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Outlook positive, industry leading growth to continue…

Minda Industries (MIL) reported operationally strong Q4FY21 results. Including Harita Seating financials, consolidated revenues rose 49.4% YoY, up 10.2% QoQ to | 2,238 crore. Margins dipped 25 bps QoQ to 13.5% despite 170 bps gross margin contraction with operating leverage benefits rescuing the performance. Reported consolidated PAT was at | 140.4 crore vs. | 13.1 crore in Q4FY20 with share of profit from subsidiaries & associates improving substantially to | 21.5 crore for Q4FY21. MIL declared a final dividend of | 0.5/share with total dividend for FY21 at | 0.85/share.

Multiple triggers in place for continued topline outperformance

Post-merger of Harita Seating Systems, switches, lighting, acoustics formed 28%, 22%, 10% of FY21 consolidated product mix with castings, seatings contributing 12%, 10%, respectively. MIL is expected to continue to benefit from OEM ramp-up in base user industries (2-W: 4-W mix at 47%: 53%) post waning of second Covid-19 wave as underlying demand stays strong (MIL operated at ~85-95% capacity utilisation in Q4FY21).

Industry-beating growth at MIL was evident in Q4FY21 and is poised to continue, growing forward, given the impetus on kit value increase, client additions, new product introduction – particularly on EV side for the latter (smart plugs, telematics under production with BCM, BMS, on-board chargers, DC-DC convertors under development). Product mix is set to improve further, going forward (aided by 2-W alloy wheel ramp up, 4-W alloy wheel expansion, higher contribution from sensors) while electric 2-W provides headroom for ~4.5x higher content/vehicle.

Q4FY21 conference call – Key highlights & takeaways

MIL said (1) Q4FY21 capacity utilisation was at ~85-95% in Q4FY21, (2) promoter group of Harita Seating has opted for preference share issue while majority of minority shareholders have opted for equity issuance, (3) ExHarita, MIL’s FY21 revenue grew ~5% YoY while Q4FY21 margins were at 14.4% (down 30 bps QoQ), (4) Harita revenues in FY21 were at ~| 650 crore; it aims to reach ~| 1,500 crore in four to five years, (5) 2-W alloy wheel full revenue potential of | 450 crore is set to be realised in FY23E, (6) FY22E capex guidance is for ~| 600 crore including ~| 250 crore for maintenance capex, (7) on an as is basis, large part of input cost rise is behind us, (8) fund raise plan is an enabling proposal for now, (9) MIL has added alloy wheels to its bouquet of aftermarket products (aftermarket forms ~12% of sales), (10) gross debt is at ~| 1200 crore, | 1050 crore for FY20, FY21, respectively.

Valuation & Outlook

We build FY21-23E sales, PAT CAGR of 18.7%, 59.9%, respectively, with margins seen at 13.5% by that time. We remain positive on MIL given focus on industry-leading growth via constant kit value increase & minimal EV risk in the present product profile. We retain our BUY rating, valuing it at | 725, 38x P/E (0.6x PEG) on FY23E EPS of | 19.1/share (earlier TP | 625).

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