minda industries ltd. - hdfc securities

Minda Industries Ltd.

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Initiating Coverage

Minda Industries Ltd. 31-March-2021


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Industry LTP Recommendation Base Case Fair Value Bull Case Fair Value Time Horizon

Auto Parts Rs 548 Buy on dips to Rs 460 and add more on dips to Rs 420 Rs 470 Rs 515 2 quarters

Our Take: Minda Industries Limited (MIL) is amongst the leading auto component companies in India having a wide basket of products ranging from switches, horns, sensors, lightings, infotainment, castings and alloy wheels. MIL commands a dominant market share of 55%/65% in 4-W/2-W switches, while in lighting and in horns (domestic) its market share stood at ~20% and50% respectively. The company has fast tracked its growth through joint ventures and technology tie-ups with global leaders and scaled up its business in terms of adding new product lines. This has helped the company to move up the value chain, expand product offerings and consistently increase content per vehicle. In the positive auto cycle (Pre-BS VI transition led slowdown), company had registered revenue CAGR of 28% led by organic and inorganic route over FY15-19. Bottom-line grew at strong 43% CAGR on the back of ~500bps margin expansion over the same period. Company had registered strong performance for 9M FY21 despite Q1 being a washout quarter. Automotive sector, both for the commercial and consumer segments (passenger vehicles or PVs and two-wheelers or 2Ws) got impacted significantly during Q1 FY21 and gradual demand ramp up is seen on QoQ basis. MIL has a lot of products (lighting and sensors) in the EV space and products such as Motor controller, Telematics, Body Control Module (BCM) and Battery Management System are under development. In Q3FY21, Minda commissioned new 2W alloy wheel plant at Supa, Maharashtra. The plant has a manufacturing capacity of 4mn units annually. Due to increased demand, Minda Industries is considering scaling up this plant’s capacity to 6mn units annually. Further, the company is also expanding its lighting facility owing to increased client inquiries. Minda Industries had raised Rs 243cr through rights issue at Rs 250 per share. Company had issued and allotted 97 lakh equity shares in Sep-2020. Indigenization will also benefit the company (alloy wheels and sensor segments), while its traditional products (switches, lighting, acoustics) are on a strong footing and have long term visibility. Further, its long term strategy to focus on building integrated solutions that support a connected and autonomous vehicle augurs well for its long term growth.

View & Valuation: Strong rebound in automobile production post a major slump would be key driver for earnings revival. Moreover higher content, value addition on the back of premiumization, entry into high-margin segments would be key triggers for earnings and valuation re-rating, in our view. Consolidated revenue may see 11% CAGR over FY20-23E led by growth across all segments. Operating margin is expected to witness 250bps expansion led by product mix and cost control measures. Healthy revenue coupled with strong margin expansion would

HDFC Scrip Code MINDAIEQNR

BSE Code 532539

NSE Code MINDAIND

Bloomberg MNDA: IN

CMP Mar 31, 2021 548

Equity Capital (Rs cr) 54.4

Face Value (Rs) 2

Equity Share O/S (cr) 27.2

Market Cap (Rs cr) 14895

Book Value (Rs) 69

Avg. 52 Wk Volumes 453182

52 Week High 612

52 Week Low 221

Share holding Pattern % (Dec, 2020)

Promoters 70.9

Institutions 19.8

Non Institutions 9.3

Total 100.0

Fundamental Research Analyst Kushal Rughani [email protected]

mailto:[email protected]


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lead to 43% CAGR in net profit over the same period. We have not included Harita Seating financials in our estimates. Considering the multiple positive triggers on revenue and margin front from long-term perspective, we expect valuation to remain at premium in the coming years.

Company’s ability to outpace industry growth over last one decade provides significant comfort. Minda has commanded premium valuations primarily on the back of its presence in new age technology products like airbags, sensors, alloy wheels and switches. We like Minda due to its strong relationship with OEMs, progressive products profile, healthy balance sheet. Given expensive valuations, we feel that investors’ can buy the stock on dips to Rs 460 and add more on declines to Rs 420 for base case fair value of Rs 470 (28x FY23E EPS) and bull case fair value of Rs 515 (~31x FY23E EPS) over the next two quarters.

