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Rico Auto Industries Ltd
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Rico Auto Industries Ltd
NSE:RICOAUTO
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Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '24 Earnings Conference Call of Rico Auto Industries. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. [ Hazel Rathod ] from Essential Technologies Private Limited. Thank you, and over to you, ma'am.
Thank you, [ Tushar ]. Welcome to Rico Auto Industries Q3 and 9 Months FY '24 Earnings Conference Call. From the management, we have today 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 Mr. B.M. Jhamb, Company Secretary.
Now I request Mr. Kaushalendra Verma to take us through the key remarks, after which we can open the floor for the question-and-answer session. Thank you, and over to you, sir.
Thank you. Good afternoon, and welcome all to Rico Auto Industries Limited Q3 FY '24 Earnings Call Conference Call. My name is Kaushalendra Verma and I'm sitting here in the Rico Auto corporate office boardroom with all my colleagues.
Let me begin with the industry and economic outlook. GDP growth has been projected above 7% for the current financial year. Inflation at manageable levels and expected to come down to 4.5% in FY '24, '25 from 5.4% in '23, '24. The automotive component industry has shown resilience and will succeed despite of the current supply chain assumption and the continuation of geopolitical situation. The growth is particularly strong in the vehicle segment and expect to continue spend in the coming years.
As a company, we are strong in all the 3 segments, [indiscernible] to benefit from the trend and had an ample opportunity for growth and expansion. Till December '23, we have booked new business worth INR 1,000-plus crores which translates into peak annual revenue of INR 225 crores per annum. At a group level, including our subsidiaries and the joint venture company, we have recorded a revenue of INR 528 crores in quarter 3 and EBITDA of 12%.
In quarter 3, our revenue has been impacted primarily on account of the less pull from one of our customer and the yearly shutdown at the customer end. Company growth has been supported by the innovation and the business development. To end with, we are pleased with the financial results and optimistic about future and the industry growth -- auto industry growth. We would also like to inform you that we have been awarded with the 3 star export status for our -- we have been recognized by the 3 star export rating for our export contribution.
We are doing -- our focus is on the -- continuous focus is on the profitable growth. And for that, we are doing a lot of things to bring down our cost structure, primarily with the manpower and the output. We are also focusing to basically go away with the old low-volume programs with the program life has been ended and we still supply some less quantities to our customers to free up our existing capacity for the recently awarded new businesses. So that we can have the less CapEx outflow.
With this, I would end my communication and request open for the questions and answer and clarification if any. Thank you.
[Operator Instructions] The first question is from the line of Deepak Poddar from Sapphire Capital.
So first up, I just wanted to understand in terms of revenue impact you were saying, can you elaborate more? I mean whats the problem -- I mean one of the customer you mentioned and the yearly shutdown. So can you elaborate more on that?
The quarter 3 revenue has been impacted on account of the less pull from one of our customers, [indiscernible]. We have been projected -- they have given us we have forecast, but they have did not pull the material as per the forecast given to us. And in the year end, we do have the customer shutdown -- yearly customer shutdown at most of our customers. That has also basically really impacted the quarter 3 revenue.
Okay. But generally, the shutdown is an annual process, right? I mean last year also we would have such shutdown right?
Yes, we are worried about it. But what happened that normally, the shutdown, customer try to pull more material before they shut down for the monthly requirement. But this time, we have seen that the pull was as less as compared to the forecast.
Okay, understood. And what's the status with the Hero, I think we were looking for some price correction with Hero and so with a few of the parts. So what's the current status in that?
Yes. We are pleased to inform that we have concluded our price increase request with the Hero. And we have received all the increased purchase order for all the components for which we have discussed the price increase, and that has been concluded.
Okay. So for all the products?
For the products for which we have requested them, yes, but there are other components on which we are also discussing with them.
Okay. Okay. Understood. So I mean, the offtake for Hero has it been normalized as we speak now? Or when was it concluded? And when do you expect the normalization to happen in terms of offtake to Hero?
