Pricol Limited (PRICOLLTD.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Conference Call of Pricol Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand over the conference to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good evening, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Pricol Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter of the financial year 2026. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. P. M. Ganesh, Chief Executive Officer and Executive Director; Mr. Siddharth Manoharan, Director of Strategy; and Mr. Priyadarsi Bastia, Chief Financial Officer. Without any delay, I request Mr. P. M. Ganesh to start with his opening remarks. Thank you, and over to you, sir.

Hello. Good evening to all of you, and very nice to connect with you once again. I'm sure that you had a chance to go through the upload of whatever we have done in the stock exchange, and welcome to the Q1 of FY '26 financial performance. Straightaway, I will go through the financial performance, starting with the revenue from operations. It has stood at INR 877.66 crores with an EBITDA of INR 101.8 crores with an EBITDA margin of 11.61%. The PAT stood at INR 49.89 crores with a PAT margin of 5.68%. EPS has gone up at INR 4.09. Our consolidated long-term borrowing is as of Q1 at INR 1,097.19 million. Coming to the growth percentages. Revenue from operations has been at a healthy 45.57%. The EBITDA stood at 26.30% in terms of its growth. Cash profit was at 23.87% and profit was at 9.51%. Thank you again once again, and over to you, ma'am, for the Q&A.

[Operator Instructions] The first question is from the line of Vijay Pandey from Nuvama.

I wanted to check if you can give a breakup of what was the sales and what was the EBITDA margin for the Pricol Precision company? That is my first question. And secondly, just if you can give us an update about the employee expenses? In fourth quarter, it went up as a percentage of sales. I just wanted to check -- and you -- I think the company stated that it will come down to nominal levels within 2 to 3 quarters. So are you still see that to be the case? Or is there going to be a deferral by probably a quarter or something like that? These will be the 2 questions from my side.

Mr. Pandey, thank you for your question. On the first part, let me answer. This is Siddharth here. We have clocked a turnover of close to INR 205 crores as top line for the first quarter in Pricol Precision Products Private Limited P3L with an EBITDA of close to 7%.

Employee cost percentage?

The employee cost percentage was at around 12%. And as we have been telling in the previous earnings call, we are making some forward-looking recruitments primarily for many of our new projects, which are going to be launched in the next couple of years.

Okay. And just one more, sir. Just wanted to check what is your view on the ABS regulation that is going to come up, the disc brake which we are making that should see an incremental growth from next year because of the ABS? Or how should we look into it?

Absolutely. I think this is going to be a high potential area for growth. And the disc brake, we have launched since Q2 of this year, just starting this month rather. We have already supplied to a few of the start-up EVs and the disc brake system has come out very well. As you rightly said, the ABS regulation is becoming mandatory from January 2026, even starting with the 100cc 2-wheelers. It means that the disc brake would be mandatory for all the ABS, which is going to be used. This gives us a lot of opportunity in terms of growth, which we are seeing in the next couple of years. Also one of our strategic 2-wheeler customer, our mainframe customer, we are going to start the productionization from Q4 of this financial year.

I request you to come back for the follow-up question. The next question is from the line of Rahul Deshmukh from LKP Securities.

Am I audible?

Yes, sir.

Congrats on good set of numbers. Sir, I have a couple of questions. My first question is that I just wanted to get some kind of sense on coming quarters as a couple of EV launches are scheduled within the next 2, 3 quarters, although there is a slowdown in entry PV, but SUV export and tractors are performing really well. So considering the tax cut, monsoon and pay commission, so which is expected to improve the demand in PV as well as in 2-wheelers. So how do you see revenue mix evolving? And what kind of growth are we expecting in short to medium term?

Thank you for the question. Q1 has been a muted quarter in terms of the OEM vehicle sales, as you would have seen. The 2-wheeler has just grown by 1%. That is primarily because you would have heard in the media about the shortage of rare earth magnet, primarily due to the restriction of rare earth magnet from China. It had headwinds during Q1, and we expect the headwinds to continue in Q2 also. There has been uncertainties in the market in terms of the model mix change with the various OEMs. Pricol has put a good amount of resilience in terms of meeting those changing conditions. And despite the market being muted during Q1, Pricol has shown a double-digit growth, as you can see. Q2 also, we expect headwinds at -- from the OEM in terms of model mix changes and primarily, they are countering the rare earth magnet shortage through multiple ways of derisking. We expect that, yes, there are going to be certain uncertainties in Q2 before there are permanent solutions found for the rare earth magnet. I'm sure that Q3 onwards, you will find a much more stable revival of the 2-wheeler production and there upon in Q4. So that is where we see. But primarily, Pricol, as you could have seen in the presentation, has also launched a number of new products, which has supported us to beat the market growth, and that is where we are today, and we expect a steady growth to happen, though these headwinds are something which is not in our complete control.