Financial Summary

Particulars (Rs cr) Q3 FY21 Q3 FY20 YoY (%) Q2 FY21 QoQ (%) FY19 FY20 FY21E FY22E FY23E

Total Revenues 1802 1327 35.8 1465 23.0 5,908 5,465 5,367 6,488 7,481

EBITDA 264 163 61.8 215 22.7 725 620 619 829 1032

Depreciation 91 75 21.3 81 12.3 234 302 332 375 406

Other Income 10 11 -11.5 12 -20.0 27 39 37 41 48

Interest Cost 19 22 -9.8 18 6.6 63 90 73 58 45

Tax 43 19 126.3 122 -64.8 134 78 75 111 160

APAT 108 45 142.5 81 34.2 286 155 157 307 454

EPS (Rs) 10.9 5.9 5.8 11.3 16.7

RoE (%) 18.4 8.8 7.8 13.1 16.9

P/E (x) 50.3 92.6 94.7 48.6 32.8

EV/EBITDA (x) 20.2 23.6 23.6 17.6 14.2 (Source: Company, HDFC sec)

Q3 FY21 result update Minda Industries reported ~36% yoy increase in revenue at Rs 1802cr led by growth across business segments. Operating margin improved 240bps yoy at 14.7% on better revenues. PAT for the quarter surged 142% yoy at Rs 108.4cr on strong revenue and margin performance.


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Business segment highlights Switches

Switches business revenue grew 40% yoy at Rs 631cr. Demand for premiumization led to strong business growth. In 4W segment, the company received new orders for Steering Wheel Switch, Second Gear Switch, Driver Side Switch, Power Window, Sunroof Switches, and Audio/Panel Switches from Indian OEMs.

Lighting Lighting business revenue grew 42% to Rs 426cr. Company continues to receive LED orders in the 2W segment. During the quarter, it has bagged 2W LED light order from Yamaha. Company plans to set up a greenfield plant to meet the increasing demand.

LMT (Light Material Technologies) LMT business revenue grew 21% yoy to Rs 270cr. New plant at Supa for alloy wheels has started revenue generation. Management expects to reach optimum capacity utilization levels over the next couple of quarters.

Acoustics Acoustics business accounted for ~10% of revenue and stood at Rs 188cr. Its subsidiary, Clarton Horn, received new orders from Ford, Kia Motors, FCA and Hyundai in the US market.

Other Highlights Other business revenue grew 45% yoy at Rs 288cr. Sensor Business: Manufacturing and supply of Wheel speed Sensors to Korea commenced in Q3FY21. Due to increased customer requests, the company has preponed the second phase of expansion of the alloy wheel plant from 4mn units to 6mn units annually. The expansion is expected to be completed in the 12-18 months. Minda Kyoraku Limited (blow-moulded plant) is expected to be commissioned by April-2022. Harita Seating Systems Merger: NCLT, Delhi has approved the merger; however, the company said it awaits copy of the final orders. Recently, NCLT, Chennai has also sanctioned the merger. Market leader in the most of the segments Minda is the largest automotive switch manufacturer in India, largest PV alloy wheel manufacturer, second largest player globally in automotive acoustics, and third largest player in India for automotive lightings. Together these four product segments accounted for 72%


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of the consolidated revenues in FY20. In other product segments, like blow moulded products and air filters, the company enjoys a leadership position in the domestic market through its subsidiaries/JVs. MIL is mainly a domestic-focused high growth multi-product auto ancillary play with India forming ~80% of consolidated revenues. Also the company has limited exposure to engine and engine related parts in its product portfolio which makes it fairly insulated from any electric vehicle (EV) disruption. Minda’s business profile is well diversified, with presence across multiple automotive and product segments, catering to a wide portfolio of automotive OEMs. About 37% of revenues are derived from automotive switches, 23% from lighting, 14% from LMT (aluminium die-casting and alloy wheels), 12% from acoustics (horns), and the rest from products like blow-moulded components, rubber hoses, batteries, etc. Additionally, it has presence in air bags, air filters, etc., through multiple JVs. The product diversification would further improve in FY22, with the planned acquisition of Harita Seating Systems (HSSL), which would add automotive seating systems to its product portfolio. The company’s customer exposure is also diversified with its largest customer, Maruti Suzuki (MSIL), accounting for around 20% of overall revenues. In terms of automotive segments, 2Ws and three-wheelers (3Ws) account for 51% of the total revenues, while PVs account for the rest. The HSSL acquisition would also help increase MIL’s presence in the Commerical Vehicle (CV) segment. Technological collaborations with global automotive component suppliers Minda Industries has focused on expanding into new product segments and improving its technological capabilities in existing product segments by entering into JVs and technical collaborations with foreign players. These include Kosei for alloy wheels, Tokai Rika for switches, seat belts and gear shifters, AMS for lightings, Kyoraku for blow-moulded components, Toyoda Gosei for air bags, rubber hoses and sealings, Denso Ten for infotainment systems, Katolec for printed circuit boards (PCBs), Onkyo for speakers, TTE for Driving assistance products and systems (DAPs), Sensata for sensors, and KPIT for telematics, among others. These collaborations have helped the company to expand its product portfolio and content per vehicle with OEMs. Recently, Minda Industries announced that it would increase its stake in a JV to 30%. The JV is between Minda group and Tokai Rika Co, Japan. It is engaged in the manufacturing of safety and security systems, electronic components and automotive switches and is supplying its products to OEMs. Company will invest Rs 43cr to increase its stake in JV.


