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SAC plastic molding acquisition: Attractive valuation, balance sheet

Pricol has entered into an agreement for acquiring the plastic injection molding business of Sundaram Auto Components (SAC; FY24 sales/PAT of Rs7.3bn/190mn; press release) on all-cash, debt-free basis at an attractive valuation of ~8x FY24 PER. SAC’s products cater to interior and exterior plastic parts for 2Ws, PVs, and CVs, with strong presence within TVSL (SAC is whollyowned subsidiary of TVSL; TVSL contributes ~50% of revenue). The acquisition enables Pricol to scale up its existing molding operations into a growth-focused, independent vertical (vs current usage for backward integration) amid high cross-selling opportunities; it appears attractive on the valuation and balance sheet (~0.1x net debt/equity ahead, on pro forma basis) fronts, with potential ~6% EPS upgrade on Sep-26E EPS (not built-in). We retain BUY on Pricol, with unchanged estimates and TP of Rs600 at 27.5x Sep-26E PER (~26x on pro forma basis), as we believe it is a prime premiumization play.

SAC – EV-agnostic product profile with strong presence in TVSL

SAC is a wholly-owned subsidiary of TVSL, engaged in manufacturing automotive plastic components for 2Ws, PVs, and CVs. Established in 1988, SAC operates in 6 locations (Hosur, Chennai, Nalagarh, Mysore, Bhiwadi, and Sanand). Key products include body panels and other exterior parts, seat bases, etc in 2Ws, dashboard, roof rails, fenders, spoilers and functional parts in PVs, and interior and exterior parts in CVs. It also makes parts for EVs (eg battery cell holders and battery covers for 2Ws). Historically, TVSL has been an anchor client, forming ~50% of revenues as of FY22 (link); the company also counts Royal Enfield (RE), AL, BMW, Daimler, Ather, Stellantis, and several Tier-1 players among its clientele. SAC management on its part has decided to exit the injection molding plastic component solutions business, hence the slump sale.

Inexpensive acquisition for Pricol enabling greater growth focus

For Pricol, the acquisition is in line with its stated intent to grow via organic as well as inorganic means, and enables it to scale up its current injection molding operations (being used primarily for backward integration at present) into a more dedicated and growth-focused independent vertical. In our view, the acquisition price (~8x trailing PER adjusted for interest, as acquisition is on debt-free basis) appears inexpensive, given: a) SAC’s strong presence in TVSL (fastest growing 2W OEM), b) interesting EV-agnostic product profile with opportunities for higher content per vehicle, c) possibility of higher cross-selling to other OEM customers, d) steady-state operations (ie not a distressed /turnaround acquisition), and e) limited strain on the balance sheet (Net Debt/Equity at ~0.1x, even after the acquisition, on pro forma basis).

Almost 6% potential EPS upgrade; Pricol a prime play on premiumization

Per our prima facie estimates on pro forma basis (assuming consolidation from FY26E), the acquisition could lead to a potential ~6% EPS upgrade (not built into our numbers). We reiterate BUY on Pricol as we believe it is a structural play on premiumization (digitization of instrument clusters) with strong growth triggers from new client addition (eg Honda 2Ws over coming 18-24 months) and expansion into a multi-product company (potential re-rating trigger). Our TP remains unchanged at Rs600, at 27.5x Sep-26E PER.

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