Target: ₹ 600
CMP: ₹479
Pricol offers strong multi-year earnings growth visibility (29 per cent FY24-27E EPS CAGR) with attractive valuation relative to other 2W ancillaries amid: sustained premiumisation trend on shift towards digital clusters; ramp up in newer clients such as Honda 2Ws over the next 18-24 months (backed by order wins); new products currently under the testing/validation stage potentially moving into revenue from FY26; improving mix and operating leverage-led margin uptick to about 13.5-14 per cent; and strategic inorganic acquisitions expanding the addressable market size.
Profitability has improved structurally over the past 5 years (EBITDAM: 13% in Q1FY25 vs 6.9% in FY20). Pricol targets further margin improvement driven by: improved mix (digital clusters now form 80 per cent of cluster revenue vs 20 per cent earlier) and higher value additive content, high vertical integration and automation (90 per cent of PCBA assembly is done in-house ), and further efficiency improvements incl. in-sourcing (getting into longer term sourcing arrangements for semiconductor chips).
Cost competitiveness is a key strength vs MNC peers like Visteon; margin expansion much beyond this range would impact growth and thus be impractical.
We continue to like Pricol as a structural premiumisation play that is also transforming into a multi-product company