Snapshot
Incorporated as Premium Instrumentation & Controls Limited, Pricol is a renowned name in the auto-ancillary segment. The company is well-known amongst OEMs for the superior quality of its products.
Investment Rationale Labour issues resolved: Pricol lost a significant portion of its market share to competitors on account of significant labour issues during FY’09. With the agreement with labour in place, the company is geared to not only regain the lost market share but also emerge as a dominant auto-ancillary player across the globe.
Association with renowed international names to put the company on a global map: The company is associating with renowned international names which should help not only get access to large multi-national OEMs but also help in procuring electronic components at the most competitive rates.
Professional touch to spearhead the operations: Since the promoters have other business interests also, the company has roped in a professional CEO to manage the day-to-day affairs of the company. This is in sync with the company’s aspiration to emerge as a global auto-ancillary player.
Decent dividend yield: The company has a history of continuous dividend pay-out except for FY’09, considering the record loss on account of labour issues. We expect the company to continue with this trend going forward also and with a high probability of rewarding shareholders with a special dividend (like FY’12) on the back of one-time income, in addition to the normal profits from the core business.
Valuation & Recommendation
We expect Pricol to post a net profit of Rs.30 crore on net sales of Rs.1030 crore in FY’13. At the present price, the share is available at 0.5x book value and a multiple of 5.4x earnings. On the back of various global tie-ups, cost-cutting initiatives and efforts to regain the lost market share, we value the company at 7.5x FY’13E earnings to arrive at a price target of Rs.24 over the next 9 to 12 months.
INVESTMENT RATIONALE
Labour issues resolved; a major hurdle out of the way
With the company facing one of the most severe labour problems in FY’09, the company has taken a number of initiatives as far as human resource management goes. The management has entered into wage agreements with labourers, in addition to other initiatives for smooth functioning of the manufacturing operations.
However, during this period of labour unrest and the process of bringing the same back on track, Pricol, which is a renowed name in the auto-ancillary sector, had lost a significant portion of market-share. This resulted in the company posting a record loss of more than Rs.36 crore in FY’09. As a result, the company did not pay any dividend to its shareholders for the first time in its more than 30-year history.
The management’s efforts to revive the fortunes of the company should start yielding benefits from this financial year onwards.
On the back of the company gradually regaining back the lost market share, coupled with the management’s conservative nature getting reflected in a number of cost-cutting initiatives, we expect Pricol to end the year with net sales of Rs.1030 crore and PAT of Rs.30 crore.
Association with renowned international names should pay-off
The company is geared up to emerge as a large auto-ancillary player not only in India but also globally. The contribution of exports to the total sales of the company stood at less than 20 per cent in FY’12.
The association with foreign partners should not only help the company get access to higher revenues but also help it procure electronic components at the most competitive rates, leading to improvement in margins. A few association have been enumerated below:
1. Denso Corporation – Japan-based Denso Corporation is not only an equity partner but also technical partner with Pricol (~12 per cent stake). As per industry norms, automobile companies based out of Japan would prefer to have auto-component suppliers with a Japanese base. Therefore, Denso Corporation’s association with the company would help it cater to the south-east Asian markets.
Pricol operates in the south-east Asian markets through its wholly-owned subsidiary, PT Pricol Surya Indonesia. We believe that this should enable the company to cater to the automobile manufacturers in a big way in the south-east Asian markets.
The process has already begun with Japanese-major Honda Motor Cycles becoming a customer from January 2011. With supplies to Honda Motor Cycles for the whole year in FY’12, the company’s sales increased almost three-fold from Rs.31.7 crore in FY’11 to Rs.111 crore in
INVESTMENT RATIONALE
Labour issues resolved; a major hurdle out of the way
With the company facing one of the most severe labour problems in FY’09, the company has taken a number of initiatives as far as human resource management goes. The management has entered into wage agreements with labourers, in addition to other initiatives for smooth functioning of the manufacturing operations.
However, during this period of labour unrest and the process of bringing the same back on track, Pricol, which is a renowed name in the auto-ancillary sector, had lost a significant portion of market-share. This resulted in the company posting a record loss of more than Rs.36 crore in FY’09. As a result, the company did not pay any dividend to its shareholders for the first time in its more than 30-year history.
The management’s efforts to revive the fortunes of the company should start yielding benefits from this financial year onwards.
On the back of the company gradually regaining back the lost market share, coupled with the management’s conservative nature getting reflected in a number of cost-cutting initiatives, we expect Pricol to end the year with net sales of Rs.1030 crore and PAT of Rs.30 crore.
Association with renowned international names should pay-off
The company is geared up to emerge as a large auto-ancillary player not only in India but also globally. The contribution of exports to the total sales of the company stood at less than 20 per cent in FY’12.
The association with foreign partners should not only help the company get access to higher revenues but also help it procure electronic components at the most competitive rates, leading to improvement in margins. A few association have been enumerated below:
1. Denso Corporation – Japan-based Denso Corporation is not only an equity partner but also technical partner with Pricol (~12 per cent stake). As per industry norms, automobile companies based out of Japan would prefer to have auto-component suppliers with a Japanese base. Therefore, Denso Corporation’s association with the company would help it cater to the south-east Asian markets.
Pricol operates in the south-east Asian markets through its wholly-owned subsidiary, PT Pricol Surya Indonesia. We believe that this should enable the company to cater to the automobile manufacturers in a big way in the south-east Asian markets.
The process has already begun with Japanese-major Honda Motor Cycles becoming a customer from January 2011. With supplies to Honda Motor Cycles for the whole year in FY’12, the company’s sales increased almost three-fold from Rs.31.7 crore in FY’11 to Rs.111 crore in
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