Why is Minda Corp keen on a reluctant Pricol?

A market insider said that one of the triggers for this move is Pricol signing on Ola Electric as a customer.

Minda Corp, auto-ancillary major, has finally shown its hand by approaching the Competition Commission of India (CCI) for raising its stake in Pricol Ltd, a leader in the instrument cluster business.

With a new limit of 24.5 percent, Minda appears to want to continue to hold Pricol as a strategic investment. However, market insiders see Minda's move as an indication that it is looking for a controlling stake in Pricol. Pricol’s promoter family holds 36.53 percent.

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Analysts believe that Minda is keen on expanding into the instrument-cluster market, which has a huge growth potential in the electrification of mobility. Pricol is the market leader in the product category, particularly in the two-wheeler segment.

“If by spending Rs 800-1,000 crore, Minda becomes the largest player in the instrument cluster business, that business can be big. Their payback would be less than three years,” said an expert in the field who did not want to be named.

In February, Minda had bought 15.7 percent of Pricol for around Rs 400 crore. Since then, the stock has appreciated by around 19 percent. Minda is now looking to increase its stake in Pricol by another 8.8 percent (up to 24.5 percent) according to an exchange filing on May 2, in which the company said it has approached the CCI.

A back-of-the-envelope calculation shows that Minda would need another Rs 220 crore to make this stake buy, bringing the total to Rs 620 crore. To acquire holding that is higher than the promoter group, they would need another  13 percent or to spend an additional Rs 325 crore bringing the total to Rs 945 crore.

Why the interest?

Pricol’s promoter family is led by its Chairman Vanitha Mohan and Managing Director Vikram Mohan.

In interactions with the media and analysts, Vikram Mohan had said that the promoter family had no intention of selling their holding in the company. In an interaction with analysts following the February stake buy, Mohan said that Minda Corp had approached them multiple times in the preceding five to six quarters, asking to form a partnership but he had turned them down.

“When we stand on a very strong financial footing, when we stand on very strong customer endorsement, and when we stand very strong on a very strong LoI (letter of intent) of business and technologically in a far more superior place than they are, I don't see any merit… (in) having any sort of collaboration with them equity or otherwise,” he had said.

In the interaction, Mohan had indicated that perhaps Minda Corp’s interest could be linked to any LoI that has been endowed on Pricol. An LoI is given 18-24 months before the start of the project and any LOI endowment becomes public knowledge then.

“Minda will come to know in 18-24 months when the big process is launched and the LoI is endowed on Pricol which is the reason probably they have invested in Pricol because they see the growth prospects in Pricol and the growth that Pricol can deliver in the coming quarter,” he had said.

An industry expert, who did not want to be named, said that the LoI that could have caught Minda Corp’s eye may be the one Pricol signed with Ola. In the 2021-22 annual report, Pricol management said that the company added Ola Electric as a “prominent customer, giving a significant boost to the company’s ambitions of being a prominent supplier in the EV space”. Ola Electric is the market leader in the current electric, two-wheeler segment.

Also read: What is causing all the buzz in the auto-ancillary sector?

The big push

In a note to investors following the February stake buy, Senior Vice President of Institutional Research at Elara Capital, Jay Kale had written that the Pricol buy could be seen as a particular push into the instrument cluster segment.

“Pricol is the market leader in 2W instrument clusters (~40 percent market share) while Minda Corp has ~15 percent share. This gives them further consolidation in the instrument cluster market for 2W, if in future Minda Corp further increases stake in Pricol,” he wrote. Elara has a ‘buy’ rating on Minda Corp.

Himanshu Singh, research analyst at Prabhudas Lilladher, had also echoed similar sentiments. “The instrument cluster is a new product line for Minda. Last year, it had made 10 percent of its revenues from this (product line) but a year or two ago, it had zero percent share in the company’s revenues. Now, it is looking to increase exposure in this category,” he had said in an interaction with Moneycontrol.

Minda was trading at around Rs 278 (2 percent lower than yesterday's close) and Pricol was trading at around Rs 238 (2.7 percent lower) at 1.30 pm on BSE today.