Pricol Ltd. – BUY

CMP – Rs 251/- share

Target – Rs 335/- share

Upside – 33.4%

Pricol Ltd. is one of India’s leading automotive components and precision-engineered product manufacturers. The company has become a reputable global brand in the automotive component and products business, highly recognized by top automotive OEMs worldwide. The company carries out business and operations in Driver Information Systems and Sensors, Pumps and Allied Products, Telematics and Wiping Systems catering to leading automotive OEMs in Two/ThreeWheeler, Passenger Vehicles, Commercial Vehicles, Farm Equipment and Off-road Vehicles across India and international markets (45+countries), with 2,000+ product variants. The company has eight manufacturing plants across Coimbatore, Manesar, Pantnagar, Pune, Satara and Sricity in India, one in Jakarta, Indonesia, and three international offices in Japan, United Arab Emirates and Singapore.

Why is Pricol Ltd. worth investing in?

• Pricol has transformed itself from a loss-making, debt-laden company to a profit-making, debt-free, 25% CAGR company.

• Pricol has excellent technological capabilities; all its products are futuristic and can be used in EVs.

• The management has a clear order vision for the next three years and has guided for revenues of Rs. 4,000 crores by FY26E, with EBITDA margins of around 13%, resulting in 25% revenue CAGR and 30% PAT CAGR.

Pricol’s Competitive Advantage over Minda Corp.

• BMS (Battery Management System), essential for EVs, is already developed by Pricol, whereas Minda Corp. is still growing.

• Minda Corp. entered late in the TFT segment, which is a higher version of the instrumental cluster, so the first mover advantage is with Pricol. TFT cluster has higher margins than an LCD cluster. 

• Pricol has dedicated EV products like electrical coolant pumps, electric oil pumps and BMS. 

• Pricol is working with almost 22 small and big EV vehicle makers nationwide. 

• Pricol is the sole supplier of TVS models like TVS iqube and supplies DIS to 70% of Tata Motors vehicles. 

• Pricol is the dominant domestic player with excellent technological capabilities and has 1 or 2 international competitors, which have a very rare presence in India. 

A Potential Hostile Takeover?

• Pricol’s competitor Minda Corp. bought a 15% stake in Pricol at Rs. 210/- per share without the company’s consent. 

• Minda has applied to CCI for a 24.5% stake in Pricol. 

• Pricol filed an objection. However, the Madras court denied the objection, but Minda Corp. was not allowed to increase its stake for the next two weeks. 

• Pricol promoters bought a 2% stake from the open market at an average price of Rs. 236/- per share in Q1FY24. 

• Pricol’s management has said they have kept Rs. 125 crores aside to increase their stake. 

• Pricol’s management stands committed to running and growing the business in the coming years and has no intention of seizing control of the company. 

• Minda Corp. has recently announced that they want to raise Rs.600 crores. 

• This is an exciting development as Pricol currently has around 36% stake, Minda Corp. has a 15% stake and mutual funds and FIIs have significantly less stake. Therefore, both companies must buy from the open market to buy more stakes, which will further reduce the free float.

Valuation and Outlook

Recently, its competitor, i.e. Minda Corp., bought a 15% stake in the company, and Pricol has also purchased a 2% stake from the open market recently at Rs. 236/- per share, making it all the more interesting to look into the company. Due to a non-binding agreement and competition, Pricol has only a 10% revenue share from PVs. However, with Tesla, BYD other EV cars coming into India, it will be an excellent opportunity for Pricol (BYD is planning to invest USD 1 billion in India to build EVs). Stock is trading at just 12x FY25E earnings. With new-age electronic clusters in the offering, an increase in content in BS VI transitions, and an impressive client profile, Pricol is well poised to grow at 25-30% CAGR with a ROCE of 20% where a competitor is buying shares from open market and promoter of Pricol is buying from the open market. This is the best development for individual investors as both Pricol and Minda Corp. feel that Pricol has huge capabilities and is undervalued at the current market rate. Hence, we give a buy on the stock with a target price of Rs. 335 (assigning 18x on FY25E earnings which is still less than the median average P/E multiple and less than 1x PEG).

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