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SENSEX: 31109.28 81.07

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Multi Baggers

Sushil Finance

12.00 AM Nov 24th 2016

Minda Ind

BSE ID : 532539     NSE ID : MINDAIND

RECOMMENDED PRICE 292.45

PEAK FROM RECO 618.00 111.32%

CURRENT PRICE 608.50 108.07%

We expect the company to report a consolidated top-line of Rs.4,340 cr in FY19 and an EBITDA margin of 10.2% and a net margin of 4.5% translating into net profit of Rs.193.3 cr and EPS of Rs.24.4. Assigning a target multiple of 18.0x to FY19 earnings, we derive a target price of Rs.438 for the next 18-24 months.

Minda Industries

Q2 FY17 Result Highlights

The consolidated total income stood at Rs.905.9 cr as compared to Rs.651.7 cr in Q2 FY16 and Rs.766.6 cr in Q1 FY17; EBITDA stood at Rs.93.2 cr as compared to Rs.63.2 cr in Q2 FY16 and Rs.72.4 cr in Q1 FY17 ? EBITDA margin stood at 10.3% as compared to 9.7% in Q2 FY16 and 9.4% in Q1 FY17; A?PAT stood at Rs.38.4 cr as compared to Rs.26.3 cr in Q2 FY16 and Rs.27.1 cr in Q1 FY17 – net margin improved from 3.5% in Q1 FY17 and 4.0% in Q2 FY16 to 4.2% in Q2 FY17.

During H1 FY17, top?line stood at 1,672.4 cr as against Rs.1,184.3 cr in H1 FY16; EBITDA stood at Rs.165.6 cr vs Rs.97.3 cr; EPS stood at Rs.8.3 as against Rs.5.0, during the same period.

Other Updates

•     The jump in top-line was mainly due to consolidation of Minda TG, Minda Kosei Aluminum Wheel (MKAWL) & Rinder Group; nevertheless, the standalone business grew 17.3% YoY as well.

•     The capacity at MKAWL has been ramped up from 30,000 wheels/mth to 60,000 wheels/mth – the company would be investing further Rs.55 cr to further increase the capacity to 120,000 wheels/mth. The business has higher EBITDA margin (range of 16-17%) than most of the usual businesses of the company. The clients include Maruti (80%) for Baleno and Brezza, and M&M (20%). The company is also in talks with these OEMs for other models. The Management expects the alloy wheels penetration to increase from current ~18% to ~45% over the next 3-5 years.

•     On the restructuring front, the board has approved acquisition of balance 49.0% equity in SAM Global, Singapore and 31.4% share in PTMA Co. Pvt. Ltd. for a consideration of Rs.13.5 cr and Rs.15.9 cr, respectively. The transaction is likely to be completed by April, 2017. Subsequently, the company will have 100% interest in PTMA, Indonesia and MIVCL, Vietnam. PTMA, Indonesia is engaged in business of Switches (2W/3W) and Light (4W), and MIVCL is in business of switches.

•     Currently, approximately 65% of the group’s turnover is covered under the consolidated entity; Management expects this share to increase to 80-85% by Q1 FY18 and 100% by end of Q4 FY18.

•     The increase in finance costs over the last two quarters is primarily on account of acquisition of Rinder and undergoing consolidation activities, thereby, leading to an increase in working capital requirement. The company is considering several options to reduce the overall finance costs.

•     During the quarter, the associate company, Mindarika has bagged first-time-orders from Maruti Suzuki (India) Ltd. for HVAC (Heating, Ventilation & Air-Conditioning) systems for their upcoming models in India and Indonesia. The company also bagged fresh orders from Royal Enfield Motors Ltd. (REML) for supplying tail lamps for their new models. The order size is Rs.20-25 cr but would be repetitive in nature.

OUTLOOK & VALUATION

The auto components industry recorded robust growth of 19% YoY during the quarter in value terms – the 2W segment grew ~20% YoY on account of some recovery in rural spending on good monsoon – the 4W passenger vehicles segment also grew ~17% YoY driven by seventh pay commission and new models launches. The commercial vehicles segment is still showcasing a slow turnaround. 
 
The auto-industry is expected to undergo a structural shift on account of implementation of GST and recent move of demonetization. We believe, the demonetization move may lead to a drag in the performance for next couple of months, specially in the rural India driven two-wheeler segment but in the mid-to-long-term we expect the things to smoothen out as the demonetization event co-incides with reviving consumer demand that has witnessed two-wheelers and passenger cars volumes growing in the backdrop. The consumption-led-demand-decisions can be delayed in such events but can not be dropped. However, we have been conservative to some extent while projecting the financials for coming couple of quarters.  
 
Meanwhile, the company has showcased another strong quarter outperforming the industry once again. Though the robust performance was primarily on account of consolidation of new entities, yet, the standalone business has also depicted healthy growth and substantial improvement in the profitability. The ongoing restructuring exercise will not only aid the company to achieve the size but the simplification would also be applauded by the investors.
 
We expect the company to report a consolidated top-line of Rs.4,340 cr in FY19 and an EBITDA margin of 10.2% and a net margin of 4.5% translating into net profit of Rs.193.3 cr and EPS of Rs.24.4. Assigning a target multiple of 18.0x to FY19 earnings, we derive a target price of Rs.438 for the next 18-24 months.

For full details, Click on the attachment.

Holding Disclosure

Analyst Stock Ownership - Yes

Stock traded in Last 30 days (No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Sushil Financial Services Pvt. Ltd and Group Companies Holding - Yes

Sushil Financial Services Pvt. Ltd and Group Directors Holding - Yes

Broking Relationship with the company covered  - No

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Sushil Financial Services Private Limited and its connected companies, and their respective directors, Officers and employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained herein prior to the publication thereof. This sheet is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken in preparing the above, We claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk.

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