And my second question is that how do you see margins evolving for the coming quarters as Sundaram acquisition is done and content per vehicle is, I think, also expected to increase over the coming quarters, supported by new product categories that just you mentioned and increasing content per vehicle. So how do you see margins over the next 2, 3 quarters?

So actually, that would be a little difficult for us to predict at this point of time. But you would have seen the Q1 margins, we hope that we should be in a position to be around that margin. But again, as I told you, there are unpredictable conditions because of the rare earth magnet. We have to wait and see. But we are putting up a good, what we call, plan B so that we are able to be around the EBITDA margins, whatever we have done during Q1.

And sir, any margin outlook for the Sundaram specifically, 3PL?

Mr. Deshmukh, to further qualify specifically on the Pricol Precision Products Private Limited, again, earlier, I just answered to Mr. Pandey's question that what we have clocked in terms of EBITDA for Q1. As you are all aware, we have been successfully integrating the organization. There was a lot of onetime costs that were involved, which also helped to make EBITDA at the levels what it stood for Q1, but we have put together a comprehensive profitability improvement plan, which is all starting to see results as we speak. And we are quite confident from Q2 onwards, the initiatives that we have put in place will yield better results and take us to good heights. And we are also seeing a good amount of leverage after integration by looking at the customer concentration of Pricol Limited and thereby leveraging larger business pie for Pricol Precision Products as well.

Okay. And sir, have you added any new clients for the Sundaram?

We are in the process of like leveraging Pricol's larger ecosystem of clients and our strategic customers, which will yield results in upcoming quarters.

[Operator Instructions] The next question is from the line of Khush Nahar from Electrum PMS.

So sir, a couple of questions from my side. One, because of this ABS regulation, could you quantify in terms of the total addressable market that would open up for Pricol? And when can -- because I think our previous target was around INR 300 crores is what we could do from the capacities that we have. So because of the regulation, one, do we want to increase this capacity? And two, what can be the larger picture in this segment? Secondly, because of this magnet issue, which will persist in Q2 also, are we still confident because of the product launches? Because I think previously, we have guided for around 11% to 13% growth in the Pricol business? These 2 questions.

Khush, thank you for your question. Firstly, I will answer the first one. Disc brake actually has been in the incubation stage, and it has just got launched into the market. And as I told that end of this financial year in Q4, we are going to start the mass production for one of our major strategic 2-wheeler customers. Having said that, with the ABS regulation, the market is going to be very supportive in terms of the disc brake growth. To quantify that, how it is going to ramp up would be a little early for us. Maybe during Q4, maybe we'll be in a much better position to tell you how the ramp-up is going to happen. This is the update on disc brake. The second question was on the -- yes, on the rare earth magnet, yes, the headwinds and the uncertainties are going to continue in Q2 as well. As we explained, it is something that we have to wait and watch because, yes, something that uncertainty is beyond our control. But as we explained, Pricol is putting up a very, very good alternate plans to see how we can mitigate this risk.

Right, sir. So we are confident on the 11% to 13% that we will be able to achieve in FY '26?

I would not be in a position to attribute any number to this. But what we can tell is we are working constantly on a number of alternate plans to mitigate this.

Sure, sir. And just one follow-up on the ABS. So how do we see the competitive landscape in that segment?

There are a number of mature players in the market, but it is going to open up a lot of opportunity for new players like Pricol because when the mandatory regulation is going to be there, it is going to open up a lot of avenues in terms of growth for even new players like Pricol. I think the growth is going to be good in the next 2 years.

[Operator Instructions] The next question is from the line of Shubham Batra from Ambit AMC.

Congratulations on a good set of numbers. Could you throw some light on the technology license agreement that we have done with the Italy-based player? What kind of market size are we looking at? And what are the time lines of when we can see revenue coming on from this tie-up?

We have signed a technology license agreement with an Italian firm called Domino for control systems, primarily on 2-wheeler handlebar components such as switches, throttles, levers, et cetera. This is an exclusive arrangement for the Indian and Southeast Asian market. And this is also being done primarily on behalf of the customer confidence that they had in Pricol, and we are quite confident to start seeing some revenues 12 to 16 months from here on.

Is this a case of import substitution? Or are there currently players also doing this in the Indian market?

There are a couple of competitors, but we also see a space for us to enter into and customer also -- some of the customers have spoken to us and asked us to get into the space. That's how we form this partnership, and we are quite confident to create a niche for Pricol in this marketplace.

Sure. Got it. One last follow-up. What kind of content per vehicle would be looking at when we are supplying the whole handlebar along with the DIS brake?

It will be too early for us to comment on or give any numbers at this point in time, Mr. Batra. So maybe we'll park it for now, and we'll give you better guidance in a couple of quarters.

The next question is from the line of Rahul Deshmukh from LKP Securities Limited.

Yes, sir, just a bookkeeping question. So could you please help me with segment-wise breakup, like how much contribution was there from 2-wheelers, PV or CV, et cetera?

