Buy 3M India Ltd For Target Rs.26,900 - ICICI Securities
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Annual report analysis: Supplies to EV and mobile handsets are key growth drivers
FY21 annual report highlights: (1) Auto electrification is focus area for the company and it will introduce differentiated products in battery thermal management and display solutions. (2) 3M also plans to work closely with OEMs, their contract manufacturers and suppliers to enable more local content. (3) The company introduced three products in automotive segment. We expect launches of additional products with normalization of economy. (4) 3M’s products like hand sanitizers, respirators and home solution products (Scotch Brite, Command etc) did well during the year. We remain positive on 3M India due to competitive advantages such as: (1) strong brands, (2) established distribution network and global relationships with large manufacturers, and (3) access to parent’s technology pool. Upgrade to BUY with a DCF-based target price of Rs26,900.
* Highlights from Chairman’s speech: (1) Company’s diverse product portfolio helped it cushion the impact caused by covid; (2) its respirators, sanitisers and personal protection equipment segments did well (Ranjangaon factory was never shut down during the year); and (3) digital learning platforms helped (3M Healthcare Academy and 3M Energy Academy) learning aspirants with selflearning courses.
* Supplies for EV & mobile phones: 3M India has indicated that Auto electrification remains strong focus area and company will continue to introduce value added solutions in battery thermal management, improvement of life and safety of batteries and display solutions.
* Likely increase in supplies to handset manufacturers & suppliers: 3M India is one of the global supplier for mobile OEMs and their contract manufacturers. While the handset production was impacted during FY21, 3M India plans to work closely with these players and their suppliers to enable more local content.
* Steady launch of new products: During the year, 3M India introduced three new products in automotive segment as AC evaporator cleaner, AC vent cleaner & anti-microbial foam, and antimicrobial smoggy. We believe the number of new launches to increase with normalization of economy.
* Reduction in ad-spend: The Ad-spend as % of net sales declined from 2.5% in FY20 to 2.0% in FY21 due to impact of covid. However, we model ad-spend to increase to pre-pandemic levels in FY22-23.
* Upgrade to BUY: We model 3M India to report revenue and PAT CAGRs of 18.1% and 65.2% respectively over FY21-FY23E with steady improvement in RoE. We upgrade the stock to BUY with a DCF-based target price of Rs26,900. Key risks: prolonged weakness in the economy, and failure of new products.
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