Rico Auto: Q2FY11-Interest cost – a drag: IDFC Sec

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Rico Auto

Result: Q2FY11
Comment: Interest cost – a drag



Highlights of Q2FY11 results
Consolidated Performance
􀂙 Rico Auto’s Q2FY11 consolidated numbers have come in lower than estimates with revenue growth of 21%yoy and
3% qoq to Rs3.09bn (estimates of Rs3.2bn), EBITDA of Rs303m (estimates of Rs309m) and net loss of Rs6m as against
estimated PAT of Rs37m
􀂙 The growth has come in slower on account of slower than expected growth in the domestic business as also continued
concern in the US market
􀂙 Rico, like most other auto component players, has witnessed pressure on input costs. Material cost to sales ratio has
increased sharply to 63% in Q2FY11 as against 61.9% in Q2FY10 and 60.3% in Q1FY11
􀂙 However, large part of material cost pressure is offset by substantial savings in other expenditure and power and fuel
– down from Rs581m in Q1FY11 to Rs498m in Q2FY11. This has helped Rico report 60bp of qoq improvement in
EBITDA margins to 9.8% (estimates of 9.5%)
􀂙 While operating profits have come in line with our estimates, interest cost has risen sharply to Rs144m (from Rs112m
in Q1FY11). Debt in the consolidated books stood at Rs4.65bn as on Sept 2010 (Rs4.4bn in FY10).
􀂙 Board has approved conversion of 6.4m pending warrants at Rs17.5 per share



Standalone Performance
􀂙 On a standalone basis, Rico Auto has reported revenue growth of 18.5% to Rs2.3bn. While domestic business has
reported revenues of Rs1.8bn (10% yoy growth and 4% qoq), exports revenues have grown by 66% yoy and decline
10%qoq to Rs491m
􀂙 Raw material costs (as a % to net sales) has remained flat yoy at 58%, however, employee costs have increased sharply
by 35%yoy
􀂙 Overall EBITDA margins have contracted by 72bp yoy to 9.67% and reported EBITDA has come in at Rs224m
􀂙 Interest cost has increased from Rs106.2m to Rs137.7m in Q2FY11. Net debt currently stands at Rs4.4bn
􀂙 Reported PAT has come in at Rs42.7m



Outlook
Rico Auto is expected to witness strong growth momentum with domestic auto industry on a high growth path
(sustained high growth in 2 Wheeler as well as passenger car segment and scale up of Tata Nano) and expected recovery
in the international market. However, margins would continue to remain subdued in the wake of increasing input prices
and only partial pass through of the inflationary pressure. This coupled with higher interest cost; we have downgraded
our FY11E earnings by 20%. Stock trading at 13x FY12E earnings, we maintain our Underperformer call on the stock.