Rico auto industries Limited has announced a strategic expansion into the railway sector with the launch of its new railway division. This development represents a significant milestone for the automotive components manufacturer as it diversifies its product portfolio and enters the growing railway infrastructure market.

RDSO Approval for Specialized Components

The company has received crucial approval from the Research Designs and Standards Organisation (RDSO) to manufacture spheroidal graphite cast iron inserts. This approval demonstrates RICO Auto's technical expertise and manufacturing capabilities in producing specialized components that meet stringent railway industry standards.

Expansion Strategy

Beyond the current RDSO approval, RICO Auto Industries is actively requesting permission to manufacture additional high-quality parts for the railway sector. This proactive approach indicates the company's commitment to establishing a comprehensive presence in the railway components market.

Strategic Implications

The launch of the railway division aligns with India's ongoing railway modernization and infrastructure development initiatives. By securing RDSO approval for specialized components like spheroidal graphite cast iron inserts, the company positions itself to capitalize on the growing demand for quality railway components.

This diversification move allows RICO Auto Industries to leverage its existing manufacturing expertise while expanding into a new sector with significant growth potential. The company's focus on obtaining multiple permissions for various high-quality railway parts suggests a long-term commitment to this new business vertical.

Rico Auto Industries , a leading auto component manufacturer, has reported a stable performance in Q2, with consolidated revenue growth of 5% and EBITDA margins of 9.9%. The company's performance was driven by robust export growth and new product launches.

Key Highlights

• Consolidated revenue grew by 5% year-on-year
• EBITDA margins stood at 9.9%
• Export sales increased by 22%, primarily due to growth in the U.S. market
• The company is on track to achieve its revenue guidance of INR 2,600.00 crores

Performance and Outlook

Rico Auto Industries witnessed a significant 22% growth in exports, particularly in the U.S. market. The company's Chairman, CEO, and Managing Director, Mr. Arvind Kapur, expressed confidence in the company's ability to maintain this growth trajectory, projecting a 40-50% increase in U.S. sales for the current fiscal year, followed by another 50% growth in the next year.

The domestic market also showed positive signs, with the company securing larger shares of business from key customers like Maruti Suzuki and Hero MotoCorp. This strategy aims to optimize capacity utilization, especially in the casting segment.

Margin Improvement and Future Projections

Rico Auto Industries is focusing on improving its EBITDA margins, targeting 12-13% by Q4. The company expects significant margin improvements in Q3 and Q4, driven by:

1. Better capacity utilization of foundry and aluminum casting facilities
2. Introduction of new, higher-margin products
3. Increased share in existing customer business

Mr. Kapur stated, "Every quarter, you will see a margin improvement. We did mention at the beginning of the year that the first two quarters would see a slight decrease in margin. But in the third and fourth quarter, you will see better increase in margins."

Future Growth Drivers

The company's future growth strategy includes:

1. Expansion in the electric and hybrid vehicle segments
2. Increased business from key customers like Maruti Suzuki, Toyota, and Knorr-Bremse
3. New opportunities in the railways sector, with potential EBITDA margins of 18-20%
4. Exploring defense sector opportunities, including discussions for BrahMos and other ammunition projects

Capacity Utilization and Investments

Rico Auto is prioritizing the utilization of existing capacities before making new investments. The company's iron foundry utilization is expected to reach 65-70% in the near term and potentially 90% next year. Similarly, the aluminum die-casting segment is projected to reach 80-85% utilization.

The management emphasized their cautious approach to new investments, with a focus on fungible assets and customer-funded tooling to minimize risks.

Revenue Projections

Rico Auto Industries has set ambitious targets for the coming years:

• FY27: Over INR 3,000.00 crores
• FY29: Close to INR 4,000.00 crores

These projections are based on secured orders and ongoing discussions with major OEMs, including Maruti Suzuki, Toyota, Mahindra, and BMW.

As Rico Auto Industries continues to navigate the evolving automotive landscape, its focus on high-technology components, capacity optimization, and strategic customer relationships positions it well for future growth and margin expansion.