Multibagger stock: Pricol climbed over 900% in less than four years; what lies ahead?

Pricol's shares have shown consistent growth over five years, surging 946% since June 2020. Recent sell-off impacted stock, leading to a 12.23% loss in March. Monarch Networth Capital expects Pricol to outpace industry growth rates and forecasts substantial growth prospects.

A Ksheerasagar
First Published20 Mar 2024, 11:35 AM IST
Pricol is a leading manufacturer of automotive components, catering to both the Indian and international markets.
Pricol is a leading manufacturer of automotive components, catering to both the Indian and international markets.(Pixabay)

Sustaining a continual upward trend and consistently setting new record highs over an extended period is a challenging feat for any stock in the market as volatility remains a persistent factor influencing market movements. Nevertheless, Pricol has demonstrated steady growth in its shares over the past four years, exhibiting a consistent upward trajectory and rewarding its shareholders with substantial returns.

The company's shares embarked on a one-way rally in June 2020, starting at 33.80 apiece, and have steadily surged without notable pullbacks to attain the current trading price of 353.70 apiece, reflecting a remarkable gain of 946%.

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The recent sell-off in mid and small-cap stocks has impacted the stock, leading to a 12.23% loss in March so far. Considering the February closing price of 403 apiece, the stock has yielded nearly a 1100% return since June 2020.

Pricol is a leading manufacturer of automotive components, catering to both the Indian and international markets. It specialises in manufacturing auto components for 2-wheelers, 3-wheelers, 4-wheelers, commercial vehicles, tractors, off-road vehicles, and industrial segments. It primarily operates under two segments: driver information and connected vehicle solutions, and action control and fluid management systems.

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Set for robust growth

Domestic brokerage firm Monarch Networth Capital said that Pricol, with a towering market share for cluster instruments in multiple sub-segments of the auto industry, is at a transformational stage after an extended period of uncertainty created by several endogenous and exogenous factors. 

The brokerage firm anticipates that Pricol will outpace industry growth rates, driven by several factors. These include the ongoing premiumization trend, a resurgence in demand for two-wheelers post-temporary downturn, favorable export prospects for the Actuation Control & Fluid Management Systems (ACFMS) segment, and the introduction of new product offerings.

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Even in the absence of any impact from new product launches or acquisitions, Monarch Networth Capital foresees margin expansion, a robust net cash balance sheet, and substantial growth prospects combining to enhance return ratios significantly.

Joint venture with Sibros for Telematics

According to the brokerage, the company's joint venture with Sibros, is set to bolster its position in the driver information system and telematics. Through comprehensive end-to-end solutions, Sibros will aid in expanding Pricol's software presence in the driver information system space. 

The cloud-based platform of Sibros, combined with the next-generation products of Pricol, will enable features such as OTA software and firmware updates, vehicle data insights for analytics, diagnostics, and troubleshooting for OEMs to make the best use of the connected solutions.

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In this collaboration, Pricol will provide the hardware component, while Sibros will contribute the software piece, creating a synergistic partnership. Telematics is currently undergoing testing with various OEMs, and the management expects start-up production to commence by Q4FY25, said the brokerage.

Valuation: Well-placed for re-rating

"Pricol has a history of sailing through several issues, be it some failed joint ventures, overhang of hostile acquisition by Minda Corp, poor financial and operational performance due to pandemic-led disruption, and the semiconductor availability issue. This has led to muted valuations for very long periods, and only recently, after the favourable order by CCI, the valuation has truly appreciated," said Monarch Networth. 

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According to brokerage analysis, Pricol is poised for substantial growth in revenue, EBITDA, and PAT. While its EBITDA margin is expected to align with that of its larger peers, its return ratios are projected to outperform those of UNO Minda and Minda Corp. 

Despite the anticipation of improved financial performance and favorable industry trends, Pricol's shares are currently trading at a 15-20% discount compared to its peers, UNO Minda and Minda Corp.

The brokerage anticipates this valuation gap to narrow as Pricol achieves key milestones and operational triggers, thereby warranting a potential re-rating. 

Valuing Pricol at a 22x FY26E PE ratio (which is higher than its historical valuations but still at a discount to larger peers), the brokerage sets a target price of 465 apiece and initiates coverage with a 'Buy' rating. This target price indicates an upside potential 32% for the stock from its previous closing price. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:20 Mar 2024, 11:35 AM IST
HomeMarketsStock MarketsMultibagger stock: Pricol climbed over 900% in less than four years; what lies ahead?

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