Rico Auto Industries (NSE:RICOAUTO) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Rico Auto Industries Limited Q2 and H1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. This conference call may contain forward looking statements about the company, which are based on beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. From the management, we have with us today mister, chairman, CEO, and managing director, mister Rajesh Kumar Midlany, executive director, mister, executive director, mister chief financial officer.

1:00 I now hand the conference over to mister, executive director, for his opening remarks. Thank you. Over to you, sir. Thank you so much. Good evening, everyone, and thank you for joining us for the Q2 FY 'twenty seven earnings conference call of Rico Auto Industries. I hope that you have had the opportunity to review our financial results and the investor presentation, which is available on the stock exchanges and also on the company's website. I would like to begin with a brief overview of the global economic environment, the automotive industry and our business performance, following which Mr. Navin will take you through the operational and financial highlights for this quarter. The global economic environment remains challenging with the ongoing conflict in The Middle East affecting energy prices, shipping routes and supply chain. These developments are leading to higher transportation and input costs for the business.

1:54 While India continues to benefit from the resilient domestic demand and infrastructure spending, global uncertainties and rising costs remain important factors for manufacturers to navigate. The Indian automotive industry continued to register healthy revenue growth in Q2 FY twenty twenty seven, supported by resilient demand and strong sales volume across segments. However, profitability has not kept best with the revenue growth, higher logistic costs and other operating expenses continue to weigh on margins. Against this backdrop, managing cost pressure, improving operational efficiencies and protecting profitability remain important priorities for the industry. During the quarter, disruptions along global shipping routes significantly extended ocean freight transit time to maintain supplies to our key customers where we are specifically the single source supplier on couple of new program launches where the end customer is Toyota and BMW in the Europe and North America.

2:59 That has resulted in additional cost and affected short term profitability, but it helped us to meet our supply commitments during a challenging period. With this inventory now with the inventory level now reaching the desired level, we expect the shipments to reduce and shipping patterns to normalize from Q3 onwards and moving towards the sea freight from the air freight. While leading OEMs, we have built long term standing relationship through consistent execution, product quality and reliability. Our role as a single source supplier on key programs carries a significant responsibility to ensure continuity of supply even in challenging operating conditions. Our ability to uphold these commitments reinforces customer confidence and strengthen our position for future collaboration on new programs.

3:49 We continue to engage with customers to recover an appropriate portion of the additional air freight cost with one customer having already agreed to contribute towards these costs. Looking ahead, we remain focused on achieving our FY twenty twenty seven revenue target of more than INR 3,200 crore. The ramp up of ongoing programs and improved utilization of our manufacturing capacities will be the key contributors towards this target. At the same time, our focus remains on addressing cost pressure and improving profitability as we progress through the second half of the year. We continue to review our product and customer portfolio with a sharper focus on program profitability, sustainable margins and returns on capital employed.

4:36 Our efforts remain directed towards improving the profitability of our programs, driving cost efficiencies and enhancing the utilization of our existing assets. Through these measures, we aim to strengthen the underlying profitability of our business and ensure that future growth will deliver sustainable returns. With these remarks, I would like to hand over to our CFO, Mr. Navin Saurot, who will take you through the financial and operational performance for the quarter in great detail. Thank you. Good evening, everyone. I will now take you through the financial performance for the half year and the quarter ended on 09/30/2026. Consolidated quarter two FY twenty twenty seven highlights, revenue stood at INR $8.52 crores, EBITDA stood at INR 9.3 crores, PAT stood at negative INR 26.3 crores.

5:31 Consolidated H1 FY 'twenty seven highlights, revenue stood at INR $160.07 crores, EBITDA stood at INR 46.9 crores, PAT stood at negative INR 29.7 crores. Coming to our segment wide performance, aluminum casting contributed 89% to the revenue, whereas ferrous casting contributed roughly 11% to the revenue. Export for the quarter grew at 16% of the total revenue. During the quarter, profitability continued to be impacted by elevated operating costs. These cost pressures continue to weigh on the operating performance despite the strong underlying revenue performance. In the current operating environment, our priority remains on strengthening the quality of our business by focusing on programs that offer sustainable profitability and better returns.

6:23 We are placing greater emphasis on reviewing customer and product economics, improving cost competitiveness and ensuring optimal utilization of our manufacturing capacity. We are also pursuing initiatives to enhance productivity, streamline operations and improve execution across our facilities. Through these measures, we aim to strengthen the underlying profitability of our business, improve capital efficiency and ensure that future growth translates into sustainable returns. Thank you. Sir, can we start the question and answer session? Yes, please. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch tone telephone.

