Rationale

The reaffirmation in ratings takes into account Pricol Limited's (erstwhile Pricol Pune Limited) (Pricol/the company) strong revenue and margin growth in FY2021 and H1 FY2022, anticipated healthy business prospects over the medium term and comfortable debt metrics. In FY2021 and H1 FY2022, Pricol's revenues benefitted from deeper penetration across various auto sub-segments following improved wallet share in Driver Information Systems (DIS), introduction of new products like the fuel pump module from April 2020 and re-entry into the PV segment in FY2021 following expiry of a non-compete clause with an erstwhile JV partner. Although Pricol's consolidated revenues witnessed an optical decline in FY2021 due to the sale of subsidiaries, the revenues grew by 14.0% YoY, adjusting for the same. For H1 FY2022, despite the volumes being curtailed by the ongoing semiconductor shortage, the revenues stood at Rs. 723.1 crore, 43% higher than the Rs. 504.7 crore reported in H1 FY2021, partly supported by the low base of Q1 FY2021. The divestment of loss-making subsidiaries, a margin-accretive product mix and implementation of cost saving initiatives have significantly improved the company's consolidated operating margins to over 11% in FY2021 and H1 FY2022 from 2.0% in FY2020, despite elevated commodity prices and supply-chain issues. The company also reduced its consolidated net debt to Rs. 212.9 crore as of March 31, 2021 from Rs. 418.7 crore as on March 31, 2020 with the sale of subsidiaries in 2020 and the rights issue proceeds in December 2020. Accordingly, in line with ICRA's expectations, Pricol's net debt/OPBDITA improved to 1.2 times in FY2021 from 12.5 times in FY2020 and its interest coverage improved to 4.1 times in FY2021 from 0.6 times in FY2020. With healthy net cash accruals of Rs. 57.7 crore and prepayment of certain high-cost debt in H1 FY2022, the consolidated debt reduced further to Rs. 199.4 crore as on September 30, 2021. Accordingly, Pricol's net debt/OPBDITA improved to 1.2 times in H1 FY2022 and its interest coverage improved to 5.0 times in H1 FY2022. Going forward, the debt metrics are likely to remain comfortable supported by healthy accruals and absence of debt-funded capex plans. The company's revenues are exposed to segment concentration risks with majority of revenues from the 2W segment. However, increase in wallet share and new customer additions in the CV/PV segment both domestically and overseas, mitigates the risk to a large extent. Pricol also has an early-mover advantage in EVs, and this is likely to benefit the company both in terms of realizations and volumes, as EVs penetration increases. While there could be some headwinds because of the ongoing semiconductor shortage and commodity price inflation, ability to pass on price hike to the OEMs (albeit with a lag of three to six months) and structural cost reduction undertaken are likely to result in healthy margins. With anticipated healthy accruals and no debt-funded capex plans in FY2022 and FY2023, ICRA expects Pricol's consolidated coverage metrics to remain healthy over the medium term.