Minda Industries Ltd - Q4 FY14 Result - Quick View - CMP Rs.277, Maintain BUY - Sushil Finance

During FY14, the exports contributed 19% to the consolidated top-line while the remaining 81% of the consolidated revenues came from domestic markets; 13% of the revenues were recorded from replacement markets while 87% of the revenues were from OEMs. The two-wheeler and four-wheeler percentage in the consolidated revenues stood at 63% and 37%, respectively. The domain-wise revenues break-up was as follows: Electricals & Electronics (46%), Body & Structure (14%), Chassis & Motor Systems (21%) and remaining others (19%).

The Management stated that the FY14 performance lagged on the consolidated basis primarily due to lower utilization levels in the recently expanded capacities and non-recurring extra-ordinary expenses incurred on acquisition of Spanish Company, Clarton Horn. The acquired entity registered a top-line of above 2,000.0 mn but incurred a loss of approximately Rs.110 mn at the PBT levels which included a one-time Management Fees of roughly Rs.60 mn which was paid to the erstwhile stakeholders for the smooth transfer of operations. The EBITDA margin stood at 4.5% which is likely to go up over the period of next two years on account various cost-cutting measures and streamlining activities to synthesize the Indian and Spanish operations. The subsidiary received upgraded business orders from Renault and Nissan. Additionally, the leading horn manufacturer came out with new horn product for both OEM and Aftermarket.

The Lighting division which contributed 14% of the top-line was substantially impacted by the slowdown in the four-wheeler category as majority of its revenues are being derived from four-wheelers. The profitability was also impacted in this segment on account of extended investments in Manesar, Pune and Chennai facilities. The Management stated that during last three years, the company has been investing substantially in capacity expansions in lighting division. The capacities are now ready and awaiting a ramp-up in improving the utilization levels. The old facilities have been running at 85-90% but the recently added capacities witnessed low utilization levels of 30-40% which is likely to improve during the current fiscal. The Pune plant is likely to break-even during Q1 FY15. The company has received new orders from Nissan and Mahindra & Mahindra in this division. The EBITDA margin in the lighting division has come down from 14.96% to 13.72% during FY14.

The Switches business also dragged the overall performance as the Hosur Plant which started production only in Q1 FY14 took almost three quarters to break-even. The Management expects the full benefits of this added facility only in the second half of FY15. The old capacities of this segment run at 85% utilization levels but the Hosur one ran at 55% in the recent quarter which is likely to move up to 80% within two quarters.

Minda Distribution & Services Ltd. (MDSL) which is a distribution company for the aftermarket segment is primarily run as a cost-centre and all the profits are passed on to Minda Industries Ltd. and thus, despite a good top-line the profits are negligible.

The top-line of another subsidiary, Minda Kyurako doubled from Rs.210.7 mn in FY13 to Rs.467.0 mn in FY14, however, the losses at the PBT levels widened from Rs.15.7 mn in FY13 to Rs.44.3 mn in FY14 primarily due to addition of Bawal facility which started commercial production only during the last year and a paint shop which was added recently. Due to high investments, as reflected in higher interest and depreciation costs, led to widened losses. Nevertheless, the Management expects improved capacity utilization levels in FY15 which will positively impact the profitability levels.

During the fiscal, the Company has started production of Fuel Caps for Maruti Suzuki India Ltd. The fuel cap business is currently running at 50% capacity utilization levels and is likely to go to 75-80% levels during H2 FY15. In addition, the revenues of Minda Auto Components jumped from Rs.550 mn to Rs.650 mn while the PBT levels improved moderately from Rs.35 mn in FY13 to Rs.40 mn in FY14.

The Board of Directors has recommended a dividend of Rs.3 per share for the year ended March 31, 2014.

During our previous result update (dated March 06, 2014) we had recommended a BUY at Rs.184 for the target price of Rs.321; since then the stock price has made a high of Rs.305 on BSE and NSE. During the recently concluded conference call, the Management has guided a top-line growth of ~40% in FY16 over FY14 and has also commented upon the scope of improvement in profitability. We believe there is substantial scope of improvement in the bottom-line over the next few years. We maintain our BUY rating for the stock for an initial target of Rs.321.

Source : Equity Bulls

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