Pricol closed the quarter and the year on a strong note. Revenues, operating profits and PAT for the quarter were highest ever and operating & net margins improved. Quarterly revenues grew around 12 % Y-o-Y and PBT grew 33 %. Quarter on quarter, revenues grew 2 % and PBT grew 24 %. Revenue growth was slower as some customers deferred their product launches, which have since happened after quarter end, so the deficit will be made up in the coming quarters, says the management. For the year, CFO was strong at more than Rs.250 crores which is 1.8 times the PAT, and all long-term debt has been paid off, said the management (My comment: Company saw a CRISIL rating upgrade in Q3). Revenue growth for the year was a respectable 16 % and operating profit growth 20 %. Asset turnover improved to nearly 3 X.
Management says ROCE is steadily increasing and has hit 23.18 % in FY24 against 20.68 % in FY23 while EBITDA will reach around 13.5 % in future. A few points to note from the concall:
-
Product wise revenue break up is about 69 % DIS and 31 % ACFMS, the latter expected to go up to 35 % in the coming year
-
Customer segment wise revenue break up is Two wheelers about 50-53 %, PVs is about 6.8 %, Commercial Vehicles about 25 % and balance coming from Off Road vehicles.
-
Disc Brake is a very strategic product of ACFMS division. With six customers, production has started and is ramping up. Capacity for about 10 crore per month has been set up and will be enhanced over the next two years to between 300 - 400 crores per annum based on the business expansion.
-
E-cockpit adoption will take some time in the market
-
Sibros connected vehicle solutions - some updates may be made later this year
-
BMS project is going a little slow and has not yet reached meaningful status. (I notice that references to SIBROS, BMS, TYW etc. have disappeared from the presentation)
-
The focus areas for the company are two wheelers, commercial vehicles and off road vehicles with limited ambition in passenger vehicles.
-
The Rs.600 crore capex plan is on track of which Rs.200 crore would be in the current year. Capacity utilization at the current level is almost about 85 %. Capacity is being increased at Pune and upgraded in Coimbatore and Manesar. Asset turnover for the current yearâs expansion would be around 4 to 4.25 times
-
The management says company commenced new business with HMSI which is going to significantly increase top line in the coming years. Most of it is going into production 18 to 24 months from now.
-
Revenue guidance on the organics side seems to have been scaled down to Rs.3,200 crores from Rs.3,600 crores earlier while the Rs.400 crore inorganic piece remains. Reason for the downgrade seems to be lower export revenues on account of slowdown in the U.S. and Europe.
-
Sri City plant at Chittoor is dedicated for EV cluster manufacturing but the products are broadly propulsion agnostic since except the fuel level indicator, nothing else changes.
-
In Housekeeping, one analyst pointed out increase in provisions - there is a sharp increase in employee provision from Rs.15 crore to Rs.19 crore. Similarly, warranty provision has increased sharply from Rs.11 crore to Rs.26 crore. Other Expenses were higher due to Minda litigation apparently. (But shouldnât these costs be borne by the promoters? Not sure why they are charged off to the company).
Despite the slight scaled down guidance, business outlook for Pricol remains strong with good visibility going ahead. Two-wheeler sales have remained strong in the current year - in April they grew 34 % while May appears to have been mixed. The stock has been re-rated from a P/E of 22 X in March last year to 37 X currently.
(Disc.: Invested)
15 Likes
Can you elaborate a bit on the MoS part? Why do you think there is no MoS currently in the company?
Hi, DhananjayâŚ
I have already shared my outlook on the present status of the business in the above post. Business is doing good domestically, however mgmt. sees slowdown on the export front. If I assume 20% revenue growth for the next 2 years with margin improvement as guided by the management. I see ~20% growth in earning. And if the P/E remains at 40x, my return will be close to 20% in two years. So, when I say there is no MoS, I mean that, if the revenue growth slows down or there is any kind of one-offs like loss of customer, or if there is margin compression, there will be derating in the stock price. At 450, I see the market is pricing it perfectly for growth without discounting any risk. Hence, for me no MoS. At 18-20% correction, I may consider it a buyâŚ
ThanxâŚ
PS: I have not considered any inorganic expansion by the company in my assumption.
