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  • Minda Industries Ltd.

    Minda Industries Ltd. Stock Idea

    Auto Components Rating: BUY

    Date September 26, 2016 CMP (Rs.) 294 Target (Rs.) 380 Potential Upside 29% BSE Sensex 28294 NSE Nifty 8723

    Scrip Code Bloomberg MNDA IN Reuters MNDA.BO BSE Group B BSE Code 532539 NSE Symbol MINDAIND Market Data Market Cap.(Rs. Cr) 2396 Equity Sh. Cap. (Rs Cr) 19.4 52 Wk High/Low 330/99 Avg. Quarterly Volume 15445 Face Value (Rs.) 2 Shareholding Pattern (Jun-16)

    Comparative Price Chart

    Varsha Bang

    Research Analyst Varsha.b@systematixshares.com Arun Gopalan

    Vice President – Research arungopalan@systematixshares.com

    Minda Industries Limited (MIL) is the flagship company of the UNO Minda Group. MIL is one

    of the leading suppliers of switching systems, lighting systems, acoustic systems & alloy

    wheels among others for 2W/3W/4W in the Indian automotive market. MIL has more than 28

    manufacturing plants in India and 5 R&D centers globally. Minda’s technology tie-ups with

    global suppliers that give it access to new and high value products, its ability to gain market

    share across segments & globe and robust growth potential would benefit from a demand

    recovery in the industry and ramp-up with new customers and products. We estimate

    consolidated revenue to post 24% CAGR over FY16-18E, resulting in EBITDA margin

    expansion of 90bps and EPS CAGR of ~37%.

    Technology tie-ups and innovation in products will drive to increase market share

    Strategic alliances with global players in the auto ancillary segment have established MIL as a

    technology leader with the capability to innovate and introduce new high value products. MIL has

    partnered with 9 global technology players with 120 product patents and 145 registered designs.

    Given its focus on innovation & its varied product range, MIL has gained access to new platforms of

    clients & thus enabling it to gain market share globally. Apart from superior technology, we believe

    these tie ups provide access to OEMs as well as access to innovative products. MIL is well poised

    to outgrow automotive industry & expect it to post a CAGR of 24% in revenue over FY2016-18E.

    Robust portfolio of differentiated products

    MIL has evolved from being a switch player to a company supplying multiple products in the auto ancillary industry. MIL is the largest manufacturer of automotive switches in India with a market share of 67%. Manufacture switches for 2W/3W and off road and it also has a presence in 4W switches through its associate company. MIL is a prominent player in lighting system and recently acquired the global lighting business of Rinder Group for Euro 20 mn with this acquisition market share of MIL will be 22%. We are expecting Lighting segment to post 50% CAGR over a period of FY16-FY18E on account of Rinder acquisition which will enhance its footprint in Indonesia and Vietnam. In horns segment MIL is the largest manufacturer in India with a market share of 55%. It acquired Spain based Clarton Horns in FY14 which has catapulted MIL to the No 2 position among horn manufacturers worldwide. It also manufactures other auto components like Alloy wheels, Low pressure Die Casting, Gas kits, Blow Molds, Fuel Caps and Batteries. We believe that well diversified product range will give MIL an edge over the other players in the industry and boost the margins going forward.

    Expanding footprint in the replacement market

    With a strong network of 764 dealers and 10000 touch retailers, MIL’s aftermarket sales have been growing at a CAGR of 24% over a five year period to Rs. 438 cr. In the overall revenue mix the replacement market sales account for 18%. We are in agreement with the projections made by the Management & expect aftermarket sales to grow at a CAGR of 25% during FY16-18E. The revenue contribution of the replacement market will also improve from 18% in FY16 to 20% in FY18E

    Return ratios to improve led by strong profit growth over FY16-FY18E

    With an expected revival in the auto industry providing multiple levers of growth and margin expansion, we believe MIL will benefit from strong revenue growth in lighting business and other high margin products, turnaround of subsidiaries will improve PAT going forward. EBITDA margin is expected to improve from 9.5% in FY16 to 10.4% in FY18E, on the back of higher utilization levels. Due to limited CAPEX requirements and strong operating cash flow, FCF generation of Rs. 218 crs in FY18E. With this, net debt to equity is likely to decline to 0.3X in FY2018E from 0.7X in FY2016. The company’s return ratios are likely to improve over the next two years. We expect MIL to report RoE/RoCE of 29%/28% in FY2018E.

