August 2022 -
Company hits it out of the park this quarter - https://www.bseindia.com/xml-data/corpfiling/AttachHis/74580c02-d5a0-4ebb-ba03-6b0b9416f38f.pdf
And note, the firm makes display clusters for all sorts of vehicles, which implies it is quite a bit dependent on semiconductors, and the global semi conductor problem is not yet quite sorted.
Disc: Was invested from 70 odd, Sold out at 150 (I am a bit of a idiot with my own convictions). Bought back in at 190. Still buying.
Notes from the Q3 FY2023 concall whatever I could gather:
- Sibros - Solution is ready, PoC is completed. Samples are with customer. Waiting for orders, may happen from FY24 onwards.
- BMS - Solution is WIP and under evaluation.
- Vision of the company is to reach Rs.4000 crore by FY26.
- This quarter there was significant loss of production due to IC shortage, but it cannot be quantified. It has been regularized and we are back to normalcy now. There will not be any problem going ahead.
- Generally, Q4 is better than Q3 in the auto sector.
- Cannot say what will be the margin profile for new products.
- Our revenue split - 65 % is from 2-wheeler generally and 35% is from 4-wheeler. This is how the auto sector break up also is.
- Telematics is an integral part of DIS and is 65% of revenues, 35% is from Activation Control & Fluid Management Systems.
- Exports - 12 % of revenues and remaining is from domestic market.
- Caterpillar order (for large water pumps) has gone into mass production. It is a recurring order.
- Our content per vehicle is going up continuously but cannot put a number on it.
- Last 3 years there have been lot of cost escalations, but things are looking to ease out now. So, hoping margins should improve going ahead.
- We are continuing to launch new products with a high focus on EV segment.
- Growth is happening due to new products introduction.
- Presently EV products % to revenue is less than 5 %, it was launched this year only but expect it to grow significantly in coming years.
- Order books are robust but cannot put a number to it.
- Investment in R & D are 4.5 % which is one of the highest in the industry.
- Cost of development of new products - we charge our customers an upfront Design & Development cost.
- Mr. Mohan, the MD of Pricol was not present in the call. He had missed the call last quarter also which was not appreciated by one questioner.
Overall, I find the company management answered the questions well. They are doing lot of things to generate growth. However, the company does not have pricing power (just like most other auto ancillaries). Institutional interest in the call was low.
(Disc.: No positions.)
Few more con call highlights (in addition to above from @Chandragupta)
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Suffered supply chain issues. Lost revenue/profit and resorted to using expensive alternatives. The situation is now sorted.
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No long-term debt (last year it was 100 cr)
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Aiming to double revenue by Fy26 ( 25 CAGR). This will be achieved by launching different technology products.
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Q4 is generally better than Q3 as many OEM perform maintenance shutdown in Q3
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65% of revenue comes from two-wheelers. Remaining from four-passenger cars/commercial vehicles as well as from tractors
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65% of revenue is from telematics and 35% from actuation and control systems.
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Business from Caterpillar (water pumps) has started in the last six months and is stabilising. These are large water pumps (80kg), and first-time Pricol has done that. Hopeful for more business from Caterpillar.
Aiming to increase the number of parts per vehicle
-Hoping for margin improvement -
New products are EV focus. This is also aided by a partnership with Sibros as well as the Battery Management system.
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EV segment started this year. The current contribution maybe 5%, but hoping that they will be key drivers going forward
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Around 15-20% of revenue is contributed by new product launches (I am assuming management meant that products launched within the last 12 months)
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R&D investment is 4.5% of revenue, and it is the highest in the industry
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Sibros- Did some POC and joined displayed products in various exhibitions. This is still in the POC phase before it goes into primary production. This partnership is offering an integrated solution which captures vehicle information and displays it on dashboards. Expecting production to start for different products in Fy24
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Capital lights as Pricol has already been manufacturing telematics for the last ten years.
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BMS - Work in progress.
It seems Minda Corp has big plans for Pricol but since Pricol promoters are against this acquisition, it could be long drawn affair. History of such hostile takeovers suggests that investors of acquiree company are the winners in the long run as acquirer has to keep on increasing the price to make it attractive for minority shareholders(and promoters too) to sell their shares to the acquirer.
But in the short run, it could be negative for the company as its leadership focus can be taken away from business as they pay more attention towards fending off potential takeover
Disclosure - Got interested post stake purchase by Minda… added in watchlist
Did anyone attend the investor update call today? It will be really appreciated if someone who attended could share their notes.
