Auto Ancillary

19 May

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 18th 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/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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14 Mar

Supply-side issues disrupting demand fulfilment – Motherson Sumi

Update on the Indian Equity Market:

On Monday, NIFTY50 ended in green at 16,871 (+1.5%). Among the sectoral indices, MEDIA (+2.5%) BANK (+2.2%), and FINANCIAL SERVICES (+2.16%) were the top gainers, whereas REALTY (-1.7%), OIL & GAS (-0.5%), and METAL (-0.5%) were the top losers. Among the stocks, INFY (+3.8%), HDFCBANK (+3.3%), and SBIN (+3.2%) were the top gainers while IOC (-2.6%), ONGC (-2.3%), and HINDUNILVR (-1.7%) led the losers.

Excerpts of an interview with Mr. Vivek Chaand Sehgal, Chairman, Motherson Sumi Group (MOTHERSUMI) with CNBCTV18 on 11th March 2022:

  • The Russia-Ukraine crisis has impacted the auto ancillary industry in the last couple of days. Some of these companies have European exposure where supply has been affected due to the current geopolitical conflicts.
  • The industry was on track to return to normalcy in terms of semiconductor chip supplies but due to the current crisis industry got another hit. The situation has not yet recovered but he expects that the semiconductor situation should not be highly affected due to the crisis.
  • Sehagal added, due to the crisis certain companies and suppliers who have a presence in Ukraine are affected. This adversely affected the operations of car manufacturers. MOTHERSUMI doesn’t have any facility in Ukraine but the company has small plants in Russia but the operations weren’t impacted.
  • He doesn’t expect demand to get affected due to the current situation but supply-side issues are disrupting the demand fulfillment.
  • The impact of rising energy costs was exacerbated by the rising geopolitical issues on the Auto OEMs.
  • The company is taking a lot of initiatives to protect profitability and MOTHERSUMI’s team also strongly focuses on mitigating the issues.
  • On the back of semiconductor and other issues, the current crisis affecting car manufacturing operations and carmakers also wanted to revive their business as quickly as possible.
  • Sehagal expects that the situation of semiconductor shortage might be stretched out further. If the issues are not resolved till Sep-22 or Oct-22, they might be stretched out further till Jan-23 or Feb-23. Car manufacturers are also trying to solve these issues by 1HFY23.
  • On international business, Mr. Sehgal said the demand was steady and war-like situations accelerated the demand and expects the North American business perform better than expectations.

Asset Multiplier Comments

  • We think that the raw material cost inflation, increased energy costs in Europe, and other supply chain disruptions are likely to delay the recovery in MOTHERSUMI’s revenue and profitability.
  • Global major car manufacturers are shutting their plants in Russia due to current conflicts and with warlike situations continuing, the demand for luxury cars is getting impacted. The top 20 clients contribute ~70% of MOTHERSUMI’s revenue. The list includes some of the luxury car manufacturers. The demand reduction is likely to impact the company’s revenues in the short term.
  • We believe that the pick up in production levels of OEM’s post supply chains improvement, and a stabilisation in commodity prices, and the execution of strong order book will improve the performance of the company.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of MOTHERSUMI was ₹ 128/- as of 14-March-2022. It traded at 16x/12x the consensus earnings estimate of ₹ 8.1/11 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 206/- implies a P/E multiple of 19x on FY24E EPS estimate of ₹ 11/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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21 Dec

Product Development for Next-Gen EVs under Focus – Sona Comstar

Update on the Indian Equity Market:

After Monday’s freefall, Indian equities recovered on Tueday as the NIFTY 50 closed at 16,771 (+0.9%). None of the sectoral indices ended with losses. METAL (+2.9%), MEDIA (+2.5%), and CONSUMER DURABLES (+2.0%) were the best performers of the day.

Among the NIFTY 50 components, HCLTECH (+4.3%), WIPRO (+3.8%), and UPL (+3.6%) were the gainers. POWERGRID (-1.7%), AXISBANK (-1.1%), and BAJFINANCE (-0.7%) led the laggards.

