Pricol (NSE:PRICOLLTD) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Pricol Limited Q2 H1 FY twenty twenty seven Earnings Conference Call hosted by Valorum Advisors. 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 Pirvangi Chen from Valorum Advisors. We represent the Investor Relations of Pricol Limited.

0:45 On behalf of the company and Valorum Advisors, I would like to thank you all for participating in the company's earnings call for the second quarter of the financial 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 risks 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.

1:36 I would now like to introduce you to the management team joining us on today's call. We have with us Mr. P. M. Ganesh, Chief Executive Officer and Executive Director Mr. Siddharth Manoharan, Group Executive Director, Business Strategy Ms. Madura Mohan, Executive Director, Customer Relationship Management and ESG and Mr. Priyadarshi Bastia, Chief Financial Officer. Without any further delay, I request Mr. Priyankanesh to start with his opening remarks. Thank you, and over to you, sir. Thank you, Purwangi. Good evening to all. Welcome to the Q2 earnings call. It is our pleasure in connecting with all of you once again.

2:25 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 INR1000 crores in quarter two. INR1334.02 crores has been our revenue from operations. We are at an EBITDA margin of 11.82%. It could have been better. If you recall in the previous earnings call, we have explained that we continue to face very strong headwinds, 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.

3:20 One is the strong dollar appreciation against the rupee and rupee has been continuously weakening and due to the large import content in our product, the bill of material cost has been raising. 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 the strong headwinds to continue for a few more quarters before everything gets settled down.

4:07 Coming to the PAT, PAT has been at INR85.21 crores, the margin is at INR6.39 crores. On H1 performance for financial year 2027, our operation stands at INR2417.60 crores with an EBITDA margin of 11.64%. The PAT stood at 6.30% with EPS at 12.49. Coming to the Q2 to Q2 comparison, Q2 for financial year '27 when compared to the previous quarter of last financial year, the growth has been 35.03% in terms of revenue from operation.

5:04 The EBITDA growth has been 27.87%. On a 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 Pourvandeep for the Q and A session. Thank you. Thank you very much, sir. Ladies and gentlemen, we will now begin with a question and answer session.. Participants are requested to please use only handsets while asking a question.

5:57 The first question is from the line of Rishi Bhrathi from Goldman Sachs. 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 margins. Just want to understand, has 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 in 2Q? Yes, that's what I have mentioned. The input and maintenance cost has been continuously going up because of the three factors whatever I just mentioned during the opening remark.

6:52 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 have put in terms of the top line. Correct, sir. But could some settlement happen in Q2 or Q2 based on the price... 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 raising costs, primarily bad PCBs and memory costs and sharp increases in the labor cost. These things are something that the customer are evaluating because these are first time rising costs.

7:40 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 that 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, PCBs and semis would not form a large part of a bunker side, could the impact be somewhere around 10, 20 bps or could it be larger than that? See, I would not be in a position to give you the exact breakup detail, but BAP PCB 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.

8:39 Got it. Got it. Thank you, Thank you. You. The next question is from the line of Hitesh Goel from Origin Capital. Please go ahead. Yes. 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%, okay? 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 major no segment has No segment has grown for the 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 see the headwinds, we can see that. But are you saying that gross margin could deteriorate further in the next quarter?

9:44 Or we will stay at this 11%, 12% annual EBITDA range? You see, it's 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, Satish. 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. J. Ram from iThoughtPMS.

10:29 Please go ahead. Sir, within ACFMS, can you mention which is the top driver within CCFMS? 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 earnings call, Caterpillar is one of our largest customer 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.

11:21 Thank you, sir. I will come back in queue. Thank you, Sreedhar. Thank you. The next question is from the line of Sahil Sangvi from Monarch Networks Capital. Please go ahead. Yes. Hi, sir. Huge congratulations for an extra 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, 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 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 somehow?

12:16 Sagil, 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 has 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 have given good amount of value addition to the product.

13:03 So a combination of this actually has helped us to grow in Q2 when compared to the previous quarter. Next question is from the line of Pricol Pitani from Incred AMC. 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 in in... Or during the times of discretionary 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, Pricol, it is something like this. See, we have indexed with our customer as pass through both only raw material and ForEx, okay.

13:55 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, Like what I mentioned, the bad 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 cost going up because of the casting, machining and sharp increase in labor cost because of the GO incorporated at the northern part of India. These are something first time customer also is there, so of course with 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.

