Target: ₹600
CMP:₹498.90
Pricol has entered into an agreement for acquiring the plastic injection molding business of Sundaram Auto Components (SAC; FY24 sales/PAT of ₹730 crore/₹19 crore) on all-cash, debt-free basis at an attractive valuation of about 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 wholly-owned subsidiary of TVSL; TVSL contributes around 50 per cent 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 (about 0.1x net debt/equity ahead, on pro forma basis) fronts, with potential around 6 per cent EPS upgrade on Sep-26E EPS (not built-in).
We believe it is a structural play for Pricol on premiumisation (digitisation of instrument clusters) with strong growth triggers from new client addition (example Honda 2Ws over coming 18-24 months) and expansion into a multi-product company (potential re-rating trigger).
We retain Buy on Pricol, with unchanged estimates and TP of ₹600 at 27.5x Sep-26 PER (26x on pro forma basis).