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LMT (Alloy wheel business) LMT business segment includes aluminum die casting and alloy wheels. The segment forms 14% of revenues and enjoys best in class margin profile. Alloy wheel penetration has grown at strong pace in India over the past few years. Aluminium alloy wheels carry the advantage of superior design and lighter weight over their steel counterparts. Despite having grown quickly, alloy wheel penetration levels in the Indian 4W market are still at 25-30%. There is good scope for future growth amid increasing demand for premiumisation and regulatory push for vehicle light-weighting. Minda serves the segment through its subsidiary Minda Kosei Aluminium Wheels (MKAW, MIL has 70% stake while 30% stake is with Japanese player Kosei) and a separate JV i.e. Kosei Minda Aluminium Company (MIL has 30% stake). It will be expanding its 4W Alloy wheel capacity by 60,000 wheels/month at its plant in Bawal, Haryana to cater to the increased demand. MKAW supplies to PV market leader Maruti Suzuki (MSIL, 88% of sales) and Mahindra & Mahindra (M&M, 12% of sales), while the JV counts Honda Cars, Toyota & Renault among its clients. New plant at Supa for alloy wheels has started revenue generation. Management expects to reach optimum capacity utilization levels over the next couple of quarters. We estimate 13% CAGR in revenue from this segment over FY20-23E.

