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Friday, July 24, 2009

Rico Auto Industries Ltd:-Great prospects,great potential

Scripscan:Rico Auto Industries Ltd

Story:Rico Auto Industries is one of the leading Tier-I auto component vendors in the country. It's also one of the most attractive stocks in the sector, with one of the highest dividend payout ratios. It's expanding its non-Hero Honda business and aggressively investing into new segments like alloy-wheels and brakes & suspension systems.It's positioning itself as a vendor of choice through aggressive capex and investment in engineering product development capabilities.Considering the projected growth in the automobile production, the company is implementing a strategic plan to build global scale and capabilities to meet the requirements of its existing as well as its OEMs which are set to enter India. In the last five years, the company has invested nearly Rs 500 crore in capacity expansion.Its capex has been growing at twice the rate of growth in its revenues. Rico also entered into two new joint ventures - one with Continental AG of Germany for Hydraulic Brake Systems and the other with Jinfei of China for aluminium alloy wheels.The company holds a 50% stake in the first JV and 92.5% in the latter.Though the exact estimates are not available, these two JVs are expected to add nearly Rs 1,000 crore to Rico's consolidated topline during FY10 and around Rs 140 crore to its operating profit.In-house expansion is estimated to add nearly Rs 600 crore to its topline and Rs 90 crore to operating margin on a recurring basis. Its long-term plan is to emerge as a Rs 4,000 crore ($1 billion) enterprise by the end of FY11. A major part of the expansion is being funded through equity expansion, which has kept its interest cost in check though not entirely Meanwhile, two-wheeler sales appear to have bottomed-out and the next two quarters are expected to be better than the past two.Considering its growth plans and an expected better show by its two-wheeler clients in the remaining quarters of FY10, the stock offers a good growth opportunity in over the next 12-18 months.A great buy at dips.

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