Emkay Research has reaffirmed its BUY rating on Pricol, driven by its recent acquisition of the plastic injection molding business of Sundaram Auto Components (SAC). This strategic move enhances Pricol's growth prospects and positions it as a major player in the automotive components sector. With a target price of Rs 600, the report highlights the acquisition's valuation benefits, potential EPS upgrades, and robust financial health. The acquisition's alignment with Pricol's expansion strategy and its expected role in revenue and margin growth make the stock a prime candidate for investors seeking opportunities in the auto ancillary space.

SAC Acquisition Brings Strategic Growth Opportunities

Pricol has acquired SAC’s plastic injection molding business, which specializes in manufacturing automotive components for two-wheelers (2Ws), passenger vehicles (PVs), and commercial vehicles (CVs). The acquisition is valued at approximately 8x FY24 PER, making it an attractive deal. SAC has a robust client base, including TVS Motors (50% of revenue), Royal Enfield, BMW, and Stellantis, and its product portfolio spans EV components like battery cell holders and covers.

Inorganic Expansion to Drive Revenue and Margin Growth

This acquisition aligns with Pricol’s strategy of leveraging organic and inorganic growth avenues. It transforms the company’s existing injection molding operations into a dedicated vertical, offering significant cross-selling opportunities. With a net debt-to-equity ratio of ~0.1x post-acquisition, the financial strain is minimal, ensuring sustainable operations. SAC’s established client base and growth in EV-agnostic products are key drivers for future revenue.

EPS Upgrade Potential and Valuation Insights

Emkay Research estimates a potential 6% EPS upgrade by FY26 due to SAC's integration. Pricol remains a premiumization play, with its digital instrument clusters and multi-product strategy expected to attract a broader client base. The stock is trading at 24.4x FY26E P/E, with a projected EPS of Rs 20.3 for the year, making the current valuation compelling for long-term investors.

Financial Snapshot

Pricol's financial trajectory is robust, with revenue expected to grow at a CAGR of 18% from FY24 to FY27. EBITDA margins are anticipated to improve to 13.8% by FY27, driven by operational efficiencies and product diversification. Below is a summary of key financial metrics:

Key Drivers of Growth

1. Strong Client Base: SAC’s established relationships with leading OEMs like TVS Motors and BMW provide a steady revenue stream. 2. EV-Agnostic Products: The acquisition positions Pricol favorably in the evolving EV landscape. 3. Cross-Selling Opportunities: Integration with SAC's operations enables Pricol to expand its offerings to existing clients.

Risks to Consider

1. Execution Risks: The successful integration of SAC into Pricol's operations remains critical. 2. Market Volatility: Fluctuations in demand for automotive components could impact short-term performance.

Emkay’s Recommendations and Investment Insights

Emkay Research reiterates its BUY rating with a target price of Rs 600, representing a potential upside of 21.2% from the CMP of Rs 495.10. Investors are encouraged to capitalize on Pricol's growth potential, driven by its strategic acquisition and focus on premiumization.
Disclaimer: Investors are advised to conduct their due diligence before making investment decisions.