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Increase in premium content per vehicle.

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

* Q4FY21 consolidated revenue grew by 49%YoY outperforming the industry growth of 31%. In which, MIL grew by 48%YoY and Merged entity Harita Seating Ltd grew by 59% respectively.

* This was mainly on account of new customer addition in 2W/4W, added new contents, BS-VI transition & leveraging the existing client base.

* EBITDA margin expanded by 414bpsYoY due to superior product mix and strong cost control initiatives.

* The content per vehicle that Minda supplies has risen steadily to 10%- 15% per vehicle’s cost and it is expected to add more components to its product portfolio.

* We build our CAGR estimate for revenue over FY21-23E by 20% , factoring strong auto growth on account of demand stability, margin expansion and Harita seating merger.

* MIL’s strong balance sheet and quick ramp up(80% plant utilization) reflects higher revenue visibility on a medium to long term basis. and value MIL at 30x on FY23E EPS.

Potential portfolio to drive future growth

Q4FY21 consolidated revenue grew by 49%YoY outperforming the industry growth of 31%. In which, MIL grew by 48%YoY and Merged entity Harita Seating Ltd grew by 59% respectively. Top line was fueled by switches, lighting, and other business like (sensors alloy wheels & telematics) segments, which grew by 14%, 77% and 93%, respectively. Its diversified portfolio caters to every segment of the industry. In addition, Die casting and Blow mounding through its subsidiaries and JV has played a significant role in shaping the company. Also, despite RM price increase, margin remains stable due to 95% cost pass through to OEM s and improvement in content per vehicle. The company holds 51% revenue mix from 2/3 wheeler and 49% from PV and others respectively.

Improvement in kit value per vehicle

MIL’s product diversification and increasing growth from new products gives better visibility on revenue front. Enacting the BSVI norms and enhanced safety features will further lead to increase in Kit value per vehicle across auto segment. MIL’s new 2W alloy wheel (Light metal technology) segment will give peak sales revenue growth of 400-500cr in FY22 on full stabilization. MIL is also in the process of ramping up sensor sales. The company is also seeing premiumisation-led demand in kit value not only in OEM but also in the Aftermarket space. MIL registered 70% growth compared to the last year with a low base of Rs135 to Rs225cr. The full consolidation of Harita seating from April 1st, 2021 will increase the top line and provide value migration per vehicle.

Strong foot at changing trends

MIL has a robust capex plan of Rs600cr for FY22. The company is in the process of setting up three new plant announced couple of months back. One for blow mounding and one in Gujarat for lighting, and another expansion in Bawal plant for 4W alloy manufacturing. All this put together MIL is investing Rs350cr. This will again drive growth in future. One in Bangalore MIL’s strategy to foray into “controllers” business through the acquisition of'‘i-SYS’ has been identified as avenue for future growth in EVs. Similarly, preference of LED lights in auto sector is likely to expand the margin going forward. While most of the core components are agnostic to the fuel it run whether it is EV or non EV. We expect the consolidated revenue to grow at 20% CAGR over FY21-23E.

Valuations

The demand scenario in the 2W and cars is expected for a revival in H2FY22 supported by larger vaccination drive and demand for personal mobility. MIL’s strong balance sheet and Quick ramp up (80-85% plant utilization) reflects higher revenue visibility on a medium to long term basis. The stock has always traded in premium due to its diversified product portfolio and new product offering according to the changing trends. We value MIL at 32x on FY23E EPS, and arrive at a target price of Rs721 and reiterate our Accumulate rating .

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