Multi Baggers

Minda Industries

Minda Industries Ltd. (MIL) released its Q1 FY15 performance on Tuesday, August 12, 2014. Following are the highlights and key takeaways from the conference call.

Result Highlights

On standalone basis, the leading auto-ancillary companys turnover grew 22.3 percent YoY to Rs.3,045.7 mn. The EBITDA grew from Rs.131.2 mn in Q1 FY14 to Rs.271.4 mn in Q1 FY15 as EBITDA margin expanded almost 364 bps to 8.9 percent. The robust performance was further carried down to bottom-level as the company registered a profit after tax of Rs.126.3 mn with a net margin of 4.1 percent and earnings per share of Rs.8.0.  

On consolidated basis, the turnover increased approx. 27.0 percent YoY from Rs.3,840 mn in Q1 FY14 to Rs.4,870.0 mn in Q1 FY15. The EBITDA grew approx. 60.0 percent YoY from Rs.250.0 mn in Q1 FY14 to Rs.400.0 mn in Q1 FY15. The profit after tax stood at approx.  Rs.150.0 mn with a net margin of nearly 3.1 percent and earnings per share of Rs.9.4.

Other Updates

The 'Switches division which contributed 44 percent of the top-line during the quarter registered a significant improvement in the EBITDA margin to approx. 14 percent. During the quarter, approx. 10 percent of the switches were exported and the capacity utilization levels stood at approx. 80 percent which can further be enhanced to over 100 percent when required. During the quarter, the Hosur plant came to break-even.   

The 'Lighting division which contributed 18 percent of the top-line during the quarter registered an EBITDA margin of 7 percent; The capacity utilization levels stood at approx. 75 percent and 10 percent of the 'Lights manufactured by the company were exported. The green-field expansion at the Chennai plant and the expansion at Manesar facility are likely to be completed by end of Q2 FY15 and would start contributing to the top-line during Q3 FY15.   

The 'Horns division which contributed approx. 26 percent of the turnover also recorded substantial improvement in the EBITDA margin to approx. 14 percent. The division which includes Clarton Horn recognized 30 percent of its products being sold in the domestic markets. The Management is planning to indigenize the products of international markets such as electric horns to Indian markets. The 'Horns division is likely to have cost-benefits of 15-20 percent through synchronization of technology and products. The benefits would only be realized from second year onwards.

During the previous fiscal, the company had forayed into manufacturing of 'Fuel-caps for Maruti. The Management is of the view that this could be a very promising product for the company in the long-run and they might be adding capacities to cater to other OEMs as well.

Outlook and Valuations

FY14 was broadly a low year for the automobile industry witnessing the slowdown. The financials of MIL were further impacted negatively as the company was in investment mode and most of the capacities of the company were under-utilized.

Consequently, the bottom-line turned extremely weak despite a robust growth in the turnover. We believe, the current fiscal would be a turnaround year for the company as indicated in the Q1 performance (which is seasonally a weak quarter). During the current fiscal, not only the recently expanded facilities would start functioning, the improving capacity utilization levels and profitability would result into a substantial jump in the profits of the company. In light of strengthening auto-demand and enhanced sector outlook we remain bullish about the business.

We upgrade MIL from HOLD to BUY with the increased target price of Rs 602 (13x of FY16 EPS of Rs.46.3) as we introduce FY16 to our financial model. The stock is currently trading at 9.4x of its FY16 earnings.

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