Buy Minda Industries; target of Rs 840: Emkay Global Financial

Emkay Global Financial's report on Minda Industries

Minda Industries, founded in 1958, is the largest domestic supplier of Switches, Horns, Alloy wheels, Seating and Blow-molding. Further, it is the 2nd largest supplier of Airbags, Air filters, Speakers & Telematics, and the 3rd largest provider in Lightings segment. Minda is exposed to multiple growth drivers: 1) cyclical recovery in the 2W/4W segments; 2) market share gains, driven by import substitution in Switches and Alloy wheels; and 3) growing Content per Vehicle (CPV), led by premiumization and new product forays such as Sensors. Further, Minda is well-placed to benefit immensely from EV adoption over the long term, which should result in significantly higher ‘kit values’ compared to ICE vehicles. Revenues saw a 21% CAGR in FY11-21 vs. 2W+4W volume CAGR of 3%; we forecast 19% revenue CAGR over FY21-31E vs. industry volume CAGR of 8%. Our forecast of 50% EPS CAGR over FY22-24E is driven by a 22% revenue CAGR and a 240bps EBIT margin expansion. RoIC will likely surge to 24% in FY24E from 10% in FY21. We model average annual FCF generation of Rs4.2bn for FY21-24E, and expect the company to turn net-cash-positive by FY24E, from Rs5.3bn of pro-forma net-debt post its recent QIP.

Outlook

Our Sep'22E TP of Rs840 is DCF-driven and implies forward P/E of 32x. Minda deserves to trade at premium valuations, given its exposure to the PV segment, long term upside from EV adoption and a sustainable upward re-set in return ratios.