Yes. We have started -- after the price increase conclusion -- request concluding, we are starting pushing our material to the Hero. And this quarter, if you see that we are in line with the industry growth. Two wheeler revenue is in line with the industry growth.
Okay. Okay. Understood. And I mean for the entire year, as we speak about growth, we were targeting about INR 2,600 crores revenue, right? And given now what we have done in 9 months, looks very highly unlikely rate. So what would be our revised revenue that we see this year?
Based on the 9 months and the last 3 months forecast, we see that our revenue will be close to INR 2,300 crores plus. This is mainly because we are not considering the defense. If my defense supplies will start and [indiscernible] will happen, then definitely, it will be much better.
Okay. And what about next year FY '25?
We are in the process of making our budget. We are taking the forecast from various -- from our all major customers. And we are in the budget recreation cycle. And I think we will be more than happy to -- but there we are targeting basically 15% growth year-over-year revenue growth in the next financial year.
15% growth. So I mean earlier -- in earlier communication, we have said that next year, we are targeting about INR 3,000 crores, right? So there also, we are seeing some decline as compared to what we have earlier communicated.
Basically, I'm talking of -- currently, we are talking about purely the automotive, if there will be -- we are working and which just includes the defense revenue. And we have been concluded some defense projects. The only thing is that once the [indiscernible] will start only then we can count on that revenue.
Okay. So defense, we have got any orders. So that's what I was -- next I was trying to understand in terms of defense, what the update have you got any orders out there?
We do have the orders of defense, and we are pursuing those. And hopefully, we should be able to deliver some this year and be able to build this year. But it all -- this is the first time it's happening. So it depends on the quality test and the other issues all the formalities that we are going through. So that we are very excited about. And now the only thing is that everything till is done, it's not done. And so we are not including the defense orders as yet.
Okay. And what would be the quantum?
Quantum the business that we are talking about defense ranges. This year, we are talking about close to about 100, but it depends on the billing.
This year, FY '25.
'24.
FY '24 INR 100 crores of defense revenue, right? We are targeting?
That is what we have removed at the moment. Otherwise, we would attached INR 2,400 crores, and we have moved it because we will have goods ready, but the shipment -- but that actually that's a big -- we are pursuing it with the defense people. And the scope that is there for the coming years, it is close to about INR 300 crores to INR 400 crores that would be added we are still on it. Until it comes in hand, we will not announce it.
Okay. Okay. So here, I'm a little confused. I mean where we are stuck. I mean, since we are working on these orders, so are we executing it and there is some approval or check or system where we got stock because of which we are not able to deliver?
The first one is the first time we are executing those orders and those orders they go through the cycle of the quality checks and they have the defense department are somewhat inspected. So that cycle, we are a little uncertain but we will be able to complete it by this year. If we completed, of course, we are going to do the billing.
Okay. So it might spill into next year. I mean this order.
Might spill into next year. That's the reason we are not adding it.
Fair enough. And just last thing, in terms of margin, how do we see that? I mean we have seen some improvement in margin this quarter. So what would be our outlook for fourth quarter and FY '25? That would be from my side.
We've been working on this. And as we have said earlier, every quarter, you'll find some approval taking place, that's a clear thing. There are a lot of work which is happening on the Renault Nissan front also, we have drawn a lot of equipment out of whatever investments we have done for them. Because we -- for the quarter-to-quarter, there are sales that are coming down. So we have removed a lot of equipment which can be utilized for all the new orders that we have received.
Okay. So this 11% margin is what we are looking, can be considered as a base and we look to improve upon that particular number going forward?
Certainly, you'll find better number next quarter.
[Operator Instructions] The next question is from the line of [ Kabir Shah ] from -- an individual investor.
[indiscernible]
We are losing you. Mr Shah?
[indiscernible]
We are losing you still, we are not able to hear properly.
Okay. So I believe the debt repayment of this quarter was INR 50 crores. So just wanted to understand from your perspective, how does this net guidance go ahead? And like what is the repayment schedule over the coming quarters? And is there any incremental that we are planning to take? Or how is that going to be offloaded?
