Pricol limited – OEM automotive

Pricol limited Q2 fy24 concall notes:

• Financials

  • Revenue (in crores):
    • Q2 fy24 582 (yoy growth of 12.8% & qoq growth of 7.8%)
    • Q2 fy23 516
    • Q1 fy24 540
    • H2 fy24 1122 (yoy h1 growth of 16.5%)
    • H1 fy23 963
  • Net profit:
    • Q2 fy24 33 (yoy numbers not comparable due to very less tax rate last year, qoq growth of 3.8%)
    • Q2 fy23 48
    • Q1 fy24 32
    • H2 fy24 65
    • H1 fy23 68
  • Impact of FAME subsidy issues on EV sales in the first half of fy24. Though the volume is less (about 7-8%), the value is higher due to higher kit value in EV sales. This should stabilize going forward, seeing positive traction in October sales.

• Revenue distribution

  • 65% from driver information systems and connected vehicle solutions(DISCVS). 35% from actuation, control and fluid management systems(ACFMS). This will be more or less going forward (+/-2%).
  • With in DISCVS:
    • Around 65% from two wheelers
    • 20-25%% from commercial vehicles
    • Remaining from four wheeler passenger vehicles
  • Share of new products in overall sales is about 20%.
    • This should go up slightly higher in fy25/26 as they are launching new disc brakes and other products.

• Capex

  • 600 crores of capex planned in the next couple of years starting last year. About 150 crores was spent last year, about 200 crores is being spent this year, and another 200 crores would be spent in the next fiscal year. This is to enhance capacities, improve productivity and also going for modernization of some of the older plants. This will take our revenue up to about 3,800 to 4,000 crores.
  • Pricol has made key investments in Surface-mount technology (SMT) for printed circuit board (PCB) Assembly Line and Disc Brake assembly lines.

• Guidance

  • Company guiding for 4000 crores of revenue by fy26. 3600 crores by organic growth and 400 crores of revenue by inorganic growth.
  • H1 growth was around 16%, expecting a similar range in fy24.
  • In a capex related question management does mention that they are looking for inorganic growth as well if something exciting comes up.

• Margins

  • EBITDA margin guidance of around 13.5% in next couple of years with an increase of 0.3-0.4% every quarter. This should happen before Q4 fy26. Current margins: Q2 fy24 12.42% vs Q2 fy23 12.97% and H1 fy24 12.57% vs H1 fy23 13.01%.
  • Margins generally higher in ACFMS export products.

• Kit value

  • Two wheelers kit value has evolved from 300 to the current value of 1200. Expecting it to reach about 2500 in the next 3 years.
  • Four wheeler passenger vehicles, still a nascent stage. Commercial vehicles this number is much bigger.
  • ACFMS vertical, they were moving from small value oil pumps and chain tensioners to more complex BLDC fuel pump, electrical coolant pump, and other products which are more towards the Rs. 1,000 mark as against what we were supplying at Rs. 150 and Rs. 200.
  • 8/10 EV two wheelers use TFTs from Pricol. Four wheeler is still at a nascent stage.

• MoUs

  • Signed MoU with BMS powersafe to produce battery management systems for the Indian market.
  • Signed MoU with Sibros for Connected Vehicle suite of solution, for which trials have already started for the proof of concept ideas with at least 10 vehicle makers.
  • Management expects revenues for these products will start flowing down from fy26. 4000 crores guidance is based on the current order book and does not include revenues from these MoUs.
  • They also signed an agreement with TYW based in China for the advanced display information systems for the Indian market. More details of this are expected in coming quarters.

• Ownership

  • Minda corp has acquired a stake of 15.7% in the company through open market purchase. In response to this, management has increased stake by 2% in Q1 fy24. Overall management is owning 41% (including extended family members) and if need rises they would like to increase this further.

• MIscellaneous

  • Other expenses to be in range of around 42 crores going forward (in line with inflation)

• Things to look for in the coming quarters:

  • Improvement in EBITDA margins (they are a bit lower compared to last year numbers as against management commentary of this going up)
  • EV sales pick up in coming quarters
  • Minda corp stake increase related issues
  • An eye on the growth as this year it seems to be doing less than what is required to reach fy26 target.

• Disclosure: Got interested and started buying after Minda corp bought the shares from the open market. Currently forms about 3.7% of the overall portfolio. Will continue to add it in the coming days. Not an expert of valuation, the goal is to buy good companies to hold for the long term as long as the underlying business is performing.