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Key order book remains strong.

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

• The content per vehicle has continued to grow at 10%-15%, and it is expected to add more components to its product portfolio. The annual order value from EV OEM is Rs.3,043cr.

• Q2FY24 revenue came above expectations, registering a growth of 26%YoY.This was mainly on account of new customer additions in 2W/4W segment, new contents & leveraging the client base.

• EBITDA margin came in at 11.1%. However, higher personal cost and low operating leverage due to capacity expansion restricted the margin upside.

• We build our revenue CAGR over FY23-25E by 23%, factoring in demand stability, diversification, and increase in content per vehicle.

• Currently, UML is trading at its long term historical avg of 35x. We believe the stock will continue to outperform owing to its diversified portfolio and strong order wins, and value UML at 35x FY25E EPS.

Key order book continue to grow.

UML’s product diversification and increasing growth from new products give it better visibility on the revenue front. Enacting the auto norms and enhancing safety features will further lead to an increase in kit value per vehicle across the auto segment. The potential kit value of the EV 2/3W will further increase with the addition of traction motors. The company reiterated that the potential EV kit value for 2/3W is Rs.61,500 per vehicle. The product under production & supply is Rs.35,500/-, new orders received are Rs. 8,000/-, and product under development is Rs. 26,000/-, respectively. The peak order value from EV 2w and PV is Rs 3,043 cr and Rs 685cr, respectively. Currently, the share from the EV is 12% of domestic 2W revenues, which is higher than the 2W industry penetration of 4%.

Potential portfolio to drive future growth

Q2FY24 consolidated revenue grew by 26% YoY, outperforming the industry growth of 1%YoY. The top line was fueled by growth across all segments, in which core businesses like switches, lighting, and acoustics grew by 17%, 27%, and 16%, YoY, whereas new businesses like LMT, seating, and other businesses grew by 23%, 8%, and 39% YoY, respectively. EBITDA margin came in at 11.1% owing to a superior product mix and lower other expenses. PAT grew by 32% YoY. For the year, the company executed the JV agreement with Buehler Motor & Tach-S and received orders from multiple 2W EV OEMs for Traction motors. To meet the upcoming regulatory Airbag demand, Toyota Kosei Minda India has allocated capex of Rs.175cr. To expand its Neemarana plant and install airbag production equipment.

New orders and expansion.

UML has a robust capex plan of Rs.750cr. for FY24. Incremental orders in the 4W lighting business from Indian and Japanese OEMs I received an incremental order for a 2W switch and heated handle grip from an American marque auto major. The revenue from other segments is growing at 70%YoY to Rs.601cr. Within this controller and sensors was around Rs.230 cr. and was expected to cross Rs. 800cr. for the full year. The company is in the process of continuous expansion of its existing product portfolio and the addition of new product lines in alloy wheels, lighting, infotainment, seating, airbags, and blow molding.

Valuations

Despite the near-term pressure due to a reduction in the underlying volume and macroeconomic headwinds, we believe stability in commodity prices and chip supplies augurs well. The company is actively increasing its kit value across all segments and outpacing the industry's growth. UML’s strong balance sheet and quick ramp-up reflect higher revenue visibility on a medium- to long-term basis. The stock has always traded at a premium due to its diversified product portfolio and new product offerings according to changing trends. We value UML at 35x FY25E EPS, arrive at a target price of Rs.745, and maintain our Buy rating

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