Buy Pricol Ltd for the Target Rs.725 by Emkay Global Financial Services Ltd
Pricol logged a robust Q4, with consolidated revenue up 43% YoY (core revenue ex P3L was up 34% YoY). Consolidated EBITDA rose 64% YoY, with EBITDAM up by 20bps QoQ to 11.9%; core EBITDAM was largely stable QoQ at 12.1%. Pricol is confident about outpacing the industry, supported by entrenched customers as well as supplier relations. However, margins could witness some pressure in the near term, due to elevated commodity prices. Despite the geopolitical uncertainty, Pricol reiterated its commitment toward long-term investments, including R&D and strategic growth initiatives. It is also investing in major capacity expansion plans (~Rs7bn) across verticals, to cater to the demand (plastics capacity utilization has peaked, limiting further growth without new capacity). P3L is on track to achieve 2x revenue (vs FY25) in next 3Y, led by a healthy order book and new client additions; its margins could soften over next 2Y (due to front-loading of costs), with recovery once revenue scales. Pricol also targets 20% revenue contribution from exports (7% now; near-term target is 10%). We favor Pricol, given the continued improvement in its competitive positioning in fast-premiumizing products like DIS, apart from optionalities (expansion into more components on order wins). We raise our FY28E EPS by 8% to factor in the growth acceleration. We haul up TP by ~12% (rolled forward to Mar-28E) to Rs725 (Rs650 earlier) and maintain BUY.
Robust revenue growth; sustained margin rise at P3L; core EBITDAM stable
Consolidated revenue grew 43% YoY, aided by P3L consolidation. EBITDA rose 64% YoY, with EBITDAM up by 20bps QoQ to 11.9%. Core revenue (ex-P3L) growth accelerated to 35% YoY, with core EBITDAM largely stable QoQ at 12.1%. Adjusted PAT grew 54% YoY.
Earnings call KTAs
1) Pricol expects the broader automotive industry to witness near-term moderation due to geopolitical disruptions; it is confident about outperforming industry growth, supported by strong customer relationships, supplier partnerships, and a healthy balance sheet.
2) ACFMS was earlier guided to grow at ~30% YoY; however, the management indicated that achieving this in FY27 could be difficult if current macro uncertainties persist.
3) It highlighted significant inflationary pressures across key RM and logistics (PVC prices up 55%, aluminium up 62%, semiconductors up 35%, memory chips up 28%, and freight costs also witnessing sharp increases).
4) Despite near-term uncertainties and expected softening in automotive demand/earnings, Pricol reiterated its commitment toward longterm investments, including capex, R&D, and strategic growth initiatives, indicating no intention to scale back expansion plans.
5) Pricol continues to target 2x turnover of P3L over FY25 levels within next 3Y, and indicated that it remains on track to potentially exceed this target via new business wins and customer additions, supported by confirmed LODs and strong order pipeline.
6) The management indicated that FY27 will involve strategic forward investments into polymer technologies, including setting up centers of excellence, capability expansion, and advance hiring of personnel. P3L’s margins could soften over next 2Y and normalize closer to ~10% before improving again over the medium term.
7) OEMs recognize the extraordinary inflationary environment, but Pricol indicated that the entire cost increase may not be recoverable from customers.
8) Exports contribute 7% to overall revenue. Pricol aims to increase this to ~20%; near-term focus is on reaching 10%.
9) FY27 capex: Rs6.8-7bn for ACFMS, polymer, DICV, and new plants and machinery; plastic capacity utilization has peaked, limiting further growth.
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