Excerpts of an interview with Mr. Sunjay Kapur, Chairman of Sona Comstar with CNBC-TV18 on 20th December 2021:

  • Sona Comstar has inaugurated a new state of art research and innovation center in Chennai. This facility is dedicated solely to electric vehicles with an aim to foster the development of advanced products for next-generation electrified vehicles.
  • The semi-conductor shortage situation has not improved much over the past few weeks, as the number of chips required per vehicle are increasing as OEMs shift focus towards more digitally integrated systems in vehicles.
  • This is a trend across other industries as well, where the demand for more complex and efficient chips is increasing, adding to the supply issues. Currently, the Auto industry consumes 7% of semiconductor supply, which is slated to go up to 20% in the next 5 years.
  • There’s no immediate relief in sight as there’s no anticipation of a slowdown in demand, so until the supply catches up this issue will persist in the medium term.
  • Logistics, CIF, and Raw Material Inflation are near-term headwinds for the company, the demand persists the challenge lies in solving the supply-side issues in the medium term.
  • The company has set up a state-of-the-art Testing and R&D Facility in Chennai to develop 30-50 Kw Motors and Controllers for EVs. The company is in talks with global OEMs to gauge the demand arising from a shift towards EVs.
  • Conversion from ICE to EVs in terms of the 2 Wheeler market provides a once-in-a-lifetime opportunity for all auto-ancillary companies. The company believes that in a market of this size, competition can co-exist with significant market share

Asset Multiplier Comments

  • The shift to EVs provides a massive growth opportunity for all auto and auto ancillary companies and Sona Comstar is perfectly placed to take advantage of its unique R&D-led product portfolio.
  • The Auto Industry is reeling from the semi-conductor shortage crisis and with no respite in sight, we believe the company will be under pressure in the medium term until the supply side issues are sorted out.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Sona Comstar was ₹ 709/- as of 21-December-2021.  It traded at 118x/ 75x the EPS estimates of ₹ 6.0/ 9.5/- for FY22E/FY23E respectively.
  • The consensus target price of ₹ 708/- implies a P/E Multiple of 75x on FY23 EPS estimate of ₹ 9.5/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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14 Dec

Multiple growth drivers for the Indian tyre industry – Apollo Tyres

Update on the Indian Equity Market:

The benchmark index NIFTY 50 declined for the 3rd straight session on Tuesday and closed at 17,325 (-0.3%). Investors’ will focus on the Fed policy decision due Wednesday which could induce volatility, amid concerns over elevated inflation and a delay in the economic recovery due to omicron strain.

Among the sectoral indices, MEDIA (+1.6%), PHARMA (+1.1%), and METAL (+0.4%) led the gainers, while FINANCIAL SERVICES 25/50 (-0.8%), AUTO (-0.7%), and REALTY (-0.6%) led the laggards. Among the NIFTY50 components, POWERGRID (+3.9%), DIVISLAB (+2.5%), and AXISBANK (+1.4%) were the top gainers while ITC (-2.7%), BAJFINANCE (-2.0%), and TATACONSUM (-1.9%) led the laggards.

Excerpts of an interview with Mr. Onkar Kanwar, Chairman, Apollo Tyres (APOLLOTYRE) published in Business Standard on 14th December 2021:

  • There are multiple growth triggers for the Indian tyre industry, apart from the ones arising due to import curbs on China. The National Infrastructure (NIP) for FY19-25 for which the government has allocated ₹ 111 tn is expected to have a multiplier effect. He believes there is enough research that indicates the multiplier effect due to the creation of road infrastructure in a country. The significant increase in the movement of goods and people via road is beneficial for the tyre industry.
  • There has been a revival in the truck side original equipment manufacturers (OEMs), which will result in repeat demand in the replacement segment as well. The growth in the replacement segment is a mixed bag, some months witness growth in bias-ply tyres demand while some others witness growth in radials.
  • The Company is hoping that the push on infrastructure development and increased consumer spending will further drive demand in the CV segment.
  • The only challenge facing the company now is the relentless inflation which has been and is expected to be a pain point in the near future as well. The price hikes taken lag the raw material inflation, which adversely impacts the margins.
  • The company has decided to specialise in the Enschede plant in the Netherlands to be cost-competitive in the European manufacturing operations. It has shuffled the manufacturing mix such that loss-making units (due to high costs of manufacturing in the Netherlands) were shifted to Hungary and India. With the successful execution of Dutch plant specialisation, there has been a significant improvement in the European operations’ performance.
  • The share of high margins passenger car sales mix has increased to over 30 percent and is expected to rise to 40% in the next 2-3 years.
  • The current focus is on ramping the facility in Andhra Pradesh. This unit along with Chennai and Hungary units services the demands of all geographies. Hence, the company is not looking at any acquisitions.

