Rico Auto – Operational Problems

We do not rate Rico Auto. Rico Auto is an engineering company supplying a wide range of high precision fully machined aluminum and ferrous components & assemblies to automotive OEMs across the globe. Its integrated services include design, development, tooling, casting, machining and assembly across ferrous and aluminum products. It has JVs with FCC for Clutch System, Continental Automotive for Hydraulic Brake System, Magna Powertrain for Oil & Water Pump System and Jinfei for Alloy Wheels. Rico’s key customers include Hero Honda, Maruti Suzuki and Honda motorcycles. During Q2 2010, standalone net sales decreased by 6% y-o-y to INR1,803 million. Standalone PAT stood at INR27 million, recording growth of 338% over Q2 2009

Investment Highlights

Aggressive growth plans. Rico’s strategy of focusing on new programs for small to mid sized vehicles in its global customer base, have resulted in a positive demand for its components. While the off take of commercial vehicles and off road segment where it supplies to Cummins and Caterpillar is still down, it is expecting schedule increases from customers like GM, Ford, Volvo, Honeywell and Nissan. In addition, company’s new business launches with Jatco for Japan and BMW for Europe are moving on track. It is targeting to grow its exports by over 30% in the current year 2009-10.

Focus on strategies. Rico is focused on its strategies for growth which include increasing its market penetration, developing non-automotive business, changing its product mix towards complex high value adding products, improving the manufacturing yields of all its products, and releasing capacity on its equipments through technical innovation so that it can launch new business without significant capital expenditure.

Robust plans for passenger car segment. The company is pursuing aggressive growth in passenger car segment with Maruti Suzuki both in terms of volume growth of existing products and adding new products. During 2008-09, it launched several new parts with Maruti. It started supplies of aluminum high pressure die cast cylinder blocks for Tata Motors Nano. Rico is the first company outside OEMs to manufacture aluminum cylinder blocks. Also during the current year, it has started component supplies to Fiat India.

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