Hold Minda Industries Ltd For Target Rs.1060 - ICICI Direct
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Announces fresh round of capex, investment spends
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
Company update: The company announced fresh capex in alloy wheel space, equity investment in FRIWO AG, formation of JV with FRIWO AG for EV components.
* MIL guided for: (i) expansion in alloy wheel capacity across the 2-W & 4-W segments at a capex outlay of ~| 264 crore; (ii) formation of JV (50.1% stake) with FRIWO AG for electric vehicle components for 2-W, 3-W with initial investment commitment of ~| 71 crore (over the next three years);
* (iii) Equity investment in FRIWO AG through fresh issuance of shares for a total value of €15 million (~| 130 crore) subject to regulatory approvals
What should investors do? MIL’s share price has jumped >10x from ~| 100 levels in December 2016 thereby vastly outperforming Nifty Auto index in that timeframe.
* We are positive on the growth prospects at MIL but retain our HOLD rating on the stock amid rich valuations (trades at >40x P/E on FY24E)
Target Price and Valuation: We value the company at a revised target price of | 1060 i.e. 44x P/E on FY24E EPS of | 24.1 (earlier target price: | 940).
Key triggers for future price performance:
* We build 22.5% net sales CAGR (FY21-24E) riding on OEM ramp up, 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 margin, RoCE to 12.8%, 17% (FY24E), respectively
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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