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Structural levers in place for industry leading growth

About the stock: Minda Corporation (MCL) 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).

* FY22 segment mix –2-W ~49%, CV ~19%, PV ~18%, Aftermarket ~15%

* FY22 product mix – MCH ~57%, ICS ~43%. India ~84%, Exports ~16%

Key Highlights:

* We attended the plant visit of MCL and were impressed with the work the company is doing to augment its kit value in terms of technology upgradation in existing products as well as development of new products

* It has largely EV immune product profile; ~95% are powertrain agnostic

* MCL will have a prominent role to play in the electrification drive domestically in 2-W & 3-W space with EV specific products like DC-to-DC convertor, battery charger, etc, already in its kitty and work on development of other critical products like BMS, charger protector, etc, with potential kit value pegged at | 16000-20,000/unit vs. | 4000-5000 in current 2-W

* The company has all leading OEMs in the electric space as its clients with prominent names being Ola Electric, Hero Electric, Ampere, Revolt, Ather. It is watchful of upcoming OEMs and is carefully partnering with them

* MCL remains committed to grow ahead of industry (~10-12%) and sustainably attain healthy double digit margins through operational efficiencies & increasing localisation content in the wiring harness division

What should investors do? MCL’s share price has grown at ~12% CAGR over five years from ~| 125 levels in September 2017, outperforming broader Nifty Auto Index

* We retain BUY rating amid industry tailwind of double digit volume growth, lean b/s, healthy return ratios and penchant to grow ahead of industry

Target Price and Valuation: Revising our estimates, we now value MCL at |270 i.e. 20x P/E on FY24E EPS of (earlier target price: | 260)

Key triggers for future price performance:

? Robust order wins (~| 5,930 crore lifetime order win in FY22; replacement & new business combined; EV order win at | 952 crore) imparts healthy revenue visibility. We build 25.4% consolidated sales CAGR in FY22-24E

? Benign RM price outlook, operational efficiencies and localisation efforts to led margin recovery/, RoCE to 12.2%, 20.2%, respectively, by FY24E

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