITDA margin expansion was partially offset by ongoing pricing pressure from customers. Management clarified that raw material prices are indexed with customers, mitigating direct impact, but acknowledged a potential lag in recovery and the 'denominator effect' on percentage margins. Despite these challenges, the company maintains a clear path to achieving a 13% EBITDA margin, although a precise timeline for this target remains difficult to predict^📌 due to market volatility^🌐.

The India-U.S. trade agreement, offering zero-duty access for select auto components, is expected to enhance export competitiveness. However, management stated that tariff reductions will be passed on to customers, aiming for increased business volumes and improved competitiveness against rivals like China, rather than direct margin benefits. The electronic fuses business faced a setback as a large tender was withdrawn by the government, which reverted to public sector undertakings, though new policies encouraging private sector participation are now emerging.

Rico Auto projects to conclude FY26 with consolidated revenue close to INR 2,500 crores. While a previous long-term target of INR 3,000 crores+ for FY27 was mentioned, management indicated that 'a lot has changed' and they 'might do even better,' suggesting a potential upward revision to their long-term revenue aspirations. The company is strategically focusing on items requiring minimal investment and maximizing capacity utilization to enhance its bottom line.