Pricol Ltd — Q3 FY25 earnings call

Call held 30 Jan 2025

Management summary

Pricol Ltd delivered a resilient Q3 FY25 performance amidst a seasonally weak automotive industry, achieving 11% revenue growth and healthy margins. A significant highlight was the strategic acquisition of Sundaram Auto Components, aimed at expanding into the plastics FSS business and doubling its revenue in three years. The company is focused on leveraging advanced technologies like TFT clusters, BMS, and E-Cockpit, while navigating subdued export markets and optimizing operational efficiencies to maintain consolidated margins around 13% post-acquisition.

Highlights

  • Revenue for Q3 FY25 stood at ₹615.9 crores, reflecting an 11% growth.

  • EBITDA for the quarter was ₹78 crores, with an EBITDA margin of 12.67%.

  • Net Profit (PAT) reached ₹41.4 crores, achieving a PAT margin of 6.73%.

  • Basic Earnings Per Share (EPS) for Q3 FY25 was ₹3.40.

  • The company reported nil consolidated long-term borrowings.

  • Pricol acquired Sundaram Auto Components at an adjusted EBITDA multiple of 3.5x, with plans to double its revenue to ₹1600-1700 crores in 3 years.

  • Management expects 13-15% revenue growth for Pricol's existing business over the next couple of quarters.

  • Maintenance CAPEX is projected at ₹100-120 crores annually, with the current ₹650 crore CAPEX cycle nearing completion.

Key financials

  1. Revenue ₹615.9 Cr +11%YoY
  2. EBITDA ₹78 Cr
  3. EBITDA Margin 12.7%
  4. PAT ₹41.4 Cr
  5. PAT Margin 6.7%
  6. Basic EPS ₹3.4

What they filed

Q1 FY27: revenue up 24.7%, net profit up 25.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue664 630 624 683 758 +14%800 +27%856 +37%852 +25%
EBITDA74 69 65 78 88 +19%90 +30%95 +46%93 +19%
Net profit42 36 28 39 46 +10%44 +22%78 +179%49 +26%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Pricol Revenue Growth (ex-Sundaram) Revenue · next couple of quarters · Medium confidence 13-15%
    We are expecting to grow at around between 13% and 15% based on our product mix, new product introduction, and market demand.

    — Vikram Mohan

  • Sundaram Auto Components Revenue Revenue · next 3 years · High confidence ₹1600-1700 crores
    But our plan is to double the business to about or somewhere in the region of 1700 crores over the next 3 years. Both organically and inorganically.

    — Vikram Mohan

  • BMS Business Sales Revenue · H2 of this year (FY25) · Medium confidence Start some business
    May be H2 of this year, we will start some business on the BMS. And next year would be a full year of the battery management system sales.

    — P. M. Ganesh

  • E-Cockpit/Infotainment Revenue Revenue · from 2025-2026, 2026-2027 onwards · Low confidence Good amount of revenue
    next financial year not from 2025-2026, 2026-2027 onwards we expect good amount of revenue to come from the infotainment and E-Cockpit.

    — P. M. Ganesh

Margin

  • Sundaram Auto Components EBITDA Margin Margin · next couple of quarters · Medium confidence Increase by 200 basis points
    We are hoping over the next couple of quarters to increase the margin by about 200 basis points, which is why we have bought it at a lower EBITDA multiple for it to be value accurate.

    — Vikram Mohan

  • Consolidated EBITDA Margin (with Sundaram) Margin · going forward · High confidence Around 13%
    So I always maintain that we will be on a consolidated basis at around 13%. Now, with Sundaram joining the table, it is going to be a lower average because the plastics business is a lower average. But in terms of rupee EBITDA, obviously, it is going to go up.

    — Vikram Mohan

  • EBITDA Margin (Pricol domestic + SAC ramp up) Margin · going forward · High confidence 11-12%
    So with export remaining subdued and domestic as well as SAC's ramp up, Sundaram's ramp up, we should expect EBITDA to be somewhere around 11 to 12%? Around 11 to 12 is right, yes.

    — Bismith Nayak (confirmed by Vikram Mohan)

Capex

  • Maintenance CAPEX Capex · a year · High confidence ₹100-120 crores
    Our maintenance CAPEX is about 100 to 120 crores a year.

    — Vikram Mohan

Volume

  • Export Volume/Revenue Volume · at least for 8 quarters · High confidence Subdued
    At least for 8 quarters.

    — Vikram Mohan

  • Disc Brake Business Volume Volume · about 8-12 months · Medium confidence Mature large volumes
    But that will be offset from the next, let's say about 8-12 months or so with our disc brake business starting to pick up volumes.

    — Vikram Mohan

Operations

  • Supply Chain Issues Operations · Q1 of FY'26 · High confidence Normalized
    About 50% mitigation has been done and the other 50% mitigation will happen in Q4 as we speak and supplies will be normalized from Q1 of FY'26.

    — Vikram Mohan

Risks & concerns

  • Muted industry demand and supply chain issues impacting sales

    medium

    Q3 sales were lower due to muted industry demand and supply chain issues; 50% mitigation done, 50% in Q4, normalization by Q1 FY26.

    Management acknowledged

  • Subdued export market impacting revenue for an extended period

    medium

    Exports have been 'hit-wins' and are expected to remain subdued for at least 8 quarters (2 years), but disc brake business ramp-up will offset this.