Key Agreements with Global Majors

Year Company Country Product/Area

1995 Tokai Rika Japan 4W Switches

2010 Roki Co Japan Air Filters

2011 Kyoraku Nagase Japan Blow Moulding

2011 Toyoda Gosei Japan Safety system & Hoses

2015 Kosei Japan Alloy Wheels

2016 Onkyo Japan Infotainment

2017 Katolec Japan Printed Circuit Board

2017 TTE Taiwan Driver Assistance Systems & Products

2018 Sensata Technologies US High end Sensors for BS-VI

2019 Harita Seating India Seating Systems

2019 iSys RTS Germany Embedded Software

2019 Delvis Germany Lighting Source: Company, HDFC sec Research


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Switches Business Minda Industries is the largest automotive switch player in India (4W & 2W). Its domestic 4W, 2W switches market share is at 55% and 65% respectively. Its products on the 4W side include audio & cruise switches, door lamp switches, HVAC, power window switches, mirror switches, panel switches and lever combination switches. The 2W switch products include handlebar assemblies, CBS, off-road switches and other customised switches. The company serves the 4W segment through subsidiary Mindarika (MIL has 51% stake, rest with Japanese partner Tokai Rika- TRMN) while the 2W switch business is part of the standalone entity. TRMN is engaged in the manufacturing of safety and security systems, electronic components and automotive switches and is supplying its products to OEMs. The company has been able to grow faster than the industry by taking advantage of technology evolution in favour of ease of riding, e.g. climate control and the transition from manual to automatic. Key customers in 4W space include Maruti and Toyota and Bajaj Auto, TVS Motor and HMSI on the 2W side. We expect 7% CAGR in revenue over FY20-23E. Lighting Business The lighting business is one of the oldest product segments and contributed ~23% of consolidated revenues in FY20. Company is India’s third largest automotive lighting player with overall market share of ~20%. Its capabilities on the lighting side span the product life cycle from design to aftermarket, backed by R&D facilities in India (for PV), Spain (for 2W) and Taiwan. Acquisition of Spain-based Rinder group in 2016 pushed it into a higher growth trajectory (Minda Rinder forms ~50% of overall lighting segment). The acquisition of Germany-based Delvis in 2019 is set to further complement the competitiveness of the lighting division, particularly in PV headlamps. Minda aims to leverage Delvis’ technological, design and R&D capabilities as well as the company’s presence with global 4-W OEMs like Volkswagen, Audi and Skoda. LED adoption is even increasing in the domestic market. However, India remains behind western markets, with overall penetration currently at ~30%. Domestic PV OEMs started introducing LED elements for headlamps in a meaningful manner only from 2014 with the pace of adoption increasing thereafter. Now, most of the PV players have incorporated LED content and it will grow further in the coming years. Company plans to set up a greenfield plant to meet the increasing demand. It will be setting up world class lighting manufacturing plant at Bhagapura, Gujarat to cater to increased demand for 4W automotive Lighting. The business has existing manufacturing facilities at Pune, Chennai and Manesar. The new plant will be in vicinity of key OEM’s hence will also achieve better logistic management. It also plans to tap potential export business in Europe and America in future from this plant. .Company derives ~40% of the segment revenues from 2W space while around 30% from PV and the balance from others. We expect demand for LED lighting to form an


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important leg of MIL’s premiumisation play over the next few years. Further, the technological edge provided by acquisitions of Rinder and Delvis are expected to help MIL further improve LED share of overall lighting business and gain incremental market share in this space. We expect 13% CAGR in revenue over FY20-23E. Delvis: Global lighting play Recently, Minda Industries completed the acquisition of Delvis GmbH, which is a German player providing advanced lighting solutions to major German PV OEMs (VW, Audi, Porsche) for exterior and interior lighting, lighting electronics and testing services. Delvis offers the full range of products from cost-optimised basic headlights and design solutions up to adaptive LED headlight systems with dynamic lighting functions. Company acquired Delvis at an enterprise value of €21 million (Rs 150-160cr). It is expected to clock sales of €40 million (~Rs 300 crore) with EBITDA margin of 6-7% in FY21E. We view this acquisition as a strategic play in the premiumisation drive that will further augment the content provided by MIL to its customers. To expand capacity for 4W lighting and Alloy Wheel segment Board has approved the expansion plans in its two businesses i.e. Four Wheel (4W) Lighting and 4W Alloy Wheel, considering the improved market scenario and increased demand, wherein the said businesses have been operating at near capacity. Company will set up lighting manufacturing plant at Bhagapura, Gujarat to cater to increased demand for 4W automotive Lighting. The business has existing manufacturing facilities at Pune, Chennai and Manesar. It also plans to tap potential export business in Europe and America in future from this plant. Total capital expenditure for this new facility in Gujarat is at Rs 90cr, which will be funded through mix of debt and internal accruals. The plant is expected to commence operations by Q4 FY22 and will stabilize in subsequent couple of quarters. Minda Kosei Aluminum Wheel Private Limited, a subsidiary of Minda, will be expanding its 4W Alloy wheel capacity by 60,000 wheels/month at its plant in Bawal, Haryana, to cater to the increased demand. The additional capital expenditure for the aforesaid capacity expansion will be about Rs 167cr. The expanded facilities are expected to commence operations by Q4 FY22 and expected to stabilize by Jun-2022. Acoustics Segment Acoustics (horns) form ~12% of consolidated revenues. The company is India’s largest player in this segment (around 50% domestic market share) and also the second largest player globally. It manufactures electronic automotive horns, trumpet horns and disc horns for


