Pricol limited - OEM automotive

Pricol Limited’s acquisition of Sundaram Auto Components Limited’s injection moulding business.

  • Pricol Limited proposed to acquire Sundaram Auto Components Ltd (SACL)’s Injection Moulding business via Pricol Precision Products Private Limited, a wholly owned subsidiary of Pricol Limited.
  • This acquisition will add approximately INR 730 crores to Pricol’s topline.
  • Pricol Limited’s Managing Director stated that this acquisition will allow Pricol to become an integrated solution player.
  • The TVS Motor Company Group CFO stated that they believe Pricol will uphold the same values and ethos as Sundaram Auto Components Ltd.
  • The acquisition is expected to be completed by January 31, 2025.
  • Pricol Precision Products Private Limited is also investing up to INR 120 crores in Pricol Precision Products Private Limited.
  • Pricol Limited is investing up to 26% of the equity capital of PQSI Digital Private Limited, a company in the Industry 4.0 products business.
  • PQSI Digital Private Limited was incorporated on April 5, 2018, in India.
  • Pricol Limited will provide a corporate guarantee of up to INR 250 crores for loans obtained by Pricol Precision Products Private Limited.

Client of SACL

PRODUCTS
TWO WHEELERS


FOUR WHEELERS

COMMERCIAL VEHICLE

Disc:Invested

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they have mahindra and mahindra as client

From annual report fy24 page 82

c. A brief on types of customers
Pricol Limited is one of India’s leading automotive technology and precision engineered products and solutions
providing company that serves to all major global OEM’s including TVS Motor Company, Hero MotoCorp, Bajaj
Auto, Royal Enfield, Honda Motorcycle and Scooter India, Yamaha Motor India, KTM, Triumph, Piaggio, Ducati,
Harley Davidson, Kawasaki, Suzuki Motorcycle India, TATA Motors, Ashok Leyland, Volvo Eicher Commercial
Vehicle, Mahindra and Mahindra, PSA Grope, Skoda, Renault Nissan, Maruti Suzuki, Mitsubishi, Force Motors,
Swaraj Mazda, Daimler, CNH Industrial, John Deere, Caterpillar, JCB, Escorts, TAFE, Polaris, Generac, Deutz,
TATA Hitachi, Hyundai Construction Equipments, Swaraj, Sonalika, Indo Farm Equipment Limited, Kubota,
Greaves Cotton Limited, Mitsubishi Diesel Engines Pvt Ltd, Cummins India Ltd, Kirloskar Oil Engines Ltd. Pricol is a
leading supplier of various components for the companies in India and around the world.

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#Disinvestment of wiping business:

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trying to understand management rational impact of this move on Pricol bottomline. Was it a non-core/loss making or low margin business? Can we expect overall margins to improve due to this sale? or any other take away?

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The notice says 66 Crs of revenue and sale consideration is just 20 Cr?

Does this make any sense?

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I am not a big fan of acquisitions, so it is just a relief that the market has taken a benign view of Pricol’s acquisition of Sundaram Auto Components Ltd.’s (SACL) injection moulding business. As has been captured in this thread earlier, SACL makes a wide hotchpotch of plastic products for TVS Motors and a bunch of other auto OEMs and Tier I suppliers. Its product profile is largely powertrain agnostic, with the company counting EV makers like Ather as one of its longtime customers. In the past, SACL also sold two wheelers for TVS – a trading business that was transferred to another group company in 2018 after the introduction of GST. Much before that, SACL was also into rubber parts but that business too was sold off.

Pricol will pay Rs.215 crore for a gross block of Rs.370 crore and a business which earned Rs.764 crore as revenue in FY24. SACL’s capacity utilization is not known but it has projected a growth of 10 % for FY25. This business earns about 30 % gross margins, roughly the same as Pricol’ existing business. SACL’s employee costs are also in line with Pricol, at around 11 % of revenues. So far, so good.

But despite this, SACL lags way behind Pricol in overall profitability.

The difference between Pricol’s existing business and SACL lies in the unit economics. Injection moulding is inherently a heavy fixed cost business and requires high volumes. SACL makes hundreds (perhaps, thousands) of heterogenous parts for a large number of customers. And it is spread thin across 6 manufacturing locations. All this leads to diseconomies of scale. At the net level therefore, SACL is hardly breaking even, with PBT margins of just about 3 % in the last two years.

