{LONGTERMINVESTORS} Minda Industries Limited

 

Minda Industries Limited

A growing conglomerate with well diversified portfolio

Minda Industries (MNDA IN) is a diversified auto ancillary manufacturer primarily engaged in the segments of switches, lights, horns and batteries catering mainly to the two-wheeler and passenger vehicle OEMs. The flagship
company of Uno Minda group promoted by Mr. NK Minda is aggressively expanding its customer reach and technological expertise, either through the inorganic route or by forming JVs with global players within its primary
focus areas.

With several of its subsidiaries set to get operational or on a larger scale from FY17 in the form of the Panasonic battery JV, Minda Kosei (Alloy Wheels) JV along with the recently acquired Rinder lighting revenue
coming in from FY17, we expect revenue CAGR in FY16-18e for MNDA to be robust ~23% as against a standalone revenue CAGR of 12% in the same period.

At a consolidated level MNDA generates close to 60% of its revenue
from 2W segments with OEM catering to ~83% of its revenue.

Over past three years, the core standalone business revenue has grown at a ~10% CAGR, largely in sync with the slowdown in 2W OEMs, though EBITDA has
grown at a 20% CAGR on back of margin picking up from 6-7% levels to ~10% levels presently.

Going ahead with cumulative capex and acquisitions worth INR6bn combinedly in FY16-18e, funded by internal accruals along with improving margin across business, MINDA is all poised to almost double its earnings in the same period.

With ROE/ROCE in between 25-30% and net debt/equity being ~0.5x, we believe MINDA is well positioned to keep its balance sheet clean amid undergoing the high growth phase through the inorganic route.

Targeting inorganic growth within the existing focus areas of lighting, switching, battery and horns MINDA is all set to grow its consolidated revenue at a robust 23% CAGR in FY16-18e on back of its inorganic growth strategy in the key focus areas of lighting, switching, horns and batteries.

With the standalone business set to contribute close to 50% of the overall revenue, growing at a relatively lower pace of 12% CAGR, management is strategising towards inorganic growth in the same areas to enhance customer base, market base and access to
technological prowess.

Thus with scope of reducing skewness towards 2W OEMs and enhance exports presence, MINDA is very rightly trying to grow aggressively without diluting overall capital efficiency while keeping the balance sheet lean.

Standalone EBITDA margin improving; better margin subsidiaries going operational in FY17
We expect EBITDA margin at standalone level to slowly inch up towards 11-12% in next couple of years from present 9-10% levels with scope of capacity utilisation improving from ~85% presently.

Also raw material to sales have come down by ~300bps over past couple of years led by lower commodity prices, which we expect to remain benign at least till FY17e.

At the subs/JV level, the better margin businesses like Rinder (10%), Minda Kosei (10-12% initially), Panasonic battery JV (10%) would start getting operational from FY17, thus add thrust to an already improving margin trajectory at the subs level. We are expecting consolidated EBITDA margin at ~10-10.5% by FY18e as against present levels of ~9-9.5%.

Robust ~35% earnings CAGR and gradual uptick in ROCE northwards of 25%; stock trading close to 10x FY18e earnings On back of robust 35% earnings CAGR in FY16-18e along with improving capital efficiency we believe MNDA is trading at an attractive valuation of ~10x FY18e earnings. Amid strong growth, MINDA is on a deleveraging mode, meeting fund needs for inorganic and capex plans largely through internal accruals. Historically working capital requirement has been pretty meagre at close to 6-8% of revenue.

 

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