Pricol Ltd. shares saw a 4% increase in Monday's trading session, following a 'Buy' recommendation from Axis Securities. The brokerage has set a target price of Rs 935 for the automotive component manufacturer, suggesting a potential 22% upside from Friday's closing price.
Key Drivers for Growth
Axis Securities highlighted several factors expected to fuel Pricol's growth. These include a proposed demerger of its Driver Information & Connected Vehicle Solutions (DICVS) business, continued expansion in premium automotive components, and the strategic growth of its plastics division.
Demerger to Unlock Value
The planned demerger of Pricol's DICVS business into a new entity, Pricol Autotech Ltd., is considered a significant strategic move. In FY26, the DICVS segment contributed Rs 2,425 crore, or 61.2%, to Pricol's consolidated revenue, encompassing instrument clusters, displays, connected vehicle solutions, and sensors.
Under the proposed scheme, shareholders would receive one Pricol Autotech share for every Pricol share held, pending regulatory and shareholder approvals. Axis Securities believes this separation could enhance capital allocation efficiency and enable independent valuation of the two distinct business platforms.
"The separation could unlock value by enabling investors to apply business-specific valuation multiples based on differing growth profiles, margins, capital intensity and addressable markets," the brokerage stated.
The completion of the demerger is anticipated to take 12-18 months, subject to necessary approvals.
Strong Position in Automotive Components
Pricol is a prominent manufacturer of automotive components, specializing in instrument clusters, driver information systems, sensors, pumps, and telematics solutions. The company supplies over 5,200 product variants to Original Equipment Manufacturers (OEMs) across various vehicle types, including two-wheelers, passenger vehicles, commercial vehicles, and off-highway vehicles.
Axis Securities estimates Pricol holds a substantial 75-80% market share in two-wheeler TFT clusters, despite TFT penetration in two-wheelers currently being only 7-8%. The shift towards advanced digital displays, connected clusters, infotainment, and telematics is expected to increase the value of components per vehicle.
Furthermore, Pricol's product portfolio is increasingly adaptable for both conventional internal combustion engine (ICE) and electric vehicle (EV) platforms. The company has secured EV programs with notable manufacturers like Ather Energy, TVS Motor, Honda, River, Simple Energy, and Raptee.
Expanding Plastics Business
Another growth avenue highlighted by Axis Securities is Pricol's acquisition of the injection-moulding business from Sundaram Auto Components for Rs 215 crore. This business generated approximately Rs 924 crore in revenue in FY26, with Q1 FY27 revenue at around Rs 249 crore and capacity utilization already at 94-95%.
Pricol plans a capital expenditure of approximately Rs 400 crore for polymer-related expansion, aiming to boost turnover capacity from Rs 1,000 crore to Rs 2,000 crore. Meaningful capacity relief is expected from FY28 onwards.
Financial Projections and Target
Axis Securities projects Pricol's revenue, EBITDA, and profit after tax (PAT) to grow at annual rates of 19%, 21%, and 24% respectively, between FY26 and FY29. This growth is anticipated to be driven by premium products, EV-compatible components, plastics integration, operational leverage, and new global automotive programs.
The brokerage initiated coverage with a 'BUY' rating, assigning a forward P/E multiple of 24x on FY29E EPS, leading to their target price of Rs 935 per share.