    Management acknowledged

  • Lower margins from the acquired plastics business potentially diluting consolidated EBITDA margin

    medium

    The acquired plastics business has single-digit margins, which will lower the consolidated average, though rupee EBITDA will increase; management aims to improve Sundaram's margin by 200bps.

    Management acknowledged

Areas of evasion (1)

  • Specific PAT/PBT figures for Sundaram Auto Components before acquisition completion.

Q&A highlights

3 direct
Acquisition strategy and growth plan for Sundaram Auto Components Direct
The total business that is expected to be done by this company this year is about 800 crores with an EBITDA of about 70 crores and we have acquired the business at an adjusted EBITDA multiple of 3.5 times EBITDA multiple which is value accretive to our shareholders. The growth plan as I mentioned is to move from more components to more engineered products which is to be a FSS plastic supplier. ... our plan is to double the business to about or somewhere in the region of 1700 crores over the next 3 years.

Provides detailed rationale, financial terms, and ambitious growth targets for the major strategic acquisition, crucial for future valuation.

Asked by Aman Agarwal

Increase in employee cost in Q3 despite lower revenues Direct
As a percentage of revenue it is the employee cost. It is not an absolute number because the revenue has come down typically this happens in quarter 3 of every year. ... Because quarter 3, the revenue is always lower in the industry. Automotive industry is always Q3. Post Diwali there will be a drop and all customers shut down and the revenue is lower and that is the standard practice in the industry for decades.

Clarifies a potential concern about cost control by explaining the seasonal nature of the automotive industry's Q3 and its impact on employee cost as a percentage of revenue.

Asked by Aman Agarwal

Penetration and market share of TFT clusters in the two-wheeler market Direct
Today, 5-7% of our revenue is coming from TFT clusters and as more EV is going up, TFT is something that is going to become a major feature in all these vehicles. ... we foresee that it is going to have good growth in the next 2 years. ... nearly 80% of the TFT business of whatever is there in the two-wheeler is with Pricol.

Highlights a key growth area for Pricol, its strong market leadership (80% share) in this evolving technology, and future potential driven by EV adoption.

Asked by Siddharth Chhabra

3 min read 7 chapters

Detailed narrative

Q3 FY25 Performance Overview

Pricol Limited reported a Q3 FY25 revenue of ₹615.9 crores, an 11% growth year-on-year, which was noted as being on the lower side compared to the past 10 quarters due to muted industry demand and supply chain issues. The company achieved an EBITDA of ₹78 crores, translating to an EBITDA margin of 12.67%. Net profit stood at ₹41.4 crores, with a PAT margin of 6.73%, and basic EPS was ₹3.40. The company maintains a strong balance sheet with consolidated long-term borrowings at nil.

Strategic Acquisition of Sundaram Auto Components

Pricol announced the acquisition of Sundaram Auto Components (to be renamed Pricol Precision Products) at an adjusted EBITDA multiple of 3.5 times, which management deems value-accretive. The acquired entity currently has an annual revenue of approximately ₹800 crores and an EBITDA of ₹70 crores. Pricol plans to double this business to ₹1600-1700 crores over the next three years through organic and inorganic means, transitioning it from a component supplier to a Full System Solution (FSS) plastic supplier. The acquisition is expected to close on February 1, 2025.

Growth Outlook and Market Dynamics

Pricol anticipates a 13-15% revenue growth rate for its existing business over the next couple of quarters, driven by new product introductions and market demand. The company holds a significant market share in driver information systems for two-wheelers (40%+) and commercial/off-road vehicles (80%+). While Q3 was seasonally weak for the automotive industry, management expects demand to pick up. The disc brake business has started supplies and is projected to reach mature large volumes within 8-12 months, offsetting some export market challenges.

Advanced Technology & EV Transition

Pricol is actively investing in advanced technologies, with 480 out of 1,000 white-collar employees dedicated to R&D. TFT clusters currently contribute 5-7% of revenue, with Pricol holding a dominant 75-80% market share in the two-wheeler TFT segment, and this technology is expected to see good growth in the next two years. The EV segment currently contributes below 10% of total revenue. The company is developing a Battery Management System (BMS), with business expected to start in H2 FY25 and full-year sales in FY26. E-Cockpit and infotainment systems are under development and testing, with significant revenue expected from FY26-27 onwards.

Capital Expenditure and Financial Health

The company is nearing the end of a ₹650 crore CAPEX cycle, with the last ₹200 crores remaining. Going forward, maintenance CAPEX is projected to be ₹100-120 crores annually, unless there is further inorganic growth. Post-acquisition of Sundaram, consolidated debt is expected to be around ₹80 crores, maintaining a healthy balance sheet.

Operational Efficiencies and Margin Management

Pricol aims to improve Sundaram Auto Components' EBITDA margin by approximately 200 basis points over the next couple of quarters through efficiency improvements, productivity enhancements, and machinery upgrades. While the acquired plastics business has a lower, single-digit margin, which will slightly reduce the consolidated EBITDA margin average, the overall consolidated margin is expected to be maintained around 13%. Operational efficiencies and cost reduction initiatives contributed to a 6% reduction in other expenses in Q3.

Export Market Challenges and Mitigation

The export market for Pricol has faced 'hit-wins' and is expected to remain subdued for at least the next eight quarters (two years) due to lower OEM production volumes in their export markets. Management acknowledged this as a concern but stated that the ramp-up of the disc brake business, which has already started supplies and is expected to reach mature large volumes in 8-12 months, will help offset the impact of the export slowdown.

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