Pricol Limited (PRICOLLTD) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Preco Ltd. Q2H1FI 2027 Earnings Conference Call, hosted by Valoram Advisors. As a reminder, all participant clients will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during this conference, please signal for an operator by pressing star and then zero on your touch-tone telephones. Please note that this conference call is being recorded. I now hand the conference over to Ms. Purwangi Jain from Valorum Advisors. Thank you and over to you, ma'am.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Bhurwangi Jain from Valoram Advisors. We represent the investor relations of Precall Limited. On behalf of the company and Valoram Advisors, I would like to thank you all for participating in the company's earnings conference call for the second quarter of the financial year 2027. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risk and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management team joining us on today's call. We have with us Mr. PM Ganesh, Chief Executive Officer and Executive Director, Mr. Siddharth Manoharan, Group Executive Director, Business Strategy, Ms. Madhura Mohan. Executive Director, Customer Relationship, Management and ESG, and Mr. Priya Darsi Bastia, Chief Financial Officer. Without any further delay, I request Mr. PM Ganesh to start with his opening remarks. Thank you and over to you, sir.

Thank you, Purvangi. Good evening to all. Welcome to the Q2 earnings call. It is our pleasure in connecting with all of you once again. I'm sure that you had some time to go through our uploaded presentation. So, without any further waiting, let me go into the financial performance straight away. The Q2 financial performance, we have crossed more than a thousand crores in quarter two. 1334.02 crores has been our revenue from operation. We are at an EBITDA margin of 11.82%. It could have been better. If you recall in the previous earning call, we have explained that we continue to face a very strong headwind, primarily because of the rising input cost. This has been the condition even during Q1, and it is continuing in Q2 as well. Primarily because of three reasons. One is the strong dollar appreciation against the rupee. And the rupee has been continuously weakening. And due to the large import content in our product, the bill of material cost has been rising. Second, as we all know that the bare PCB cost has been continuously increasing, which is a major ingredient in the instrument cluster, primarily because of the West Asia crisis. And third is the memory cost increase, which has gone up primarily because of surge in the AI. We expect these strong headwinds to continue for a few more quarters before everything gets settled down. Coming to the PAT. PAT has been at 85.21 crores. The margin is at 6.39. On a H1 performance for financial year 27, Our operation stands at 2417.60 crores with an EBITDA margin of 11.64. So that 6.30% with EPS at 12.49. Q2 for financial year 27 when compared to the previous quarter of the last financial year, the growth has been 35.03% in terms of revenue from operation. The EBITDA growth has been 27.87%. On H1 performance basis, when compared to the previous year, the growth has been 29.59% with an EBITDA growth of 24.95%. With this, I will hand over the mic back to Purwangi for the Q&A session. Thank you.

Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may enter star followed by one on the touchstone telephones. If you wish to remove yourself from the question queue, you may enter star and two. Participants are requested to please use only handsets while asking a question. We will wait for a moment while the question queue assembles. The first question is from the line of Rishabh Rathi from Goldman Sachs. Please go ahead.

Good evening, sir. My first question is around the gross margin impact. If you look at the gross margin, it's declined 150 bps quarter on quarter, but on the EBITDA margin, we've been able to sustain roughly. Similar margin. We're going to understand, as some pass-through happened already, or otherwise, if there was no gross margin impact, and while the plants are still ramping up, what could have been the EBITDA margin percentage?

That's what I've mentioned. The input to metal cost has been continuously going up because of the three factors, whatever I just mentioned during the opening remark. And this is expected to continue for at least a few quarters before it is getting normalized. And that is the reason why you find that the EBITDA level is lower than the growth, whatever we oppose in terms of the top line.

Could some settlements happen in C2 or C2?

Yes, actually, many of the cases we have already taken up with our customers, and customers are evaluating that. But as you know that there are new contents in the rising cost, primarily bare PCBs and memory cost and sharp increases in the labor cost. These things are something that the customer are evaluating because these are first-time rising costs. So, you know, customers also cannot pass on all the increases into the market. So, this is currently under evaluation and discussion with our customers. And hopefully, we should be in a position to conclude it during the next quarter. But however, we expect Thank you. We would not be in a position to 100% recover from the customers, considering that everything customer also cannot pass on to the end customer.

