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Minda Industries Ltd Research Report - 16th Dec 2015

Auto Ancillary | Published on Jul 21st 2015

IT

Minda Industries Ltd (MIL) is a diversified auto ancillary supplier, manufacturing products such as switches, horns, lights, fuel caps, and cylinder valves. It is the market leader in the switch segment with a market share of 67%, and also the horn segment where it has a market share of 47%. New product introductions and increased sourcing from clients to enable company outpace the automotive industry MIL has historically outpaced the automotive industry growth by consistently introducing new high value products which enhance the kit value per vehicle. The company has forged alliances with global technology players and has also taken the acquisition route to introduce high value products. Given its focus on innovation and its varied product range, the company has gained access to new platforms of clients, thus enabling it to gain market share. Over the next two years, MIL aims to introduce alloy wheels in JV with Kosei, launch electronic horns, and manufacture batteries with Panasonic as its technology partner, in the domestic market. This will enable it to further move up the value chain and enhance the content per vehicle to the customers. Also, MIL aims to enhance supplies to its existing clientele such as Hero Motocorp, Honda Motorcycles and Scooters India (HMSI) and Hyundai India by securing supply contracts for their new platforms. We believe MIL is well poised to outgrow the automotive industry and expect it to post a CAGR of 14% in revenue over FY2015-17. Subsidiaries’ turnaround and better capacity utilization to augment margins MIL is aiming to enhance its subsidiaries’ profitability, which account for about 35% of the consolidated turnover. FY2015 marked a turnaround in its subsidiaries’ performance, with them reporting a profit of Rs5cr as against a loss of Rs19cr in FY2014. Going ahead, better capacity utilization coupled with increased sourcing from low cost domestic units will help its key subsidiaries - Clarton Horns and Minda Kyoraku - to post an improvement in margins. Similarly, operating leverage on back of double digit top-line growth would also enhance overall margins. We estimate MIL’s margins to improve by 140bp over the next two years. Outlook and valuation: MIL has evolved from being a switch player to an ancillary supplier having a diverse product range viz switches, horns, lightings, fuel caps, and cylinder valves. The company is aiming to further enhance the product range and move up the value chain by introducing new products like alloy wheels and electronic horns. We expect MIL to clock a robust 14% top-line growth over the next two years. Further, operating leverage and improvement in margin of subsidiaries would lead to a CAGR of 25% in earnings over FY2015-17. MIL is a well diversified Tier 1 ancillary player, available at an attractive valuation. We initiate coverage on the stock with a Buy recommendation and target price of Rs652 (based on 12x FY2017 earnings).

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CMP 525
Target Price 652
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)2,398.84
MCAP NSE (Rs in Cr)2,388.13
P/E (x)18.08
EPS (Rs.)16.73
BV (Rs.)61.87
Div Yield (%)0.46
FV (Rs.)2.00
P/BV (x)3.73
EV/Sales (x)1.09
EV/EBITDA (x)12.57

Shareholding Pattern (%)

Promoter74.0
Public & Others14.0
Corporate5.0
Foreign5.0
Institution2.0
Grand Total100.0

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