 Asset Multiplier Comments

  • The CV industry was one of the most ravaged by the pandemic. With a turnaround expected in the CV cycle in India, and pent-up demand in passenger vehicles, the entire tyre industry is likely to be a beneficiary.
  • The Indian business of APOLLOTYRE is expected to benefit from operating leverage and an increasing share of the Andhra plant. The European operations are likely set for a turnaround led by strategic initiatives at the front end (product side) and restructuring in the Netherlands.

Consensus Estimate: (Source: market screener website)

  • The closing price of APOLLOTYRE was ₹ 217/- as of 14-December-2021.  It traded at 18x/ 13x/ 11x the EPS estimates of ₹ 12/ 17/ 20/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 258 implies a P/E Multiple of 13x on FY24 EPS estimate of ₹ 20/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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30 Nov

Increased rubber prices not sustainable – CEAT

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 16,983 (-0.4%). Among the sectoral indices, CONSUMER DURABLES (+2.2%), REALTY (+0.6%), and IT (+0.5%) ended higher, whereas METAL (-1.9%), AUTO (-0.9%), and PRIVATE BANK (-0.7%) led the losers. Among the stocks, POWERGRID (+3.1%), SHREECEM (+3.0%), and BAJAJFINSV (+2.0%) led the gainers while TATASTEEL (-4.0%), KOTAKBANK (-3.1%), and JSWSTEEL (-2.7%) led the losers.

Excerpts of an interview with Mr. Kumar Subbiah, CFO at CEAT LTD. with CNBC TV18 on 26th November 2021:

  • The rubber industry is currently struggling with a big demand-supply mismatch and this will impact tyre manufacturers. Approximately 60% of India’s rubber requirement is sourced locally.
  • Availability of natural rubber from local suppliers has been difficult in the last couple of weeks. The quantity of rubber was coming into the market was lower because of heavy rains in Kerala therefore tapping was slightly lower. Another reason was the inventory levels of the traders was also on the lower side.
  • The demand-supply mismatch is a short-term problem, the availability is a major challenge right now. Shortage of 30% to 40% is on a short-term basis.
  • As of now, it doesn’t affect CEAT’s production because they have inventory in the pipeline. But if adequate quantities of rubber are not supplied from the local markets, then the option is to import the natural rubber. If the Government facilitates in terms of concession in import duty, it will help the manufacturers.
  • An import of natural rubber needs to be planned because in the current situation it takes a little longer time for vessels to come from Southeast Asian markets.
  • The rubber prices in the local market as well as in the international market have gone up. It moved up from Rs 170 per kg to Rs 180 per kg due to the demand-supply gap in the local market. The increase in rubber prices will have a negative impact on margins.
  • The company expects the rubber prices will come down shortly and the current prices are not sustainable. The prices will come down closer to import parity levels soon.
  • Demand continuesto be similar to the previous quarter, there are different categories and they performed differently. The company expects some weakness in Truck, Bus and farm tyres to continue. The company expects weakness particularly in two-wheelers and passenger cars segments due to the shortage of chips.
  • In the export segment, CEAT is facing the issue of availability of containers, vessels, and increase in freight costs. It has seen some softness in material prices, but the vessels movement, container availability, continue to be a challenge. Post covid the company saw a positive response from the international markets.

