Pricol Limited (PRICOLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Pricol Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Vangi Jain (sic) [ Purvangi Jain ] from Valorem Advisors for opening remarks. Thank you, and over to you.

Thank you. Good afternoon, 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 conference call for the first quarter of the financial year 2027. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings 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 probably 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. Vikram Mohan, Chairman and Managing Director; Mr. P. M. Ganesh, Chief Executive Officer and Executive Director; Ms. Madhura Mohan, Executive Director, Customer Relationship Management and ESG; and Mr. Priyadarsi Bastia, Chief Financial Officer. Without any delay, I request Mr. Vikram Mohan to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Purvangi, for the introductions. On behalf of my colleagues in this conference room, Namaste, ladies and gentlemen, and welcome to the Q1 earnings call for the financial year ending 31st March 2027. On a consolidated basis, our revenue from operations has been about INR 1,083.58 crores with an EBITDA of INR 123.9 crores with an EBITDA margin of 11.41%, resulting in a profit after tax of INR 67.02 crores with a PAT margin of 6.19%, resulting in an EPS of INR 5.50 for per INR 1 share. All performance details have been uploaded, and I hope all of you have had a chance to see the same. Our revenue from operations for -- in comparison to the same quarter for the last financial year has grown by 23.46%, which has been aided by strong industry growth as well as our new product introductions, which has helped us with this growth. The EBITDA has faced some headwinds, as I had already indicated earlier. Our EBITDA on a quarter-on-quarter comparison between the same quarter for FY '26 has grown by only 21.42%, we could have grown by a much higher percentage compared to our revenue, but there have been multiple headwinds caused by the West Asia crisis. Polymer prices have gone through the roof. LPG prices have gone sky high. Freight costs have increased. There has been surge pricing. There has been premium pricing and minimum wages in 3 states that we are operating have also gone up very sharply because of the government intervention in the first quarter. While these are not lost earnings, these earnings are delayed and will be recovered through indexation not entirely, but a large part in the corresponding quarters as the automotive industry typically has indexation for things like ForEx commodity, which are indexed either quarterly or half yearly. We are endeavoring to make everything quarterly indexing. So by the next 2 quarters, we will recover whatever earnings that we have lost this quarter on account of all these increase in costs and headwinds. Our PBT for the similar period against quarter 1 FY '26 versus quarter 1 FY '27 has grown by 32.23% and the PAT also has grown by 34.34%. In terms of industry outlook, demand continues to be robust, but the resumption of the war in Iran and those neighboring regions will continue to have an impact on the rupee, which is at an all-time low against the U.S. dollar. And since we are dependent on a significant amount of imports of electronic child parts for our business, this will continue to hamper our profitability, not the top line, which, of course, we will recover in corresponding quarters. Crude oil prices have also firmed up. Prices are increasing and expected to further increase in the coming quarters because of the ongoing crisis. Freight rates are also at a high and expected to remain high for the next few quarters at least from the shipping providers, the intelligence provided by them is at least for the next 4 quarters, shipping rates and freight rates, both inbound and outbound will continue to be very high. In addition, raw material prices other than basic raw materials like aluminum die casting and polymer, even for memory control devices, which we are dependent on heavily, prices are increasing very, very sharply quarter-on-quarter because of the huge demand created by the AI revolution happening across the world. We are mitigating some of these increases through VA-VE, value analysis and value engineering and productivity enhancement activities and also requested customers for offsetting part of these costs. But some degree of costs will be unrecovered and there will be -- continue to be impact on EBITDA till all these global crises resolve and there is some semblance of normalcy returning to the world. While we endeavor and promise to continue to grow the business with our revenue, EBITDA, we believe, will continue to remain under pressure for the next couple of quarters till normalcy returns. As I mentioned, it is not lost earnings, but delayed earnings, which will come in the subsequent quarters. With this, I'd like to move to the question-and-answer session. As a matter of protocol, we would like to ask people to align in the question queue and restrict yourself to one question per person. If you have more than one question, we request you to rejoin the queue, so that everyone is given a fair chance to ask their questions. Thank you, and over to you, Purvangi.

[Operator Instructions] We take the first question from the line of Chandramouli Muthiah from Goldman Sachs.

My first question is just around the announced demerger. So I just want to understand the thinking behind proposed demerger and also trying to understand sort of at this stage, I think we have been very successful in instrument clusters, which has been the core business. Sort of the combined entity does give us multiproduct exposure. But through the demerger now the core business again becomes sort of a separate entity with single product exposure. So just trying to understand thinking behind the decision to demerge the company. I'll just quickly...