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PVs, 2-W, CVs and off-road vehicles. The company acquired Spain based Clarton Horns in 2013, which significantly expanded scale in the segment. The Indian acoustics business caters equally to PV, 2W segments. Major global clients for the division include BMW, Volkswagen, Daimler and Audi while major Indian clients are Maruti Suzuki, Bajaj Auto, Tata Motors, Hyundai and Honda Motorcycles. Given the high exposure of the segment to Europe, we build in ~5% revenue CAGR for acoustics in FY20-22E. Nevertheless, MIL’s presence across product technologies, diverse client mix and evolving industry landscape in favour of value migration towards premium products like electronic horns are supportive of the division. We expect 7% CAGR in revenue over FY20-23E. Safety Airbags Business Component makers in areas of airbags, sensors, ABS/CBS and other electronics are key beneficiaries in the coming years. Front airbags have reached 50-60% penetration (heavily skewed towards driver side airbag), while other airbags are penetrated to the extent of 10-20%. Minda is well placed in this space to further grow its business being one of the leading players. It serves the segment through its 48% JV with Toyoda Gosei i.e. TG Minda India and counts Toyota Kirloskar and Maruti Suzuki among key customers. Future regulatory push towards compulsory front passenger airbag would provide an additional leg of growth. Largely popular new models launched over the past few years already feature dual front airbags as a standard fitment. It has become common for top end variants of new launches to feature up to six airbags in some cases e.g. Tata Harrier, Kia Seltos, Hyundai Venue, MG Hector, Hyundai Creta all carry six airbags in premium model variants. Borrowings continue to remain high due to planned capex Over the previous and current year, Minda has availed considerable debt to fund its capex requirements and investments related to acquisitions and consolidation exercise within the group. Gross debt on books has risen from ~Rs 500cr in FY18 to around Rs 1000cr as on Mar-2020. Company has two sizeable ongoing projects - Rs 250cr 2W alloy wheel plant project and Rs 100cr sensor plant project coming up in collaboration with Sensata - besides regular maintenance and technological upgradation requirements. As per the management, the total capital expenditure outlay behind the lighting business for the new facility in Gujarat is Rs.90Cr which will be funded through mix of debt and internal accruals. The plant is expected to commence operations by quarter ending Mar ‘22. Also its Four wheel Alloy wheel business would entail an additional capex of Rs. 167Cr. In addition to the debt availed for these projects, the HSSL acquisition may also lead to increase in leverage, if HSSL’s shareholders opt for redeemable preference shares as part of the transaction. Hence, over the


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medium term, debt levels are expected to remain elevated. Company raised Rs 243cr through rights issue of equity shares which has helped in debt reduction. Base business to offer steady state support to overall growth Company’s traditional business lines i.e. automotive switches, lights and horns contribute ~72% of revenues at present. As part of its longer term strategy, the company wants to reduce dependence on these products and expects to reduce to ~40% of revenues over the next five years. While newer products and emerging opportunities (alloy wheels, sensors/controllers, seating systems, airbags etc.) are seen growing faster than legacy verticals, the base business would continue to play an important supportive role in the overall picture for the company. The 2W alloy wheel business & sensors business have commenced production. The company highlighted that both businesses are import substitution beneficiaries over the next three to five years. The company expects 2W alloy wheel business to post around Rs 100cr revenues in FY21E and ~Rs 300 crore in FY22E (at full capacity). Phase 1 has flexibility to increase capacities by 50% and could potentially grow to Rs 700-800 crore per annum revenues over the long term. Sensors revenue in FY20 was around Rs 130 crore, with potential for Rs 300 crore over 2-3 years. The 2W alloy wheel space is competitive in nature, with about two-thirds of the industry served by imported wheels in the absence of any anti-dumping duty unlike the PV segment that provides an import substitution opportunity to domestic manufacturers. Among local players, the segment is dominated by Endurance Technologies, Rockman Industries and Enkei Wheels at present, and is marked by entrenched relationships of existing players with key OEMs, for instance Endurance with Bajaj Auto and Rockman with Hero MotoCorp. Replacement Market Minda Distribution & Services Ltd. (MDSL), wholly owned subsidiary of MIL, distributes all the group products in the aftermarket. Aftermarket products are sold to MDSL, which sells auto parts and components in the aftermarket through dealers and distributors and retailers. There are 800+ distributors throughout India supported by retailer and mechanics network comprising of > 40,000 retail points as on FY20. Aftermarket segment accounted for ~11% of revenue in FY20. We expect the segmental growth to remain healthy in the medium-term on the back of rising premiumization trend, introduction of new products, increasing preference for branded products post GST roll-out and a widespread distribution reach. We expect 5% CAGR in revenue over FY20-23E.


