Reduce Uno Minda Ltd for the Target Rs 1,100 by Emkay Global Financial Services Ltd
Uno Minda logged a healthy 1QFY27, with revenue up 24% yoy led by healthy growth across segments (ex-lighting). However, revenue underperformance vs key client MSIL widened further to -12.1% in 4Q (4Q/3QFY26: -10.4%/-8.8%). EBITDA was up 5.3%; EBITDA declined by 100bps qoq amid 150bps qoq gross margin drop and 50bps higher staff costs (also due to hike in minimum wages) partially offset by 100bps qoq lower other expenses. Per management, the pass-through of commodity costs led to a net 40bps optical hit on EBITDAM (certain customers have revised re-set cycles to monthly vs 3M earlier). Uno Minda targets continued outperformance vs industry volumes via market share gains, increased CPV, and localization of advanced tech. Management reiterated its EBITDAM guidance of 11% (+/-50bps) with a bias toward the higher end, despite 1Q being impacted by high commodity prices. The Rs3.2bn capex for the new 4W seating plant (recent breakthrough) is expected to generate >2x asset turns (ramp up from 2QFY28). We build in 20% revenue CAGR over FY26- 29E (33% CAGR over FY22-26) which factors in the recent growth moderation. We revise our TP by 4.8% to Rs1,100 (rolled forward) from Rs1,050, and maintain REDUCE. Uno Minda trades at 41x FY28E PER
Healthy revenue performance; EBITDAM impact of GM drop/higher staff costs
Revenue was up 24% yoy led by healthy growth across segments (ex-lighting). EBITDA was up 5.3% while EBITDA declined by 100bps qoq, amid 150bps qoq GM drop and 50bps higher staff costs partially offset by 100bps lower other opex. Adj PAT was up 2% yoy.
Earnings call KTAs
1) The company aims to continue outperforming industry volumes through market-share gains, increased CPV, localization of advanced technologies.
2) Management reiterated annual EBITDA margin guidance of 11% (+/-50bps) with a bias toward the higher end, despite 1QFY27 being impacted by high commodity prices and 40bps dilution from commodity price pass-throughs.
3) Customers are aware of cost increases, with some already announcing price hikes to absorb these costs; some even provide monthly price adjustments for certain commodities.
4) The Rs3.2bn capex for the new 4W seating plant is projected to generate >2x asset turns (expected to commence operations by Q2FY28, with an anchor customer already secured); seating export orders for seating expected to fully ramp-up and impact revenue by FY28-29.
5) PN3 approval for the Innovance JV was received, regulatory changes in China are being reviewed by Innovance; plant construction and customer supplies are proceeding as scheduled, without holdup.
6) JV profitability was impacted by commodity pricing pressure in 1Q; but this is expected to ease with recoveries in subsequent quarters.
7) Some customers have commenced monthly price adjustments for certain commodities, and others have announced price hikes to absorb cost increases.
8) Capex plan for FY27 is Rs17.5bn, with a total announced project capex pipeline of Rs38bn, of which Rs14bn has been spent; the remaining amount is expected to be spent over the next 18-24M.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
