Pricol Ltd – Auto Ancillary company that rules the Infotainment system of your vehicle

About the company:

Incorporated in 1974 and headquartered in Coimbatore, Pricol Ltd is India’s leading supplier of instrument clusters for two, three and four wheelers and commercial vehicle players domestically and internationally. Not only this, but Pricol has emerged as the sole supplier to Tata Motors for most models of its passenger and commercial vehicles divisions. Today, the company is highly recognized by top automotive OEMs across the globe and is now on the verge of creating its own turnaround story. Earlier the company was majorly into the two-wheeler segment but has recently entered into the commercial vehicle and passenger vehicle segment as well.

So what’s the traction and product pipeline looks like?

Pricol Limited manufactures various products such as driver information systems, chain tensioners, oil/water pumps, fuel sensors, cab tilts, speed limiting devices, temperature/pressure sensors and wiping systems. Further, it also manufactures automotive products for farm equipment and off road vehicles and currently they also export their product to 45+countries with 2000+ product variants. 

With more than 5000 employees, Pricol has 7 manufacturing plants across Coimbatore, Manesar, Pantnagar, Pune and Sricity in India, 1 manufacturing plant in Indonesia and 1 subsidiary in Satara in India, with 2 international offices in Tokyo and in Singapore.

Who are the clients?:

With over four decades of experience, Pricol serves major OEMs such as Hero MotoCorp, TVS Motors, Bajaj Auto, Honda, KTM, Royal Enfield in two-wheelers, Tata Motors, Ashok Leyland, Mercedes-Benz, Mahindra & Mahindra and Volkswagen in four-wheelers, John Deere, Mahindra & Mahindra, Swaraj Tractors, TAFE & Escorts in tractors and Volvo, Nissan, Force Motors, Tata and Piaggio in commercial vehicles.

The top five customers of the company are TVS Motor Company, Hero MotoCorp, Bajaj, Tata motors and JCB. The five customers put together would contribute to 65% revenue of the total domestic sales of the company. 

Sales Mix:

Particulars (FY21)	Percentage
Two wheelers & Three wheelers	~65%
Commercial Vehicles	~15%
Passenger Vehicles	~7%
Off Road and Tractors	~7%
AfterMarket Sales and Exports	~6%

Product Mix

Particulars (FY21)	Percentage
Instrument Clusters	~60%
Pumps and Mechanical products	~30%
Sensors and Others	~10%

Let’s have a look at the Auto Ancillary industry:

The Indian Auto Ancillary Industry contributes ~2.3% to the total GDP and is counted among the crucial industries in India. India is poised to become the third largest contributor of the automotive components in the world by 2025. Backed by the easing of supply-chain issues and commodity inflation in the second half of the year, the Indian Auto Component Industry is expected to clock 8-10% growth in FY23. With the shift in global supply chains, the industry is likely to expand at ~4-5% and is expected to reach US $200 Billion by 2026 with exports totalling to US $80 Billions. Further, the Indian government has formulated various policies to boost the growth of the market. Auto Policy 2002, Automotive Mission Plan 2016-2026, National Automotive Testing and R&D Infrastructure Project (NATRIP), and National Electric Mobility Mission Plan 2020 (NEMMP), are a few significant programs launched by the government.

Competition analysis:

Pricol has 53% market share in DIS (Display information system) in India and attains a second position in the world by volume in DIS. Further, it has 75% market share in supplying automotive products to the CV industry in India. The company invests anywhere between 4.5% to 5% of their turnover in product and process engineering which is helping them stay ahead of the game and offer customers technical solutions rather than products which are highly appreciated by their customers and this will further help them grow their market share and establish numero uno position in the marketplace for their products and services. This can be deduced from the fact that the company has developed TFT displays with various platforms to support constantly changing demand from their customers with the increasing display size and vehicle technology requirements for Safety & Security. This recently developed TFT technology will help them protect from market disruption with current LCD technology and become future ready to penetrate Instrument Cluster technology to all their customers.

