RICOAUTONSEQ3 FY2023February 20, 2023

Rico Auto Industries Limited

8,976words
214turns
10analyst exchanges
7executives
Management on call
Vijay Gyanchandani
S-ANCIAL TECHNOLOGIES
Arvind Kapur
CHAIRMAN, CHIEF EXECUTIVE
Kaushalendra Verma
EXECUTIVE DIRECTOR - RICO AUTO INDUSTRIES LIMITED
R. K. Miglani
EXECUTIVE DIRECTOR - RICO AUTO INDUSTRIES LIMITED
Rakesh Sharma
CHIEF FINANCIAL OFFICER - RICO AUTO INDUSTRIES LIMITED
B.M. Jhamb
COMPANY SECRETARY - RICO AUTO INDUSTRIES LIMITED
Vijay Gyanchandani. Please Go
ahead Sir!
Key numbers — 40 extracted
Rs.79
m that we faced was that the Euro had crashed and so we did have a lot of issues as far as from Rs.79-Rs.78 it came down to about Rs.70 and today it has again bounced back. So that is one challenge t
Rs.78
at we faced was that the Euro had crashed and so we did have a lot of issues as far as from Rs.79-Rs.78 it came down to about Rs.70 and today it has again bounced back. So that is one challenge that we
Rs.70
o had crashed and so we did have a lot of issues as far as from Rs.79-Rs.78 it came down to about Rs.70 and today it has again bounced back. So that is one challenge that we did face in the last couple
rs,
uction has taken place in all the projects that includes the Toyota, Maruti and even other customers, all the projects are in place now and we are in the process of ramping up and so the capitalizatio
Rs. 1.5 crore
d by younger, smarter people so we have done that and that is the reason for this onetime cost of Rs. 1.5 crores additional which has happened in that. In the finance cost, there was an additional Rs.1.5 cro
Rs.1.5 crore
s. 1.5 crores additional which has happened in that. In the finance cost, there was an additional Rs.1.5 crores mainly because of the Euro fluctuation volatility so Rs. 3 crores which is an additional expense
Rs. 3 crore
cost, there was an additional Rs.1.5 crores mainly because of the Euro fluctuation volatility so Rs. 3 crores which is an additional expense which we have incurred this time. Sales is as per what our expe
Rs. 121 crore
and in Q3 on export front? Arvind Kapur: This quarter if you compare it to the last year it was Rs. 121 crores last year quarter and this year it is Rs. 125 crores for this quarter. Nine months last year was
Rs. 125 crore
er if you compare it to the last year it was Rs. 121 crores last year quarter and this year it is Rs. 125 crores for this quarter. Nine months last year was Rs. 329 crores and nine months this year is Rs. 382
Rs. 329 crore
last year quarter and this year it is Rs. 125 crores for this quarter. Nine months last year was Rs. 329 crores and nine months this year is Rs. 382 crores. Aman Vij: For Q3 what was the number last year
Rs. 382 crore
25 crores for this quarter. Nine months last year was Rs. 329 crores and nine months this year is Rs. 382 crores. Aman Vij: For Q3 what was the number last year was Rs. 121 crores, for this year I could not
Rs. 333 crore
it’s one of our subsidiaries so the final figure for last year and this year is, last year it was Rs. 333 crores and this year Rs. 387 crores in consolidation. Aman Vij: My question was related to Q3, ther
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Guidance — 20 items
Arvind Kapur
opening
“In the domestic front now what we see for this particular quarter is that the two-wheeler is a little challenging and we are hoping that it bounces back and in the last meeting we had with the Finance Minister Madam Sitharaman we did request that two-wheeler is a common man’s vehicle and I think we requested that the GST should be brought down, which I do not think she is going to agree too well, but she says, I agree with you, but I do not know whether I will be able to do it.”
Arvind Kapur
opening
“On the EBITDA front, we had assured you that we will be in the double digits, we have come into the early double digits and you will see an improvement even in the next quarter and also the quarters that will come in the near future.”
