Minda Industries - Initiating Coverage - Multiple Growth Drivers Justify Premium Valuation - Reliance Securities

Key Triggers

- Sustained outperformance with value addition and continued portfolio expansion
- Premiumization and favourable regulation to expand value-added product offerings
- Expected strong recovery in 2HFY21E and FY22E
- Expanding product portfolio and inorganic expansion
- Valuation expansion to continue for such conglomerates of key auto ancillary segments

- Minda Industries Ltd. (MNDA) is well-diversified auto ancillary company in Indian auto component space with strong presence in lighting, switching, horn and light weight products segments for domestic as well as global original equipment manufacturers (OEMs).

- MNDA enjoys leadership in 4W and 2W switches segment with 55% and 65% market share, respectively. It is also the leader in domestic horn segment with ~47% market share, while it has decent presence in lighting segment with ~22% market share.

- Its core i.e. switches, lighting and acoustic businesses contribute 37%, 23%, 12% (combined 72%) to its consolidated revenue. Newer product lines comprising of alloy wheels, aluminium die casting, sensors/controllers, which account for the balance 28% of consolidated sales are the real growth drivers, going ahead. It has the largest installed 4W alloy wheel capacity in India and recently started production of 2W alloy wheels.

- Newly launched products i.e. Advance Driver Assistance System (ADAS), airbags, filters, sensors and upcoming product lines would help MNDA to outperform the industry despite the current tough time. Incremental revenue from Harita Seating business, addition of sensor plant in FY21, filter business and 2W alloy wheel plant would help the company to improve its revenue over the next 2 years.

- Presence across various key product segments of ancillary, new product addition, acquisition of new product segment and technological up-gradation justify premium valuation.

ESG Analysis: While analyzing 20 key criteria under ESG Matrix, we have assigned an overall score of 65% to MNDA. Under "Environmental Head", we have assigned 56% score, as it has sizable power generation through non-conventional (wind and solar) energy sources and various energy efficiency initiative. Under "Social Head", we have assigned 66% score, as the company scores high on customer satisfaction, despite scoring low on gender diversity. Under "Governance Head", the company scores fairly well (73%) across criteria (please refer to page no 4. for detailed ESG analysis).

Outlook & Valuation

Strong rebound in automobile production post a major slump would be key driver for earnings revival, in our view. Moreover higher content, value addition on the back of premiumization, entry into new high-margin segments would be key triggers for MNDA's earnings and valuation re-rating, going forward. Its consolidated revenue is likely to clock 15% CAGR over FY20-FY23E, while its earnings would clock 35% CAGR over the same period. Considering the multiple positive triggers on revenue and margin front from long-term perspective, we expect the stock's valuation to steadily move towards the industry's peak multiple. In light of outperformance despite COVID-led uncertainty and faster-than-expected recovery of auto industry, we initiate coverage on MNDA with BUY and a 2-year Target Price of Rs460, valuing the stock at 30x FY23E EPS), which implies 35% upside from the current level.

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Shares of MINDA INDUSTRIES LTD. was last trading in BSE at Rs.369 as compared to the previous close of Rs. 366.05. The total number of shares traded during the day was 12217 in over 786 trades.

The stock hit an intraday high of Rs. 369.1 and intraday low of 357.35. The net turnover during the day was Rs. 4432071.

Source : Equity Bulls

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