Reorganization of verticals will help the company reduce costs: Minda Industries

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Markets continued to feel the pressure of rising bond yields as Nifty fell 163 points to 14,558.  Within the index, ITC (4.0%), BAJAJAUTO (2.9%) and HINDALCO (1.9%) were few of the gainers while HCL TECH (-3.5%), INFY (-3.3%) and DIVISLAB (-3.0%) led the losers. Among the sectoral indices, only FMCG (0.1%), and METAL (0.04%) managed to close in green while IT (-3.1%), PHARMA (-2.3%) and PSU BANK (-2.0%) led the losers.

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries (MINDAIND) with CNBC -TV18 dated 17th March 2021:

• Minda Industries has re-aligned its business verticals as the auto ancillary company is focusing on the centralization of operations of the company. The centralization theme will help cross-sale of products in the export market.
• The company plans to have an increased focus on exports. Towards that goal, the company has set up a dedicated marketing office in Japan.
• The objective of this move was to keep the fixed costs at the same level while increasing the sales. The company wanted to get synergies of scale to improve margins. The second objective was, some of the functions like marketing, commercial, were not reaping benefits of scale due to de-centralization.
• The company now will have the ability to negotiate better prices with vendors. The company is confident of positive operating leverage at play in the medium term. This along with improved revenues will yield benefits for the company.

Asset Multiplier Comments:

• The aim for the restructuring of an organization is a long-term process. If executed as per expectation, the company may see increased growth rates in revenues over a few years.
• The objective of centralization is to keep fixed costs at similar levels to benefit from positive operating leverage. The company may witness improvement in profitability margins as a result of this move. 

Consensus Estimates (Source: market screener):

• The closing price of MINDAIND was ₹ 551/- as of 18-March-2021.  It traded at 95x/ 41x/ 29x the consensus EPS estimate of ₹ 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 535/- which trades at 28x the EPS estimate for FY23E of ₹ 18.9/-

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