Minda Corp – Focus on exports, R&D & EVs make it future ready

On the profitability front, the company posted a significant expansion of 188bps (YoY) in EBITDA margin and a growth of 43 percent in EBITDA. The expansion in margin was driven by operating leverage led by volume growth, favourable product mix, and reduction in employee costs.

The finance costs for the quarter were higher on account of new investments towards expansion at Minda KTSN and MCL Die Casting plant. This resulted in a muted 7.9 percent growth in the net profit.

We continue to maintain the positive view on the company because of the following:

Diversified across segments Minda has a well-diversified product portfolio and presence across variety of segments of the automobile industry.

Focus on export The group has approximately 30 customers in more than 20 countries. It wants to capitalise on its global footprint further and has many initiatives underway to increase its focus on exports. The management has set the target to have Rs 500 crore revenues from exports by FY20.

Huge order book Minda has received Rs 1,200 crore of orders (lifetime value) across domestic and export businesses, 50 percent of which is related to safety, security and restraint system, 30 percent is related to driver information and telematics and remaining is related to interior systems.

Focus on Research and Development (R&D) – Next leg of growth The company has been focusing and investing a lot on R&D and the management believes that the next leg of growth for the company would come from higher demand for electronics and advanced products. To develop technologically advanced products, it has established a technical centre Spark Minda Technical Centre (SMIT) in Pune.

Acquisition of EI Labs – another pointer towards the focus on R&D Recently, Minda had acquired EI Labs for an enterprise value of Rs 6.5 crore – underscoring its focus towards R&D and electric vehicles (EV). In the second quarter, EI Labs bagged prestigious order from EESL to supply mobility components for electric vehicles.

Significant expansion Minda has significant expansion plans for the future. It has started its Greenfield plant in Mexico in April 2017 to supply plastic interiors to the Volkswagen Group.

The company has also set up its 3rd die casting plant in Pune which is expected to be operational in FY18. It has an existing production capacity of 4,600 MT per annum and has a target to bring that capacity to 9,600 MT per annum by FY20.

Minda is also in the process of setting up a production line for new product “control cables” at Pant Nagar plant and it has already bagged its first order from a global two-wheeler OEM in India.

Turning around Minda Furukawa – positive EBITDA, positive PAT The company has been focusing on turning Minda Furukawa around, which has been non-profitable for the group. The management has chalked out plans for the same and its efforts have witnessed a positive outcome as is evident from Minda Furukawa turning marginally positive both at EBITDA and net profit level in 1HFY18.

Valuation In terms of valuation, the company is trading at 21.6 and 18.8 times FY18 and FY19 projected earnings. After our initiation on the company, the stock has run up around 22 percent. However, from a longer term perspective, we are comfortable with the valuation and advise investors to accumulate the stock in order to be a part of this journey.

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