The Hottest Stock on Dalal Street ? Answer = Rico Auto(NSE: RICOAUTO). Stock Up 80% in Last 5 Months.

RICO Auto is a world-class engineering company that supplies a wide range of high-precision fully machined aluminum and iron components and assemblies to automotive OEMs worldwide for electric vehicles, electrified vehicles and ICE engines.

It has strong in-house research and development capabilities. RICO’s multiple, flexible and fully integrated manufacturing facilities are equipped to offer a full spectrum of services from design to tool development, casting and precision machining and component assembly, making RICO the preferred supplier to the EV and hybrid vehicle market.

RICO has earned a reputation as a reliable source for the most complex components and assemblies. It is committed to manufacturing uncompromising quality products with the highest standards of excellence backed by its ability to engineer the most demanding products as well as deliver global volumes worldwide to meet the growing demand for electrification.

Rico has its manufacturing facilities in 15 locations and close to major automotive manufacturing centers. For aluminum, it has more than 100 high-pressure pressing machines (up to 2700 Tns closing force). Its die casting capacity in India is among the most advanced, including GDC and LPDC. For iron products, it has 4 forming lines – 2 DISA and 2 horizontal (SINTO & DISA).

It has one of the largest machining facilities in India with more than 2500 machines for CNC and SPM. Strong manufacturing capabilities give the company an edge over some of its peers.

Rico Auto Ltd (Rico) has a strong market position in its key product segments: high-pressure aluminum and iron die-cast components. The company is getting strong orders from both domestic and export markets which are driving its top line growth.

Monsoons have been good and the company expects a strong recovery in 2W sales. The new hybrid SUVs launched by Toyota and Maruti have also received a good response. Toyota has already indicated higher consumption.

On the export front, faster adoption of EVs leads to higher sales of aluminum castings. Since 2018, Rico has focused on emerging electric vehicles and hybrid vehicle components and has started supplying for BMW, TOYOTA, STELLANTIS (PSA) and RENAULT.

Rico is gradually expanding its capacities based on back-to-back orders. The commissioning of the Chennai plant expansion (for Toyota) and likely orders from BMW for its new launches could fuel strong growth in the coming years. The scrapping implementation could increase demand for resumes, which account for ~12% of the company’s revenue.

The company’s revenue grew 42.5/9.8% YoY to Rs 563 cr in Q1FY23 on strong growth in the domestic segment. Domestic sales rose 45% to Rs 438 crore, while exports rose 31.3% to Rs 130 crore.

EBITDA grew 88.4%% YoY to 47cr on a low base last year, while EBITDA margin grew ~200bps to 8.3% as increased volumes led to better returns on fixed costs. EBITDA margin gradually decreased by ~30 bps.

PAT came in at Rs 8.6 cr compared to a loss of Rs 1.2 cr in Q1FY22 and a profit of Rs 8.7 cr in Q4FY22. Total loans decreased to 475cr compared to 575cr at the end of FY22.Rico was nominated for program value of 514cr new business in Q1FY23 with an annual cap of 106cr.

Discussions are also ongoing with existing clients regarding larger business. Commodity prices have started to stabilize and the company expects to recover losses incurred on some contracts due to delays in raw material prices in the next 1-2 quarters.

Management has earmarked capex of 70-75 cr for FY23, which includes 50 cr for Chennai plant expansion and 20-25 cr for maintenance.

Rico reported EBITDA margins of 8.3% in Q1FY23 and 8.2% for FY22. However, with stabilization of material costs and transition of past raw material inflation, volume increases leading to higher capacity utilization and efficiency improvements, management is confident of achieving double-digit operating margins from Q2FY23 onwards. In FY23, it achieved revenue of Rs 2,400 crore.

Focusing on emerging electric vehicles and hybrid vehicle components, Rico has started supplying for BMW, TOYOTA, STELLANTIS (PSA) and RENAULT. Rico is gradually expanding its capacities based on back-to-back orders.

The commissioning of the Chennai plant expansion (for Toyota) and likely orders from BMW for its new launches could fuel strong growth in the coming years. The scrapping implementation could increase demand for resumes, which account for ~12% of the company’s revenue.

Going forward, revenue visibility has improved for Rico and it is expected to benefit from this along with margin expansion. Despite the recent rise in the share price, valuations remain modest.