7:12 If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of from. Please proceed. Yeah. Good afternoon, sir. I have one question, the obvious one, to mister Kapoor. Sir, we we have been facing this asset cost and all those stuff many times in last three... Two, three, four years.

7:58 Now we have been a veteran for auto component industry and multi decade experience. So what are we planning for a long term solution whereby, you know, this kind of... This... I mean, such a big fluctuation in the price of the operating cost and all that. How can we mitigate to a minimum level, you know, with your experience? What is our long term strategy, which you can highlight? That will be great, sir, because 40 is a pretty big cost we have paid. This INR 40 crore that we paid is for the air freights we had to do because of our commitment to the customer And because of the shipment delays for U. S, it normally takes about five to six weeks. It's now taking ten to eleven weeks to get the goods there. So that means we are required to have extra material of almost a month extra on the sea. So earlier, used to be about four to five weeks on the sea and four to five weeks at the at warehouses.

9:13 And now it is gone by almost fifty percent. And the then the delay of containers reaching the destination in the right time, they would say, okay, we'll get there on the tenth week, it will land up there on the twelfth week, declaring everything was a total chaos that was happening. The sea routes are changing on a constant basis. The sea routes are changing on a constant basis and the sea freights are going up on a constant basis and the air freights also became a challenge And we had to find new routes to get the materials to The U. S. Now we could not stop the lines of the customer. We paid a very heavy price with this only because of our commitment. And because it was BMW and Toyota, we had to stand by our commitment.

9:59 Now what has happened is that we jacked up the capacity of these supporters, which are going by sea, which are being airlifted. So parallelly, we were shipping by sea and also shipping by air. Now those containers are getting there. Unfortunately, it's taking them almost ten weeks to twelve weeks to get there. From November onwards, you will see that all both of the containers start leaking there. And after November, there'll be zero air shipment that would be required to be done. And we'll have enough stock in the pipeline and also stocks in our warehouses so that the customers can actually be fed from the on just in time basis. This is a onetime cost that we had to bear because of the chaos that was created. And hopefully, with the change in what is happening in The U. S, hopefully, things should calm down and the price will come down, the timing should come down. Today, the time to ship from India to The U. S. And to Europe is exactly the same. In fact, Europe, sometimes because we've got to go by Gurto, it is taking us even longer.

11:03 And it is more expensive than shipping to The U. S. So all these chaos is happening. Besides that, because of the Middle East crisis, the carbide prices went up, our tooling costs went up. And the raw materials, of course, went up raw materials are passed through, but there are a lot of other things which were not passed through. We have started getting some increases of prices as far as the fuel is concerned, the aluminum prices are concerned, the iron prices are, yes, still being negotiated and the general price increase because of inflation that has happened primarily because of the labor increases, etcetera, which has happened. So all those are in the pipeline. There's a we started getting we've already negotiated with all the customers both in the domestic market and the export market.

11:50 In the domestic market, we've already closed with two of our customers and the others, I think, hopefully, by end of our end, we should cover up most of the customers. By December mid December, after that, the Europeans go on holiday, we are trying to close even BMW and also The U. S. So we are working on it. And this is unnecessary thing, which really hit us this time. And like last time, I also mentioned, the other problem was that there were almost 50 launches that we had to do in a very short time. And in that launches, because there were 50 new items being launched, and there was some kiosk there also. This is the reason this has happened. But we have plugged it absolutely now, and we are sure that we will be out of this now.

12:40 We had to pay a very, very heavy price. This is a onetime cost that has happened, but we assure you that it will never happen again. Unless, of course, there's another war and the shipment stop and all that happens, we are fairly confident that we'll get over this. Yes. Thank you. And it's quite appreciable, no doubt about it, that we have to fulfill our commitment being as a source supplier. But let me tell you, we've also taken up the customers and customer recovery. In one of the cases, we've already started getting the recovery, like KV mentioned. And we are looking for this premium phase that we had to pay by air. We have started talking to the customers for participating in that. All that the shippers got delayed.

13:27 That's good, sir. And so sir, mean, at least for Q4, we should not be I mean, we should not consider about all this test this stuff, correct? No, no, no, no, not at all. Not Not at all. That's... Okay. Okay. This this was my only. Nothing else. Thank you very much, sir. And I will No, no, no. Are not able but this opportunity happened. Yeah. Right. It's it's okay.. Okay, Thank you very much, and all the best, sir. And happy to all of you, sir. Thank you. Thank you. Happy to all day. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Rohit Kumar from ADM Advisors. Please proceed.