I attended the concall but did not take notes . But highlights (from my memory )are as below
- Promoters were present including Chairperson as well as MD. (along with rest of the leadership team)
- Entire call was addressed and handled by MD Mr. Vikram Mohan.
- This was my first time attending Pricol concall and was impressed with MD’s thought clarity, forceful nature of his speech and emphasis on retaining control of the company
- He said that promoters along with their legal and financial advisors have devised various plans/strategies to retain/maintain control of the company (including increasing shareholding , if required)
- Phi Capital is common financial shareholder between Pricol and Minda and they have no plans to sale their stake in short to mid term. They do not have any NDA with Phi Capital.
- Minda will be treated as any other shareholder and would not be privy to any special sensitive information on priority
- Lot of individual shareholders expressed their support to current promoters and one suggested that promoters should increase their stake in company to make it difficult for Minda for hostile takeover. Mr. Mohan replied that they may increase the stake as per their own convenience and timing and not as a response to Minda’s action.
- He said he and his family is fully committed to the company and have great plans for it.
- 600 Cr capex planned for next 8 quarters which will funded by internal accruals.
- He also reiterated their leadership market position in 2W, Commercial vehicles as well as off road vehicles. (he had given figures of market share of all players in the industry on the call)
- Pricol recently entered in passenger car segment when its No compete agreement ended with Johnson Controls. Now they have 40%+ market share with Tata Motors, Mahindra and one more company.
- CEO will attend Q1 and Q3 concalls and Mr. Mohan will attend Q2 (half yearly) and Q4 (full year) concall
Edit - Concall trasncript link below
Disclosure - initiated position post Minda share purchase news. Transactions in last one week.
I feel Minda as well as Pricol are hiding the endgame of the 15% stake purchase by Minda,
100% minda has not purcahsed 15% stake just to be a minority shareholder
i believe in the coming days and week any other purchase by Minda would lead to counter buying by Pricol to safeguard their ownership
but on the concall and on the news interviews pricol management is very confident of safegaurding their ownership
aslo on the concall Mr Mohan spoke about building a warchest to ward off any hostile takeover
Interesting Development
Minda has decided to file an application to Competition Commission of India (“CCI”) for making investment in Equity Shares of Pricol Limited upto 24.5% of total Equity Shares of Pricol, at this stage.
Disc: No holding
So all this facade of “solely a financial investment - deploying our cash to get best returns” mask of Minda Corp, gone way more quickly than I anticipated…Now this smells like a typical hostile takeover scenario which will have its own set of peculiarities, including regulators, public and not so public give and takes, potential buybacks, potential white knight etc etc. If the current promoters decides to fight this out (as they claimed in concall post 15.7% stake purchase by Minda), it would be a one heck of a ride…
P.S.- And here comes the response… Pricol board meeting slated on 18th May is now preponed to 10th May… getting interesting
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=390c56b0-defd-46bb-a047-4e873a228d37
Really interesting article on why Minda is interested in Pricol
@Worldlywiseinvestors
Hi Ishmohit,
As the article points out, from Minda’s viewpoint there is commercial sense in this deal as the market is huge. For a non-promoter investors though (which I think most of us are :)), there are some relevant questions we might want to ask ourselves:
- If Minda does get ownership, will it disrupt Pricol’s growth trajectory, for example by avoiding growth capex? (It simply does not make commercial sense for it to do so.It should actually want to increase Pricol’s investments to benefit from the growth spurt).
- Will there be synergies that will accrue to Pricol from Minda - for example, access to new markets, expertise or talent? (experts on Mind can answer).
- Will any of Pricol’s customers or those who issued Letters of Intent (LOI), drop out because of Minda’s acquisition? i.e. will customers see threat to quality to longevity of supplies (at least I don’t see the reason).
- If this becomes long-drawn battle, will it affect Pricol’s execution in the meantime, maybe by diluting management focus?
- Markets usually do not discriminate uncertainty and risk. So, there may be volatility in Pricols’ prices. But should a long term investor be concerned about it?
- Will this uncertainty reduce maket for Pricol’s products or suddenly generate an alternative supplier? Most probably no.
- There is a point of view that acquisitions usually do not deliver the conceived results, or that are not value-accretive. Will this be the case here?
Will be interesting to see others’ views on these and other questions.
