Minda stake buy in Pricol: Any hostile takeover intent, too early to conclude!

What's Buzzing 

Minda Corporation, in a regulatory filing, has informed exchanges about acquisition of 15.7% stake (i.e. ~1.9 crore shares) in Pricol Ltd through the open market route for Rs 400 crore at Rs 209/share saying it was a financial investment. 

Context 

Minda Corporation and Pricol are both prominent auto ancillary players with a proven track record of industry leading growth in their respective domains as well as sale of non-core assets driving balance sheet repair. Both companies are present in the digital instrument cluster domain, which is witnessing a great content increase amid better software functionalities and a key area of interest for Minda Corporation to acquire a sizeable stake in Pricol. 

Our Perspective 

Minda Corporation primarily serves auto OEMs across two main verticals – Mechatronics & Aftermarket [i.e. MCH – safety & security system (lock & key, smart key), die-casting, starter motors, etc] and Information & Connected Systems (i.e. ICS – mainly wiring harnesses, sensors and instrument clusters). Pricol is a supplier of diversified auto components like instrument clusters, sensors & switches, pumps & mechanical products, telematics solutions and wiping systems. As of Q3FY23, Minda Corporation derived ~10% of its sales from the instrument cluster domain (at ~Rs 110 crore on a quarterly basis) while Pricol derived ~65% of sales from this segment (at ~Rs 300 crore on a quarterly basis). We believe this transaction by Minda Corporation in the secondary market has some strategic intent, which the acquirer has not yet clearly spelled out. Promoters at Pricol, however, have time and again conveyed their full support to the company with no intention to cede control or sell a stake. Further developments in this space are awaited. However, it does clearly demonstrate the future content rise potential in the digital instrument cluster space of which Pricol is a prominent player with proven technological capabilities, new tie-ups as well as customer relationships. Hence, we retain our positive view on Pricol. However, from Minda Corporation’s standpoint, we now turn neutral amid lack of clarity on the company’s strategic intent behind this investment in Pricol and balance sheet risk in case of any potential acquisition.