Further, Pricol’s all new technologies like Thin Film Transistor (TFT) display, Telematics, Intelligent Sensors are developed in-house and managed with a high degree of localisation content for competitiveness and deployed horizontally for retention & growth to attain market leadership. Keeping itself on the innovation front, the company holds 17 inventions led at various jurisdictions in India and abroad. Out of which 11 are granted and remaining are under review. The Company continues to foster innovation for growth, across all product development functions. This has helped them maintain their capital intensity which typically is about 1:3. That is, for every crore of investment, the company generates about 3 crores of turnover.

Astonishingly, Pricol has been selected and given approval by the ministry of heavy industries for the PLI (Production Linked Incentive scheme) and is one of the 75 champion OEMs that have been selected by the ministry.  

Surprisingly, unlike other players they control their CAPEX with Asset Light Model:

The management built a high efficiency plant in Phulgaon near Pune in 2017. The plant was a greenfield expansion. A third party industrial park operator had built the plant and the company had just invested in plant and machinery. Pricol has not invested in land and building.

The company had invested INR 40 Cr in the plant in Coimbatore for pumps and mechanical

Products and had modernized three plants in 2016. Investment is done with the intent to improve productivity. At one of its plants, the company has got rid of 125 special purpose machines, involved in manufacturing, and replaced them by 12 automatic machining centers. Such efforts help them reduce costs to a large extent and help them to become asset light. 

Key concall Highlights – Q2FY23:

The company reported a total income of INR 516 crores for quarter ended FY22 and the EBITDA of INR 65 crores. These headwinds have been quite strong during the last two quarters, primarily because of shortage of semiconductors. Despite these strong headwinds, Pricol showed good operational efficiency and was able to beat the market by showing a positive growth on the top-line. The company had a third person growth when compared to the previous financial year, despite a marginal de-growth in the overall industry.

Interestingly, the company’s key achievement has been reducing their long-term borrowing from INR 245 crores to INR 77.58 crores in the past year and aspires to become debt-free by FY23. Considering the cash reserves, their net debt is well below INR 30 crores. Interestingly, the net profit also rose by 220% from INR 15 Cr in Q2FY22 to INR 48 Cr in Q2FY23.

Management Commentary:

Whilst the demand from the industry remains stable, the supply chain disruptions and chip shortages still continue to put a stress on our topline and bottom-line. With our focused efforts to meet the customer demand despite such external conditions, we managed to report highest ever quarterly revenue performing better than the market and clocking a sustained quarter on quarter bottom-line. With sharp increases in Forex and electronic components’ price continuing as a risk to erode the profitability, we are taking all possible measures to keep costs under control, hoping to perform better than the market and provide a consistent performance. With our new business wins and product launches exclusively for EV vehicles, we have generated a robust order book for upcoming years, and we are excited about the avenues of growth from new age EV companies

Mr. Vikram Mohan, Managing Director

So what does the future look like?

To strengthen its cluster segments that accounts for ~60 per-cent of its sales, Pricol has entered into a technological tie-up with Candera and Sibros Technologies, Inc. This would help the  company to develop and integrate the connected technology into existing clusters & develop new clusters to meet requirements of new age auto OEMs. The company is building its product portfolio for EV segment aggressively and currently it is either engaged in development or startup business with nearly 28 EV players in India. Significantly, increase in digitization of instrument clusters post introduction of BS-VI emission norms is a big growth opportunity for the company.BS-VI switchover has also benefited the fuel pumps vertical significantly.

Also, in terms of revenue, with peak potential sales of ~INR 2,200 – 2,400 crores (which is easily achievable in the next 2-3 years), Pricol plans to augment its capabilities, capacities and is targeting revenues of ~4,000 Crores by FY26. While the capex expected for the same to be ~INR 600 crore, which the management expects to fund through an equal mix of debt and equity starting FY24E. Further, as per the past data and trends, the company’s revenue is expected to grow by 12% in FY23 which will result in steep improvement in the company’s net profit. Now this will be majorly due to the sales of its loss making subsidiaries, cost control & deleveraging measures and addition of technology intensive products in the company’s product portfolio.

Thus with new age electronic clusters in the offering, content increase in BS-VI transition and impressive client profile, Pricol is well poised to grow ahead of industry, going forward.