Arvind Kapur
opening
“We had given a target to you all that is what we internally want to achieve.”
Arvind Kapur
opening
“We are very confident that we will achieve that.”
Arvind Kapur
opening
“The one project that we had mentioned to you earlier was on the fuses and we are fighting for it, for the last almost four to five years, but there is a ray of hope, it was getting delayed but now I think they are again going to call all of us about testing, that is the latest information that we have and earlier we were told that they were only going to ask the public sector undertakings to do it, but since our protests they have accepted the fact that they will also put us through the testing.”
Aman Vij
qa
“So if you can give a rough breakup in terms of geography, also what was the sales growth in different geographies for Q3 as well as nine months and also what kind of growth are we seeing for the next year, if you can talk about that on export side?”
Aman Vij
qa
“In terms of Q4 what kind of growth are we expecting in exports as well as for the full year FY2024 next year what kind of exports number do you think we can reach?”
Aman Vij
qa
“Combined do we expect any sales in defence segment in FY2024 that is next year or only in FY2025 we will see some sales?”
Aman Vij
qa
“The trial will be common for this army, navy and all those things which will happen?”
Aman Vij
qa
“Navy requirement will be how much compared to army like half, one fourth?”
Risks & concerns — 10 flagged
On the export front I had mentioned to you earlier that it had become a big challenge and about a year back we were air freighting, etc., mainly because the shipment time that was being taken from India to the US as well as Europe that had almost tripled and in the case of US there was total jam at the docks and also the railways are not picking other materials than locally.
— Arvind Kapur
So it had become a challenge and so we had a lot of material on the sea, so that we do not have to air freight it any further.
— Arvind Kapur
So that is one challenge that we did face in the last couple of quarters and we are hoping that this would remain stable now and there won’t be any surprises that we would see.
— Arvind Kapur
The car industry is doing very well, the commercial vehicles are doing well, the exports are doing well, and off-road vehicles also well, and the challenge is only the two-wheelers now we are hoping that they would also start picking up.
— Arvind Kapur
It is very difficult to define content per vehicle, I will tell you the reason for that.
— Arvind Kapur
In some vehicles we would be 20%, in some places we will be 1%, 2%, 5% that varies from vehicle- to-vehicle and model-to-model, so it’s very difficult to define the vehicle content.
— Arvind Kapur
5 lakhs, 7 lakhs, 10 lakhs onwards, then we supply parts to BMW, now BMW vehicles are in crores and plus so how do we define what percentage of the vehicle it is, so that becomes another challenge.
— Arvind Kapur
Even though the parts are always double the price of the parts that we supply to Maruti’s and others, so it was very difficult to define that.
— Arvind Kapur
So they said that they have a problem with the magnets, which are imported either from Japan or from China, and getting delivery of those definite delivery materials last year they are ramping up so that is the challenge they are facing.
— Arvind Kapur
Ferrous side is a challenge but now versus the new which is I think there is a tremendous change that will come there.
— Arvind Kapur
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Q&A — 10 exchanges
Q
Good afternoon Sir, my first question is on the export side. So if you can give a rough breakup in terms of geography, also what was the sales growth in different geographies for Q3 as well as nine months and also what kind of growth are we seeing for the next year, if you can talk about that on export side?
Arvind Kapur
If you split up US and Europe it is almost 50:50 not exactly 50:50 but almost 50:50 in the export front. For nine months, what was our number this year versus last year and in Q3 on export front? This quarter if you compare it to the last year it was Rs. 121 crores last year quarter and this year it is Rs. 125 crores for this quarter. Nine months last year was Rs. 329 crores and nine months this year is Rs. 382 crores. For Q3 what was the number last year was Rs. 121 crores, for this year I could not get the number? Rs. 125 crores. So the question was regarding this only, so there was not much
Q
Thank you for the opportunity and congratulations for the great set of numbers. Sir firstly my question is on the overall topline growth so for FY2023 when we talk last time we were having targets of around 29% growth so if I’ll compare it from FY2022 around and then Rs. 1,800 crores of revenue so we were targeting around Rs. 2,400 crores of revenue for FY2023 and roughly around Rs. 3,000 for FY2024, so if I look till nine months with this roughly around Rs. 1,700 Crores of revenue so is it possible for us to clock around Rs. 700 crores of revenue?
