Better product mix and cost control measures boost profitability
Minda Corp reported revenue and profit growth ahead of our estimates for Q2FY18. Total income surged 12.6% (not comparable due to change in accounting standard) and Net profit increased by 82.7% on yoy basis. The topline was supported by growth in volumes across all the business segments, whereas profit increased due to better product mix, reduction in operational cost and higher volumes. We expect profitability to improve further with focus on exports, high yield products and cost rationalization measures. Recommend Buy.
- Total consolidated revenue increased by 12.6% to Rs. 655 cr compared to Rs. 581.7 cr in same quarter last year. Revenue growth came from all segments which includes; interior systems, safety security systems, driver information and telematics system.
- The company reported healthy operational profit, wherein EBITDA margin expanded at 11.5% against 7.6% on yoy basis. Operational profit jumped by 69.3% to Rs. 75 cr led by fall in other expenses (down 1% yoy) and lower employee cost (up 5.1% yoy). The management has guided for double digit EBITDA margin in the coming years with turnaround in Minda Furukawa (subsidiary) and cost reduction efforts.
- As a result of operational efficiency, Net profit surged 82.7% with healthy contribution from subsidiary and associate companies. Net profit stood at Rs. 42.1 cr compared to Rs. 23 cr in Q2FY17. Net profit margin improved from 4% to 6.4% on yoy basis.
Outlook & Valuation:
Minda Corporation has a diversified product base and strong clientele. The management has taken steps to improve profitability by negotiating raw material prices, cost rationalization measures and improving product mix with focus on high yield products. It is also focusing on optimization of employee cost on the company level along with focus on exports and electronics business. During the quarter, it received orders worth Rs. 1,200 cr (lifetime value) including export orders of Rs. 160 cr. The company has also commenced operation in its die-casting facility in Pune, which is expected to generate additional revenue of Rs. 200 cr by FY19-20E. Considering healthy order book, expanding product base, focus on R&D, improving operational efficiency and better industry prospects, we have a positive view on the company. Thus, we recommend a Buy on the stock with a target of Rs. 217.
Shares of Minda Corporation Ltd was last trading in BSE at Rs.166.9 as compared to the previous close of Rs. 163.4. The total number of shares traded during the day was 334740 in over 4370 trades.
The stock hit an intraday high of Rs. 172.6 and intraday low of 163.5. The net turnover during the day was Rs. 56118571.