Yes, Mr. Shah, this INR 50 crores reduction is during the 9 months, not during this quarter. As far as repayment is concerned, we have made repayment of INR 70 crores till now. And by the year-end, it will be in the range of INR 55 crores that we would have paid. And similar amount, we'll be repaying next year also. So this downward trend in debt will continue. And so that is why we have mentioned that.
Okay. Okay. So over this repayment schedule, we aren't planning to take on any [indiscernible] over the foreseeable future?
Yes. See, our kind of business, we may have some maybe requirement for some greenfield projects if some new business comes to that extent. So if that is the case, we will go for new debt also, if required. But otherwise, we are not planning any new debt. And we are in the phase of reducing our debt quarter-on-quarter.
Okay. Okay. And just in case if there's any opportunity arising in the greenfield side like you mentioned, how much would be the corpus of debt just in case that opportunity arises?
See, there are two things there. And one is we have been able to free a lot of equipment from the current -- the components that we are supplying to our various customers. One is like Mr. Verma had mentioned, this is the old small orders, which are left with us, which we have discontinued, putting that equipment up and we're also putting a lot of equipment from Renault Nissan project. And that itself has actually helped us to cover up almost about INR 70 crores, INR 80 crores of investment that was applied to be done for another project for Toyota.
And that we've been able to -- we don't need to fund that at all. And the equipment could be pulled out from the current -- So similarly, the orders or the new orders which are coming those, we are trying to cater through our current equipment or whatever equipment we are freeing from various -- equipments and also the various program, which are coming down. And -- but a greenfield project might need to come up somewhere so which we are actually scouting for land there. We will ask by Toyota and their SMBs to set up a plant close to them. So we are studying that possibility.
The next question is from the line of Sushant Varma a Retail Investor.
I guess the numbers this quarter are better than last time. I think that thing was more of a shocker, and we all know the reasons. But do you see that I mean, based on this quarter's assessment, do you anticipate a better calendar -- sorry, financial year next year as far as auto industry is concerned?
Yes. Yes, certainly. Certainly, we find there's a lot of traction there. And fortunately, it is also for the more expensive model.
Okay. Okay. So that's good to know. And the second related question would be, since you've mentioned about -- I think Mr. Verma mentioned about the negotiations with Hero have been taken care of and everything is sorted. So does that mean it's more business? Or was the quantum of business compromised during the negotiations?
So it's more business even in more business.
Okay. So that essentially should mean that our margin is likely to have a positive impact going forward. Is that a fair statement?
Yes. Certainly. You see last quarter what do you see as change?
No, no, that I understand. You are presenting the overall picture. I was specifically talking about it because last time you did mention that it was that the negotiations are going on, so not concluded it. So that's the reason I had that question. Then the last question is about the defense deal itself. You said it's a 10-year agreement, right, if I'm not mistaken?
No, no, no.
Okay. So what is the transfer of technology can you please elaborate...
I think you are referring to the previous tender that we had applied for. That was INR 10,000 crores tender and later on reduced to INR 6,000 crores, INR 7,000 crores. And that tender got withdrawn after 4 years. That was INR 10,000 crores that we had. You're probably referring to that. But what I'm referring to you now is that the items that we are going to be producing these ranges, et cetera. Those are -- this is, I would say, about INR 300 crores to INR 500 crores turnover businesses. For which we are very aggressively bidding and we are right in the forefront.
Okay. So maybe just to correct my understanding, since I probably mixed it up, you are talking about the transfer of technology, I mean through the engineering subsidiary, is that the deal that you're talking about? Or am I still getting mixed up?
So that too -- that's also there. And plus also there are other businesses which have been won and which we are executing at the moment.
No. So I'm specifically wanting to know about the TBRL whatever agreement that you had, the licensing agreement, which says the agreement is for 10 years, right? I think that was the update, which you had shared?
That is the TBRL agreement, yes.
So what is the quantum of business that we are likely to get from that arrangement?
