Rico Auto

The year 2008-09 has been one of the most difficult years for the
 Global Economy since the Great Depression of 1929. I recall, last year
 around the same time in my letter, I had mentioned that rising
 commodity prices and uncertainty around the financial situation in USA
 would impact suppliers globally. But none of us knew that during the
 year we would see the collapse of iconic companies like Lehman Brothers
 leading to an unprecedented period of lack of trust in the global
 financial system resulting in freezing of credit markets, crash of
 global equity markets and recession hitting all markets across the
 world specially the developed - countries.
 
 The second half of financial year 2008-09 was a complete contrast to
 the first half. The period of April to August, 2008 witnessed rising
 commodity prices across crude oil, gas, coal, steel, aluminum and other
 metals. Steel prices increased over 70% and crude oil touched US $ 145
 per barrel in July. During the same period the sub prime crisis of USA
 and foreign exchange derivatives issues in India were the dark clouds
 surrounding our economy. But the crash of September, 2008 in USA
 plunged all economies in a period of uncertainty and gloom for the
 period of November, 2008 to February, 2009. The automotive industry was
 one of the hardest hit. Almost all automotive OEMs in the world reduced
 their production from 30% to 50% and some commercial vehicles and off
 road manufacturers shut their plants for some months.
 
 During the financial year 2008-09, the Indian automotive industry was
 also affected in the second half. Indian two wheeler volumes grew only
 2.6% from 7.25 to 7.44 million vehicles, passenger car volumes remained
 flat at about 1.55 million vehicles and commercial vehicles volumes
 declined by fc over 30%. Amidst these conditions, our consolidated
 group net revenue grew by 9.4% to Rs 929.5 crores and our stand alone
 net revenue grew by 4.1% to Rs 765.7 crores. During the first half we
 grew at a rate of over 15% but the downturn in the second half brought
 our annual growth rate to single digits.
 
 On exports front, at the beginning of 2008-09 we had set a target to
 achieve 25% growth in exports over our previous year exports of Rs 142
 crores. Exports during the first half were Rs 83 crores, but in the
 second half exports dipped to Rs 43 crores, thus closing the year with
 an annual figure of Rs 126 crores.
 
 While the scale of the crash was unprecedented, so was the coordinated
 response by Governments and Central Banks in providing bail outs and
 stimulus packages to get the financial markets working again. We too at
 Rico got all our teams together in November, 2008 and took immediate
 steps to face the slow down. We took quick decisions to re-adjust our
 production resources and implemented various cost reduction and
 efficiency improvement initiatives across all our plants. While the
 last five months of the year were very painful and difficult for all of
 us, we did our best to use them as opportunities to create a stronger
 and more competitive company for the future. On account of these cost
 reduction efforts we were able to maintain our EBITDA margin at 12.8%.
 
 While we achieved an EBITDA of Rs 98 crores, our interest costs during
 the year almost doubled from Rs 25.9 crores to Rs 45.5 crores on
 account of significant hike in interest rates across banks from around
 7.5% to almost 12%. After accounting for depreciation of Rs 50 crores
 our standalone PAT was Rs 4.7 crores resulting in a lower dividend
 payout rate of 15%.
 
 On the Joint Ventures side, FCC Rico sales grew by over 14% to Rs 360
 crores but their profitability was hit because of significant
 appreciation in Japanese Yen. Our new Joint Ventures Continental Rico,
 Magna Rico Powertrain and Rico Jinfei also re-adjusted their business
 plans based on changed automotive volumes. They have been on track in
 terms of their starting plans and are working aggressively in
 developing business with new customers.
 
 In the current year 2009-10 we are seeing signs of recovery and
 stability from across the world.  Indian Governments fiscal stimulus
 and monitory policies lead to increase in liquidity and availability of
 credit. Reduction in excise duties also created a positive impact.
 Finally with the return of a stable government there is optimism across
 the industry and a significant change in the sentiment of customers,
 investors and equity markets. Our key customers Hero Honda, Maruti
 Suzuki and Honda Motorcycles and Scooters India, are doing very well
 and we are looking forward to growing aggressively with them. We have
 started our supplies for Tata Nano and Fiat India and demand from our
 only commercial vehicles customer Tata Cummins is also looking
 positive.
 
 On Exports, schedules have started increasing in the passenger car
 segment since April, 2009 from both USA and Europe. While the stimulus
 and incentive packages by European and American governments have
 worked, our strategy of focusing on new programs for small to mid sized
 fuel efficient vehicles in our global customer base, have resulted in a
 positive demand for our components.  While the off take of commercial
 vehicles and off road segment where we supply to Cummins and
 Caterpillar is still down. We are seeing schedule increases from
 customers like GM, Ford, Volvo, Honeywell and Nissan. In addition, our
 new business launches with Jatco for Japan and BMW for Europe are
 moving on track. We are targeting to grow our exports by over 30% and
 our stand alone net revenues by over 20% in the current year 2009-10.
 
 In addition to our strategies on the market side our teams collective
 endeavors helped us win prestigious awards from our customers.  Hero
 Honda recognized us for Green Vendor Development Program. Maruti Suzuki
 awarded us for improvements in Yield Improvement and New Product
 Development. Caterpillar awarded us with bronze shield in their Global
 Supplier Quality Excellence Program and Cummins recognized us for 100%
 Defect Free Supplies.
 
 During the current year in addition to improving quality and yield, we
 will continue to focus on becoming more competitive. While the last
 year has made every one cautious, we have not let the events dampen the
 enthusiasm and vision of Rico. We continue to remain committed and
 focused on following strategies:
 
 - Focusing on profitable growth, increasing our market penetration and
 share of business with leading automotive OEMs
 
 - Developing non automotive business
 
 - Changing our product mix towards complex high value adding products
 
 - Improving the manufacturing yield of all our products through
 innovation, engineering and R&D
 
 - Aggressively reducing all costs across our enterprise and reducing
 inventories
 
 - Increasing manpower productivity and automation
 
 - Investing in our people and their training
 
 - Releasing capacity on our equipments through technical innovation so
 that we can launch new business without significant capital expenditure
 
 While the Indian economy and Global markets will continue to face
 challenges this year, our colleagues at Rico have resolved to meet the
 same with increased determination to succeed. We are proud of our
 professional management team and our dedicated skilled work force that
 shares our vision and are committed to enhancing value through
 Reliability, Innovation, Continuous Improvement and GlObalization.
 
 In closing, I would like to thank all our customers, suppliers,
 business partners, bankers and our shareholders for their unwavering
 support and confidence in our company and look forward to a bright year
 ahead.
 
                                               Arvind Kapur
                                       Vice Chairman, CEO &
                                          Managing Director