14:23 Mister Rohit, your line has been unmuted. You may proceed with your question. Due to no response from the current participant, we move on to the next. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of, an investor. Please proceed. Hi, everyone. I want to be really honest with you guys. Like, this is really one of the worst quarter compared to last compared to last three years and last two quarters.

15:12 What has surprised me is, like, we always talk about so many targets in revenues, etcetera, but we never achieved anything related to profit... Net profit. Leadership is not just about giving instructions or setting expectations. Right? Leadership is about demonstrating the right approach, taking one of the time ensuring proper execution. I don't see any of those things in our team. Could you please answer me after this debate? Why anyone of you should be there and why we should touch you? Thank you. This is the first quarter we've had. And let me tell you, it's not been easy for us. And we've had sleepless nights trying to see how we could get out of the airfreights.

16:18 And the only thing is it is a commitment to the customer that kept us going. And the reputation we have with the customers so that our future businesses are secured with those customers. It's a very, very, very heavy price we are paying for. And now, of course, it is getting under control. And let me tell you, is mainly the new product development that actually happened and where we had the major issues. In the aluminum side, we've never had any issues. The way we were the shippers were in time and everything was okay. It was in the iron side, which are the heavier components and hence the more effort that we had to incur. So this has really hurt us a lot and this has shaken us absolutely, and we are working on it so that this never happens again. Besides that, because we had to do double our shipments, send by sea and also send by air, we had to increase the manpower, we had to increase the footprint and we had to whatever possible whatever we could do in our plant was cheaper than what are the air shipments in any case. So we went all out to expand the capacities to machine more and ship more so that we get out the air situation ASAP.

17:34 And it's taken out as wild to get out of this air shipment. But let me assure you, we are now we have full control over it, and we should be out November is the last. And we won't have any air shipments after that. And but we are sorry about what has happened, but this is the worst quarter that nobody is happy about. Yes, I understand. But I don't see any... We are having said that, like I said earlier, we've already started negotiating with the customers. One is for this premium price that we paid, the average we paid and also the price increases because of inflation, etcetera, and also whatever costs have gone up. For domestic customers, from two customers, we've already got it and the other customers we are negotiating.

18:23 The domestic market has been good by the way. And the growth has also been good. We've exceeded the industry, whatever the industry grew by. And the pricing increases that we've the cost increases that have happened, whatever can be passed to the customers, negotiations are carrying on. And hopefully, we would close another three or four customers by November end. And by December middle, should cover most of them. This includes BMW in Germany and also in The U. S. So we are working all out on this, and our teams are sitting there in the customer places and negotiating the prices. Sir, I'm really sorry to say this, but I don't see any improvements in management exuding these kind of issues.

19:14 So this is the second time happening in last three years, and we are again doing the same thing. So in the future, also, if what works out, that's okay for one, two months. But after seven, eight months, if you have this kind of losses, then it's not... We can't trust you. Right? Yeah. I'm not a small shareholder. I'm holding 4 lakh shares since last ten years. So it's not about only losses and that is about Just to... I'm completely lost to it from you guys. Because every quarter, whatever you say, the next quarter, we will... We're actually getting just opposite to that. And this month also, are saying still with number also, need to have expect in terms of the transport. To be honest, it's really Mr.

20:05 Bhaskar, we did mention last quarter also that this effort would carry on for the third middle of third quarter. We didn't mention this last time. But the last quarter... It's not desirable to have efforts. Yes, I agree, sir. But see, this is the second time happening. By the first time, it felt like two years back it happened. You should have learned the lessons. Right? But we did the same routine thing. But what I'm sometimes Sir, think last time when this happened, there was a COVID issue, and that was the enforced situation for us. And that has basically impacted us and we did the freight to meet our customer Yes. As explained by the Ambition that we are the single source supplier to our customer and they are the end customers are Toyota and BMW.

20:54 At this time also, there's an impact on account of the West Asia crisis, which has basically disturbed the logistic routes. On top of that, yes, because since we are launching the programs, we need to start building the inventory at that, but the logistic routes got disturbed and the time got increased. So we are not able to build the desired inventory before the SOP of the our customer. So that's the reason that we have to do the airfreight so that we maintain the continuity of the supply. We completely understand that this issue we need to be foreseen and we need to understand and do much better and the impact would have not been so much. But yes, going forward, I think these are the lessons learned that you just explained And we will work out some mechanism and policy that in future, if this happens, how we are going to tackle the situation upfront. But Vasu, having said that, let me tell you that could we have done better?