Thank you, Mr. Muthiah. This has been something that we have been debating at a Board level and at a strategic level for over 2 years. The nature of our product in our driver information system and connected vehicles business is changing very rapidly. The human machine interface in the vehicle, be it a 2-wheeler or a 4-wheeler or a commercial vehicle, the climate control is integrating, the infotainment is integrating, the driver information is integrating and the technological change is becoming very, very rapid. For Pricol to continue to maintain its lead in this space and to take on the multinational competition, we will be required to invest large sums of money and also bring on board potential partners in order to help us strengthen this business. When all the businesses are merged in one company, we found it very difficult to attract the right kind of investors because each of the business has a different sort of an investment appetite. So both to attract investments and because we didn't want to go with extensive borrowings. We wanted a judicious mix of debt and equity and also to attract certain technological partners that we will be forced to onboard in order to maintain our lead in the business, after multiple discussions at a Board level and with strategic advisers, we took this decision to demerge this business to give it a lot more agility in order to be able to raise money as well as look for partners to keep maintaining the lead in the business. I hope this answers your question, Mr. Muthiah.

We take the next question from the line of Shivam Kabra from Carnelian Capital.

Sir, basically, in the board the business, we are expecting the growth rate to be on the 3-year basis plan. And yes, we are looking for global partners, earlier also we had relations with DENSO and Jensen, but that didn't work out well for us. So now what gives us the positive signals that this time it can be better for them?

DENSO was a very, very old relationship which started in the '80s and '90s when Pricol lacked technology altogether and we needed it. Today, Pricol has technology for the driver information system space. But to integrate things like infotainment, we are not an infotainment company or climate control, not the climate control, but climate control -- the control systems. We need to integrate all of that in order to be a credible player. So we are not hurrying to look for a technology partner. We are keeping our eyes out. We are evaluating people to fill gaps in the technology or perhaps to give us larger scale to be able to cater to a global market. We may have to onboard a partner because many of the Indian OEMs are also going overseas. And for us to be awarded programs even for international OEMs, they need international presence through a partner. More importantly is the capital needs of the business is going to be high in the next couple of years as we have stated in our demerger document, why we are going for demerger. In order to give us the flexibility to see capital and technology partners, both for technology and for market reach, we felt it was best to demerge this business. In terms of growth, we will continue to maintain this growth clip that we have been maintaining in the last 2 years in the coming years also in the driver information system place -- in the space. In the ACFMS business, we are hoping for a larger growth clip because of our growth rate because of the introduction of new products, the first of the LOAs have started coming in and productionized. In the polymer space, the growth is going to be muted, as mentioned by me in the last call because of lack of capacity, not lack of business. We have won a lot of business for which we are creating capacity, but that will take the next 9 to 12 months to mature, after which that business also will maintain a very healthy 20% plus growth rate.

We take the next question from the line of Jatin Chawla from [ RTL Investments. ]

Given the RM situation in the quarter and also given your cautionary stance post the 4Q call, I think you've done a fantastic job in limiting the decline only to 160 bps on gross margins and with control on other expenses, largely maintained your EBITDA margins. So how are you able to do -- maintain the -- limit the decline on gross margins to only 160 bps during the quarter? And on both gross margins and EBITDA margins, how do you see the outlook going forward, especially in the context that you mentioned that you will get some price hikes from your customers going forward?

Ideally, [ Mr. Goyal, ] I think we should have done at least another 1.5% to 2% overall margin would have been better because the fixed costs have got amortized on a larger top line base. In fact, the polymer business probably took a bigger impact than the driver information systems business. And with the prices being corrected, at least about 75% of our revenue, Q2, we will get some indexation and the balance will go into Q3 because of the half yearly indexation, which also we are trying to improve. It will help. But the minimum wage cost increase of about approximately INR 21 crores per annum because of the government regulation. We are still navigating with the customers to see how much we can absorb and how much they are going to absorb. That is a work in progress. So definitely, we can see improved margins happening in Q2 and Q3, provided the rupee doesn't further weaken because there are some indications being given when we talk to the market that the rupee could touch 3 digits against the dollar and prices could further increase and crude oil prices also could go back to the 90s. So it's anyone's guess. If things remain as it stands, we believe at least another percentage half of EBITDA is still there in the system to be had through price increases and indexation from the customers.

