investors eye

stock update

Rico Auto Industries

Reco: Buy

Stock Update

Valuations become attractive post-correction; upgraded to Buy

CMP: Rs46

Key points

Company details
Price target:

Rs58

Market cap:

Rs625 cr

52-week high/low:

Rs64/23

NSE volume:
(No of shares)

7.6 lakh

BSE code:

520008

NSE code:

RICOAUTO

Sharekhan code:

RICOAUTO

Free float:
(No of shares)

67.5 cr

Shareholding pattern

Price correction an opportunity to re-enter the stock: The stock of Rico Auto
Industries (Rico) has corrected close to 18% in the past fortnight largely due to
the weak market conditions. There is no stock specific change in business
environment that would warrant a steep fall. In our note dated August 14, 2015
we had downgraded the stock from Buy to Hold largely due to the discomfort
on valuations. Now, after the price correction, the stock is again attractive on
valuations and hence we have upgraded the stock to Buy with an unchanged
price target of Rs58.
Expect a business turnaround in FY2016: The management of Rico undertook
a large restructuring exercise in FY2015. The 50% stake in joint venture FCC
Rico was sold off to its Japanese partner for Rs495 crore which helped to
significantly de-leverage the balance sheet. Additionally, the loss-making entities
were clubbed together in an investment subsidiary with the aim of getting a
strategic partner on board to turnaround these ventures. The company reported
an improved performance in Q1FY2016 and we expect the recovery to continue
in FY2016 with focus on manufacturing efficiency and an improvement in
operating profit margin (OPM). The management is also striving to increase
business with domestic car manufacturers and reach a double-digit top-line
growth by FY2017.
Upgrade to Buy with an unchanged price target of Rs58: The financial
performance in Q1FY2016 re-confirms our belief of a business turnaround for
Rico in FY2016. The induction of a strategic partner in Ricos investment
subsidiary would help in further improving consolidated financials. After the
correction, the stock is trading at 4.8x its FY2017E EBITDA. We have upgraded
the stock to Buy from Hold with an unchanged price target of Rs58.

Price chart

Valuations
Particulars

FY2013

FY2014

FY2015

FY2016E

FY2017E

Net sales (Rs cr)

1,506.0

1,480.1

1,346.3

1,076.2

1,233.3

Growth (%)
EBITDA (Rs cr)
OPM (%)
Price performance
(%)

1m

3m

6m 12m

Absolute -14.7

12.5

16.8 107.7

Relative -6.8
to Sensex

20.9

31.9 114.2

0.1

-1.7

-9.0

-20.1

14.6

117.3

148.5

96.5

102.6

131.5

7.8

10.0

7.2

9.5

10.7

(7.6)

2.7

(0.9)

33.1

59.4

Growth (%)

n/a

n/a

-133.0

n/a

79.5

FD EPS (Rs)

(0.6)

0.2

(0.1)

2.4

4.4

P/E (x)

n/a

231.5

n/a

18.9

10.5

P/B (x)

1.8

1.8

1.4

1.3

1.2

PAT (Rs cr)

EV/EBITDA (x)
RoE (%)
RoCE (%)

Sharekhan

9.5

6.5

8.0

6.8

4.8

(2.2)

0.8

(0.2)

7.0

11.6

8.0

9.8

6.5

10.3

15.6

September 02, 2015

Home

Next

Disclaimer
This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any
review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official
confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such.
While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information
current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient
of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own
advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other
reports that are inconsistent with and reach different conclusion from the information presented in this report.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons
in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act
as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before
publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved
in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies
and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analysts compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.
Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: compliance@sharekhan.com Contact: myaccount@sharekhan.com

Sharekhan

December 26, 2014

Home

Next