21:44 Yes, we could have done better. We should have been more agile and we could have done better. And a lot of lessons I've learned in this crisis, this support that has happened in The Middle East and the routes that have the routes that have changed. But we assure you absolutely, we need to perform better. Okay. One question, last question from my side. What is the total debt we have in the book? Sorry to interrupt, mister Bhaskar. May we request you to join the question queue as there are several other participant waiting for the turn? You may join the question queue for your follow-up. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Rohit Kumar from ADM Advisors. Please proceed.

22:36 Yeah. Am I audible? Yeah. Yeah. Thank you for the opportunity, sir. So my first question was, given the current industry environment with continued demand across automotive segments, but commodity the price volatility and logistic challenges are there. So how does you view the outlook for the Indian automotive industry over the next twelve to eighteen months? The commodity prices are showing a downturn now. And like the aluminum prices have shown a downturn, and we are very happy about that. And we are hoping that this would stabilize at a lower price and at least come back to close to whatever the normal prices were earlier.

23:27 And with the change of not change, sorry, with the election results in The U. S, I think that should also have we hope at least that sanity would prevail and there will be some impact on whatever tension are there in The Middle East so that the sea routes also open up and the time that it takes for us to make shippers overseas also comes down. As far as the domestic market is concerned, it's the domestic market surprisingly has been very good. And we see a growth and a very positive requirement of Maruti and Hero and Bajaj and other people. And we are very happy about the growth that is taking place, and we are meeting all the requirements. And with the aluminum prices coming down, our investments our investment in materials also come down.

24:16 So we are happy about that. But we see for the next the volume season and the fourth quarter, fourth quarter is normally the best, and we are hoping that this trend would continue. This is still the impact of GST that we all whenever we have a debate, we discuss this. We always come to one factor, which has really impacted the sales in India the sales have approved in India, primarily because of the GST that came in. Now with the commodity pricing coming down and the more rationalization in the pricing of vehicles, etcetera, we are hoping that this trend will continue for the next year for sure. And there would be a blitz. Monsoon season would be a blip, and there will be other times, there will be some blitz. But this year, the fourth quarter should also be good. And thereafter, we are hoping that next year, there will be another growth of at least 10%.

25:13 Okay. That was quite helpful, sir. And my second question was, what opportunity do you see across the passenger vehicles, commercial vehicles, hybrid and EV segment? Any key developments within our new customers or existing customers? So our focus is on hybrid vehicles and electric vehicles wherever we have the opportunity to do that. But we do not leave any opportunity when it comes to the ICE engine also. And but because both are growing, ICE engine also growing, the EV which is also growing and the hybrid which is also growing. So we are participating in all of them. And we hope we are and we are seeing that the trend of the hybrid which is actually going up tremendously.

26:01 We are hoping that this trend continues. But having said that, I would like to add a point here. In some the components that we make, I'm talking of the iron side, which are very light and which don't fit into our profitability. We are actually we started talking to the customer that they could actually source it from some other sources. These are very light components, which are not economical for us to make in our the bigger machines that we have. So we have started we've already tagged those components and the discussions that customers have started. And pending that, we are trying to get a better price for those components as well. So that will also impact the of bottom line. So all these things are happening as well as the iron side is good and also the aluminum side. Our focus is primarily on the transmissions and also the hybrid vehicles and electric vehicles for the bigger components.

26:56 Okay. That was quite helpful, sir. Thank you. That's it from my side. Thank you. Participants who wish to ask a question, please press star and one now. Anyone who wishes to ask a question, please press star and one now. Mister Baskar wanted a second another question, we can we can maybe ask. Sir, Mr. Bhaskar is not in the question queue. As there are no further questions, I now hand the conference over to the management for the closing comments. Over to you, sir.

27:47 Sir, would you want to say something? I'll continue after that. Okay. First of all, thank you everyone for joining us in the earnings call. We appreciate the time and the interest. In case of any queries, I think we can get in touch with our SGA, our Investor Relationship Advisor or you can directly write an e mail to us. We look forward to meeting you in the next call. And just to add here, firstly, I must apologize for what has happened in this in the last one or two quarters. And we are determined to get out of this. A lot of learnings that have happened. A lot of corrections have also taken place and a lot of changes that are also taking place. And those are being implemented and will also get implemented. And we will we assure you that we will fall back and we'll come back to our norm. And you'll see it in the fourth quarter, a big jump.

28:42 And thereafter, also you see it. By then, we would have concluded all the price increases and other negotiations that are happening with the customer, including the premium phrase that we've borne. And primarily, we have to better only just to keep the lines of our customers running and because of the commitment we have towards our customer. And so hopefully, everything would have been sorted out and you'll see those results. But I'd like to apologize for what has happened. Thank you so much. Thank you. On behalf of Rico Auto Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.