    Valuation: Decent growth story at reasonable valuation

    We estimate MIL revenue to grow at a CAGR of 24% over FY16-FY18E led by product innovation,

    increase in market share and strategic joint ventures. With better capacity utilization and the benefit

    of operating leverage, the EBITDA margin will inch upwards to 10.4% in FY18E supporting the net

    earnings of the company. At CMP of Rs. 294, MIL is trading at 11.6x FY18E EPS. We value the

    company at a P/E 15x for FY18E EPS and recommended a BUY with a target price of Rs. 380, an

    upside of 29% in a year.

    Year Sales

    (Rs.cr) Growth (%)

    EBITDA

    (Rs.cr) Margin (%)

    PAT

    (Rs.cr) Margin (%)

    Adj EPS

    (Rs) P/E (x) EV/EBITDA ROE%

    FY15 2200.3 30.2% 154.3 7.0% 55.7 2.5% 7.0 41.9 13.8 16.5%

    FY16 2506.1 13.9% 237.8 9.5% 107.0 4.3% 13.5 21.8 8.4 25.6%

    FY17E 3332.3 33.0% 332.1 10.0% 153.6 4.6% 19.4 15.2 5.7 28.4%

    FY18E 3840.0 15.2% 398.6 10.4% 201.2 5.2% 25.4 11.6 5.2 28.5%

    Promoter , 70.9

    FII, 3.6

    DII, 1

    Others, 24.5

    50

    100

    150

    200

    250

    300

    350

    18-Sep 18-Dec 18-Mar 18-Jun 18-Sep

    MIL Sensex

  • Minda Industries Ltd.

    Segment wise Breakup Q1FY17 Geographical Presence Q1FY17

    Revenue EBITDA MARGIN

    Replacement Market Growth ROE &RONW

    Channel Wise Breakup Q1FY17 Segment Wise Breakup Q1FY17

    Source: Company, Systematix Research

    38%

    22%

    20%

    20%

    Swtich

    Lighting

    Horns

    Others

    85%

    15%

    India

    International

    936 1,166

    1,328

    1,690

    2,200 2,506

    3,332

    3,840

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    4,000

    4,500

    FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

    R s.

    C r

    8.9%

    6.5% 7.0%

    4.6%

    7.0%

    9.5% 10.0%

    10.4%

    2.0%

    4.0%

    6.0%

    8.0%

    10.0%

    12.0%

    FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

    206 247

    297

    372 438

    548

    684

    35.5%

    19.9% 20.2%

    25.3%

    17.7%

    25.0%

    25.0%

    5.0%

    10.0%

    15.0%

    20.0%

    25.0%

    30.0%

    35.0%

    40.0%

    50

    150

    250

    350

    450

    550

    650

    750

    FY12 FY13 FY14 FY15 FY16 FY17E FY18E

    1.0%

    6.0%

    11.0%

    16.0%

    21.0%

    26.0%

    31.0%

    1.0%

    6.0%

    11.0%

    16.0%

    21.0%

    26.0%

    31.0%

    FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

    RONW ROE

    84%

    16%

    OEM

    Replacement

    40%

    60%

    2Wheeler

    4 Wheeler

  • Minda Industries Ltd.

    INDUSTRY OVERVIEW

    Indian auto component sector

    The Indian auto ancillary industry is one of the fastest growing industries and is riding on the success of the auto sector. The auto industry is highly competitive with the presence of a large number of global and Indian auto-companies. As per ACMA, Indian auto components Industry grew by 8.8% to a turnover US$ 39 bn in 2016. Exports accounted for US$ 10.8 bn of the total turnover in 2016. The auto component sector contributes about 7% of India’s GDP and is among the largest employers in the economy. Original equipment’s sales constitutes 54%, while replacement and exports comprise 17% and 29% of the revenue mix

    Automotive industry

    Asia-Pacific is the most attractive region for automotive switches market. There is a significant increase in demand for automotives in the Asia-pacific region which is driving the market for automotive switches. The adoption of latest technology is another driver, driving the automotive switches market in this region. Increasing number of vehicle manufacturing facilities due to low cost of production in developing countries, increasing production capacity, and growing demand for light and heavy vehicles is driving the market for automotive switches in these countries. Presence of developing countries like India and China are also boosting the demand for automotive switches as there is a huge demand for automotives in these countries. The automotive switches market of the Asia-Paci