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Competitor buys stake from open market, reaffirms our thesis of healthy capabilities, asset proposition of Prico

About the stock: Pricol Ltd (Pricol), established in 1974, is a Coimbatore based supplier of diversified auto components like instrument clusters, sensors & s

* Product mix: - ~65% from 2-W, 3-W, ~15% from CV, ~10% from PV, ~10% from off-road & tractors

* Segment mix: - ~55% from driver information system (instrument cluster), ~30% from actuation & fluid control system, ~15% sensors and others

Key Highlights:

* Minda Corporation on Friday, February 17, 2023 acquired 1.91 crore shares of Pricol representing 15.7% of total paid-up capital for ~| 400 crore (~| 209 per share) from open market saying it was a financial investment

* View: We believe this transaction by Minda Corporation in the secondary market has some strategic intent, which the acquirer has not yet clearly spelled out. Promoters at Pricol, however, have time and again conveyed their full support to the company with no intention to cede control or sell a stake. Further developments in this space are awaited. However, it does clearly demonstrate the future content rise potential in digital instrument cluster space of which Pricol is a prominent player with proven technological capabilities, new tie-ups as well as customer relationships. Hence, we retain our positive view on the company with a BUY rating

What should investors do? The company’s share price has grown at ~18% CAGR over past five years (from ~| 86 in February, 2018), outperforming Nifty Auto index.

* We retain our BUY rating on Pricol amid a wider opportunity play with new TLA partnerships and management walking the talk over b/s repair and industry leading growth with ambitious Vision 2026 of ~| 4,000 crore sales

Target Price and Valuation: Introducing FY25E, we now value Pricol at | 250 i.e. 20x P/E on average FY24-25E EPS of ~| 12.5/share (earlier target price | 200).

Key triggers for future price performance:

* Consistent focus on de-leveraging of b/s amid calibrated capex spends ? Growing presence in PV space with healthy wallet share at Tata Motors

Alternate Stock Idea: In our auto ancillary coverage, we like Apollo Tyres

* Focus on b/s deleveraging, sweating of assets and capital efficiency

* BUY with a target price of | 390

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