Buy Pricol Ltd for the Target Rs 800 by Emkay Global Financial Services Ltd
Pricol's strong growth momentum continued in 1Q, with robust 23%/26%/34% yoy revenue/EBITDA/PAT growth. EBITDAM declined by 66bps qoq to 11.3%, due to commodity, freight, and wage cost pressures, along with rupee depreciation. P3L bore the brunt, with EBITDAM at 7.8% (vs 11.4%/9.4% in 4QFY26/FY26), while the core business sustained 12.3% EBITDAM (similar to 4QFY26/ FY26 level). The management expects 100-150bps recovery over 2Q/3Q through indexation benefits (75% in 2Q, balance in 3Q) and price hikes, while reiterating its 12.5-13% long-term blended margin target. Core businesses remained healthy, with DIS and ACFMS each growing ~25% yoy, led by new product launches. P3L to remain capacity-constrained through FY27, despite a strong order book (onboarded multiple large 2W OEMs), with >20% growth expected after capacity ramp-up; this prompted the management to raise its 3Y revenue target to 2.5x FY25 levels (2x earlier), as new plants ramp up in next 9-12M. DIS and ACFMS are expected to outgrow the industry by 5%/10%, while the management reiterated its FY31 consolidated revenue target of Rs80bn. Pricol plans Rs7bn of capex over the next 2Y (P3L: Rs4bn, DIS+ACFMS: Rs3bn; revenue potential of Rs20bn at full ramp-up). The proposed demerger remains on track (completion expected in >4 quarters), aimed at attracting capital and onboarding technology and geographical partnerships (particularly for overseas manufacturing). We introduce FY29 estimates and model FY26-29E revenue/EBITDA/PAT CAGR of 17%/21%/22%. We retain BUY and raise TP by 10% to Rs800 (from Rs725).
Strong revenue momentum continues
Revenue growth momentum continued, with 23% yoy growth in 1QFY27 consolidated revenue to Rs11bn. EBITDA rose 26% yoy, while EBITDAM dipped by 66bps qoq to 11.3%. Core revenue (ex-P3L) grew 24% yoy, with core EBITDAM largely stable qoq at 12.3%. Adjusted PAT grew 34% yoy to Rs670mn.
Earnings call KTAs
1) EBITDA faced headwinds in 1Q from commodity, freight, and wage cost pressures, along with rupee depreciation (China-sourced electronics); the management expects 100-150bps recovery over 2Q/3Q via indexation (75% in 2Q, balance in 3Q) and price hikes; 12.5-13% long-term blended margin target retained.
2) DIS/ACFMS each grew ~25% yoy, driven by new product launches; the management expects both to outgrow the industry by 5%/10%.
3) P3L to remain capacity-constrained through FY27, despite a strong order book (onboarded multiple large 2W OEMs), with >20% growth expected after capacity ramp-up; this prompted the management to raise its 3Y revenue target to 2.5x FY25 levels (2x earlier), as new plants ramp up in next 9-12M.
4) DIS retains leadership in 2W with 35–37% market share; TFT penetration at 7–8% of 2W industry; expecting 2x in couple of years, with rising hybrid TFT/LCD adoption.
5) Disc brakes/switches are expected to turn meaningful from FY28.
6) M&A remains paused for ~1Y, unless a compelling opportunity emerges; BMS stays outside investment scope.
7) The proposed demerger is on track (completion expected in >4 quarters), aimed at attracting capital and onboarding technology and geographical partnerships (particularly for overseas manufacturing).
8) Pricol is also investing in advanced molding, self-healing, and fiberreinforced plastics, with a center of excellence operational by May-27.
9) Rs7bn capex over the next 2Y (P3L: Rs4bn, DIS+ACFMS: Rs3bn), supporting Rs20bn revenue potential.
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