Disc: Invested from lower levels.
6 Likes
noob here trying to learn
why did minda sell with possible rate cuts around the corner and 2w sales picking up and good revenue prospects for the company. i dont understand somebody please explain.
Mindaâs older goal seemed to gain a controlling stake in the company. When it couldnât do that, they sold the shares. Minda isnât in the investing business, so there is no need for them to keep holding in expectations of a higher price. A good business is better off investing in itself than others.
11 Likes
Dear Suresh Ji⌠I am also very new in the market, a learner like yourself⌠Please take my words as a opinion & not suggestionâŚ
I think, in the bull market its difficult to predict what will be the limit of the PE. Itâs better to mix fundamental & technical for exit. I think 30x PE is the base for this company based on historical mean. 43x is not too high for me to consider it for selling. I consider holding period of two years, so I take a view on the 2year forward price and then decide to buy, hold or sell, mixing with technical.
ThanxâŚ
Disc: Holding 1.6% of pf from lower level.
3 Likes
Very good results by Pricol.
The numbers are reflecting what management was mentioning in last few concalls. Product transition from mechanical to electromechanical and to TFT thereby increasing value addition and per vehicle contribution
12 Likes
Pricol Q1 FY25 Analysis: Key takeaways!!
Pricol Limited demonstrated robust performance in Q1 FY25, with revenue growth of 15.48% year-over-year and EBITDA margin expansion to 13.38%. The company continues to outperform the overall automotive market, driven by increasing content per vehicle and new business wins. Management expressed confidence in maintaining strong growth momentum, supported by a robust order book for the next two years.
Strategic Initiatives:
- Focus on digitalization and value-added products, particularly in Driver Information Systems (DIS).
- Expansion into new segments like e-cockpits and disc brakes, with production expected to start in 12-18 months.
- Continued efforts to increase export revenues, particularly in European markets.
- Development of new technologies like Battery Management Systems and telematics platforms through strategic partnerships.
Trends and Themes:
- Shift from mechanical meters to digital displays (LCD to TFT) in the automotive industry.
- Increasing demand for connected vehicle solutions.
- Growing focus on electric vehicles and related technologies.
Industry Tailwinds:
- Increasing digitalization in vehicles across segments.
- Rising demand for advanced driver information systems.
- Growth in the Indian automotive market, particularly in two-wheelers and commercial vehicles.
Industry Headwinds:
- Slowdown in the US export market.
- Potential economic uncertainties affecting overall automotive demand.
Analyst Concerns and Management Response:
-
Concern: Moderation in outperformance compared to industry growth in recent quarters.
Response: Management attributed this to the timing of new vehicle launches and emphasized continued market share gains.
-
Concern: Achieving the FY26 revenue target of Rs. 3,600 crores.
Response: Management expressed confidence in the target, citing a robust order book and ongoing new product developments.
-
Concern: Export market challenges.
Response: Management acknowledged slowness in the US market but expects improvement after three quarters. They are also focusing on European markets for growth.
Competitive Landscape:
Pricol faces increasing competition in the TFT cluster segment from new entrants. However, management believes their local design capabilities, backward integration, and long-standing customer relationships provide a competitive edge.
Guidance and Outlook:
Specific guidance was not provided due to forward-looking statement restrictions, but the management expressed confidence in maintaining double-digit growth and achieving their FY26 revenue target.
Capital Allocation Strategy:
The company maintains a debt-free status for long-term borrowings and focuses on internal efficiencies to improve profitability. They are also evaluating inorganic growth opportunities.
Opportunities & Risks:
Opportunities:
- Expansion in the passenger vehicle segment, particularly with Indian OEMs.
- Growth in export markets, especially Europe.
- New product lines like e-cockpits and disc brakes.
Risks:
- Dependence on the two-wheeler segment (65% of revenues).
