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Q1 results beat estimates; EV division visibility improves on order inflows

* Q1 revenue grew by 6% qoq (3-year CAGR at 21%) to Rs25.6bn, 7% above estimates, owing to higher revenue in casting and lighting segments. EBITDA fell by 3% (3-year CAGR at 16%), 8% above estimates, aided by revenue beat. Management expects benefits of lower commodity prices and pass-through of energy costs ahead and retains margin target at 11-12%.? Q1 revenue grew by 6% qoq (3-year CAGR at 21%) to Rs25.6bn, 7% above estimates, owing to higher revenue in casting and lighting segments. EBITDA fell by 3% (3-year CAGR at 16%), 8% above estimates, aided by revenue beat. Management expects benefits of lower commodity prices and pass-through of energy costs ahead and retains margin target at 11-12%.

*  We expect growth momentum to continue over FY22-24E, with a revenue CAGR of 23%, driven by 1) a cyclical upturn in underlying PV/2W segments; 2) higher content/vehicle in core businesses, such as switches, lightings, and acoustics; 3) improving presence in alloy wheels, sensors, and controllers; and 4) growing content/vehicle led by EV penetration.

* We have increased FY23/24 EPS forecast by 2-5%, factoring higher revenue and margin assumptions. Following the revision, we build in FY22-24 earnings CAGR of 51%. ROIC is likely to expand from 12% in FY22 to 20% in FY24E.

* Led by order inflows of Rs5bn in Q1, total EV parts’ annual order book has increased toRs10bn. We believe the company remains on track to increase the EV division’s revenue from <Rs1bn in FY22 to Rs15-20bn in 5-6 years. We  recommend Buy with a DCF-based  TP of Rs600 (Rs560), based on 38x Sep’24E EPS (earlier Jun’24E EPS).

Q1 EBITDA above estimates:: For Q1FY23, Uno Minda reported revenue growth of 6% qoq to Rs25.6bn, 7% above estimates. Casting, seating, lighting, and other divisions witnessed revenue growth of 14%, 14%, 11%, and 3%, respectively. Switches division saw flat growth, while acoustics declined by 10%. EBITDA declined by 3% qoq to Rs2.7bn, 8% higher than estimates, mainly supported by revenue beat. EBITDA margin contracted by 100bps to 10.4% due to higher aluminum prices, increased energy cost, and wage inflation. Depreciation cost declined by 10% qoq to Rs995mn. Tax rate was lower at 20% in Q1FY23 vs. 28% in Q4FY22 due to shift to the new tax regime. Accordingly, deferred tax liability was re-measured and credit charge of Rs83mn was accounted during the quarter. Profit from associates declined by 26% to Rs217mn, as the previous quarter accounted for price hike benefits. Excluding deferred tax credit, PAT would stand at Rs1.3bn (estimate: Rs.1.1bn), above estimates, due to better operating profit and lower depreciation cost.

Retain Buy with a TP of Rs600. Uno Minda is likely to remain an outperformer as it remains focussed on strengthening its own R&D capabilities and exploring tie-ups and acquisitions with a focus on PACE (Personalization, Autonomous, Connected, and Electrification) opportunities. Key risks: Lower-than-expected growth in the underlying automobile industry, increased competitive intensity, regulatory changes allowing cheaper imports, supply constraints, slower premiumization rate, and adverse currency rates.

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