Minda Corp’s Pricol stake buy driven by connected-mobility play?

Things are heating up in the auto ancillary space, with an auto-component major announcing a significant stake buy in a competitor company.

Minda Corp confirmed buying 15.7 percent stake in Pricol, through an exchange filing. It has bought 1,91,40,342 shares for Rs 400 crore, at Rs 209 per unit. It was done for a cash consideration through an open-market purchase.

Analysts believe that this could be a deeper play by Minda into both connected and electric mobility. “It would be a step towards increasing their content per vehicle in electric vehicles (EVs) and ICE 2Ws,” said Jay Kale, Senior Vice President – Institutional Research, Elara Capital.

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The buy will also give Minda a larger presence in instrument-cluster (the dashboard instruments) market.

“Pricol is the market leader in 2W Instrument clusters (~40-50 percent market share) while Minda Corp has a much lower share. This gives them further consolidation in instrument cluster market for 2W, if in future Minda Corp further increases stake in Pricol,” Kale added in a note to investors.

Pricol is building products and partnerships to stay ahead in electrification of mobility and in connected vehicles. One of its key partnerships is with Silicon Valley-based Sibros to provide OEMs clients the ability to do over-the-air (OTA) updates of its connected vehicles, to track the vehicles and their performance, and to troubleshoot remotely, among other things.

Minda already has a strong presence in EV, two-wheeler segment, servicing all major OEMs in this category and it recently signed a licensing agreements to further its ambitions in connected vehicles, such as to build advanced driver assistance system (ADAS) for autonomous driving and to enable telematics.

After a large block deal in Pricol was announced, even before Minda’s confirmation, Pricol’s stock hit a 52-week high.

Hostile bid?

When speculative reports of Minda’s stock buying were out, Pricol’s promoter group, who own 36.53 percent of the company, were quick to dismiss any concerns about making any secondary sale or raising investment for the company. Pricol’s management released a clarification through an exchange filing that “the promoter group stands absolutely committed to the company (Pricol) and its future prospects” and that the “promoters have absolutely no intent of undertaking any secondary sale of promoter stake nor does the company have any intent to raising equity capital of any form”. The promoter group owns 36.53 percent of the company and the public holds the rest (63.47 percent), according to the information available with the exchange.

In an interview given later to CNBC TV, Pricol’s Managing Director Vikram Mohan said that he has spoken to institutional investors in the company and said that they have assured him of their backing. “If Minda has such a plan, we have countermeasures to take them on,” he added.

The target company

Pricol, headquartered in Coimbatore, was founded nearly half a century ago and it commenced its operations in 1975 as an automotive parts maker. According to Elara Capital, the company is today one of the leading dashboard manufacturers in India.

Its product lines are mainly driver information and connected vehicles solutions; and actuation, control and fluid-management systems. With a healthy market share in instrument cluster and DIS, Pricol makes 52 percent of its revenue from these categories. Pumps and mechanical products contribute 23 percent of revenues, while switches and sensors contribute 11 percent.

It has manufacturing facilities in India (Coimbatore, Manesar, Pantnagar, Pune, Sri City and a subsidiary in Satara) and in Indonesia (Jakarta). It also also offices in Tokyo, Japan and Singapore.

Most of its revenues—80 percent–of it comes from OEMs, said the note from Elara Capital’s Kale. “It enjoys strong relationship with OEMs (original equipment manufacturers) and has a dominant share of over 40 percent in 2W instrument clusters,” he added in the note.  The company caters to leading OEMs of two and three-wheelers, passenger vehicles, commercial vehicles, farm equipment and offroad vehicles in India and in over 45 countries.

Pricol has been on a transformational for the past few years, reducing its debt and its share prices breaking out of long-term range towards the end of 2021. Since that breakout, the stock has appreciated by nearly 66 percent.

In Q3FY23, the auto ancillary company’s consolidated revenue from operations was Rs 458.16 crore, with a 16 percent YoY growth; and profit after tax was Rs 26.76 crore, with a 54.27 percent YoY growth. Cash profit was Rs 47 crore, seeing a 25 percent YoY increase.

The buyer

Minda Corp’s third quarter results were in line with the Street’s expectations, with revenue surging 45 percent YoY to Rs 1,068 crore, operating profit also shooting up by 45 percent YoY to Rs 114 crore and PAT growing by 41 percent YoY to Rs 52 crore. That said, quarter on quarter, all three metrics dropped by 7-10 percentage points, which analysts estimate to have been from higher employee costs.

Most of its income comes from mechatronics and aftersales (47 percent in 9MFY23) and the second-largest share comes from information and connected systems (37 percent). Two-wheeler OEMs bring in the larger part of the income (44 percent in 9MFY23) with commercial vehicles, passenger vehicles and after market making up the rest (30 percent, 14 percent and 12 percent, respectively).

Analysts had raised concerns about exports being impacted by geopolitical uncertainties. But they were optimistic about the domestic demand.

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“The quarter witnessed a strong demand momentum in the PV segment with new launches, robust festive demand and higher production. While domestic demand continues to remain strong, export markets witnessed continued headwinds in terms of global challenges. Weakness in rural demand affected the 2W entry[1]level segment,” said analysts at Axis Securities, after the third quarter results.

Minda’s information and connected systems (ICS) vertical, which contributed to 49 percent of the topline, was impacted by the premium buying of semiconductor supply in its subsidiary Minda Instruments (MIL). This caused the Ebitda margins in the vertical to shrink by 60 bps to 7.4 percent.