Pricol - Regaining old glory - Nirmal Bang

Snapshot

Incorporated as Premium Instrumentation & Controls Limited, Pricol is a renowned name in the auto-ancillary segment. The company is wellknown amongst OEMs for the superior quality of its products.

Investment Rationale

Labour issues resolved: Pricol lost a significant portion of its market share to competitors on account of significant labour issues during FY'09. With the agreement with labour in place, the company is geared to not only regain the lost market share but also emerge as a dominant auto-ancillary player across the globe.

Association with renowed international names to put the company on a global map: The company is associating with renowned international names which should help not only get access to large multi-national OEMs but also help in procuring electronic components at the most competitive rates.

Professional touch to spearhead the operations: Since the promoters have other business interests also, the company has roped in a professional CEO to manage the day-to-day affairs of the company. This is in sync with the company's aspiration to emerge as a global auto-ancillary player.

Decent dividend yield: The company has a history of continuous dividend pay-out except for FY'09, considering the record loss on account of labour issues. We expect the company to continue with this trend going forward also and with a high probability of rewarding shareholders with a special dividend (like FY'12) on the back of one-time income, in addition to the normal profits from the core business.

Valuation & Recommendation

We expect Pricol to post a net profit of Rs.30 crore on net sales of Rs.1030 crore in FY'13. At the present price, the share is available at 0.5x book value and a multiple of 5.4x earnings. On the back of various global tie-ups, cost-cutting initiatives and efforts to regain the lost market share, we value the company at 7.5x FY'13E earnings to arrive at a price target of Rs.24 over the next 9 to 12 months.

Source : Equity Bulls

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