Right, sir. And just for clarification, ECDs and CENIs would not form a large part of our month effect. Could the impact be somewhere around 10-20 lips or could it be larger than

I would not be in a position to give you the exact breakup detail, but BARPCB do have a major content in the bill of material. I would also request that one question at a time and then maybe you can join the queue for further questions, please.

Thank you. Participants with questions may enter star and one. The next question is from the line of Hitesh Oil from Origin Capital. Please go ahead.

Thanks for taking my question.

Sir, can you give us the growth rates in the DIS business, ACFMS, and plastic business separately in this quarter? We have overall Hitesh grown by 35%. And all the three divisions have been more or less at the same level of growth. So that is why you find when compared to the previous year, quarter two, we have grown by 35%.

Okay.

Okay. So no segment has grown past. All segments, all our vertical has grown actually at the same rate, whatever I mentioned to you.

And sir, you said that, just a clarification, you said that next quarter also you'll see the headwinds, you can see that, but are you saying that gross margin could deteriorate further in the next quarter, or are you going to stay at this 11%, 12% kind of withdraw range?

See, it's a little difficult for us to predict. Because the cost has been continuously raising, Hitesh, number one. Second thing is, many of the increases, whatever has happened, we have already taken up with the customers for concluding it. We are not very sure at this point of time how it will turn out.

Got it, sir. No problem.

Thank you very much and all the best. Thank you, Hitesh. Thank you.

Thank you. As a request to participants, please limit your questions to two questions per participant. You may then return to the question queue. The next question is from the line of A.G. Ram from iThoughts PMS. Please go ahead.

Sir, within ACFMS, can you mention which is the top driver within ACFMS?

The ACMS division, the top driver, comes from the fuel pump. Whatever we supply to two-wheeler application, we are one of the largest in the country to make the fuel pumps for two-wheeler application. And the second is coming from various export customers. As we mentioned in the previous earning call, Caterpillar is one of our largest customers in the U.S. where we export the larger water pumps. So, it is the combination of... The fuel pump business for domestic and also export customers for the large pumps.

Thank you, sir. I will come back in. Thank you.

Thank you. Thank you.

The next question is from the line of Sahil Sangvi from Monarch Network Capital. Please go ahead.

Hi, sir. A huge congratulations for an excellent set of performance. I just wanted some more understanding on what are the reasons for the kind of growth we've done this quarter. I mean, even if we compare it to the underlying industry growth and we account for some premiumization, there was a beat all around. And this being, considering that we have previously said that we are limited on capacities for the plastic business. So, if you can help us, was there new, you know, new model additions, was there something else on all the products? How we have been able to achieve this kind of growth, and how sustainable is this number?

Saghil, thanks for your question. The growth primarily has been driven by strong domestic demand. And you would have seen, coupled with the festive season, the demand has been very, very robust. And you would have seen two-wheeler has recorded the highest growth ever in the history of two-wheeler at 35%. And we have grown with the two-wheeler segment. And two-wheeler business is our large forte. This is number one. Second thing is, you would have seen that some new product launches have happened during Q2 in the presentation, whatever we have uploaded. Primarily, the Bajaj Pulsar. Which we have launched with our new TFT, new generation TFT clusters, which also has given good amount of value addition to the product. So a combination of this actually has helped us to grow in Q2 when compared to the previous quarter.

Thank you, sir. I'll come back in the queue.

Thank you. Next question is from the line of Preet Pitani from InCred AMC. Please go ahead.

Thank you for the opportunity, sir. My question is on the line of raw material cost. You mentioned that we are not able to get complete pass-on of the raw material cost inflation, which has happened. So, during the times of deflationary raw material, Do we need to pass on complete raw material cost deflation, or at that time also it happens in the same way?

