M&A Critique

RICO positions itself for Growth?

We covered growth strategy of Rico Auto Industries Limited (Rico) in September 2011 issue. Rico is a renowned name in the auto component industry in India. Despite growth rate of 11% CAGR during FY 2006-07 to FY 2010-11, the company unable to sustain that growth rate for FY 2012 to FY 2016.

Due to the financial crisis in 2008-09 and 2009-10 the company was running into losses; however, the company survived the crisis and has successfully started performing again. But unfortunately, the story changed from FY 2012. Last year, the company divested one of its crown jewel assets. Will this divestment be leading towards sunny days for Rico?

The growth is likely to come from its subsidiaries as all the proceeds received from selling its crown asset is mostly gone into subsidiaries.

RICO supplies a broad range of high-precision fully machined aluminium and ferrous components and assemblies to OEMs across the globe. RICO’s integrated services include design, development, tooling, casting, machining, assembly and R&D across aluminium and ferrous products. Customer base includes companies like Ford, GM, Cummins all over the world, Jaguar, Land Rover, Volvo and Renault in Europe, Maruti Suzuki, Hero Honda, Tata, Honda, Fiat, Bajaj, Renault in India, Nissan in Japan.

Throughout the five years, there is no change in the shareholding pattern of the company.

As on 31st March, 2016, the company has four wholly owned subsidiaries, one subsidiary company and three step down subsidiary. Further, the company has formed one joint venture named Magna Rico Powertrain Private Limited.

FCC Rico Limited (FCC Rico) was a joint venture company of F.C.C. Co. Ltd Japan and Rico established in February 1997 with 50:50 share equity. The company is exclusively into manufacturing & supplying of automobile clutch assemblies to OEM’s of Two Wheelers and Four Wheeler. The co. is also into manufacturing of Clutch Friction Disc with Cellulose (Paper) and Cork base.

Financials: – FCC Rico

Table 1: Financials FCC RICO (All figures in INR Crores)

Particulars FY 15 FY14 FY13 FY12 FY11
Income 818 960 862 756 632
PAT 22 -7 53 NA NA
Total Assets NA 244 213 NA NA
FY 15 income is until December 2014.

In December 2014, Rico sold its entire 50% stake to the other JV partner for the consideration of INR 495 crores.

Table 2: Return on Investment FCC RICO (All figures in INR Crores)

Particulars Amount
Amount Invested 3.95
Amount realized from sale 495
ROI (X) 124

One-time special dividend was paid by the company on sale of stake in FCC Rico Limited amounting to INR 16.23 crores.

Internal Restructuring

On 7th January 2015, the company formed a new wholly owned subsidiary naming Rico Investment Limited. The company infused INR 93.70 crores into Rico Investment Limited by way of subscribing equity & compulsorily convertible preference shares. As a part of the internal restructuring, Rico Investment Limited purchased a stake in three subsidiaries of Rico namely Rico Jinfei Wheels Limited, Rasa Autocom Limited and Rico Aluminium and Ferrous Auto Components Limited for INR 1.5 crores. Rico booked a loss of INR 49.07 crores on this transaction.

After the purchase of an investment in the respective companies, Rico Investment Limited further infused approx. INR 56 crores into these companies mainly INR 46 crores in Rico Aluminium and Ferrous Auto Components Limited. In FY 15, Rico also sold aluminium based auto component plant at Sanand, Gujarat as a going concern on slump sale basis for a lump sum consideration of INR 44.40 crores to Rico Aluminium and Ferrous Auto Components Limited, a step-down subsidiary of the company. Rico registered a loss of INR 173.62 crores on this transaction. The said losses help the Rico in reducing its tax liability on a gain on sale of the stake in FCC Rico Limited.

In FY 2015, Rico Investment Limited further gave a loan of INR 25.5 crores & INR 6 crores respectively to Rico Castings Limited & Kapbros Engineering Industries Limited, the companies in which Key Management Personals exercises significant influence. In FY 16, it further gave a loan to Kapsons Associates Investments Private Limited, another company in which Key Management Personals exercises significant influence (The Kapsons Associates holds 28.77% stake in Rico).

Financials –  Rico

Table 3: Standalone Financials of RICO (All figures in INR Crores)

Particulars FY 11 FY12 FY13 FY14 FY15 FY16
Revenue 1006 1137 1090 963 872 925
EBIT % 6.06% 6.95% 6.70% 6.54% 2.64% 6.27%
Net Profit % 2.58% -0.35% 0.92% 0.31% 19.61% 2.92%
Borrowings 391 346 329 208 141 174
Capital Employed 710 660 650 530 583 632
RoCE 8.59% 11.97% 11.23% 11.89% 3.95% 9.18%
RONW 8.15% -1.27% 3.12% 0.93% 38.69% 5.90%

Table 4: Consolidated Financials of RICO and its Subsidiaries (All figures in INR Crores)

Particulars FY11 FY12 FY13 FY14 FY15 FY16
Revenue 1,322 1,524 1,545 1,506 1,378 1,021
EBIT % 5.07% 5.31% 4.47% 5.31% 3.27% 6.37%
Net Profit % 0.98% 1.44% 0.32% 0.20% 11.10% 2.84%
Borrowings 408 393 408 265 145 176
Capital Employed 729 734 752 614 596 646
RoCE 9.19% 11.04% 9.18% 13.03% 7.55% 10.06%
RONW 4.05% 6.45% 1.45% 0.86% 33.92% 6.17%

Net profit for FY15 includes gain on sale of stake in FCC Rico less loss on internal restructuring.


It seems Rico is in the same position as it was in FY 2012.  It seems it has already completed major structuring by reorganising its business and booked losses incurred in the past. Only time will tell how Rico will be able to grow post-restructuring. The growth is likely to come from its subsidiaries as all the proceeds received from selling its crown asset is mostly gone into subsidiaries.

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Aniruddha Jain