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Premiumisation thesis intact…

About the stock: Minda Industries (MIL) is India’s largest maker of automotive switches, horns, seats & PV alloy wheels and third largest automotive lighting player.

* FY21 segment mix – 4-W 53%, 2-W 47%; switches, lighting, castings, horns and seats comprised 28%, 22%, 12%, 10% and 10% of sales, respectively

* History of vast outperformance vs. user industries riding on growth in kit value, new client and product additions & inorganic acquisitions.

Q1FY22 Results:

The company posted subdued Q1FY22 results.

* Consolidated revenues at | 1,603 crore were down 28.4% QoQ  EBITDA margins declined 432 bps sequentially to 9.2%

* Consequent consolidated PAT was down 89% QoQ to | 15.4 crore.

What should investors do?

MIL’s share price has jumped >9x from ~| 75 levels in August 2016, thereby vastly outperforming Nifty Auto index in that time.

* We retain BUY rating amid healthy growth prospects, intact kit value focus

Target Price and Valuation: We value the company at a revised target price of | 835 i.e. 38x P/E on average FY23E, FY24E EPS (previous target | 725)

Key triggers for future price performance:

* We build 17.2% FY21-24E net sales CAGR riding on OEM ramp up post Covid, focus on premiumisation (content per vehicle), new product launches

* Minimal EV risk to portfolio; actively working on EV-specific products

* Increasing share of new age products (sensors, alloy wheels)

* Mix, operating leverage to push margins, RoCE to 13.8%, 18% (FY24E)

* B/s strength to sustain with FY22E debt: equity placed at 0.3x

Alternate Stock Idea: Besides MIL, 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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