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Harita Seating Systems acquisition update In Feb-2019, Minda Industries announced that it would acquire Harita Seating Systems (HSSL). Company will issue 152 equity shares of MIL for 100 shares held in Harita. HSSL is amongst the largest players in the seating system business in India. Recently, MIL said that it has received requisite approvals from NCLT, Delhi and NCLT, Chennai. The merger is expected to close soon. HSSL caters to the requirements of CV segment (MHCV-Trucks and LCV), tractor segment, bus passenger seats segment and off-road vehicle segment and enjoys considerable market share in seating systems for CV, tractors and Bus Passenger seats. HSSL has a strong client base and established relationship with leading OEMs in Commercial Vehicles and Tractor segments with some of the major customers being Tata Motors, Ashok Leyland, Daimler India in the CV segment, John Deere, TAFE etc. in the tractor segment, Volvo, Tata Marcopolo and other private players in the Bus segment. Diverse product offering, established R&D support, strong brand image and ability to quickly scale up the operations in line with requirements of the OEMs, have helped the company in establishing a strong association with OEMs. Major portion of the revenue came from CV segment (41.5% of FY19 net sales) followed by bus passenger segment (17%), tractor segment (16.3%), Exports (15.3%) and remaining by off-road vehicle segment and spare parts segments. HSSL has a consistent history of CFO generation with strong returns ratios (>20%) and has minimum leverage on books. Harita had registered revenue of Rs 744cr with ~7% EBITDA margin in FY20. Group EV Products


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EV products under development

Update on business reorganisation Minda Industries announced the reorganization of its business into four domains effective 01 Apr 2021. These include the following: 1. Electrical & Control Systems (ECS) Mr. Ravi Mehra, CEO - Switches, Controllers, Sensors, Seat Belts & Gear Shifters, RPAS, Infotainment Systems, EMS. 2. Lighting & Acoustics Systems (LAS) Mr. Rajeev Gandotra, CEO - Lamps, Acoustics, CNG Kits, ASEAN Business 3. Light Metal & Powertrain Systems (LPS) Mr. Kundan K Jha, CEO - 2W & 4W Alloy Wheels, Castings and Filters 4. Safety & Comfort Systems (SCS) Mr. Sudhir Kashyap, CEO - Seats, Blow Molding, Airbags, Weather Strips & Hoses, Air Brakes


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Risks & Concerns Covid-19 led to slowdown in domestic auto industry There was almost no manufacturing activity in the first 45 days of Q1 FY21 with slow ramp up thereafter amid conflicting views on automobile purchase as a discretionary spends getting deferred vs. the preference for personal mobility for safety purposes. In Q2 and Q3, the company has posted strong performance led by strong volume growth in the auto sector. It remains a concern given OEMs form large part of consolidated revenues. Delay in higher kit value (premiumisation) thesis The domestic automotive space is currently in the midst of severe demand challenges. If OEMs withhold or cut back on the pace of introduction of premium features e.g. LED lights/alloy wheels/infotainment systems in their products in favour of basic alternatives such as halogen lights and steel wheels. This could lead to lower kit value for the company. Acquisitions led growth Company has done series of acquisitions in India and abroad and this led to debt burden on the balance sheet. With fund raising through rights issue, the B/S has strengthened. Given the slowdown in the auto segment, the company may find difficult to ramp up the acquired businesses. Any big ticket acquisition may lead to pressure on the B/S and profitability. Higher commodity prices As the company derives ~85% of its revenue from OEMs, any sharp increase in RM prices would impact margin and profitability. Company Background Minda Industries Limited, the flagship company of the N.K. Minda Group, is one of the diversified auto component manufacturers in India with a presence across multiple product segments, such as switches, lighting, acoustics (horns), fuel cap, alloy wheels & die casting and other segments. The company is a leading domestic player in automotive switches (across 2W, 3W and PV segments) and automotive horns, and the third-largest player in automotive lighting systems (for 2Ws, 3Ws and four-wheelers or 4Ws). On a consolidated basis, the company has a well-diversified revenue portfolio, spread across switches (37%), lighting systems (23%), horns (12%), alloy wheels and die-casting (14%), and others (14%). Company derives 51% of its revenues from the 2W and 3W segments, and the balance from 4Ws.


