Great work, fluctuating PAT margin, and EPS dilution, raises concern, your views.

We should learn to draw our lines somewhere. Yet we will always justify our holdings. That’s just innate human psychology.

Recently, huge (all-time high) volumes on this counter. Can’t find any bulk, or block trades either. Mixed Q3 FY24 results. Are the conditions in Angola getting better or something else?

Few developments:

• Raised capital through preferential allotment for capex – formulation plant. 32 Cr for phase-1 which will be completed in 1 year time. Funding secured for this.
• 15 Cr for phase-2 which will double phase-1 capacities. This will be secured by incremental preferential warrant issues.
• Incorporation of a step-down subsidiary in Chile and acquisition in Ecuador. Will help in expanding in South America.

Anyone tracking Balaxi Pharma?

Pricol limited Q3 FY24 concall notes:

Financials:

Revenue distribution:

• 70% from driver information systems and connected vehicle solutions(DISCVS). 30% from actuation, control and fluid management systems(ACFMS).
• With in DISCVS:
  • Around 67% from two wheelers
  • 15% from commercial vehicles
  • 7-8% from passenger vehicles
  • Remaining (~10%) tractors & off road vehicles
• 90% revenue comes from the domestic market & 10% from exports.

Product launches in Q3 fy24:

• Launched a number of products in the last quarter.
  • Hero Xtreme 125 cc
  • Hero Maverick 440cc
  • Tata motors punch (EV & IC)
  • Switch mobility (EV wing of Ashok Leyland, IeV3/V4 series)
  • Daimler (Prime model)

New products/solutions being worked upon:

• Majority of these products are being worked upon(in development), some of them are in the proof of concept stage. Most of these products contribute to revenue from Q4 FY25. So significant upside can be seen in FY26 revenues and could be a contributor to the FY26 guidance of 3600 crores.
• E-cockpit with one of the major customer
• Battery management system
• Disc brakes
• SIBROS partnership.
  • This is not exclusive to Pricol but the solution that Pricol is working upon is kind of exclusive and Sibros telematics in the cloud is one part of it. Pricol is working on an end to end solution and Sibros will be part of it.
• Oil & air pumps
  • Launched with Tata motors and Ashok Leyland last quarter
• Telematics solution

Top customers:

• 2 wheeler:
  • TVS, Hero, Bajaj, Royal Enfield, Honda & Suzuki
• Passenger vehicles:
  • Tata motors, Ashok Leyland, Volvo & Eicher
• Off-road: JCB

Guidance

• Order book is looking healthy & very strong. Guidance of 3600 crores by FY26 is intact and depends on the customer launches & how market is going to be. As I mentioned above there are a number of products being worked up on which should cater to this guidance starting Q4 FY25.
• Company is also looking for inorganic growth in the non auto segment, nothing at the moment to speak of.
• Red sea impact: There is a couple of weeks of delay in shipping and the company has rerouted and now came to normalcy. Export is 10% of revenues, so not much of an impact.

Margins:

• EBITDA margins 9M FY24: 12.31% vs 11.83% same period last year
• Company guiding a 13.5% EBITDA margins and is expected to reach before FY26.
• There was a question on margins being affected when they enter into ore electronics, to which management answered that they are transitioning into a solutions company from a product company (providing end to end support). Company is working on the off the shelf component which customers can easily plugin.
• A similar question is being asked on E-cockpit solution where Visteon is a competitor, management agrees that there is competition and focuses on quality of the solution/innovation to win customers and penetrate. For e.g. they entered into passenger vehicles in 2020 and are doing quite well winning customers in the segment. They are doing good in the EV segment as well.

What’s Pricol moat?

• One of the questions was about Pricol’s moat in winning new customers/penetration in the market. Below is what management said:
  • 4.5% of revenue spent on R&D for the last 5-7 years.
  • In-house machine building (they do their own tools, own lines, own plastic injection molding & own PCB population)
  • Exclusive tie up with many of the chip manufacturers & have long term contracts with them.
• A little bit of research is needed to see if these are really the moats and compare this with some of the best in the industry (say Sona comstar, UNO Minda etc.)
• Industry is moving from mechanical to digital to tft to high end digital information systems. This helps increase kit value and Pricol is innovating in this segment and in the sweet spot to capture the market.

Awards received in Q3fy24:

• Technology & Innovation award from Daimler trucks.
• Best quality performance from JCB
• Gold award from Tata motors.

Answers to “things to look for in the coming quarters from Q2 fy24” update:

• Improvement in EBITDA margins (they are a bit lower compared to last year numbers as against management commentary of this going up)
  • 9M FY24 EBITDA increased by 48bps and 119bps short of guidance of 13.5%
• EV sales pick up in coming quarters
  • There are some hiccups in EV sales this year but this should do very well starting next year. Management mentioned a number of products they are working upon for EVs.
• Minda corp stake increase related issues
  • Minda corp fully sold its stake and this issue is gone now. They made a good profit though (but may have gotten a bad name?).
• An eye on the growth as this year it seems to be doing less than what is required to reach fy26 target.
  • My guess is FY26 will be a good revenue generating year compared to FY25 as several new product launches are going to happen from Q4FY25.

Things to look for in the coming quarters:

• EBITDA margins : guidance of 13.5%
• EV sales pickup/penetration.
• Revenue target of 3600 crs by FY26.
• Inorganic growth by acquiring something from non-auto space (management mentioned about 4000 crs by FY26 out of which they expect 400 crores through inorganically).

Disclosure:
Invested and have been buying after Q2 results. Currently forms about 5.66% of the overall portfolio with average purchase price of 305.

Why promoters pledged 4.55% of its holding in Dec ’23 quarter? Any info?