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Order win momentum picks up pace…

About the stock: Minda Corporation (MCL) primarily serves domestic auto OEMs across two main verticals – mechatronics & aftermarket (MCH – safety & security, diecasting, starter motors, etc.) and information & connected systems (ICS – mainly wiring harnesses).

* FY21 segment mix –2-W ~52%, CV ~21%, PV ~11%, aftermarket ~16%

* FY21 product mix – MCH ~58%, ICS ~42%

Q1FY22 Results: The company posted soft Q1FY22 results.

* Consolidated revenues at | 559 crore were down by 29.7% QoQ

* EBITDA margins declined 570 bps sequentially to 5.5%

* Consequent consolidated PAT was lower by ~45% QoQ to | 7.1 crore

What should investors do?

MCL’s share price has grown at ~3% CAGR from ~| 110 as of mid- 2016, recording meagre outperformance over the Nifty Auto Index.

* We retain BUY rating amid healthy growth prospects over FY21-23E

Target Price and Valuation: We value the company at a revised target price of | 160 i.e. 20x P/E on FY23E EPS (earlier target price | 120).

Key triggers for future price performance:

* OEM rebound, going forward, would aid volume recovery across MCH and ICS in medium term, with significant new orders won (| 2,490 crore lifetime orders in FY21) imparting healthy revenue visibility beyond FY23E

* Product profile is largely immune to EV risk; actively working on EV-specific products like DC-DC convertors, BMS, motor controllers etc. It has orders from incumbent and new age EV OEMs including Ola Electric

* Expect 15.1% net sales CAGR over FY21-23E; FY23E margins seen at 11%

Alternate Stock Idea: Besides MCL, in our ancillary coverage we like Apollo Tyres.

* India CV revival beneficiary focused on debt reduction, higher return ratios

* BUY with target price of | 275

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