It's a bidding process. The total business, we look at over 10 years, where it could be in the region of INR 6000 crores to INR 7,000 crores and even more than that. Those are the estimates that have been given to us. And we, of course, got the bid for those.
Okay. And is that one -- that could be a probable reason in case we win more within that, then that would lead to higher revenue for the whole year, correct? I think that would be a fair assumption if we have been...
That the whole thing changes -- then the whole thing changes...
The next question is from the line of [ Rutu Chawan ] an Individual Investor.
I just wanted to understand the DRDO deal in better. So can you shed some light on the same.
So I'll ask my colleague, Mr. [indiscernible] to...
So with DRDO, the TOT is for -- TOT is for a product called Baffle Range and it's specific to that. And Baffle Range is really in the range which by definition means the [indiscernible] of an area. So DRDO being a report and development organization. They through the year ongoing, have multitude testing of products, criteria, the product can be anything specific to them what they test through the year. So anything which can be tested due to the sheer number in a smaller area and indicator, it would have a higher turnaround time and that is the TOT to manufacture such a Baffle Range.
Okay. Understood.
We have got to set up one of the Baffle Range in one of our plants, and you all are free to come and see and visit it.
Also, what is the total order book that we have on our books right now and the execution time?
For defense or for the automotive company?
For defense.
The order for defense at the moment is about INR 200 crores, which is in hand and the others are in the process of bidding. And this is the ongoing process and once the delivery start, then, of course, this will keep on multiplying. This is not part of the Baffle Range, these are over and above that.
Okay. Okay, sir. Also, one last question. In terms of domestic sales and export. So I just wanted to understand what is the split that the company is expecting in FY '25?
In normal this split in our case has been around 27%, 28%.
So is it expected to remain the same?
Yes. By the year end I think it will remain around this level by this year.
By next year, we talking about next year.
Next year, I think it will further improve.
Yes, definitely, there will be the improvement in the percent -- in the share of business in next year. Because we are in the process of launching a couple of programs for the export customer, which will get -- go into the SOP by the mid of next year.
Having said that, we've also won a lot of domestic businesses, which will also be launched. So we are bidding on both ends, both the domestic as well as exports. So at the moment, it is export, which is where we run a lot of businesses.
[Operator Instructions] The next question is from the line of Neha Sharma, an individual investor.
So I have just one question. What is the outlook of the defense. Where do you see the business going ahead?
I think the government of India is promoting a lot of localization and they want made in India, that's what their target is. And so a lot of opportunities which are coming up. And we are in it, and we have been selected by various teams -- so that they can promote our company for -- to get into better -- more and more defense deals. So a lot is happening there. And -- but still it's done, we are unable to commit as to what -- how much business will we get.
So as it gets done, probably next quarter, we might be able to give you a little better idea of the business that we are getting into immediately and also what other business that we are targeting for the future.
And the next question is from the line of Sushant Varma a Retail Investor.
I have joined in again after asking the first set of questions. This -- the Lok Sabha elections, I think, is that likely to impact the awards or what are the projects which are -- which will get rolled into, I mean, rather rolled up. So do you think that is going to have an impact? Is there...
Little bit is there. Are you hinting that if there's a government change, then will that be a...
No, no, not government change. No, that's not what I meant. I said that when they announce the date, usually, there is a cool of period, they cannot issue any new orders or whatever. So is that likely to impact our projections?
There are two, one is tenders that comes out and the -- there are other which are revenue and capital proforma, but they have direct right to do. So that doesn't stop in that content.
So it's only the new business, tender process, which is -- which will be impacted because of the -- but not the existing ones.
No.
I think that was a clarification, which I wanted. That's why I joined.
The next question is from the line of [ Harshil Solanki ] from Equitree Capital.
I had one question on the artillery fuses. So we were expecting the tenders to come out in some months. So where are we on that tender. And Bharat Electronics won a INR 5,000 crore orders for fuses in December. So is it 8 or more tenders are expected for this? Any clarity?