Arvind Kapur
The first time we had set Rs. 2,350 crores that is what we have done, but subsequently we did say Rs. 2,400 Crores and because we were trying to push our teams that we should market as much as we can and that time we were also thinking that the two-wheeler industry will also pickup. Unfortunately that is not picking up and because we have all the capacities no investments are required for the two-wheeler industry if they double the production we can start to supply double from the next day. And anyways we are still working on it, we are not giving up, but Rs. 2,400 crores still remains the tar
Q
Good afternoon and thank you for the opportunity. I have a few questions firstly if you could help me understand you said that exports for the quarter were at broadly similar levels as the last year same quarter. So if you could help me understand that is it primarily inventory which is causing this impact because we have been sort of expecting that the export business is on a strong trajectory and that you won new orders so what exactly is driving Y-o-Y slower growth in the export business and in that context for FY2023 what is your expectation now for the export business?
Arvind Kapur
The last quarter in any case for export is always on the lower side. Actually I am just comparing it Y-o-Y so I am assuming that the seasonality existed in both the periods, so I am just trying to understand in that context, what is driving this slower growth? The last quarter in any case is low, but we are also adjusting for the inventory that surely there because we had almost three months of stock in transit and also in our warehouses, so we were trying to reduce that because we are required to maintain one month stock there. So we had almost three, in some cases four months of stock which
Q
I am already glad that most of the things that we are doing is already in line with our estimates and our guidance except for the two-wheeler and the euro part. I just wanted to know if the margins in the upcoming defence segment is it going to be something different than what we are already doing now, that is the range of 9% to 12% is it going to be something different from this?
Arvind Kapur
Defence is always much better than the commodities of the auto industry. Auto industry components are known as commodities. The defence is always much, much better. Any ballpark figure, like in what range like 10% – 15% or15% - 20%? I cannot really comment here. I understand it is too early to give us guidance but I just wanted to know this because you already do not have any order book figure so we would not be able to figure out anything. Where we reported we kept a margin of almost 22%-23% the last year. Then there was a fluctuation in the price of steel the margins actually came down and n
Q
Thank you very much Sir for the opportunity. I just wanted to understand first now in terms of margins you said that quarter-on-quarter we should see margin improvement so I think earlier we had quantified in the range of 50 to 100 basis points increase in margin on a quarter-on-quarter basis so how do we see that as we speak now?
Arvind Kapur
I do not remember really defining that every quarter you see 50 to 100 basis points but we said that every quarter you will see an improvement and we have been touching double digits by the year end, but we are happy to do it now despite the sale being lesser than the previous quarter and this current quarter would be even better than that and next onwards you will see further improvements. A lot of things that we have taken up that have been done here. To give you one simple example I am getting a little technical now, in the iron casting area we had yields of up to 45%, 50%. We have been abl
Q
Sir, tax rate including the default will be 25%?
Company Speaker
Yes, once we adopt the new scheme. Now on the balance sheet if you see it is 24% around that range it will remain like that, but that is not the actual cash outflow that is going and if you see our cash flow there is very less amount of tax as compared to what is appearing in the P&L account because of the deferred tax liability. What should be the including deferred tax liability next year? Ultimately it should be in the range of 25% because once we utilize all our credits we will adopt a new scheme… Next year what it should be Sir, it should be 30, 25? In P&L it will be in the range of 34% o
Q
Good afternoon Sir, congratulations for the reasonable set of numbers. My most of the questions are being asked about the export and interest and depreciation. Now couple of them which are left is for Jinfei how much we have reached 4 million capacity what is the capacity utilization in Jinfei and Fluidtronics?