- Export market volatility, particularly in the US.
- Increasing competition in key product segments.
Regulatory Environment:
The transition to BS6 emission norms has been a key driver for product digitalization. Future regulatory changes could further drive demand for advanced automotive technologies.
Customer Sentiment:
Pricol maintains strong relationships with key OEMs and is actively engaged in new product development with various customers, indicating positive customer sentiment.
Top 3 Takeaways:
- Strong margin performance with EBITDA at 13.38% and potential for further improvement.
- Continued focus on digitalization and value-added products driving growth.
- Challenges in the export market, particularly the US, offset by opportunities in Europe and domestic market outperformance.
14 Likes
A few points on Pricol, assimilated from the Annual Report, AGM, and some from my own work:
-
Majority of the products are propulsion agnostic.
-
Adding one greenfield plant in Pune.
-
Company is in advanced discussions with 7 OEMs for disc brake systems. This will be huge growth area in the coming years, says the management.
-
Seven or eight manufacturers are getting added to the EV portfolio soon.
-
Has made significant investments in PCBs making it an electronics company from a mechanical company, says the management. Have even made robots in-house for manufacturing requirements. Going ahead, turnover will increase but manpower will not increase.
-
Has filed 20 patents for 15 inventions in India and abroad, with 17 patents already granted and the rest under review
-
Has successfully designed and started development of the Pricol E-cockpit platform. However no immediate revenue stream should be expected from this, it is a long-term opportunity for the company, nevertheless. Presently the prototypes are designed and discussion with customers are going on.
-
Has kick-started Battery Management System (BMS) development along with technology partner BMS Power Safe. Here again, no immediate revenues should be expected but this too is a good long-term opportunity. At present, the prototype development meeting the new regulatory requirements of Indian market is going on and expected to be completed by end of this calendar year. Post which, customer roadshows will be undertaken for commercialisation.
-
Pricol Telematics Control Unit (TCU) with SIBROS Software are installed & successfully running in 2-Wheeler, Off-Highway & Commercial vehicles in Domestic & International customer side. Here again, revenues are expected to start post FY26 onwards. At present, the integrated platforms are under testing with various domestic and international OEMs.
-
Achieved 62 % of energy consumption through renewable sources. Striving to achieve the target of 75 % in FY2024-25 and 100 % by FY2026
-
Balance in Retained Earnings is now negative Rs.65 crores only. Once it turns positive (most likely this year itself), the Board can declare dividends
-
I find there is a sharp increase in Warranty Expenses (Rs.31 crores this year Vs Rs.10 crores last year) as well as Provisions for Warranty Related Claim (Rs.20 crores this year Vs. 6 crores last year) in recent years. I asked the company if there is a change in the nature of customer contracts, but it said the increase is due to increase in sales, and additional provisioning based on the expected claims from customers.
-
As at 31st March, 2024, the contingent liability on account of various labour related cases has increased to Rs. 54.58 crores (Previous year - Rs.46.66 crores) with the addition of one more yearâs interest.
-
The industry is facing a GST dispute with the government on whether instrument clusters attract GST at 18 % or 28 %. This matter is pending in Madras High Court and is an unspecified contingent liability.
-
Interestingly, the Company has claimed loss on disposal of investment in Spanish subsidiary amounting to Rs.408 crore as business loss in the return filed for the AY 21-22 but paid advance tax on the same. If the claim is accepted by the tax authorities, the company are sitting on a potential cash bonanza worth (income tax refund) of at least Rs.100 crore upwards if I am not wrong.
-
Suzuki looking at us as key partner for their global operations, said the management at the AGM.
Excellent business, but some housekeeping issues linger from a troubled past.
(Disc.: Invested)
18 Likes
Key highlights from Pricol Q1FY25 Concall.
- Revenue from operations: âš6,029.09 million.
- EBITDA: âš806.51 million with a margin of 13.38%.
- PAT: âš455.61 million with a PAT margin of 7.56%.
