Reducing dependency on two-wheeler segment – Minda Corporation

Update on the Indian Equity Market:

On Thursday, NIFTY settled down lower at 15,809 (-2.7%). HCLTECH (-6%), WIPRO (-5.8%), and INFY (-5.2%) were the top losers. ITC (+3.4%), DRREDDY (+1%), and POWERGRID (+0.4%) were the only gainers. Among the sectors, IT (-5.7%), METAL (-4%), and PSU BANK (-2.7%) led the losers. There were no sectoral gainers for the day.

Excerpts of an interview with Mr. Aakash Minda, ED, Minda Corporation (MINDACORP) with ET Now on 18^th May 2022:

• The company delivered revenue of Rs 9,470mn with an EBITDA margin of 11.4% and this was in line with management guidance of delivering consistent and improved performance.
• MINDACORP is targeting to grow and perform more than 10-15% above the industry on a quarterly and annually and deliver consistent and sustainable EBITDA in double digits.
• On Electric vehicles (EV) he said, MINDACORP has a very strong order book. In FY22 the company received a lifetime order book worth Rs 9,500mn and from FY23 it will start contributing to the revenues of ~Rs 700-800mn.
• MINDACORP’s ~45-50% revenue was contributed by the 2W segment but this segment did not perform well. The company is focusing on diversifying its segments and reducing its dependency on 2W from ~50% to 40-45% and growing in other areas like passenger cars.
• In FY22 the export revenues stood at 12% of total sales but in FY23 the company expects that the exports will be more than FY22.
• On geographic expansion, America and Europe are the biggest markets of exports for the company but it is also focusing on entering into newer geographies.
• In the last two years, raw material and logistics prices have gone up significantly and have impacted MINDACORP, although the company Is doing back-to-back arrangements with the customers the lag persists.
• The company expects the input costs pressures and semiconductor chip shortage will continue in FY23 which will drag down the growth and profitability of MINDACORP and the overall industry for the upcoming quarters and years.
• For FY23, it will maintain its CAPEX spend of ~4-5% of revenues and invest in new technology and smarter, futuristic, and advanced products. All the CAPEX will be funded from internal cash accruals.

Asset Multiplier Comments

• Management’s guidance of outperforming the industry through contract wins in EVs increased revenues from CVs, and export focus will be key positives for the company.
• Higher input costs, supply chain issues, semiconductor chip shortage, higher fuel costs, and increasing inflationary pressures on consumers are the key risks for the overall auto and auto component industry.
• We believe Management’s target of reaching 12% EBITDAM by end of FY24E is achievable on the back of premiumization, improved product mix, commercial vehicle pick up, stable copper prices, localization of components, and productivity of labor.

Consensus Estimates: (Source: Market screener website)

• The closing price of MINDACORP was ₹ 199/- as of 19-May-2022.  It traded at 20x/ 16x the consensus earnings estimate of ₹ 10/ 12.7/- for FY23E/FY24E respectively.
• The consensus target price of ₹ 264/- implies a P/E Multiple of 21x on the FY24E EPS estimate of ₹ 12.7/-

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