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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

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December 26, 2014

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