Asset Multiplier Comments

  • The Global lockdowns, higher freight cost and issues of container availability and vessels might be impacting CEAT’s revenue, as out of total sales ~20% of sales come from Exports.
  • Increase in rubber prices are likely to continue in 2HFY22, and this higher input cost may affect margins in short term. The recovery in local rubber market will drive the company’s margin recovery in near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of CEAT LTD. was ₹ 1,165/- as on 30-Nov-2021. It traded at 18x/13x/12x the consensus earnings estimate of ₹ 65/88/98 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,334/- implies a PE multiple of 14x on FY24E EPS of ₹ 98/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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12 Oct

Exports will be the focus area after the acquisition – Motherson sumi

Update on the Indian Equity Market:

On Tuesday , NIFTY ended higher at 17,991 (+0.26%). All the sectoral indices were gainers, led by PSU Banks (+3.1%), Media (+1.5%), and FMCG (+1.2%). IT was the lone loser, down by (-0.9%). Among the stocks, Titan (+6.1%), Bajaj Auto (+3.3%), and Bajaj Finserv (+3.0%) led the gainers while HCL Tech (-3.7%), HDFC Life (-1.9%), and Coal India (-1.7%) led the losers.

Excerpts of an interview with Mr. Vivek Chaand Sehgal, Chairman , of Motherson Sumi (MS) with ET NOW on 11th October 2021:

  • Acquisition of CIM Tools in aerospace segment will be beneficial for MS. CIM Tools have an order book of more than $200 million and the company will do very well in coming time.
  • Exports will be the focus area because MS set up bases in the different countries with CIM Tools and there will be a rise in exports because of the customers are abroad.
  • CIM Tools is a profit-making company and idea would be to improve it and add to the top line. MS has a clear thinking. They get 40% return on capital employed.
  • MS is acquiring existing profit-making joint venture in China. It is very important because MS is more into in passenger vehicles and this one is all about commercial vehicles .
  • MS has a huge presence in China and company have a huge market that they can then generate in China itself.
  • Opportunity wise in two to three years company will be all over in China. Company is learning about commercial vehicles. It is a wonderful area to get into it because MS is very strong with commercial vehicles globally.
  • Comparing global and domestic business is very difficult. The kinds of cars that are produced outside and the cars in India are very different in terms of value. Every car that produced there has a buyer for it. That means customers are at very good situation. Companies have the orders but they have some supply constraints.
  • The chip shortage and all other things combated with customers in a very strong way. The demand is huge and the situation is also getting better.

Asset Multiplier Comments

  • Auto production cuts and raw material price increase due to inflation might affect company’s performance in the near term.
  • Company is expanding its business in different segments. This will be the growth driver.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Motherson Sumi Systems Limited was ₹ 245/- as of 12-Oct-2021. It traded at 35x/23x/20x the consensus earnings per share estimate of ₹6.89/10.8/12.4 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 254/- implies a PE multiple of 20x on FY24E EPS of ₹12.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

By Auto, Auto Ancillary, Motherson Sumi , 0 Comments Read more...
16 Sep

Semiconductor shortage to persist – Motherson Sumi

Update on Indian Equity Market:
On Thursday, markets ended on a high with Nifty closing 110 points higher to close at 17,630. INDUSINDBK (+7.3%), ITC (+6.6%), and SBI (+4.5%) were the top gainers on the index while GRASIM (-1.8%), BHARTIARTL (-1.3%), and TCS (-1.3%) were the top losers for the day. Among the sectoral indices PSU BANK (+5.4%), PRIVATE BANK (+2.7%), and BANK (+2.2%) were the top gainers, while MEDIA (-1.7%), METALS (-0.6%), and IT (-0.6%) were laggards.

