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LORD JESUS CHRIST SAYS

“Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. For everyone who asks receives; the one who seeks finds; and to the one who knocks, the door will be opened. Matthew 7:7-8

20 Dec 2018

STOCK MARKET--Rico Auto Industries Ltd | Long Term Recommendation by a Broker.


Rico Auto Industries Ltd (RAIL)(price Rs.74.20) is a key manufacturer of ferrous and aluminum casting and machining components used in the automotive space. RAIL manufactures over 400 components and is the sole supplier of these for the various models across
leading automobile OEMs in the Indian and international markets. Currently, BMW, Renault, Maruti Suzuki, Hero Moto Corp and Cummins are RAIL’s marquee clients. During FY15, the company fell on rough times, mainly due to the split of the Honda-Hero Group tie-up that impacted both top line and profitability. During the past few years, RAIL transformed from a two-wheeler (2W) component manufacturer into a diversified casting and machining component provider across different sectors. It also underwent significant process restructuring that improved its profitability.

·         Diversifying product offerings, expanding clientele – Steps in the right direction
·         Adoption of lighter material in vehicle manufacturing to drive aluminium business
Cons
·         Sharp slowdown in domestic automobile industry
·         Sluggish sales of newer models for which company has bagged orders
·         Volatility in raw material prices

Key highlights we observed
·         Rico Auto Industries Ltd (RAIL) is a key manufacturer of ferrous and aluminium casting and machining components used in the automotive space. RAI manufactures over 400 components and is the sole supplier of these for the various models across leading automobile OEMs in the Indian and international markets.
·         Traditionally RAIL has been supplier to two wheeler industry, with Hero Honda as its major customer. However split of the Honda-Hero Group in FY15, shaved off its key JV FCC-Rico’s business as it was also forced to part ways post Hero Honda’s separation.
·         During past few fiscals RAIL is transforming itself from a two-wheeler (2W) casting manufacturer into a diversified casting solutions provider catering to both domestic and export markets. It also underwent significant process restructuring that improved its profitability.
·         Currently, passenger vehicle (PV) OEMs, such as Renault, BMW and Maruti Suzuki, contribute ~55% to RAI’s overall revenue. Also, during the past 3–4 years, the company significantly increased its exports business, which formed 22% of its revenue in FY13 and ~28% in FY17.
·         Going forward, RAI would continue its diversification into new products like aluminium and non-engine components that would place it on the right side of technology curve. The share of its aluminium casting in the overall business has increased from 55-60% in FY13 to 71% in FY17.
·         Annual orders of over INR 500 cr and bids for orders worth INR 700 cr, which ensure healthy growth.


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