- Earnings per share (EPS) stood at âš3.74.
- Return on Capital Employed (ROCE): 23.54%, a slight increase from 23.18% in the same quarter last year.
Pricol is aiming for double-digit growth for FY25, supported by strong order books and new product developments. Although no exact percentage was provided, the management emphasized their past performance of consistent double-digit growth over the last few years.
Pricol expects their exports to contribute around 8-10% of revenues (currently 6.6% of revenues) in the short term, with a potential for improvement after the next few quarters as market conditions, particularly in the US and Europe.
Margins are expected to remain strong, with export margins generally higher than domestic ones. They are cautiously optimistic about maintaining 13.5% EBITDA margin, with potential upward revisions based on future product mix.
Despite external challenges, such as global market conditions, they are optimistic about achieving their âš3,600 crore revenue target by FY26.
8 Likes
Disc: Invested and may be biased
Q2 FY25 numbers are okay, and a tad better than what they seem at first sight.
-
Sales have grown both 8 % QoQ and 16 % YoY basis. Q2 is traditionally a strong quarter for the company. Management said they have registered a âhigher than market growthâ.
-
But gross margin has shown a decline and 30.04 % is slightly lower than past several quarters. Management said this is âmainly due to product mixâ. Part of the reason is export margins are significantly higher, but they are muted currently. Exports were 6.5 % of the sales this quarter but they were 9 % last year.
-
As a consequence, the operating margin has also declined QoQ from 13 % to 11.5 % but is slightly higher than Q2 of last year. Absolute operating profits fell slightly QoQ. On a YoY basis, numbers look good as Q4 of FY24 had shown a big jump in profitability.
-
Interestingly, cash position looks to have worsened at first glance - CFO down from Rs.134 crore last year to Rs.64 crore this time, and cash / bank position lower in the Balance Sheet. Receivables are up by almost Rs.100 crore. But the management said that is because the company has not resorted to factoring on account of improved cash position. This is an important point to remember while analyzing any Cash Flow Statement. Overall receivable days are same as normal. The company gives credit period of 30 to 45 days for domestic sales and 60 days for imports.
-
Borrowings have declined, and long-term borrowing is nil. It may be recalled that CRISIL upgraded the company credit rating recently and said, âThe company is expected to generate healthy cash accrual of over Rs 275 crore on an annual basis over the medium term, which will suffice to meet its yearly capex needs of Rs 150-200 crore, leading to continued healthy debt metrics.â
-
In a surprise announcement, the management said they are âexploring inorganic opportunities in the railway and defence sector which will have higher marginsâ. Some announcement is expected shortly, and the acquisition size will be a âtwo digitâ number. Besides this, the company is also looking at other acquisitions and may raise debt upto Rs.300 crore to fund the same.
-
The management also read out a long list of capex projects, which included both greenfield and brownfield expansions.
Among other things, the management said
-
EV adoption will be slow, not as fast as people expect
-
Not bullish about BMS, not considering much of BMS revenues in any of the projections
-
PV contribution to the revenues was 9 to 10 %
But the management also cautioned that demand is muted in the 2W industry currently, Q3 will be even more muted.
(Disc.: Invested, E & OE)
8 Likes
Now there will be some consolidation for pricol in terms of business and there is also uncertainity whether company could achieve 3200 cr revenue as guided earlier by 2026 as exports just contributed 6.5 percent of revenue in this quarter
1 Like
Hey there folks! I see Mahindra had launched their new EVs yesterday. Iâm wondering if Pricol is supplying DIS for these cars? Do we have any reference from the previous concalls on this?
1 Like
exactly same question in my mind âŚif anyone have some idea about this???
In previous con call they didnât mention anything about this
Pricol is mostly dealing with 2-Wheeler Dis,They have not parternered with mahindra with their recent launch
Acquisition of injection molding business of Sundaram Auto Components Ltd. Paid Rs 213 CR for company with topline of 727 Cr. with 6 manufacturing plants. Profitability of acquired company is not known.
2 Likes
