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Increase in kit value per vehicle.

UNO Minda Ltd. (UML) is a diversified auto ancillary supplier, manufacturing products such as switches, horns & lights. UML holds a leadership position in the switch business with a market share of 67%

* Q4FY23 revenue came marginally above expectations, registering a growth of 20%YoY, outperforming the industry growth of %YoY.

* This was mainly on account of new customer additions in 2W/4W, new contents & leveraging the client base.

* EBITDA margin came in at 11.6%(-35bps) owing to a marginal increase in the raw material.

* The content per vehicle has continued to grow at 10%-15%, and it is expected to add more components to its product portfolio. The potential kit value for EV 2/3W is Rs.61,300/ vehicle.

* We build our revenue CAGR over FY23-25E by 19%, factoring the demand stability, diversification, and a superior product mix.

* Currently, UML is trading at its long term historical avg of 34x. We believe, the stock will continue to outperform owing to its diversified portfolio and strong order wins, and value UML at 33x FY25E EPS.

Potential portfolio to drive future growth

Q4FY23 consolidated revenue grew by 20%YoY, outperforming the flat industry of 1%YoY. The top line was fueled by growth across all segments, in which core businesses like Switches/Lighting/Acoustics grew by 15%/28%/2% whereas new businesses like LMT/Seating, and other businesses grew by 27%/16% and 20% YoY, respectively. EBITDA margin came in at 11.1%(-30bps) owing to a marginal increase in the raw material conversion cost (-30bps). PAT grew by 26% YoY. For the quarter, the company executed the JV agreement with Buehler Motor & Tach-S and received orders from multiple 2W EV OEMs for Traction motors. To meet the upcoming regulatory Airbag demand, Toyota Kosei Minda India has allocated capex of Rs.175cr. To expand its Neemarana plant and install airbag production equipment.

Improvement in kit value per vehicle by 10-15%.

UML’s product diversification and increasing growth from new products give it better visibility on revenue front. Enacting the auto norms and enhancing safety features will further lead to an increase in kit value per vehicle across auto segment. The potential kit value of the EV 2/3W will further increase with the addition of traction motors. The company reiterated that the potential EV kit value for 2/3W is Rs.61,300 per vehicle. In which, product under production & supply is Rs.27,300/-, new order received for Rs8,000/- and product under development is Rs.26,000/-, respectively. The peak order value from EV 2w and PV is at Rs1,347 cr and Rs938cr, respectively. Currently, the share from the EV is at 8% (Rs.78.32cr) from domestic 2W revenues, which is higher than the 2W industry penetration of 4%.

New orders and expansion.

UML has a robust capex plan of Rs750cr for FY24. 1). Incremental Orders of more than Rs 300 Cr in 4W lighting business from Indian and Japanese OEMs. 2). Received order from Korean customer in 4W Switch. 3). Received an incremental order for 2Ws Switch and heated handle grip from an American marque auto major The company is in the process of continuous expansion of its existing product portfolio and the addition of new product lines in alloy wheels, lighting, infotainment, seating, airbags, and blow moulding

Valuations

Despite the near term pressure due to a reduction in the underlying volume and macroeconomic headwinds, the company is actively increasing its kit value across all segments and outpacing the industry growth. UML’s strong balance sheet and quick ramp up reflect higher revenue visibility on a medium to long term basis. The stock has always traded at a premium due to diversified product portfolio and new product offerings according to its changing trends. After the recent correction, the valuation looks attractive at current level. We value UML at 33x(5yr. avg.) on FY25E EPS, arrive at a target price of Rs.601, and maintain Buy rating

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