14:50 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. What will be the impact on this cost in our Q1 Q2 numbers? It's very difficult for me to define and tell you what is the percentage because product to product, it will change. Blanket, rough range, it will be north of 50 to 60 basis points or higher than that? At least on an EBITDA level, it should be 1% to 2% in my opinion. And just giving you a rough number, it should be 1% to 2% in terms of the first time cost escalations whatever has happened ever since Q1.

15:40 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 costs have gone up. If I go to DICBS product, then you have the memory disruption and the bad PCB. So, these combination effects actually that is why I'm not able to put a number to that. So I'm 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. You. The next question is from the line of Rishabh Rathi from Goldman Sachs. Please go ahead.

16:35 Thanks, sir. Just one follow-up question on the plastics business. You talked about adding capacity and commercializing it somewhere around the second half of this fiscal. Can you help us understand what was like the full year revenue last year in the plastic business and rough range of what we are expecting this year in FY 'twenty is based on the capacity we I have put up, 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 950,000, 2,000 top line and we are also seeing good amount of growth.

17:26 I would not be able make statements 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 budgeted CapEx announced, so next twelve months is going to be the timeframe for us to create all the capacities and then put them into operations and the real growth of the business will happen from FY 2028 and thereupon. It. That's all.

18:15 You. The next question is from the line of Ashish Ram from Ithot PMS. Please go ahead. Sir, in the last conference call, you mentioned the customers of polymer business. So may I know who's the major customer among them? So our top key customers are TBS, Arthur Energy, Royal Enfield, Autolift and we've also won 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.

19:05 Good afternoon to you and congratulations on a great set of onwards in such volatile environment. Sir, just a small bookkeeping question, if I may. Could you help us with the performance for Q3 and this quarter? We've been maintaining that every quarter. Help us with that. Mandan, your question is not very audible to us. Can you just repeat your question, please? Yes. Is this better? Yes, that's better, Mandal. Yes. So I just wanted to understand the performance of P3L for this quarter specifically. Just the revenue and EBITDA, if you could help us with the sale. Pricol, would you like to Yes, speak or can I go yes, I'm answering, Siddharth?

19:55 And then for Q2, revenue for P3L starts at INR312 crores with 9.9% of EBITDA. Thank you. Thank you so much, sir. Thank you. Thank you, Nandan. Thank you. The next question is from the line of Jatin Chawla from RTL 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?

20:46 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. That's Got it. Got it. And just kind of going back to the gross margin side, dropped off for a little bit.

21:32 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.

22:21 Like what I explained to you, the bad 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 Pricol Kumar from Sumangal 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 turn for that? I will request our CFO, Pricol, to answer this question, please.

23:14 Before Ajaj explained in the earlier earnings call, for this financial year rather next six quarters, our CapEx will be INR $3.50 crores in that entity, P3L, and F and turn will be around three. So would you repeat, please, the FAT turn? FAT turn will be around three, three to 3.25. The next question is from the line of Pricol Limited from Incred 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%.

24:04 And as you mentioned to the previous participants that we have grown 35% in both the segments, DIS as well as ACFML. So what would be the additional growth driver apart from content addition? Would it be market share gain or if you could just brief that? Yes. Actually, 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 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, Bajaj example, which I gave it to you, second. And third, actually, the value added AC FMS products like the fuel pump and the heavy duty water pump, whatever we are exporting to U.

25:07 S, has really grown during this quarter and that is the reason why you find that we are above the market in terms of the growth. 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 ACFS. Got it, I'll join my question. Thank you. Thank you. Next question is from the line of Chandragupta from the Long Castle Capital Management. Please go ahead. Am I audible?

26:11 Last time it was mentioned that from October 1, we will be internally operating as two separate companies. So whether the answer has happened, can you update us on this? Yes. This question, will ask our Group Executive Director, Siddharth, to answer, please. 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 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 in, people have been moved.

26:57 So that process has been started and we expect it to go forward for the next six months from 04/01/2027 onwards. We plan to operationalize the company completely into two different divisions, which is DICVS and ACFMS divisions. Thanks a lot. That's all from my end. Thank you. Ladies and gentlemen, we take that as the last question. I now hand the floor over to the management for closing comments. You, Parmanji. I will request our CFO, Priyank, for the closing remarks. Thank you, ladies and gentlemen. We remain deeply focused on executing our long term visions, long term goals.

27:42 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 Limited, that concludes this conference call. Thank you all for joining, and you may now disconnect your lines. Thank you.