Rising input costs are squeezing margins for Coimbatore-based Pricol Ltd. CEO PM Ganesh said, “We continue to face very strong headwinds, primarily because of the rising input cost.” While revenue grew 35 per cent, the company now faces higher prices for memory chips and PCBs, which may impact future profits.
Rising input costs, driven by rupee depreciation, escalating printed circuit board (PCB) prices and a sharp increase in memory chip costs amid the artificial intelligence (AI) boom, are putting pressure on the margins of Coimbatore-based automotive components manufacturer Pricol Ltd.
The company expects these cost headwinds to persist for a few more quarters, with its efforts to pass on the additional burden to customers still under discussion.
PM Ganesh, CEO and Executive Director of Pricol, told analysts that in Q2, the company crossed over ₹1,000 crores in the quarter.’ “We continue to face very strong headwinds, primarily because of the rising input cost. This has been the condition even during Q1 and it is continuing in Q2 as well.”
Ganesh said the company was facing three major cost pressures — depreciation of the rupee against the dollar was increasing its bill of materials because of the significant import content in its products. Bare PCB prices, an important component in instrument clusters, had also risen continuously, while memory costs had increased sharply due to demand from the AI industry.
“We expect these strong headwinds to continue for a few more quarters before everything gets settled down,” he said.
The company has approached customers to recover the abnormal increase in input costs. While its regular arrangements provide for quarterly pass-through of raw material and foreign exchange movements, the latest increases in PCB, memory, labour and other input costs are being negotiated separately.
Price negotiation
Ganesh said customers were evaluating price negotiation requests as these were unprecedented cost increases, and they too faced limitations in passing on the entire burden to end-users. “We would not be in a position to [fully] recover from the customers,” he said.
Asked about the magnitude of the additional cost burden, Ganesh indicated that the first-time cost escalations since Q1 could have an impact of around 1-2 per cent at the EBITDA level. However, he cautioned that the impact varied depending on the product mix.
The pressure on margins comes even as Pricol has recorded strong business growth.
Revenue increased 35 per cent during the quarter, supported by robust domestic demand, festive-season purchases and new product launches. The company’s three business verticals — driver information systems, ACFMS and plastics — recorded broadly similar growth.
The company also gained some market share during the quarter helped by new product launches, including next-generation TFT instrument clusters for Bajaj Pulsar motorcycles, it said.