Through a demerger process, the automotive, tractor and engineering components business undertakings of Pritika Industries is transferred to Pritika Auto Industries (the resulting company). Thus, Pritika Auto Industries will expand its operations to include both castings and machining, leading to a more favourable margin outlook for the company. Pritika Industries plans to raise Rs30.40 crore, by issuing 16 million fully convertible warrants to a non-promoter category on a preferential basis at Rs19 per warrant. About 74.60 per cent of Pritika Engineering Components is held by Pritika Auto Industries, a captive unit for Pritika Group of Industries.

"The demerger and merger will help the companies to expand margins,” adds Nibber.  “We are also working on controlling the finance costs, the higher depreciation due to the merger along with the capex incurred during the previous quarters, which have impacted the profit after tax. However, we remain buoyant on the emerging scenario of increasing product basket with value-added products included in the portfolio, enabling us to grow in the right direction.”

For the year ending March 2024, Pritika Auto Industries reported consolidated revenue of Rs342.09 crore – a 5.51 per cent decrease from the previous year, due to challenging market conditions. However, the company’s EBIDTA increased by 26.35 per cent to Rs52.48 crore, reflecting higher margins, with PAT growing by 7.38 per cent to Rs16.85 crore.

On a consolidated basis, its net worth stood at Rs224.42 crore, resulting in a net debt-to-equity ratio of 0.64 times. The company produced 36,772 tonnes of machined castings during the year, with 92-93 per cent of revenue coming from the tractor segment. The company focusses on operational efficiency, high-value products and export opportunities for growth.

Meanwhile, Pritika Auto registered a net revenue of Rs87.89 crore in June 2024 – up 7.23 per cent from Rs81.97 crore in June 2023. Meanwhile, its net profit was Rs3.54 crore in June 2024 – down 18.79 per cent from Rs4.35 crore in June 2023. And the EBIDTA stood at Rs11.24 crore in June 2024 – up 18.19 per cent from Rs9.51 crore in June 2023.

"The company’s net revenue for Q1 2024-25 is not comparable with Q1 2023-24, because of the demerger of the manufacturing unit from Pritika Industries and its merger into Pritika Auto Industries,” clarifies Narinder Tyagi, director, finance & CFO, Pritika. Its EBIDTA margin has improved by 356 bps from 12.68 per cent to 16.24 per cent on a y-o-y basis, because of synergies arising from demerger and merger of manufacturing units and operational efficiencies. Meanwhile, the profit after tax was at Rs4.47 crore in Q1 2024-25 – lower by 15.32 per cent, because of the higher finance costs and higher depreciation due to mergers and capex incurred in previous quarters."

Pritika Auto Industries and Pritika Engineering Components are listed on the stock exchange. Pritika Auto holds a 74.60 per cent stake in Pritika Engineering. Select Singapore-based funds have been active on the stocks.

Pritika Auto Industries, with a market capitalisation of about Rs500 crore, currently trades at Rs29.50-32.75, with a 52-week high of Rs53.50 and a 52-week low of Rs18.10. The company's promoters increased their stake to 65.80 per cent and FIIs increased their stake to 4.12 per cent in March 2024, from 48.54 per cent and 1.55 per cent, respectively, in March 2023. Likewise, Pritika Engineering Components, which has a market capitalisation of about Rs200 crore, trades at Rs124-132.20, with a 52-week high of Rs132.20 and a 52-week low of Rs46.50.

Huge opportunity

“India is the second largest casting manufacturer globally, with more than 5,000 units across small, medium and large companies,” adds Rahul Sharma, an independent SEBI-registered analyst. The automobile sector consumes about 40 per cent of the country's casting demand. In the next 10 years, the industry aims to triple its production to 30 million tonnes per annum on an estimated capital expenditure of $6.00-8.00 billion to upgrade facilities and boost productivity." Also, the government's emphasis on infrastructure projects drives demand for foundry products, fostering industry growth and development. Also, the vehicle scrap policy greatly benefits the foundry industry.

"With cutting-edge engineering prowess and a commitment to harnessing advanced technology, Pritika group is primed to meet the burgeoning requirements of the industry, paving the way for substantial growth and development,” asserts Gaurav Gupta, a Mumbai-based analyst. Further, the demand for tractors is likely to grow due to good farming conditions, government support and market factors. Moreover, India is among the world's largest tractor markets, dominated by key Indian and international manufacturers, with government subsidies and mechanisation schemes driving the future tractor sales growth."

Pritika Auto Industries is targeting revenues in the region of Rs400-425 crore, with a net profit margin 6-8 per cent in 2024-25, while Pritika Engineering Components is expected to achieve a revenue growth in the region of Rs125-135 crore, with a profit margin of 7-8 per cent.

With both companies having aggressive plans to enter the railways and defence components business, analysts believe that both of them are likely to be multi-baggers in the coming days.