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Over the last few years, Minda Industries has scaled up substantially and diversified its business profile through acquisitions, scale-up in greenfield projects, and consolidation of group companies (in the auto component business). In Apr-2013, Minda acquired Clarton Horn, a Spanish horn manufacturer, making it a global player in the horns market for PVs. In FY17, Minda Industries acquired 100% stake in Rinder India Private Limited, along with Rinder Riduco, S.A.S. Columbia (50%) and Light & Systems Technical Center (part of the Spanish Rinder Group). Its other major subsidiaries include Minda Kosei (manufactures alloy wheels for PV OEMs), PT Minda, Sam Global, Minda Distribution and Services (trading wing of the Group), and MJ Casting Limited (manufactures aluminium die-casting products for 2W OEMs and tier-I suppliers). In Feb-19, Minda announced the acquisition and amalgamation of HSSL and its 51% JV, HFRL, to enter the automotive seating space. The merger has got all approvals and Harita Seating will merge into MIL in the near term. The company has also set up multiple JVs with global automotive majors, which have helped it improve its technical capability and expand its product portfolio over the years. Additionally, Minda has entered into collaborations with players like Sensata Technologies and KPIT Engineering Limited for acquiring knowhow and capabilities in specific product segments and areas.

Peer Comparison

Company Mcap (Rs cr) Revenue EBITDA Margin PAT RoE

FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E

Minda Industries 14895 5465 5367 6488 7481 11.3 11.5 12.8 13.8 155 157 307 454 8.8 7.8 13.1 16.9

Endurance Technologies 20595 6915 6343 8015 9125 16.4 15.9 16.8 17.2 566 475 703 856 19.8 14.5 18.5 19.3

Motherson Sumi 63822 63537 59800 72400 78136 8.2 8.0 10.7 11.5 1170 975 2490 3278 10.8 8.4 19 21

Source: Bloomberg Consensus, HDFC sec Research

Company EV/EBITDA P/E

FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E

Minda Industries 23.6 23.6 17.6 14.2 92.6 94.7 48.6 32.8

Endurance Technologies 18.8 20.3 15.7 13.2 35.5 42 28.5 23.5

Motherson Sumi 14.3 15.8 9.8 8.4 54.4 65.3 25.6 19.4


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Revenue Mix (%)

37

23

12

14

14Switches

Lighting

Acoustics

LMT

Others

EBITDA and Margin Trend

534 725 620 619 829 1032

11.9 12.311.3 11.5

12.813.8

0

3

6

9

12

15

0

200

400

600

800

1000

1200

FY18 FY19 FY20 FY21E FY22E FY23E

EBITDA EBITDA Margin

Strong Return Ratios

25

18

98

13

1716 16

98

12

15

0

5

10

15

20

25

30

FY18 FY19 FY20 FY21E FY22E FY23E

RoE RoCE

Segment-wise margin (FY20)

9.97.8

9.3

7.2

26.1

2.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

SwitchingSystems

Lighting OtherProducts

Acoustics(Horn)

Light MetalTechnology

(LMT)

After Market

Revenue Split (%)

81

19

India International

Acoustics revenue split (%)

Source: Company, HDFC sec Research

20

30

13

13

24

BMW

VW

Hyundai

Daimler

Others


16

4W Switches revenue mix (%)

42

106

6

36

Maruti

Toyota

M&M

Tata Motors

Others

2W Switches revenue mix (%)

30

13

74

46

Bajaj

TVS

Honda Motorcycles

Royal Enfield

Others

4W Lighting revenue split (%)

32

2111

12

6

18Maruti

M&M

Toyota

Renault

Tata Motors

Others

2W Lighting revenue mix (%)

24

16

98

8

35

Bajaj Auto

TVS

Honda Motorcycles

Royal Enfield

Hero

Others

Alloy Wheels (%)

88

12

Maruti

M&M

Die Casting revenue mix (%)

Source: Company, HDFC sec Research

32

57

11Honda Motorcycles

TVS Motors

Wabco India


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Financials Income Statement (Consolidated) Balance Sheet

(Rs Cr) FY19 FY20 FY21E FY22E FY23E As at March FY19 FY20 FY21E FY22E FY23E

Total Income 5908 5465 5367 6488 7481 SOURCE OF FUNDS

Growth (%) 32.2 -7.5 -1.8 20.9 15.3 Share Capital 52.4 52.4 54.4 54.4 54.4

Operating Expenses 5183 4845 4748 5660 6449 Reserves 1652 1763 2159 2434 2823

EBITDA 725 620 619 829 1032 Shareholders' Funds 1704 1816 2213 2489 2877

Growth (%) 35.8 -14.5 -0.1 33.9 24.5 Long Term Debt 606 780 694 618 488

EBITDA Margin (%) 12.3 11.3 11.5 12.8 13.8 Net Deferred Taxes -33 -29 -31 -29 -29