Arvind Kapur
The total capacity in Rico Jinfei is 4.5 million and at the moment we are at about 2.2-2.3 million at the moment and this year we will be further increasing the capacity because we have started talking to all the customers now. Earlier we were with Bajaj and Hero now we are adding on Honda and the scooters also. So overall you will see the capacity going up. By FY2024 should we reach around 3.5? The targets are 3 - 3.5 we will definitely reach because it is a volume game, the more we produce the better profitability. What about Rico Fluidtronics? Fluidtronics in fact last year the turnover is
Q
First of all thank you and congratulations for the wonderful set of numbers. My most of the questions are already answered. Just one thing I just want to know. What is the 2 or 3 year plan the company has set aside in terms of the revenue and the margins we have already mentioned that you will be in double digit margins so let us say by 25 or 26-27 what is the view of the management?
Arvind Kapur
We would like to grow by minimum our internal thing is that we should go minimum by 15% year-on-year but this year of course we are growing higher than 15% we will be around 25% plus and next year also I think that even though 15% was the internal target we will grow more than that and thereafter that again 15% is what we factored at the moment that is what we are getting but we will surprise you, we will do much better than that. So would it be fair to assume that, not 25 as you have grown this year 25 so it would be fair to understand it 20% is a fair enough number? Yes. That is very nice. T
Q
Good evening. Sir I just had one question on the defence side, I just wanted to understand that what all products we do on the defence side apart from fuses?
Arvind Kapur
See, one is the fuses of course and then one is the firing ranges that I had mentioned and then there is an automatic system for the tanks that we are bidding for. These are some of the things that we are very actively involved at the moment. So what would be the revenue contribution from the defence last year and this nine months? Now it is very minimal, but defence has started, such a challenging, it requires so much patience and many times. We had given it 7 years before we really penetrated into the defence and now since we have been honored for that many years now we are getting more and
Q
Thank you so much for hearing us today and we hope to give you even better results the next time, and I was happy to announce the NCLT the new merger that has been approved just today itself and I think that will other help to improve some of our numbers and we are hoping that will give you better and better results in every quarter. You see a change every quarter. These are all 100% subsidiaries of Rico which will start merging into Rico that will happen now and subsequently we are looking at the possibility of merging all the auto components into one, but that is later on days. Thank you so
Management
Speaking time
Arvind Kapur
76
Pritesh Chheda
30
Company Speaker
24
Aman Vij
17
Deepak Poddar
14
Moderator
12
Riken Gopani
11
Raghvendra Goyal
10
Mukesh Modi
8
Suraj Nawandhar
5
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Opening remarks
Vijay Gyanchandani
Thank you. Welcome to Rico Auto Industries’ Q3 FY2023 Earnings Conference Call. From the management we have today Mr. Arvind Kapur – Chairman, Chief Executive Officer & Managing Director; Mr. Kaushalendra Verma – Executive Director; Mr. R.K. Miglani - Executive Director; Mr Rakesh Sharma – CFO; and B.M. Jhamb – Company Secretary. Now I request Mr. Arvind Kapur to take us through the key remarks after that we can open the floor for the Q&A session. Thank you and over to you!
Arvind Kapur
Good evening. My name is Arvind Kapur and I welcome you all to today’s conference. The third quarter has been as per what we had expected, except one or two changes which came about because of mergers that had happened I will talk about that also. The third quarter normally the month of December especially is a little slow because most of the OEMs have a shutdown and for a week or 10 days there is almost zero production, and also in the market because of the model change in India, we regard this year as a model change, from 2022-2023 so people have a tendency of buying lesser vehicles at the end of the month so that is the reason that most of OEMs also shutdown their plants. By and large it was as per expectations and both in the domestic front as well as in the export front. In the domestic front now what we see for this particular quarter is that the two-wheeler is a little challenging and we are hoping that it bounces back and in the last meeting we had with the Finance Minister Mad
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