Excerpts of the Interview with Mr VC Sehgal, Chairman of Motherson Sumi with CNBCTV18, dated 15th September 2021:

A lot of struggling semiconductors manufacturers are coming back on stream. However, with the uncertainty and guidance from manufacturers, the company expects this issue to persist beyond Q2CY22.
The sophistication required and the manufacturing processes of these semiconductor chips are extremely complex, the current structural barriers faced by these manufacturers can’t be removed overnight.
Demand has picked up for the entire sector, however, there’s a rise in inventory for OEMs as manufacturers wait for semiconductors to be supplied to complete the production and deliver the automobiles.
OEMs like Motherson Sumi are agnostic towards the engine that is fitted into the automobile, whether EV or ICE. However, the shift towards EV is value accretive for the company.
PLI scheme is more focused on technology transfer and development than actual production, however, these schemes coupled with the EV push by the government will result in robust demand for OEMs.
Raw Material price hikes and other margin pressures are a function of cycles and thus the company is not planning to take any aggressive steps to counter it. Right now the focus is only on delivering on the pent-up demand as fast as possible.

Asset Multiplier Comments:
Semiconductor shortage is an issue that’s going to persist for the upcoming quarters and is universal. The Auto and Ancillary Sector has to bear the brunt until things get better.
Motherson Sumi by the virtue of its product portfolio is indifferent to the ICE/EV competition, thus it is better placed for robust growth ahead once the supply side issues subside.

Consensus Estimates (Source: market screener website):
The closing price of Motherson Sumi was ₹224/- as of 16-September-2021. It traded at 32x/20x/17x the EPS estimate of ₹ 7/₹ 11/₹ 13 for FY22E/23E/24E
The consensus price target is ₹ 256/- which trades at 19x the EPS estimate for FY24E of ₹13/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Auto, Auto Ancillary, Motherson Sumi , , 0 Comments Read more...
16 Aug

Production loss to be minimal despite semi-conductor Shortage: Bharat Forge

 

Update on Indian Equity Market:

On Monday, markets ended higher with Nifty closing 34 points higher to close at 16,130, TATASTEEL(3.7%), BAJFINANCE (3.4%) M&M (2.4%) were the top gainers on the index while MARUTI (-2.6%),SHREECEM (-2.3%) and EICHERMOT (-2.3%) were the top losers for the day. Among the sectoral indices,  METAL  (1.5%), OIL & GAS (0.9%) and  FINANCIAL SERVICES (0.4%) were the top gainers, while MEDIA (-1.4%),  PSU BANK (-1%) and AUTO (-0.9%) were the top losers.

 

Excerpts of an interview with Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 13th August 2021:

 

  • Despite mounting input cost inflation, Company managed to expand its margins by 100 bps sequentially and posted robust growth on both Revenue and Net profit Fronts in Q1FY22
  • Semi-Conductor shortage is a universal phenomenon that’s affecting industries and businesses across the world. In the case of OEMs, most of them have taken adequate steps to address this issue. 
  • In the short term, everyone is suffering some loss in production, however, the company expects no adverse impact on production in the medium-long term. The company reiterated that the situation was outside the control of anyone and its a matter of when and not if the issue will be resolved,
  • He stated that the industry has resorted to rationing of semiconductors to produce higher-value products. This will impact the supply in the short term. 
  • A lot of Passenger vehicle manufacturers have resorted to reducing the production of lower end passenger cars against higher value cars that offer better realisations.
  • Cost Reduction was the company’s important priority in the past 2 years and the company has optimised costs through downsizing, IoT and WC Management, to produce the best margins this company has seen.
  • The company has a strong balance sheet and healthy cash balance, the company plans to take forward its growth through inorganic acquisitions aimed at future technologies like e-mobility, renewables etc as the company gears itself for the future.

 

Asset Multiplier Comments:

 

  • The Semi-Conductor shortage will be dealt with sooner rather than later, barring any major disruptions, OEM and the entire Auto and Ancillary sector is recovering well.
  • Bharat Forge has managed to improve its margins and its plans to grow across all segments through strategic investments as it gets ready for the future are on the right track.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹803/- as of 16-August-2021.  It traded at 45x/29x /26x the EPS estimate of ₹18/₹ 28/₹ 31 for FY22E/23E/24E.
  • The consensus price target is ₹ 900/- which trades at 30x the EPS estimate for FY24E of ₹ 31/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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09 Jun

Growth opportunities ahead across all segments – Bharat Forge

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 105 points to close at 15,635. PowerGrid (3.9%), SBILIFE (1.8%), and NTPC (1.6%) were the top gainers on the index while TATA MOTORS (-2.6%), ADANIPORTS (-2.4%), SHREECEM (-2.0%) were the top losers for the day. Among the sectoral indices,  MEDIA (-2.1%),  REALTY (-1.7%), and AUTO (-1.3%) were the top losers, and there were no Sectoral gainers.

