Pricol Shares Surge: Nearly 100% Gain in 1 Year 1,200% in 5 Years Time to Buy?

Pricol share price has seen an impressive surge over the years, delivering significant multibagger returns to its investors. Despite the inherent volatility in the market, which makes it challenging for any stock to maintain a consistent upward trajectory, Pricol's shares have managed to soar by about 100% in just one year and over 1,200% in the last five years.

Recently, Monarch Networth Capital, a well-known brokerage firm, upgraded its rating for Pricol stock to 'accumulate' and increased its target price from ₹465 to ₹500, indicating an 11% potential upside. The brokerage cited an increase in the price-to-earnings multiple to 24x (from 22x previously) and an upward revision in margins as key reasons for the new target price, although these were partially offset by a reduction in revenue estimates and the stock's recent strong performance.

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In terms of quarterly performance, Pricol reported a consolidated profit after tax of ₹41.50 crore for the January-March 2024 quarter, up from ₹29.80 crore during the same period last year. For the fiscal year ending March 31, 2024, the company recorded a net profit of ₹140.61 crore, compared to ₹124.68 crore the previous year. The company's consolidated total income for the quarter increased to ₹588.51 crore from ₹525.37 crore year-on-year, and for the full fiscal year, it rose to ₹2,284.94 crore from ₹1,963.14 crore the previous year.

According to Monarch Networth Capital, Pricol's revenue growth expectations were not met primarily due to delays in production starts by its OEM clients. However, the company achieved higher-than-expected adjusted EBITDA margins of 13.7%, thanks to manufacturing savings, with expectations that margins will remain between 13.5% and 13.7%.

Looking ahead, Monarch Networth Capital anticipates that new product launches and a normalization of production delays at OEMs will begin in the first quarter of FY25, with margins expected to stabilize between 13% and 13.5%. Pricol has commenced the production of disc brakes for seven clients, aiming to achieve a revenue milestone of ₹300 crore over the next three years. The company is also showcasing new technologies, such as e-cockpit and telematics (in partnership with SIBROS), to various OEMs.

In its strategic efforts, Pricol is continuously evaluating potential acquisitions to mitigate risks associated with the automotive cycle and to foster business growth. Given the strong growth signals in the two-wheeler industry—output increased by 22% year-over-year in April—the brokerage expects Pricol to capitalize on both volume and premiumization opportunities.

Valuation-wise, Monarch Networth Capital forecasts a compound annual growth rate (CAGR) of 19% for revenue, 22% for EBITDA, and 28% for PAT over FY24-27. The brokerage values Pricol at a 24x FY26 P/E multiple, resulting in a target price of ₹500. This target price increase is attributed to higher multiples and margins, partially offset by reduced revenue estimates. Risks to this valuation include a slowdown in internal combustion engine (ICE) and electric vehicle (EV) two-wheeler sales. Despite the recent strong performance of Pricol's stock, the brokerage remains positive on its outlook.