About 65% of our revenue comes from the 2-wheeler segment. I'm giving you a rough estimate. It could be varying here and there. But as a thumb rule, about 65% comes from the 2-wheeler segment. About 10% comes from the personal passenger vehicle segment. About 15% comes from the commercial vehicle segment and about 10% comes from the off-road vehicle and tractors. This is the broad breakup of the 100%.

The next question is from the line of Saurabh Kachhawa from Reliance General Insurance.

Sir, I wanted to get a sense about the new product launches that we are having for the likes of smart cockpit or battery management system. So I just wanted to know what is -- what could be the market size for these products? And what would be the margins in this upcoming new products look like?

Saurabh, thank you for this question. But it's a little early for us to predict in terms of the margins and the market size. As we explained during the previous earnings call, e-cockpit and BMS are currently developed and it is at testing at various customer places. It is going to take another couple of quarters before we could come in terms of what is going to be the growth plan and strategy for both the cockpit and BMS. Please bear with us for another couple of quarters before we could come and explain to you more about the growth. But as we speak, the development has been completed and it is under testing at various customer bases.

The next question is from the line of [ Sehwant ], an individual investor.

Am I audible?

Yes, sir.

What is the revenue from passenger vehicles in Driver Information Systems?

As I told you, about 10% of our revenue came from the personal passenger vehicle and most of it are from the driver information system.

Okay. So how do you expect this to scale up in a couple of years for especially passenger vehicles in DIS segment?

It's difficult for us to pick a number on this, but we are actively working with the OEMs in terms of the new product. And one of the things like the previous caller mentioned on the e-cockpit as well, we are working with a few key OEMs. The growth in terms of numbers would be difficult for us at this point of time. But we are seeing a good growth in the personal passenger vehicle in the future years to come.

The next question is from the line of Vipulkumar from Sumangal Investments.

So my question is when the margins from this acquired entity, this Pricol Precision Products will converge to the margin of Pricol Limited over what time frame?

See, it is going to be quite difficult for us to talk when this convergence will happen because Pricol Precision Product has got a lot of growth potential, number one. And second thing is we are going into more of engineered plastic. Precision plastics, we have got -- we have started developing a road map in terms of EBITDA improvement. Maybe we will see that the growth in terms of both top line and EBITDA will continue to improve. But if you ask us when it is going to have a meeting point, we are not very sure whether we are absolutely clear on the time line of this. So...

After 2 to 3 years, where do you see the margin of Precision Product entity?

It is difficult for us to anticipate what is going to be the margin because we have just commenced our operations a quarter back, and there are a number of programs actually which has been encouraged by the customers in terms of its top line. So we have to just wait and see. We are putting a lot of efforts in terms of both its top line and then the cost-saving measures.

And lastly, sir, this ABS regulation, so the business which will be flowing due to that, that will be mainly to this entity or Pricol has also products for that regulation?

So disc brake is a part of Pricol, not on Pricol Precisions. So that is what we were explaining that we are going to see a good growth in the next couple of years, primarily because of start-up regulation from January 2026.

The next question is from the line of Mitul from DAM Capital.

Sir, I have 2 questions considering the current geopolitical issues and various global challenges. First one is as ongoing U.S. tariff-related challenge in terms of the major slowdown in the global auto market and also to some extent, impacting the Indian OEMs also. Are we facing any impact of that directly or maybe indirectly in terms of the discussion with the OEMs in over next 1 or 2 quarters of our dispatches?

Mitul, as of now, we have not seen any uncertainty because of that because I think the U.S. tariffs have not been firmed up. As you know that there are several different information in the last 2 to 3 months, and it is keeping on extending. So at this point of time, we do not see any uncertainties in terms of our products getting affected because of tariffs to the U.S. market.

And any impact on any of the future export strategy, we are doing any change based on that or nothing to do with that?

We are not foreseeing at this point of time, but we have to wait and see how this tariff thing is going to turn out. But as of now, no, there is no effect because of that.

Second question on this procurement of raw material or a few components from the China. As we have seen the issue for rare earth, anything similar we are finding not like complete restriction, but any challenges in terms of the supply from China for any of the parts, whether electronics or TFT or -- and are we going or looking out for similar alternate sources also as a strategy of mitigating that risk of depending on one source?

Sure. See, we have mitigated most of the products, which we were buying from China way back in 2020. If you remember, during the COVID crisis, many of the Tier 1 companies, including Pricol, put a lot of plans to mitigate this risk, and we have been quite successful on that. But there are certain products like displays where China is the largest source of manufacturer in the entire world, not only to the automotive, they supply to the consumer electronics also. But this is something that Pricol already has started good initiative in terms of backward integration and localization to a good extent. Our target is that in the next 4 quarters, we should be in a position to start some kind of backward integration or localization of the displays. Though not fully, we will have a good initiative in terms of this backward integration. But if you ask me whether you can 100% derisk China, maybe the answer is no at this point of time.