Pricol Q2 Margins Squeezed by Rising Input Costs Despite Revenue Growth

Coimbatore-based automotive components manufacturer Pricol Ltd. is experiencing significant pressure on its profit margins due to rising input costs. The company's leadership noted that these cost headwinds are driven by rupee depreciation, escalating printed circuit board (PCB) prices, and a sharp increase in memory chip costs propelled by the artificial intelligence boom.

Addressing analysts, PM Ganesh, CEO and Executive Director of Pricol, stated that the company crossed ₹1,000 crores in revenue during the second quarter. However, he highlighted that strong cost headwinds observed in the first quarter continued through Q2, and the company expects these pressures to persist for a few more quarters.

Ganesh pointed to three major factors impacting the company's bill of materials: the depreciation of the rupee against the dollar affecting import content, continuous increases in bare PCB prices which are critical for instrument clusters, and surging memory costs driven by high demand from the AI industry. Additionally, the company noted increases in labour and other input costs.

To mitigate these pressures, Pricol has approached its customers to recover the abnormal cost increases. While regular arrangements handle standard quarterly raw material and foreign exchange movements, these recent spikes are being negotiated separately. Ganesh acknowledged that customers are carefully evaluating these requests because they also face limitations in passing the complete financial burden onto end-users, meaning Pricol may not be in a position to fully recover the extra costs.

Quantifying the impact, Ganesh indicated that first-time cost escalations since Q1 could affect the EBITDA level by around 1 to 2 per cent, though the exact impact varies by product mix.

Despite the margin pressures, Pricol recorded a 35 per cent increase in revenue during the quarter. This growth was underpinned by robust domestic demand, festive-season purchases, and new product introductions. All three of the company's business verticals—driver information systems, ACFMS, and plastics—reported broadly similar growth rates. Furthermore, Pricol gained market share during the quarter, supported by new offerings such as next-generation TFT instrument clusters for Bajaj Pulsar motorcycles.

"Pricol's current situation highlights a common challenge in the manufacturing and automotive component sectors, where top-line growth can be rapidly offset by external supply chain and macroeconomic pressures. When input costs like memory chips and PCBs surge due to global technology trends, companies face a delicate balancing act in client negotiations. Managing working capital efficiently and establishing flexible pricing models will be critical for maintaining long-term financial stability during such volatile periods." — Dr. Shishir Gupta, Founder & CEO, StartupLanes