Buy Pricol; target of Rs 600: Emkay Global Financial

Emkay Global Financial's research report on Pricol

Pricol has entered into an agreement for acquiring the plastic injection molding business of Sundaram Auto Components (SAC; FY24 sales/PAT of Rs7.3bn/190mn; press release) on all-cash, debt-free basis at an attractive valuation of ~8x FY24 PER. SAC’s products cater to interior and exterior plastic parts for 2Ws, PVs, and CVs, with strong presence within TVSL (SAC is whollyowned subsidiary of TVSL; TVSL contributes ~50% of revenue). The acquisition enables Pricol to scale up its existing molding operations into a growth-focused, independent vertical (vs current usage for backward integration) amid high cross-selling opportunities; it appears attractive on the valuation and balance sheet (~0.1x net debt/equity ahead, on pro forma basis) fronts, with potential ~6% EPS upgrade on Sep-26E EPS (not built-in).

Outlook

We retain BUY on Pricol, with unchanged estimates and TP of Rs 600 at 27.5x Sep-26E PER (~26x on pro forma basis), as we believe it is a prime premiumization play.