See, Preeti, it is something like this. See, we have indexed with our customer as pass-through both on the raw material and forex. Okay, that is happening on a quarterly basis very, very regularly and systematically. But starting from the West Asia crisis, there has been some abnormal increase, which it is first time for the customer also. Okay, like what I mentioned, the bare PCB costs swelling up, and then the memory costs going up significantly because of the AI disruption, and then also many of the input material costs going up because of the casting, machining, and sharp increase in labor costs because of the GO incorporated at the northern part of India. These are something first time the customer also is there. So, of course, the industry. We are not very sure, we have put up all these cost increases to the customer, but we are not very sure that how much would be recovered from the customer at this point of time. It is currently under discussion. That's why I said, we are not very sure whether we will be in a position to recover 100% on these one first time costs, whatever has happened since Q1. It's very difficult for me to define and tell you what is the percentage, because product to product, it will change. Blanket, dust range, it will be north of 50 to 60 basis point or higher than that? At least on an EBITDA level, it should be 1 to 2 percent in my opinion. And just giving you a rough number, it should be 1 to 2 percent in terms of the first time cost in escalations, whatever has happened ever since Q1. So, if we get a complete pass-through, our EBITDA margin would be in the range of 12.5 to 13%. Is my understanding correct? I cannot put A plus B is equal to C, and that's why I'm telling product to product it differs. If I go to an ACFMS product, there is no major import content. And, whereas the labor cost has gone up, if I go to DICVS product, then you have the memory disruption and the bare PCB. So, these combinational effects, actually, that is why I am not able to put A number to that. So, I am just giving a guesstimated number to you, for your understanding.

Got it, sir. That was very much helpful. Thank you. I'll join back in the queue. Thank you.

Thank you. Participants with questions, may please enter star and one on your handset. The next question is from the line of Rishabh Rathi from Goldman Sachs. Please go ahead.

Thank you, sir. This is one follow-up question on the plastics business. We talked about adding capacity and commercializing it somewhere around the... Thank you very much, everyone, and thank you very much, everyone, and thank you very much.

I will request this question to be taken by our group executive director, Siddharth. Over to you, Siddharth.

Thank you, sir. So to answer your question on all the CAPEX items, so last year we have clocked close to 950-2000 top line, and we are also seeing a good amount of growth. on an absolute value for closing the year. But the pipeline of business is good, and we've also won sizable new businesses from various other OEMs as well. But as we mentioned in the last earnings call, right now our focus is on creating the capacity. We are almost operating at 100% capacity. So with the budget, the CAPEX announced, so next 12 months is... We will create all the capacities and then put them into operations. And the real growth of the business will happen from FI28.

Thank you. To ask questions, please enter star and one. The next question is from the line of A. Shri Ram from iThought PMS. Please go ahead.

The last question is called, you mentioned the customers of Polymer Business. So, may I know, who are the major customers among them?

So, our top key customers are TVS, Ather Energy, Royal Airfield, Autolift, and we've also won a sizable business with Honda Motorcycles, who will also become a key customer in the upcoming financial year.

Thank you, sir.

Thank you.

Thank you. The next question is from the line of Nandan Pradhan from MK Global. Please go ahead.

Good afternoon, team, and congratulations on a great set of members in such a volatile environment. Sir, just a small bookkeeping question as I may do. Help us with the performance for P3L in this quarter. We've been maintaining that every quarter.

Nandan, your question is not very audible to us. Can you just repeat your question, please?

Yeah, is this better? Yeah, yeah, it's better, Nandan. Yeah, so, yeah, so I just wanted to understand the performance of P3L for this quarter specifically. Just for revenue and appetite, if you could help us with the same.

Yeah, yeah, I'm answering, Siddharth. London, for Q2, revenue for P3L starts at 312 crores with 9.9% of revenue. Thank you, Ranveer.

The next question is from the line of Jatin Chawla from RCL Investments. Please go ahead.

Yeah, hi. Good afternoon, and thanks for the opportunity. My first question is, I think last quarter you had spoken about winning a lot of business with Honda on the DIS side as well. So, has that started scaling up already, or when should we expect those kind of numbers to come through?

Jatin, actually, it was not during last earnings call, it was a year back that we have already entered into Honda business on the electronic LCD clusters, and we have been continuously growing Honda business. So, it is actually nothing new during the last quarter. We have been in a very sustainable and growing business with Honda for the last couple of years.