Depreciation 234 302 332 375 404 Long Term Provisions & Others 175 291 315 329 353

EBIT 491 318 287 454 628 Minority Interest 267 283 283 283 283

Other Income 27 39 37 41 48 Total Source of Funds 2720 3140 3474 3690 3972

Interest expenses 63 90 73 58 45 APPLICATION OF FUNDS

PBT 455 253 249 437 631 Net Block (incl. CWIP) 1761 2116 2141 2181 2038

Tax 134 78 75 111 159 Intangible Assets 250 437 427 416 406

Share of Profit of Associates 19 13 8 15 21 Non-Current Investments 453 447 477 518 561

Non-Controlling Interests 54 33 25 33 39 Total Non-Current Assets 2465 3001 3050 3127 3015

RPAT 286 155 157 307 454 Inventories 561 555 573 663 738

Growth (%) -8 -46 1 95 48 Trade Receivables 899 726 794 939 1070

EPS 10.9 5.9 5.8 11.3 16.7 Short term Loans & Advances 2 6 9 11 14

Cash & Equivalents 110 328 515 570 878

Other Current Assets 161 174 183 198 219

Total Current Assets 1734 1790 2074 2381 2919

Short-Term Borrowings 349 217 228 203 160

Trade Payables 798 963 922 1070 1208

Other Current Liab & Provisions 309 439 461 502 548

Short-Term Provisions 22 32 39 43 47

Total Current Liabilities 1479 1651 1650 1818 1963

Net Current Assets 255 138 424 563 956

Total Application of Funds 2720 3140 3474 3690 3972


18

Cash Flow Statement Key Ratios (Rs Cr) FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

Reported PBT 455 253 249 437 632 EBITDA Margin 12.3 11.3 11.5 12.8 13.8

Non-operating & EO items -27 -39 -37 -41 -48 EBIT Margin 8.3 5.8 5.3 7 8.4

Interest Expenses 63 90 73 58 44 APAT Margin 5.4 3.2 3.2 5 6.3

Depreciation 234 302 332 375 404 RoE 18.4 8.8 7.8 13.1 16.9

Working Capital Change -193 439 -98 -84 -86 RoCE 15.8 9.3 7.7 11.5 15

Tax Paid -134 -78 -75 -111 -159 Solvency Ratio

OPERATING CASH FLOW ( a ) 398 967 444 633 787 Net Debt/EBITDA (x) 1.2 1.1 0.7 0.3 -0.2

Capex -618 -761 -350 -410 -250 D/E 0.6 0.5 0.4 0.3 0.2

Free Cash Flow -170 192 94 223 537 Net D/E 0.5 0.4 0.2 0.1 -0.1

Investments -263 -40 -31 -40 -43 PER SHARE DATA

Non-operating income 27 39 37 41 48 EPS 10.9 5.9 5.8 11.3 16.7

INVESTING CASH FLOW ( b ) -854 -761 -344 -409 -245 CEPS 19.8 17.4 18 25.1 31.6

Debt Issuance / (Repaid) 457 102 -63 -61 -106 BV 65 69 81 91 106

Interest Expenses -63 -90 -73 -58 -44 Dividend 1.1 0.4 0.8 1.8 3

FCFE 154 404 -42 104 386 Turnover Ratios (days)

Share Issuance/MI 46 16 245 0 0 Debtor days 56 49 54 53 52

Dividend -34 -16 -22 -50 -84 Inventory days 30 37 39 37 36

FINANCING CASH FLOW ( c ) 406 12 87 -169 -234 Creditors days 66 88 86 83 81

NET CASH FLOW (a+b+c) -50 218 187 55 307 VALUATION

P/E 50.3 92.6 94.7 48.6 32.8

P/BV 8.4 7.9 6.7 6 5.2

EV/EBITDA 20.2 23.6 23.6 17.6 14.2

EV / Revenues 2.4 2.6 2.7 2.2 2

Dividend Payout 10.1 6.8 13.8 16 18


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Disclosure:

I, Kushal Rughani, MBA author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also

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