IGI Logo

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%.

* Despite higher RM cost and semi conductor shortage, Q4FY22 consolidated revenue grew by 8%YoY and outperforming the industry de-growth of –16%.

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

* EBITDA margin came at 11.4%, despite rising commodity cost and low operating leverage. PAT came positive due to increase in share of Associate/Joint venture income.

* The content per vehicle has continue to grow at 10%-15% per vehicle’s cost and it is expected to add more components to its product portfolio.

* We build our revenue CAGR over FY22-24E by 21%, factoring the demand stability, diversification and superior product mix. .

* Currently the stock is trading at 30x on FY24E EPS. We believe stock will continue to outperform owing to diversified portfolio and strong order wins. We rollover & value MIL at 36x FY24E EPS.

Potential portfolio to drive future growth

Q4FY22 consolidated revenue grew by 8%YoY came lower to our estimate. However, outperformed the negative industry growth of –16%YoY. Top line was fueled by lighting, and other business like (sensors alloy wheels & telematics) segments, which grew by 13%, 29% respectively. Its diversified portfolio caters to every segment of the industry. In addition, The company has increased its alloy wheel business stake in the Minda Kosei JV to 78% from 70% respectively. Despite RM price increase, margin remains stable due to 95% cost pass through to OEMs and improvement in content per vehicle. The company holds 51% revenue mix from 2/3 wheeler and 49% from PV.

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

MIL’s product diversification and increasing growth from new products gives better visibility on revenue front. Enacting the auto norms and enhanced safety features will further lead to increase in Kit value per vehicle across auto segment. The company started producing the on-board charger, Body control module, Battery management system during the quarter. Also two more products (Acoustic vehicle alert system and RCB cable) with a potential kit value of Rs2000 per vehicle, will be developed in a year. Company’s recent announcement for JV with FRIWO Germany for a capex ~Rs.390cr for 6 years for smart components for electric, bodes higher content visibility.

Strong foot at changing trends.

MIL has a robust capex plan of Rs600cr for FY23. 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 MIL’s new 2W alloy wheel (Light metal technology) segment will give peak sales revenue growth of 400-500cr in FY23 on full stabilization. The company is also seeing premiumisation-led demand not only in OEM but also in the Aftermarket space. While most of the core components are agnostic to the fuel it run whether it is EV or non EV.

Valuations

The demand scenario in the 2W and cars is expected for a revival in H2FY23, supported by, normal monsoon and lower base. Despite near term margin pressure , MIL’s strong balance sheet and Quick ramp up 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 rollover and value MIL at 36x (3yr Historical avg.) on FY24E EPS, and arrive at a target price of Rs.1,076 and maintain our rating as Buy.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer