IGI Logo

Strong top-line performance, margin betterment; maintaining a Buy

Strong overall growth in retail off-take for automobiles in the quarter led to robust top-line performance for Uno Minda. Orders from EVs continue to build up for different products. Content per vehicle is expected to improve on the strong order book across applications. With expected recovery in 2W OEMs, we expect Q4 to be better. Accordingly, we maintain a Buy at a higher TP of Rs763 (35x FY25e).

Robust quarterly performance. Uno Minda recorded its highest quarterly performance. Q3 FY23 revenue grew 34% y/y, 1% q/q, to Rs29.1bn, on the strong off-take in electric 2Ws and 4Ws as semiconductor shortages continued to normalise. Demand is strong and expected to improve, especially for 2Ws as the rural outlook gradually improves. For EVs, it got an order with annual peak revenue of Rs3bn to supply off-board chargers, motor controllers, BMS & DC-DC converters. With its JV with Buehler, it received a couple of orders to supply traction motors to electric 2W OEMs. For its airbag business, it has received a few large orders for curtain airbags; accordingly, its subsidiary TG Minda is expected to incur Rs1.75bn capex to expand capacity at its Neemrana plant. Asset turn is ~2x, said management. This augurs well for long-term growth, Hence, we expect strong, 32%, growth in FY24 and 20% in FY25.

Margin betterment in the next two years. The Q3 FY23 margin expanded 54bps sequentially to 11.6%. While RM costs cooled, margins were hit by high gas prices overseas (Clarton). However, we believe the domestic business would aid margins as RM prices go down; accordingly we expect operating leverage-led margin expansion. Hence, we expect margins of 12% in FY24 and FY25.

Valuation. We expect a 26% revenue CAGR over FY23-25, and 38% in earnings, leading to EPS of Rs21.8. We maintain our Buy rating at a higher TP of Rs763 (35x FY25e).

Risks. Less-than-estimated growth in OEMs.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.rathi.com/LeadGenerate/Static/disclaimer.aspx
SEBI Registration No.: INZ000170832

Above views are of the author and not of the website kindly read disclaimer