Pricol Limited BUY Target Price Rs. 120 CMP Rs. 86 Index Details Pricol is a manufacturer of automotive components for the Indian as well as Sensex 31,834 international markets. It manufactures auto components for two/three/four Nifty 9,985 wheelers, commercial vehicles, tractors, off-road vehicles and Industrial tooling Industry Auto segments across the global market. Driver Information Systems, Telematics and Ancillary Pumps & Mechanical products are the key revenue earners for the company. Over the period FY17-20E, we expect CAGR growth in revenues of 22%, EBITDA to grow by 36% and PAT by 145%. Return ratios - ROE and ROCE - too Scrip Details are expected to grow by 1130 bps to 12.8% and by 1200 bps to 20%, Mkt Cap (Rs 810.9 respectively. The key reason for margin expansion is the revenue growth and cr) turnaround of international subsidiaries. BVPS (Rs) 76.2 O/s Shares (Cr) 9.48 We initiate coverage on Pricol as a BUY with a price objective of Rs 120, Av Vol 55,867 representing a potential upside of 40% in the next 12 months. We arrived at the 52 Week H/L 75.7/115.4 price target by applying 15 times PE multiple to earnings for the 12-month period Div Yield (%) 1.2 to June19. Pricol should be part of an investor’s long term portfolio for the following reasons: FVPS (Rs.) 1 Shareholding Pattern Pricol is focussed on its revenue target of Rs. 3,000 cr by FY20. New Shareholders % plants and increased capacity, new products through partnerships and Promoters 37.2 acquisitions will combine to help Pricol achieve this target. Public 62.7 Restructuring of international subsidiaries is gaining momentum. Its Total 100.0 Indonesian subsidiary has already turned around while the Brazilian STOCK POINTER subsidiary may turn EBITDA positive in 4QFY18. PMP acquisition will lead to an entry into the wiper segment and four wheelers. New collaboration for oxygen sensors will boost revenues from FY20. Both new activities will add to profits. India business too has improved a lot. Changes in plant locations, modernization of old plants and investments in green-field projects make the Indian business growth more sustainable. DIS, telematics and pumps & mechanical products are business areas which will be revenue growth drivers. Key Financials (Rs. in Cr) Y/E Mar Net sales EBIDTA PAT EPS EPS Growth ROE P/E EV/EBIDTA (Rs) (%) (%) (x) (x) 2017 1,473.2 107.5 7.4 0.8 N.A. 1.5 109.8 7.5 2018E 1,747.3 161.8 41.2 4.3 458.0 5.6 19.7 5.7 2019E 2,061.7 203.5 65.1 6.9 57.9 8.4 12.5 4.4 2020E 2,603.2 271.7 108.3 11.4 66.3 12.8 7.5 3.2 - 1 of 25 - Thursday,12th October, 2017 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Company Background Pricol Limited, which was formerly known as Premier Instruments and Controls Limited, was founded in 1972 by the late N. Damodaran and L. G. Varadarajulu but started production in 1975. It is a manufacturer of automotive components for the Indian as well as international markets. It manufactures auto components for two/three/four wheelers, commercial vehicles, tractors, off-road vehicles and Industrial tooling segments across the global market. Pricol has manufacturing facilities in Coimbatore, Pune, Pantnagar and Manesar in India. It has plants in Brazil and Indonesia. Pricol is a Tier 1 supplier to OEMs (Original Equipment Manufacturers) for most of its products. Major Indian customers include TVS motor company, Royal Enfield Motor limited, Hero Motocorp, Bajaj Auto, JCB, Tata Motors, John Deere, M&M, New Holland Tractor, etc. Globally, major customers include Volkswagen, Fiat Chrysler, Deutz Engines, Harley Davidson, Kohler engines, Kuboto Tractor Corp. Reverse Merger creates the new entity Pricol limited had a reverse merger with its subsidiary Pricol Pune Limited, in FY17. The erstwhile Pricol Limited merged into its subsidiary and ceased to exist legally. After this merger, Pricol Pune Limited’s name changed to Pricol Limited. The shares of the current Pricol Limited were listed on stock exchanges on February 10, 2017. The Pune subsidiary was formed in 2012 as a joint venture firm under a 50:50 partnership between Johnson Controls and Pricol. Jonshon Controls was a global leader in automotive seating, overhead systems, door and instrument panels and interior electronics at that time. Johnson Controls lost interest in the sector later and in May, 2015, Pricol acquired Johnson Controls’ 50% stake, making it Pricol Pune Ltd, a fully owned subsidiary of the company. Pricol’s management justified this action to consolidate the business, which will provide a high level of synergistic integration, better operational management and provide value addition. They believe that synergies arising out of consolidation of business will lead to enhancement of net worth of the combined business and reflection of true net-worth in the financial statements, improved alignment of debt and enhancement in earnings and cash flow. th - 2 of 25- Thursday, 