Injection moulding requires tooling costs for each product produced, which can then be recovered only when significant volumes are generated. A new component will need a new mould to be made. And since making these involves no rocket science, vendors do not have bargaining power to demand better pricing. SACL claims it has also developed competency in the alternative technologies such as In-Mould Decoration (IMD), Physical Vapor Deposition (PVD) and so on. These might be higher value additive than basic injection moulding, but how much of the current business comes from such products is not known.

The primary raw material SACL uses is Acrylonitrile Butadiene Styrene (ABS), a polymer largely imported in the country though there are a couple of domestic manufacturers as well. The acquisition thus does not help Pricol reduce its import vulnerability. SACL has said it has a pass through on RM prices with a lag of a quarter with TVS, and I hope the arrangement is the same with other customers as well. The six widely dispersed plants are required in order to be closer to the customer, but create diseconomies in operational overheads. For example. Pricol spent Rs.24 crores on Power & Fuel in FY24 to earn a revenue of Rs.2272 crores but SACL’s power costs were Rs.25 crores for a revenue of just Rs.764 crore. Similarly, Pricol’s freight costs were 1.25 % of revenues while SACL’s spent more than double of that on freight.

With no scope of gross margin improvement and the necessity to maintain the six plants, what Pricol can do to improve margins (that TVS couldn’t) is a question I have.

Interestingly, despite TVS’s parentage and strong own growth, SACL’s sales to TVS have not grown, and I wonder why.

image

Moreover, Pricol’s press release does not mention any long-term supply agreement with TVS. I suppose given the existing relationship between Pricol and TVS, this business will at least remain where it is for the long term even if it doesn’t grow.

Thankfully, SACL’s third party sales have shown decent growth, growing at more than 20 % CAGR from Rs.138 crore in FY19 to Rs.366 crore in FY24.

image

The market has been cool to the acquisition. It not only adds to Pricol’s topline but gives it a wider geographical footprint and an entry point to a wide range of new customers. But to get the most out of it, Pricol will not only need to grow this business, but grow it more profitably. How it plans to do that remains to be understood.

(Disc.: Invested)

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Q3_2025 result

Summary of concall

1.The company’s revenue for the third quarter is 6,159 million with an EBITDA of 780
million, resulting in an EBITDA margin of 12.67%

2.The PAT (Profit After Tax) is 414 million, with a PAT margin of 6.73%.

3.Two-wheelers and three-wheelers contribute 65% of the company’s revenue. About
65% to 70% of total Indian vehicle production comes from this segment. Approximately
10% of revenue comes from the commercial vehicle segment. Tractors contribute about
5% to 7% of revenue.Off-road vehicles, including construction equipment, account for
7% to 8% of revenue, where the company holds a 90% market share.The passenger
vehicle segment accounts for the remaining 10%.

4.The company is aiming for a steady growth rate of 13-15% over the next couple of
quarters(only Pricol Ltd excluding business of Sundram Auto Components( Pricol
Precision Products ).

5.The company aims to double the business of Sundram Auto Components (to be
renamed Precall Precision Products) to about 1,600-1,700 crores over the next 3 years
through organic and inorganic means.

6.The company is focused on moving from a component supplier to an FSS (Full Service
Supplier) for plastics.

7.Disc brake business is expected to reach large volumes in about 8 to 12 month

8.TFT cluster penetration is expected to increase in the two-wheeler market, and the
company currently holds a 75% to 80% market share.

9.The company is working on infotainment and e-cockpit systems, which are under testing
with customers, and expects revenue from these from financial year 26-27 onwards

10.The company experienced some supply chain issues, which have caused lower sales
but are expected to be mitigated by Q1 of FY26.

11.There has been a slowdown in exports, and the company has seen a reduction in
volume due to lower OEM production.

12.There is a risk of losing customers of Sundaram once it leaves the TVS group,
however, the management has stated they have met with all key customers and they
are willing to grow their business.

13.The company has acquired Sundram Auto Components, which will be renamed Prical
Precision Products.The acquisition is expected to close on February 1st

14.The revenue of Sundram is about 800 crores with an EBIT of about 70 crores with the
acquisition at a 3.5 times multiple.

15.The company is at the end of a 650 cr capex cycle, and future capex will be light
unless there is inorganic growth, with a maintenance capex of about 100 to 120 cr a
year

16.The company has a dedicated R&D and technology team with 480 out of 1000
employees in those areas.

Disc:Invested

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Guided for 13-15% revenue growth considering exports remain subdued for 8-12 months.
Can expect 1000 cr over and above (800cr +25% growth) revenue from PPP and appx 100 cr EBIDTA.
e-Cockpit, infotainment, disc break meaningful revenue from fy27.

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