Yes. So electronic fuses is a huge requirement by the year. And for the last maybe 4, 5 years, the impact directive was for -- apart from [indiscernible], which we are participating for private companies to get into and that endeavor has been carrying on, which will stop after 4 years, wherein it was [indiscernible] for whatever reason the government thought. And as of right now, so when you say Bharat Electronics, that's again a DPS fuse, that is still sufficing with the ongoing need on a yearly basis, which is needed by the army. But the entire [indiscernible] and the entire direct sales for private companies to get into it for a whole lot of positive reasons. That drive is still on and we look forward to actually hearing on a positive note on the next opportunity on that.
Okay. That INR 10,000 crore opportunity has shrunk or it is still vacant for the private players?
If you look at the fuses, the opportunity is more than INR 1,000 crores. But that tender in particular, that we were discussing that tender, that has got withdrawn that has got scuttled. And now what is happening here, it is on a yearly basis that the orders have been given to these PSUs.
So we see that the opportunity was over 10 years, but obviously, our demand has been created for every year. And there is no private company which has really gotten into that need, which is what the government was endeavoring to do for the last 4 years. So as we see, there is no private company, and we are one of the 4 leaders in actually leading that with having everything tied up for delivering that product. So as we speak, we are still hopeful to actually being the first company who will actually be able to do that. As of right now, the [indiscernible] has to meet that ongoing need of the Amy, which is in every year. And that is something that we've been doing for the last 15, 20 years and this is status co.
So in one of the meetings I had mentioned that if we don't get the order directly, will become sub vendors. They'll have to come to us in any case. So that process is also on and we would be supplying some components to these companies. But we are not happy about. We would like to have the complete [indiscernible] in any case.
Okay. Just one last thing. In future also, if the private players get any contract, it would be annual and not 5, 10 years single contract. Is that the right?
They'll have to ensure a little longer period. The reason being that there are investments involved and they cannot give it only for 1 year, they will have to give for 2, 3 years or 4 years.
Because the fuses is an ongoing demand. This will continue, right. In fact, for the last 2, 3 years, the Army actually was running short of the fuses because all the standard we had -- which is supposed to come out and for some reason or the other it got scuttled.
[Operator Instructions] The next question is from the line of Rohan Desai, an individual investor.
Just wanted to ask that can you just tell me that why the performance is flat on a Y-o-Y basis?
The #1 reason is that we restricted our supplies to Hero because of the price negotiation, which were going for the first 2 quarters. So now we have got that settled and we are pushing our sales to them. That's the thing. So -- and the second, as we mentioned it earlier also in this call that we have basically be struggling with the supplies for one of our customers, primarily with Renault Nissan because of the less pull what we supplied last year or we just forecasted for this year.
There is a tremendous drop in the forecast as -- versus the actual supply.
Less than 50%.
Yes. Less than 50%.
But we are taking advantage of this and that we pulled out all the equipment -- both of the equipment and we are going to start utilizing for all the new orders that we have -- new launches that are happening.
And also, we have started pushing our sales to Hero so that whatever that we can recover in the next 3 months, we can do that.
And the next question is from the line of Mr. Varma an individual investor.
Lot of my questions already actually answered. As you said like couple of [indiscernible].
Mr Varma we can't hear you too well.
Are you able here me now?
We can hear your voice but clarity [Foreign Language].
Okay. Sorry, I will just ask it again. Basically, what I'm asking is like you need to, probably you may need to improve on the communication on the estimations that we provide because for your last 3, 4 quarters, we are actually underperforming on what we [indiscernible]. So going forward probably you may need to be a little bit total on that because market is expecting something and we are not [indiscernible] reaching expectations.
The CapEx return should [indiscernible]. That is one thing I want to highlight. And the second one is the margin improvement is basically because of the commodity price reduction or it's operational action team. Because if it is the operational expense then going forward, also we can see the same [indiscernible]. If it is a commodity related then probably [indiscernible], right? It will go back to again the 9% that we got early.
No, it's mainly because of operational efficiency. And if you see our labor cost -- manpower cost is somehow aggressive and we are still working on it. And by March, you will see further improvements.
