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New tie-ups to bolster revenue growth, going ahead…

About the stock: Pricol Ltd (Pricol), established in 1974, is a Coimbatore based supplier of diversified auto components like instrument clusters, sensors & switches, pumps and mechanical products, telematics solutions and wiping systems

* 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

Q1FY23 Results: Pricol reported steady Q1FY23 results.

* Total operating income came in at | 445 crore, up 7% QoQ

* EBITDA margin came in at 11.7%, down 63 bps QoQ

* PAT was up 20% QoQ at | 20.6 crore, supported by lower effective tax rate

What should investors do? The stock is up 2x+ since our initiating dated April 2021, outperforming the broader Nifty Auto index in that timeframe.

* 21, outperforming the broader Nifty Auto index in that timeframe.

* We retain our BUY rating on Pricol amid management walking the talk over debt reduction plans, new tie-ups as well as ambitious Vision 2025

Target Price and Valuation: Upgrading our estimates, we now value Pricol at | 200 i.e. 20x P/E on FY24E EPS of ~| 10.0/share (earlier target price | 140)

Key triggers for future price performance:

* De-leveraging of b/s along with target of being debt free by FY24E. Sweating of assets, healthy cash flow generation and calibrated capex spends

* Growing presence in PV space with clients like Tata Motors, Citroen, etc

* New product pipeline and confirmed LoI from customers (including new age EV OEMs) to help boost sales, PAT to grow at 17.5%, 48.6% CAGR, respectively, in FY21-24E. Margins seen improving to 12.5% by FY24E

* Recent technology tie-ups for battery management system (BMS) with BMS Powersafe and foray into connected clusters (incl. Telematics) with SIBROS

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 target price of | 290

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