Got it, got it. So it was on the plastic side where you will see some more kind of acceleration going forward. Got it. And just kind of going back to the gross margin side, I dropped off for a little bit. My question was on the pass-through that happens on a quarterly basis. I think what we are seeing is 2Q there was inflation and hence whatever pass-through you would have got is not visible. Does it start becoming from 3Q onwards or it's only in 4Q where we start seeing some benefit on that?

See, that's what I explained to you, Jatin, that Q1 onwards, there has been abnormal increase in terms of the input material cost, okay? It is just not forex and raw material, but there has been electronic component increase, whatever I explained to you. So what is happening is it is continuously going up. So whatever we do as a pass-through with customer in the previous understanding, we are able to recover. Okay. But there are new first-time increases which has happened since Q1. Like what I explained to you, the bare PCBs, memory, labor cost increases, power cost increases going up in the casting side. So these are the first time such kind of sharp increases has happened in the industry. These we have already put up with the customer under negotiation.

Got it. Got it.

Thanks a lot. Okay. Thank you, Jatin. Thank you.

Thank you. The next question is from the line of Vipul Kumar from Suu Mangal Investments. Please go ahead.

Hi. Thanks for the opportunity. So what is the capex for increasing the capacity for this plastic division? And what will be the asset term for that? I will request our CFO Priyan to answer this question, please.

As Aj explained in the earlier earning growth, for this financial year, rather next six quarters, our capex will be 350 crores in that entity, P3L, and the FA turn will be around 3.

Would you repeat, please, FA turn? Thank you.

Thank you.

Thank you. To ask questions, please enter star and one. The next question is from the line of Preet Pitani from Ingrid AMC. Please go ahead.

Thank you for the follow-up opportunity, sir. My question is on the line of growth drivers. Industry production growth was around 20% for second quarter, and we have grown at 35%. And as you mentioned to the previous participants, that we have grown 35% in both the segments, DIH as well as ACFMS. So what would be the additional growth driver, apart from content addition? Would it be market share gain?

Actually, if you see the overall market, I agree with you, it has grown by 20%, but however, two-wheeler in particular has grown by around 35% during Q2 of the same period during last year and compared to the last year, and, you know, a significant portion of our sale comes from the two-wheeler segment. That has really helped us, number one. Second thing is, of course, the value-added products have kicked in. And in terms of

market share, have we lost or gained any market share?

I think market share definitely we have not lost, and we have gained some market share because of the new product whatever we have launched during Q2, both on the driver information system and also on the plastics and also on the ACFMS.

Got it, sir. Thank you.

Thank you. Next question is from the line of Chandra Gupta from the Longcastle Capital Management. Please go ahead.

Hello, am I audible? Yes, sir, you are. Yeah, yeah. So, my question is about the de-merger. Can you just update us on where we stand now? What are the timelines that you are looking at when the proposal will be filed with NTT? And also, last time it was mentioned that from 1st October, we will be internally operating as two separate companies. So, whether that has happened? Can you update us on this?

Yeah, this question I will ask our group executive director, Shidab, to answer, please.

Yeah. Mr. Chandragupta, so the demerger process is ongoing, so we have submitted our application and going through the motions of it at this point in time. It is expected to take a couple of quarters until the final orders are being given to us. Internally, as you rightly mentioned, from October onwards, we have started operationalizing the divisionalizing of the company, so certain internal controls have been put and people have been moved. So that process has been started, and we expect it to go forward for the next six months. From 1st April 2027 onwards, we plan to operationalize the company completely into two different divisions, which is DICVS and ACF News Division.

Thank you. Ladies and gentlemen, we take that as the last question. I now hand the floor over to the management for closing comments.

Thank you, Purvangi. I will request our CFO, Priyan, for the closing remarks.

Thank you, ladies and gentlemen. We remain deeply focused on executing our long-term visions, long-term goals, and thank you for joining us today. We look forward to updating you on our next progress in the next quarter call. Thank you so much. Happy Diwali to all.

Thank you very much, sir. On behalf of Pricol Ltd., that concludes this conference call. Thank you all for joining, and you may now disconnect your lines. Thank you.