We take the next question from the line of Preet from InCred AMC.

Congratulations on good set of numbers. And my first question would be on the lines of margin upfront, which you recently mentioned that if everything stays same where it is now, what would be our annualized margin level that we can expect?

Our ideal margin level for normal operations should be, as I've always maintained between 12.5% to 13%, which is a steady-state margin so that we are not losing business, maintaining our share of business and because if we endeavor to increase our margins beyond that, then competition will undercut us. So 12.5% to 13% margin is what I've always maintained is the blended margin that is right for our company to maintain our share of business. And that's what we are endeavoring to get quarter-on-quarter. And that's what I said we have lost about 1.5% margin this quarter in terms of EBITDA.

We take the next question from the line of Hittesh Goyal from [ Origin Capital. ]

Sir, just wanted to understand what -- if you can give us some sense on the growth in this quarter on a Y-o-Y basis in the ACFMS business and DIS separately? And also in 2-wheeler segment within DIS, what was the growth in this quarter? This is my first question.

I will request our CEO and Executive Director, Ganesh, to answer that question. There are 3 parts to the question. One, what is the growth of DICVS business for this quarter? What is the growth of the ACFMS business for this quarter? And specifically, what is the growth of 2-wheelers for this quarter? So Ganesh will answer that in 3 parts.

Yes. The growth of both the DICVS and ACFMS has been around 25%. Both of them have equally grown because we supply to the same set of customers, both these vertical of products. So the growth has been the same. The second part of the question was what is the 2-wheeler growth. Actually, we have outperformed the industry in terms of the 2-wheeler growth. The industry during the first --Q1 has grown by about 23%, and Pricol has grown by 28%. That is primarily because as our Chairman explained, it is because of multiple new product introduction during Q1. And is there any other question which I have not answered?

No, these were the 3 questions.

We take the next question from the line of Sahil Jain from [indiscernible] India Holdings.

Just want to ask, the Ministry of Road Transport and Highways have relaxed the norms on ABS and CBS [indiscernible] So how will this impact our ACFMS business, sir?

We are not able to hear you, Mr. Jain.

Am I audible now, sir?

Yes, please go ahead.

Yes. So the Center of Ministry of Road Transport and Highways have relaxed the norms on ABS and CBS. So bikes can now use more of CBS in their system. So I just want to understand, sir, how will that impact our ACFMS business?

As I mentioned in earlier call, ABS is not something that we are focusing on at this point in time. It is something that is in the future road map of the company. So that will not have any material impact for the next 2 years on our company.

We take the next question from the line of Bhavya Vyas from Ants and Bees Investments.

Could you update us on the road map of the [Technical Difficulty]

Bhavya, your audio is not clear. There is too much of echo sounds coming in.

Am I audible now, sir?

Please go ahead.

Yes. Sir, could you update us on the [indiscernible]

We are just not able to hear you. Your voice is -- there is a lot of echo, Mr. Vyas.

Ladies and gentlemen, since there is no response. We'll move on to the next question, which is from the line of Rajit Aggarwal from Nilgiri Advisors.

My question is related to the capital expenditure that you shared in your last call. Could you give a breakup of the same between the 2 proposed entities and the time lines as in how much will be incurred in FY '27 and FY '28?

We have embarked on a INR 700 crore overall CapEx cycle across all divisions of the company, not just in the next 12 months, but over the next 18 to 24 months. About INR 400 crores of this is reserved for the polymer vertical, where we are creating a lot of new capacity to cater to the existing business and also because we have to move out of the TVS campuses in which we had a lock-in period. And about INR 300 crores is for the other 2 verticals of the company. Approximately INR 150 crores to INR 180 crores will be for the DICVS vertical and about INR 120 crores for the ACFMS vertical, broadly speaking.

We take the next question from the line of Shubham Batra from [ Ambit AMC. ]

Congrats on a good set of numbers. I wanted to ask about how is our business with Honda ramping up? And what kind of market share are we looking from them in FY '28?

I will request Ms. Madhura Mohan, our Executive Director, who handles our customer relationships and especially Honda, to answer that question, please.

Yes. Thank you for the question. Our business with Honda at the moment is quite robust. We've recently won a good share of business from them for our Plastics division as well, circling to a very handsome sum. So our current business at a group level is quite healthy. As I mentioned, we are also exploring new opportunities in both the DICVS and ACFMS verticals, and we see them as one of our strategic growth customers in the upcoming future.

