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Minda Corporation is one of the largest suppliers of Electronic & Mechanical Security System, Wiring Harness solution and interiors and plastics components to 2/3W, PV and CV OEMs in India.
* Big beneficiaries of BSVI transition: Minda corp is poised to benefit significantly in its wiring harness business especially in CV and Tractor vehicles due to BSVI mandatory regulatory changes. Presently, wiring harness business contributes nearly 30% to revenues. Management said that they expect wiring harness content per vehicle to double in new BSVI compliant vehicles. We expect revenues to increase by nearly 30% owing to this change and it will start showing gradually from Q4FY20 itself.
* Mechatronics and aftermarket to drive margin growth: Minda corp’s Mechatronics and after market segment ,which contributes nearly 49% to revenues, has consistently improved margins due to higher exports and better product mix. It has also been a consistent outperformer compared to the industry slowdown. We expect this segment to materially improve EBITDA margins by nearly 100-150 bps in the next year or so.
* Improving margins even in a period of slowdown: Minda corp’s revenue has been down 8.9% in 9MFY20 while the overall fall of the auto industry has been 13% and while there has been an industrywide decline in margins due to negative operating leverage, Minda corp has grown margin materially by 90 bps over 9MFY19 owing to improved exports and focus on reducing overhead costs. This speaks volumes about Minda Corp’s operational ability.
* Outlook: Minda corp is poised to benefit significantly (volume expected to be up ~2 times) in its wiring harness business (~32% revenue share) post BSVI transition and it will start showing from Q4FY20 itself. Its mechatronics business (~49% revenue share) has already shown a strong growth in EBITDA margins. Its KTSN business (20% revenue share) is also on a recovery path, albeit volatile. It has no major capex coming up which will help in strengthening the balance sheet and focus on further operational efficiency. Also at current price levels it is available at low valuations compared to its historical mean valuations and is poised to get re-rated according to us.
* We have Buy with target price of Rs 132.
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