 

Excerpts of an interview with Mr. Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 7th June 2021 :

 

  • Greenshoots have been seen in recovery over Q4FY21 despite lockdown, the industry is coming back to pre-covid levels but the management expects another quarter for things to fully recover.
  • Oxygen shortage affected steel supply due to the 2nd COVID wave in Q4, but significant recovery has been seen. The semiconductor supply shortage is still an issue but there’s no reduction in demand for chassis and powertrains.
  • Exports have seen tremendous growth across all segments over FY19 levels, and the company is benefiting from shifting from traditional supply chains in East Asia to India and the rest of the world.
  • There is a huge Commodity Upcycle, especially in metals. However, the company is poised to directly pass on the hikes to its customers.
  • The Company is expanding its capacities in the renewables sector, in order to reduce its reliance on Oil and Gas and focus on sustainable growth ahead.

 

Asset Multiplier Comments:

  • Bharat Forge like most Industrial manufacturing has already seen the worst of its days due to the pandemic, and recovery seems to be well on track.
  • Increased Government Expenditure, Focus on Atmanirbhar Bharat will help the company’s topline across all verticals in years ahead.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹757/- as of 09-June-2021.  It traded at 42x/ 30x the consensus EPS estimate of ₹ 18/ 25/-  for FY22E/23E respectively.
  • The consensus price target is ₹ 800/- which trades at 32x the EPS estimate for FY23E of ₹ 25/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Auto Ancillary, Bharat Forge, Bharat Forge , 0 Comments Read more...
31 Mar

Current capacities fully utilized, need expansion to meet demand: Minda Industries

Update on Indian Equity Market:

After a blockbuster start of a 3-day week, markets traded lower to end the last day of FY21 as Nifty closed the day 154 points lower at 14,691.  Within the index, TATASTEEL (2.3%), GRASIM (2.3%), and UPL (1.9%) were few of the gainers while HDFC (-3.9%), HDFCBANK (-3.8%), and FMCG (1.0%) led the winners while FIN SERVICES (-2.0%), PVT BANK (-1.9%), and BANK (-1.7%) led the losers. 

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries Ltd (MINDAIND) with CNBC -TV18 dated 30th March 2021:

  • The board of MINDAIND has approved the company’s expansion into four-wheel lighting business and four-wheel alloy wheel businesses due to an improved market scenario and increased demand.
  • In the Bawal plant of Haryana, the current capacity of 120,000 wheels/ month will be increased to 180,000 wheels/ month. This will be a part of the brownfield expansion.
  • The second plant aiming at the production of lighting is a Greenfield expansion plan.  Both the plants are expected to commission the production in FY22E.
  • The company is already running its alloy wheel business beyond its current capacity. The company is making sure that surplus capacity is available considering the additional orders received by the company. The aftermarket sales are having a positive momentum further creating demand for the alloy wheel segment.
  • Current sales in the lighting business are around Rs 4bn odd a year. The new orders received by the company are for more than Rs 2bn a year leading to the creation of a new plant.
  • The financing for both projects will be from internal accruals. The company might need a little bit of debt depending upon the funding requirement.

Asset Multiplier Comments:

  • The decision to expand the lighting and alloy business paints a healthy picture about the order book of the company for at least the next 24 months. The Company is expected to witness above-average growth due to pent-up orders.
  • The company is currently running the business at full capacity utilization. As a result, the growth in fundamentals till the commissioning of the new plant might not represent the true state of demand for the company.

Consensus Estimates (Source: market screener website):

  • The closing price of MINDAIND was ₹ 540/- as of 31-March-2021.  It traded at 94x/ 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/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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