Play on 2-W volume recovery and premiumisation…
About stock: Pricol Ltd (Pricol), is a Coimbatore based supplier of diversified auto components primary across two verticals: (i) Driver Information & Connected Vehicle Sols (instrument clusters), (ii) Actuation, Control & Fluid mgmt. systems (pumps etc.).
• Sales mix: – ~65% from 2-W, 3-W, ~15% from CV, ~10% from PV, ~10% from off-road & tractors
Investment Rationale
• Best placed to play premiumisation trend in instrument cluster domain: Instrument Cluster is a critical component of an automobile showcasing various real time information with respect to vehicle running parameters. Pricol is one of the industry leaders in this space with ~50% market share in the 2-W category, ~80% in CV’s, ~50% in tractor space, ~90% in off-highway segment and ~<10% in PV space (limited to Tata Motors). Pricol realises ~70% of its sales from this segment. Interestingly, this space is undergoing a drastic shift in terms of digitalisation, parameters/optionality available to vehicle drivers including navigation, communication & more vibrant display thereby driving the premiumisation trend. In 2W space for example, the content/vehicle in the Analog to digital to TFT is pegged at x-3-4x-10-15x i.e. a cluster costing Rs x in the Analog format, costs ~3-4x in digital format and ~10-15x in TFT format. It’s also a key differentiator and unique selling proposition for OEM’s these days. The share of Analog clusters is on decline (~30% currently) with digital clusters on the up-move at ~65% and rest being constituted by TFT clusters i.e. ~5%. Going forward we expect the trend to accelerate further towards digital and TFT clusters domain benefitting Pricol. It is best placed to capture both the 2-W volume recovery (amid low growth envisaged for other auto segments) and premiumisation trend domestically. • Fluid control segment to grow at steady place, new products avert risk: Pricol realises healthy ~30% of its topline from actuation and fluid control space including fuel pumps which have both automotive as well as industrial usage. Fuel pumps run the EV risk at Pricol and constitute ~5-6% of its sales, the company however is mitigating this risk by introduction of new products such as electric coolant pumps (used in Electric Vehicles) which coupled with its proven capabilities in industrial side bodes well for Pricol in the long run. • Healthy return ratios profile, growth trajectory warrants a re-rating Riding on 2-W volume recovery & rise in content/vehicle in instrument cluster space we expect Pricol to deliver healthy 18% Sales & 22% PAT growth over FY23-26E, one of the best in auto ancillary space. This coupled with its 20%+ RoCE & net debt free B/S makes PE multiple re-rating imminent in our view. Rating and Target Price
• We assign BUY rating on Pricol amid levers to grow ahead of industry (targeting sales of ~₹ 3,600-4,000 crore with margins at 13-14% by FY26E), volume and content rise led growth in topline, healthy RoCE and B/S profile.
• We value Pricol at ₹ 450 i.e. 24x P/E on FY24E EPS
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