Automotive instrument cluster as a product is set to grow with a lot of premiumisation coming in, and Minda Corporation believes that the 15.7 percent stake buy in Pricol at Rs 400 crore is in line with this.
Instrument cluster is essentially the various displays and indicators, like speedometer, odometer, fuel gauge, etc. that enable a driver to operate the vehicle.
“We are very strongly positioned in technology and our own capabilities to lead this industry. We understand and are very bullish on the instrument cluster business,” said Akash Minda, executive director, Minda Corporation in a business update conference call.
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Minda Corporation's stake buy in its competitor Pricol has sparked conversations of a hostile takeover. However, Minda Corporation's management has clarified that the shares in Pricol are purchased solely for the investment of the surplus funds available with the company. “There is a mandate to deploy cash and after analysing the performance of Pricol we concluded that this is the best use of the funds.”
Since the investment is through market purchases and constitutes a minority stake, it does not grant Minda Corp any special rights, he clarified.
After this investment, the company’s debt-to-equity ratio will be about 0.3x and debt-to-EBITDA will be 1:1. “Our balance sheet has all the wherewithal to support all the opportunities in the future,” he said.
When asked whether the management was planning on increasing its stake in Pricol in a staggered manner, they said that it is only a financial investment as of now and they will be “exploring all the opportunities of inorganic that come from the cooperation”.
Also Read: Minda Corp’s Pricol stake buy driven by connected-mobility play?
Meanwhile Nirmal Bang has downgraded its rating on Minda Corporation from ‘Buy’ to ‘Accumulate’ with a target price of Rs 224. “We believe that it is an EPS dilutive deal over the short to medium term as Minda will forego the interest income, which it earned on the accumulated cash balance. Also, Pricol is a non-dividend paying company,” it noted.
The broking firm believes that utilizing the QIP proceeds to buy a minority stake in a competitor and follow-up attempt of a hostile takeover is a very aggressive step from capital allocation perspective.
“We thus believe that Minda Corp could have deployed the QIP proceeds in a manner which could have yielded higher return on invested capital (ROIC), thus improving the company’s overall return profile,” it added.
On February 21, the share price of Minda Corporation was trading lower by 1.7 percent at Rs 198 apiece on the NSE. Pricol shares are marginally higher by 0.8 percent at Rs 207.20.
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