Okay. Okay. So on operational since then, I think it will be permanent. So that the reason I just want to get confirmation. The second one is like the defense from, I think [indiscernible]. That's for plantation like Baffle Range system, like how many tenders usually the government release per annum? Not about how much is that? Per annum and like how much do they usually release this around?
See, the items that we are making, they go to Navy, they go to Airforce. They go to the Indian Army, they go to BSF, they go to CISF. So all these organizations, they have a demand for these. So we will be supplying to all of them.
Got you, sir. And the last one is, do you think any improvement on the business side? Because if -- because I'm a long-term investor [indiscernible] agreement we have go. Pretty much every other year, we have some difficulties in price in terms of the revenue. And we pretty much unpredictable business with them. So [indiscernible] do you think is really what [indiscernible] from the business end.
We are not very confident of Renault Nissan is actually doubling their requirement. So that's the reason we pulled out the equipment so that we can utilize it as well. And because we kept on -- they kept on interesting categories we keep the capacities alive. But now we have broke up that we are withdrawing all the capacity. So whatever -- wherever we require them, we're going to utilize them. And the [indiscernible] machines are fungible, they are probably flexible, so we can actually ship them without much investments.
And is there any kind of disruption in shipping or because of the Red Sea conflict that is ongoing [indiscernible] cost increase in the expense that we do in [indiscernible] Europe?
Yes. The time taken to reach Europe and the U.S., that has gone up by almost 2 to 3 weeks. The shipment cost is obviously higher. But there's no premium freight like we had done in the past. We were lifting goods by air and all that. That is not happening. We were fortunate. We had enough at the sea and also in our warehouses in Europe as well as in U.S. So we are very comfortable with that, and we are okay.
Okay. Yes, that's right. But just a...
Just to add a point here, whatever the exact rate, we've already started telling the customer, and we have negotiated with them to get the extra rate from them.
Perfect. Just one last, I just want to highlight. Going forward, I think it will be great if you can actually -- the projections and are a little bit careful. So that's not like [indiscernible].
We've noted that, and we'll be very transparent in whatever we are communicating.
I don't see that we are not transparent, but I think like to the production side probably we need to work a little bit more on the kind of case that it's going to happen or not. That's what this something.
We -- our projections are based on back-to-back on our customers. And sometimes the customers let us down and then like we did try to cover up by selling to the other people, which we are still pushing a lot because next year, we've actually discounted Renault Nissan a lot, and we've shipped the capacity, and we are counting a lot on other customers and they are pushing a lot there.
Okay. Because [indiscernible] since last time [indiscernible] this company, just want to [indiscernible] new highs, but we are actually starting the same range in terms of revenue and profit that's the only concern I'm having [indiscernible]. I just want to highlight the concern.
And the next question is from the line of [ Mihir Thacker ] from Prithvi Finmart.
Is there any update on the land sale that you were looking for?
We have 2, 3 companies working on it. At the moment, nothing solid, which is in our hand, but it is in the market.
Okay. Okay. And just wanted to add on to the previous participant's comments regarding the communication of the guidance. In the previous quarter also, you were sure that you were going to achieve a INR 750 crores of revenue. Just wanted to say that to be more transparent in terms of communicating the guidance. And are you sure like for this quarter also, you're guiding INR 800 crores of revenue, it would be achievable like we are sitting in the middle of the quarter?
[Foreign Language]
As we communicated, we are targetting the current forecast looks like that we will be doing INR 2,300 crores worth of sales, excluding defense and whatever we will achieve in defense, that will be add-on on INR 2,300 crores.
As there are no further questions, I would now like to hand the conference to the management for closing comments.
Okay, then thank you, everyone, and as we discussed and clarified that, we are working very aggressively on the cost reduction front and trying to basically launch the new programs to enhance our revenue. And as mentioned that, you will always see some improvement going forward, improvement on profitability. Thanks, everyone. Thank you so much.
On behalf of Rico Auto Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.