In fact, plastics, we have even put certain business on hold, Honda wanted to give us more business than what we wanted. But because we don't have the capacity and it's going to take some time to create the capacity, we said we will take it in phases. But Honda is going to be one of our high-value customers and high-growth customers in the next 3 years.

We take the next question from the line of Naman Golchha from Nirmal Bang Securities PMS.

Sir, my question is related to the Cluster business. We are seeing there's a pivot towards the E-Cockpit in the premiumize and higher-end vehicles. So where are we positioning ourselves in this E-Cockpit business? And do we foresee any orders coming in or potential OEMs that are working with us for this E-Cockpit business?

Mr. Golchha, let me just say the E-Cockpit in a 2-wheeler is probably not going to happen because it's -- there's no real estate on a 2-wheeler to put an entire E-Cockpit. Has Pricol developed an E-Cockpit and proved it to the customer? The answer is yes. The absorption of E-Cockpit in the Indian overall automotive industry space is going to be very less. It's going to be a very small amount that is happening. We have shown the proof of concept to our customers and they have accepted it. But I must admit that some of our multinational competitors will have an edge over us in the E-Cockpit because of the global buying advantages. And we will continue to focus on 2-wheeler and commercial vehicle and off-road vehicles where the adoption of E-Cockpit is not going to be there. But having said that, we have developed a world-class E-Cockpit and technology shown it to our customers to make sure that it is available as part of our portfolio.

We take the next question from the line of Prolin Nandu from Edelweiss Public Alternatives.

My question is on the DIS business, which you plan to demerge, you mentioned about the technology tie-up, right? So could you just help us understand as to -- when you think about increasing the value add in this segment or moving into passenger vehicles as well, what is it that we can do in-house? And where is it which -- where we will require the technology partnership, right? And when I think about some of the technology leaders, they have tie-up of some sort in India with some of the other players. So are there very few technology partnerships which are left for us to be taken into consideration? Is that how the industry is? So just some sense on the limitation of technology partnership and what can we do in-house and what will require technology partnership for us to go ahead with?

I think there's many questions rolled into one, Mr. Nandu. But for the benefit of the larger audience, let me answer that. As I mentioned earlier, not just on this call, but in many earlier calls, the human machine interface in a vehicle where the driver or the passenger is talking to the vehicle or reading information from the vehicle is not just restricted to speed or fuel level or indication. It is also integrating the infotainment, which is becoming a very important part and controlling the air conditioning is also becoming a very important part. This is where we will perhaps go for some technology partnerships or technology tie-ups because for us to do a ground-up development will take many years. It is not impossible, but it is going to take us many years, and we may miss the bus. That's point number one. Point number two is, today, Pricol has a disadvantage in, we have only primarily India and Indonesia-based manufacturing. Today, many models are being launched globally. So having a partner, not a technology partner, but a partner will help us offer the same platform. Let us say, for example, Mexico is now emerging as a very large market. And Honda has now started talking to us for not just business in India, but also business overseas. Now will it make sense for Pricol to go and set up a plant in Mexico till the volumes reach maturity? The answer will be no because it is not going to be prudent for our return on investment or return on capital employed. Certain markets in Europe, we are being asked for products and local production, especially now with the era of tariffs. So it is prudent for us to have a partner who can manufacture our product and supply in a geography without us having to invest in those geographies. So it is a two-pronged approach that we are looking at, one for technology and one for ensuring that our share of business with our critical customers are being maintained. See because one thing, Indian 2-wheeler industry probably has reached the highest level of maturity in the world. Many other parts of the world are now Indian technology, what has been developed on a Honda 2-wheeler in India or a Suzuki 2-wheeler in India or a TVS or a Bajaj or a Hero, whatever it may be, it is now percolating to the other countries in the world. And since we want to maintain our leadership position in 2-wheelers globally. It is important for us to have certain local partners in certain geographies in order to be maintaining our market share, right? And so one is on the technology side and one is to cater to certain markets and geographies where we don't have geographical manufacturing presence.

We take the next question from the line of Kritin Arora from Stallion Asset.

I just wanted to know what sort of value addition in terms of product portfolio are we planning to do in the Precision Products division? And also what would be the ROCE of the ACFMS segment for the company?

