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Q3FY24 performance for UNO Minda was better than expected given the weakness in 2W and North America business. Company registered a top line growth of 20% YoY to Rs.35.2bn (est of 36.2bn) supported by strong growth in casting (+27.3% YoY) and lighting segment (+28.9% YoY). EBIDTA for the quarter grew by 12.2% YoY to Rs.3.79bn and gross profit up by 14.9% YoY lesser than top line growth. EBIDTA margin for the quarter contracted by 83bps YoY basis/31bps QoQ to 10.8% vs (est of 11.1%). Contraction in margin is due to commissioning of new plants. PAT for the quarter jumped by 19% YoY to Rs.1.935bn and profit from associates increased to Rs.437mn compared to Rs. 250mn in Q3FY23

* Positive shift in Alloy wheel and Lighting: Company is adding up new greenfield capacity in 4W alloy wheel in addition to Bawal and Pune (2W alloy wheel) and 4W lighting in Vietnam and Pune. Overall penetration in the 4W segment in India is around 40-45% vs global penetration of 90-95%, management expects penetration in India to reach 70-75% over next 5-7 years resulting in 3-4x growth. Management expects further improvement in the lighting segment in the upcoming quarters, driven by the commencement of production for a new customer from the Pune plant and intend to increase segment revenue share from current ~14-15% to 19-20% over next 4-5 years. As penetration of LED lighting in vehicles is increasing LED lights are getting more technically advanced and in some vehicles tail LED lighting is higher than front LED lighting due to technological advancement and new features. Company's casting segment is also in a healthy growth phase, driven by several factors: increasing penetration of alloy wheels in both the 2W and PVs, rising demand for alloy wheels in the replacement sector, and capacity expansion. Currently the company has 10% market share in 2W alloy and is aiming to reach to 16% in coming year. PV market share is currently around 45%.

View and Valuation: UNO Minda is in a healthy growth trajectory led by various factors such as increasing kit value (comprising more EV products), Premiumisation trend in personal mobility, expansion into high-value growth products, addition of new clients across the product category and margin improvement achieved through localization efforts for products such as sensors, controllers, BMS, and ADAS product portfolio. However, going forward new capacity addition will compress margin in the short term as electronics products carry lower margins over casting products. Additionally, transitioning to a greater focus on premium and EV-related components, given the initial high import content will push back the margin efficiency effort. We recommend ADD with TP of Rs. 763, (38x of Sep-FY25E EPS) . (continue)

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