– Pricol limited – OEM automotive

Pricol Limited Earnings Call Summary – Q2 and H1 FY25

Q2 FY25: Revenue from operations reached 6,500 million with an EBITDA of 871 million (13.4% margin). Profit after tax (PAT) was 450 million (6.93% margin), resulting in an EPS of 3.70 Rupees per share.
H1 FY25: Total sales were approximately 12,530 million, with an EBITDA of 1,677 million (13.39% margin) and a PAT of 906 million (7.23% margin). EPS for the half-year stood at 7.44 Rupees.
The company reported zero long-term borrowings and maintained comfortable cash reserves as of September 30th.
Year-over-year growth for both the quarter and half-year was around 15.5%, despite a slowdown in the automotive industry during Q2. EBITDA grew by approximately 24% for the quarter and 23% for the half-year.

Management aims to maintain an EBITDA margin of 13-13.5%.
Margins are expected to improve by approximately 50 basis points with the resumption of exports, which were significantly lower than expected this quarter due to US election-related factors.
Wage increases implemented on July 1st have impacted margins, but productivity improvements are expected to offset this in the future.

The company experienced muted sales in the automotive industry during Q2, reflecting a broader industry trend.
Exports were significantly weaker than anticipated due to policy changes under the new Republican government in the US, impacting both revenue and margins.
Disc brake production has commenced, with supplies to six manufacturers. A ramp-up phase and significant volume increases are expected in FY26.
Battery management system (BMS) products are still in the testing phase and have not yet generated revenue. Management is cautious about the BMS market’s fragmentation and unclear trajectory.
Smart cockpits and connected vehicle solutions are showing traction and are considered a significant growth opportunity.
Mechanical clusters currently contribute approximately 30% of revenue but are expected to decline, with LCD and TFT displays gaining prominence.

Management maintains its target of reaching 3200 crores in revenue by FY26 through a combination of organic and inorganic growth.
The company is actively exploring inorganic opportunities in the railway and defense segments to drive higher margins and growth. However, these initiatives are in the early stages.
Pricol is open to acquisitions in allied areas and is comfortable raising up to 300 crores in debt to fund strategic acquisitions.
Capital expenditure (CAPEX) for the full year is expected to be around 200 crores, consistent with the previously stated plan of 600 crores over three years. The CAPEX allocation includes building new plants, expanding existing facilities, upgrading production lines, and investing in new machinery.

Muted demand in the domestic automotive industry is a key risk, with Q3 FY25 anticipated to be particularly weak.
Uncertainty surrounding export demand due to US policy changes poses a challenge to revenue and margin projections.
The slow adoption of EVs is not a significant concern as Pricol’s products are propulsion-agnostic. The company is collaborating with various EV manufacturers.
The fragmented BMS market presents challenges in predicting future revenue.

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