Interesting development. I think Pricol promoters have not shown a proactive attitude in increasing their stake in the company in the last three months. They could have increased their stake by 10% in the last three months or could have brought a strategic investor in order to avoid any kind of hostile takeover. Pricol promoter’s relationship with the TVS family goes a long way. Stake increase by the promoter group or a strategic investment by the TVS group would have given more confidence to all the stakeholders involved including employees of the company. If a tiger has entered your house then you can’t expect it to sit quietly and eat fruits offered by you. Minda Corp’s intention never seemed benign from the beginning. Moreover, two companies can have a totally different way of doing business and a hostile takeover can be the worst thing for the employees and senior management of the organization which has been targeted. Let’s see how things move forward in the days ahead.
Disclosure - Invested in Pricol
Great results by Pricol. sales up by 27% but PAT more than doubled YoY
https://www.bseindia.com/xml-data/corpfiling/AttachLive/7fce6c30-d5c5-444b-83c5-4a560b9d29c7.pdf
Pricol Concall Q4-FY23:
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Revenue from operations has been the highest ever quarterly earnings. Production capacity enhancement in Tool room, Plastic Component Manufacturing Shop and SMT (Surface Mount Technology) for PCB assembly line by adding new machines from Japan.
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Company has the target to reach 4000cr revenue by FY26. The company has an order pipeline for the next 3 years. EBITDA margins target of 15%. Company is confident of achieving it due to order pipeline (3600cr from the order pipeline and 400 cr from acquisition)
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Company is focusing on 3 vehicle segments: 2W; commercial vehicle and passenger vehicle. Company has 70% market share in Tata’s passenger vehicle segment. Focus on the market leader in the global passenger vehicle segment.
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Target of 70% revenue from DIS segment and 30% from ACFMS to contribute 30% segment by FY26.
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Company is taking all legal measures to oppose the application of Minda at CCI as they haven’t obtained the intention at their first investment. Management will take all steps legally and financially to maintain the Pricol with the current management.
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Management met with all their key suppliers and all the customers and made the position clear of Minda and Pricol with them.
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India’s growth story will be muted in the next 3 years for 2W auto segments; the company’s target is export. Company has a LOI for next 30 months and on the basis of that company projected the target of 4000cr. The company is working on premium products so even at low volume growth the target will be achieved.
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Company is EV ready and in touch with all EV players in India. Currently 8% revenue is from EV in the DIS segment. Working with 22 EV players in the country. Margins are same from EV as well; also share of EV will go up as EV adoption increases in India.
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Company has 100% market share in TVS 2 wheeler.
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For the target numbers company assumed 0% volume growth from India’s 2W segment as the company expects muted growth in India for next 3 years.
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Company will do a capex of 600cr in next 2 years; most of these will be funded by internal accruals. Company may take 200cr short term debt as a bridge loan.
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Company is the world’s second largest DIS manufacturer for 2 wheeler.
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To unlock value for shareholders, if there is a need to align with some other company to get technology from MNC players, then Pricol may demerge into 2 different companies for DIS and other businesses. It is under discussion, no any work has been done on it yet.
Disc: no reco to buy or sell.
Q4 FY 23 Concall notes-
1.FY 26 Guidance-
~Revenue- 4000 Cr ( 3600 normal+400 inorganic)
~EBITDA Margin-13%
~share of DIS 60-65, Actuator 40-35
2. Capex-
~600 Cr over next 6-8 quarter.
~Organic-400, Inorganic-200
~mostly funded through internal accrual
~ can take 200 Cr short term debt
3.On Minda
~ All steps to be taken legally & financially to maintain control over the company.
4.DIS market share-
~ 50% in 2W in india
~ 100% for TVS
~ 70% for Tata motors
~worlds 2nd largest manufacturer
~ It is compulsory in all vehicles be it Diesel,CNG, EV or Hydrogen
5. Margin improvements
~ DIS margin will be the same, want to make margin in align with partner.
~ they are planning to enter instrumentation through inorganic, which will have high margin.
~margin to increase through product premiumization.
6.EV
~Currently 7-8%
~ company growth will be same as EV sector.
~Margin will be the same non EV.
7.Separating Business
~If opportunity/ need arises they will seprate 3 vertical.
~ 3 vertical have separate value chain, manufacturing etc.
~ unlikely to happen in next 1 year
No reco.
Since I am new to investing, can someone help me get answers to a few doubts like
The management said that unlike software companies they can’t enjoy high margins and are dependent on their costumers growth So
-If the industry stays muted or grows at around 5%, can the company still report 20%+ growth?
-They said that they will be focusing on premium products but still will it be able to compensate for volume or will it be sustainable?
Thanks