Published on 10/08/2020 10:12:12 AM | Source: Religare Broking Ltd

Buy Minda Corporation Ltd For Target Rs.80 - Religare Broking

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Weak numbers; near-term challenges persist

Minda Corp reported weak set of numbers in Q4FY20 which was lower than our estimates. Its net sales declined 9.5% YoY as domestic auto industry volumes declined by 20% YoY with CV industry down 48% and 2-wheeler by 19% YoY. However, the decline in revenue was arrested due to content increase in the 2-wheeler wiring harness and higher sales from MKTSN. On the operational front, the EBITDA margin declined 513bps YoY to 5.5% on account of unfavourable product mix, ramping up of BS-VI cost, cost related to COVID-19 and higher losses in MKTSN during the quarter. Consequently, the EBITDA de-grew by 53.1% YoY to Rs. 38.5 cr. Despite higher other income (+79.6% YoY), Minda reported an adjusted net loss of Rs. 6.5 cr, due to higher depreciation cost and higher tax rate. The reported loss came in at Rs. 300 cr on account of an exceptional loss of Rs. 293 cr due to impairment of MKTSN. For FY20, the overall revenue declined 9.0% YoY due to slowdown in the auto industry, whereas company reported a reported net loss of Rs. 200 cr due to an exceptional loss.


Impact of COVID-19

In FY20, Minda’s India operations revenue was impacted by ~Rs. 80 cr and EBITDA by Rs. 15 cr. The impact in FY21E would be more severe owing to sharp slowdown in the auto industry. Nonetheless, the recent pick-up in volumes for 2-wheelers and Passenger Vehicle bodes well for Minda corp as it gets approx. 70% of its revenue from this segment. However, prolonged slowdown in the CV segment would impact company’s revenue. Additionally, the company has taken several initiatives to efficiently manage working capital, rationalize capex, cost optimization measures, and eliminate discreet spending. Further, due to Minda KTSN weak financial performance which has dragged overall financial performance of Minda Corp, Minda KTSN Plastic Solutions GmbH & Co. KG has filed for insolvency in Germany. Minda group has gained expertise in plastic technology to build kinematic and non-kinematic plastic parts and would set up business in India for light weighting and value-added interior kinematics parts.


Outlook & Valuation

The overall slowdown in the auto industry which further got aggravated due to COVID-19 has led to dismal performance by Minda. However, gradual revival in the PV and two wheeler sales would bode well for the company. Further, its increased focus on diversification across business verticals, geographies and strong clientele would restrict the downside. On the margins front, increased focus on cost control initiatives and improvement in product mix would offset the damage caused by lower operating leverage. Hence, factoring the impact of COVID-19, we have lowered our estimate for FY21E and FY22E. Nonetheless, we maintain a Buy on the stock with a revised target price of Rs. 80.


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