Because the Precision Products or rather the polymer division, but we have also now developed some high-technology products. We have done some segment first, especially now for the new Tata Tiago. We have done some very interesting products and saved money for the customer also. We are moving up the value chain. But having said that, we are setting up a center of excellence in polymer technology as we speak, which will completely become operational by May of 2027. But having said that, we have already started investing in product development, new product thing, we have invested in 2K molding, which is one of the first. We are now going for self-healing plastics. This is a very interesting technology where a painted part or a polymer part with -- if there is a scratch, you don't need to go for painting just by application of heat. It will self-heal and the scratch will go away. We are also looking at fiber reinforced plastics, which will replace metal and give almost the rigidity and the flexibility of a metal part in order to lightweight. So these are some of the things that we are looking at. The ROCE for that business will remain muted because we are going through a very heavy investment cycle for the center of excellence. We are backward integrating by building our own tool room, which didn't exist, which is giving us advantages in acquiring customers, especially like Honda, Yamaha, Royal Enfield, et cetera. And also, we are putting up new plants. We have a state-of-the-art plant coming up in Hosur. We have a plant that is getting commissioned in Mysore. We have a plant that is greenfield that is getting commissioned in Aurangabad. We have a plant that is getting commissioned in Gujarat, in Sanand for Honda. We have a plant that is just starting construction in Bhiwadi in the NCR region to cater to the northern customers. Because of this heavy investment cycle, ROCE will drop and then get back to a steady state of between 16% and 18%.

We take the next question from the line of Maulik Hitendrasinh Chaudhari from Monarch Networth Capital Limited.

Just wanted to know the revenue contribution of all the 3 business vertical and any update on adding a new customer in the PV side.

On the PV side, we have now engaged with Mahindra. Our customer acquisition has been very robust in the polymer business because earlier that business was owned by the TVS Group. And so the other 2-wheeler customers where the market was not open to us. So we have now acquired quite a few 2-wheeler customers in the polymer business. We have acquired business from Ather. We have just now acquired business from River. We have acquired business from Simple Energy. We have acquired business from Raptee. We have acquired business from Honda. We have acquired business from Royal Enfield. We are just on the final stages of acquiring business from Yamaha. A few other customers, we are also talking to, but it has to be profitable. So we are only going after profitable business. For the switches business, which was the recently launched business, we have acquired our first business from Suzuki and engaging with a few other 2-wheeler makers. I will request on our ACFMS vertical, some of the new businesses that we are in negotiation and inquiring. I will request our Head of Customer Relationship Management, our Director, Madhura, to answer that, please.

Yes. So we're actively working on acquiring business for all of our product verticals within the ACFMS business. As our Chairman mentioned, we've received the first business for our switches division, which is a very positive indication, and we plan on growing that particular vertical very significantly in the upcoming years. We have also started production on disc brakes for one of the major Indian OEMs as well, which is again a positive sign for that particular division and the future products that we are planning to grow there. We have also been discussing some export businesses with some of our larger customers in the European and American regions as well. So we are very positive about the growth of that division.

And in the DICVS division, we have just started engaging with Mahindra to make an entry into Mahindra, which we were not here to present. It's early days yet.

We take the next question from the line of Khush from Electrum PMS.

So my question was regarding our growth rate. So considering the new products that are in pipeline, the new business that we have won. So like you mentioned that the plastics business, our earlier target was to, I think, double the revenue on the base of '25 in the next 3 years. So considering there are capacity constraints, although we have orders, so how does that change? Is it still intact or pushed a bit? And accordingly, similarly for the DIS and the ACFMS business also, if you could elaborate more on the growth rates and what are we expecting over the next maybe 3 years?

The plastics business, I said we will -- when we acquired the business, whatever numbers we had in FY '25, which we just had 1.5 months of operation. We said we will not just double, we will do 2.5x will be our endeavor to achieve. And with the capacities we are creating and with the business pipeline that we have, my team and I are very confident of achieving that number and that is not going to get pushed out because all the plants are coming up on schedule, barring a month or 2 delay because of steel supplies or monsoon unseasonal rains, et cetera, there has been no significant delays. In terms of the DICVS business, we will continue to maintain delta over the market growth rate of at least about 5% with the new business that we have acquired. In the ACFMS business, we don't want to settle for just a 5% growth rate over the market. We are aiming for a 10% growth rate over the market to ensure that, that division grows aggressively as we have introduced new verticals like switches and disc brakes. And the next focus is on exports, which we have started working, which will start yielding results in the next 2 to 3 years. We have already won certain committed volumes from certain export customers also.

We take the next question from the line of Preet from InCred AMC.