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Strong quarter; New product additions to increase potential kit value

For Q2FY23, UNO Minda’s EBITDA grew by 40% YoY (3-yr CAGR at 25%) to Rs3.2bn, slightly below our estimate due to higher-than-expected other expenses due to increased energy costs. Revenue grew by 36% (3-yr CAGR at 28%) to Rs28.8bn, in line with our estimates. We have increased our FY23 EPS estimates by 5%, factoring in higher revenue and profit from associates. Following the revision, we expect FY23E revenue growth to be robust at 33%, and the uptrend is likely to endure with FY23-25E revenue CAGR at 18%, supported by growth in underlying segments and increasing wallet share. Driven by better scale and improved mix, we expect EBITDA margin to expand from 10.7% in FY22 to 11% in FY23E and to 12.5% in FY25E. We expect robust revenue performance ahead, underpinned by: 1) a cyclical upturn in underlying PV/2W segments; 2) higher content/vehicle in core businesses, such as switches, lightings, and acoustics; 3) improving presence in alloy wheels, sensors, and controllers; and 4) growing content/vehicle led by EV penetration. Potential content/vehicle in E-2W increased by Rs5,000 to Rs61,300 with the addition of a new product – traction motors. We believe the company remains on track to increase its EV division’s revenue from

Q2 EBITDA slightly below estimates: Revenue grew by 36% yoy to Rs28.8bn, in line with estimates. Casting and lighting segments witnessed stronger revenue growth at 88% and 43%, respectively. Other/Switches/Acoustics/Seating divisions reported revenue growth of 30%, 22%, 15%, and 10%, respectively. EBITDA grew by 40% yoy to Rs3.2bn, slightly below our estimate due to higher-than-expected other expenses due to rise in energy costs. EBITDA margin expanded by 30bps to 11.1%. Profit from associates grew strongly by 36% to Rs288mn. PAT grew strongly by 80% to Rs1.7bn, in line with estimates. What we liked: Increased kit value led by addition of new products such as E-2W traction motor and PV seatings. Potential content/vehicle in E-2W increased by Rs5,000 to Rs61,300. What we did not like: Higher gas/electricity cost impacting margins for Casting and Clarton Horn.

Earnings Call KTAs: 1) Q2FY23 Revenue growth of 36% yoy was supported by higher industry volumes, price hikes (~8%), and increased wallet share. 2) Margins – Raw-material cost reduction is a pass-through with OEMs, so optically margins should look better. Higher gas/electricity cost has impacted margins of Casting and Clarton Horn. Both 2W and PV AW margins are above company levels, with PV closer to 15-16% EBITDA margin. 3) Profit from associates grew by 36% yoy, supported by higher profits from Roki Minda, TG Minda, Denso Ten, and turnaround in Onkyo. Onkyo’s profit stood at Rs40mn vs. loss of Rs10mn in Q1FY23, led by increased volumes and localization. 4) Buehler JV for traction motors is almost close to winning orders from two OEMs. Tachi-S JV for PV seating has started on a small note with the supply for recliners and is expected to gradually ramp-up to supplying full seating systems. 5) H1FY23 capex stood at Rs2.2bn and FY23 capex is expected at Rs6- 7bn. H1FY23 Investments stood at Rs1.5bn (FRIWO and TRMN) and another Rs0.15bn investments related to Minda Katolec are expected in H2FY23.

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