12 October, 2017 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Pricol Business Divisions Driver Information system Switches and sensors Pumps and Pricol India mechanical products Asset management Pricol Limited Pricol Brazil solutions and telematics Pricol Auto Accessories Indonesia and others Source: Company presentation, Ventura Research Subsidiaries Information Name Business Activity PT Pricol Surya Indonesia The Company supplies Instrument Clusters to the Two Wheeler manufacturers in Indonesia & Thailand. This purchasing arm of the Company mainly assists in global Pricol Asia Pte Limited, Singapore procurement of raw materials and components for internal consumption and for sale to associate companies. It is an investment arm of Pricol which acquires companies in Pricol Espana Sociedad Limitada, Spain Europe and South America. Pricol do Brasil Componentes Automotivos LtdA (PdB)manufactures and sells Pumps & Mechanical products to Pricol do Brasil Componentes Automotivos LtdA, a wide range of Domestic and International customers Brazil Source: Company presentation, Ventura Research th - 3 of 25- Thursday, 12 October, 2017 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Products Information Segment Products Two wheeler segment Auto Decompression Units, Auto fuel clocks, chain tensioners, Fuel level sensors, Fuel feed pumps, instrument clusters, oil pumps, oil level switches, speed sensors, vehicle security systems Four Wheelers Analog clocks, break light switches, EGR Valves, Fuel level sensors, Instrument clusters, Map sensors, Oil pumps, power sockets, Speed sensors, temperature sensors, Top dash tachometers, Vacuum switching valves, Idle speed control valves, Vehicle convenience and security systems, windshield washer system Tractors construction and industrial Neutral safety switches, vacuum switches, gauges, brake light switches, charge pumps, Hour meters, EGR Valves, Fuel level sensors, Instrument clusters, low oil pressure switches, oil pumps, neutral safety switches, pressure sensors, speed sensors, Temperature sensors, Temperature switches, Warning indicators Commercial Vehicles Vacuum switches, speed governor, gauges, vehicle tracking system, Hydraulic cab tilt system, Centralised lubrication system, Digital tachograph, Brake light switches, fuel level sensors, instrument clusters, oil pumps, pressure relief valve, pressure sensors, speed sensors Fleet management solutions Digital Fare Meters, Road speed warning systems, vehicle monitoring system, Journey Risk management, Centralised lubrication system, Road speed limiter, vehicle tracking system Tooling solutions Mould and Press tool design, mould and tool manufacture, Mould testing, FAI Report and documentation. Source : Company website, Ventura research th - 4 of 25- Thursday, 12 October, 2017 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Instrument Cluster Instrument cluster Fuel Pump Module Source: Pricol presentation, Ventura Source: Pricol presentation, Ventura Source: Pricol presentation, Ventura Research Research Research TFT Instrument cluster After Market Telematics Oil Pumps Two wheeler Source: Pricol presentation, Ventura Source: Pricol presentation, Ventura Source: Pricol presentation, Ventura Research Research Research th - 5 of 25- Thursday, 12 October, 2017 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Key Investment Highlights : Old guard in industry with new management initiative Pricol started its operations 42 years back. Mr. Vikram Mohan, current managing director, took over the current role in automotive components business in 2011. Pricol found that it had been highly Coimbatore-centric despite the absence of any big customer or vendor base there. Therefore, it decided to expand into other auto clusters in India. In order to return to profitability Pricol shut down one plant in Coimbatore. It has sold a die-cast plant in Coimbatore, shut down one plant in Pantnagar and expanded the other. The company now has a robust growth outlook till FY20. Pricol’s revenue target of Rs 3,000 cr revenue by FY20 will be achieved by a combination of organic growth, joint ventures and partnerships and inorganic growth. Organic growth will come from 4 new plants. One of them is completed in Pune. The new facility incorporates green concepts of solar power and variable refrigerant flow air conditioning. The state-of-the-art manufacturing plant at Pune aims to generate annual revenue of Rs.220 cr in the next two years, up from the current annual revenue of Rs. 120 cr, thus contributing to Pricol’s 2020 vision. New investments in surface mount technology - printed circuit boards manufacturing lines will cater to the growing electronic cluster business not only in the two-wheeler but also in the commercial vehicles and tractor segment. Investments in electronics manufacturing will also contribute to the growing body control module and telematics businesses.