Minda Industries

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About the Company

Minda Industries is a supplier of automotive solutions to original equipment manufacturers. The Company offers a range of products across various verticals of auto components, such as switching systems, acoustic systems, and alloy wheels, among others.

Q3FY21 Updates

Financial Results & Highlights

*Contains an exceptional item of Rs 5.17 Cr

Detailed Results

1. The company had a very good quarter with a revenue rise of 35% YoY and consolidated PAT growth of 128% YoY.
2. The EBITDA margins rose 236 bps YoY to 14.7% in Q3FY21. EBITDA for Q3 stood at Rs 264 Cr vs Rs 163 Cr last year growing 62% YoY.
3. The revenue of Lighting, Acoustics, and Others grew in Q2 while Switches and Light Metal saw slight declines.
4. Almost 83% of revenues were from domestic sources while 17% were from exports. In terms of channels, 86% of revenues were sourced from OEMs while 14% were from the replacement market. 48% of sales were for 2 wheelers while 52% were for 4 wheelers.
5. The revenue share of various segments in Q3 is as follows:
   1. Switches: 35%
   2. Lighting: 24%
   3. Acoustics: 10%
   4. LMT: 15%
   5. Others: 16%
6. The Harita merger has been approved but final orders are pending.
7. The latest operational updates on the company’s various segments are:
   1. Switches:
      1. 2W Switch: Acquired new customer John Deere
      2. 4W: New orders received for Steering Wheel Switch, second gear switch driver side switch, Power window, Sunroof Switches, Audio and panel switches from Indian OEMs
   2. Lighting:
      1. 2W Lighting: New LED order for Yamaha
   3. Acoustics: Clarton Horn received new orders from Ford, KIA, FCA and Hyundai
   4. LMT:
      1. 2W alloy wheel 3rd Line also got operational
      2. Commercial sales started and New Orders received from OEM
   5. Others:
      1. Sensor: – Started Manufacturing and supply of Wheel speed Sensor for Korea
      2. MKL: Received new Business from MSIL
8. The company announced an interim dividend of Rs 0.35 per share.

Investor Conference Call Highlights

1. The auto industry revival was backed by sustained retail sales momentum post festivals, low channel inventory, and a soft base and with rising preference for personal mobility and continued positive sentiments in rural and semi-urban markets.
2. Most automotive industry segments have reported successive improvement in offtake throughout the second half of 2020 on the back of the initial bounce provided by pent-up demand, followed by the preference for affordable personal mobility and continued rural resilience.
3. The proposed PLI scheme of INR 57,000 crores for the auto sector is a major development in Q3.
4. The new voluntary vehicle scrappage strategy policy in the Union Budget is expected to encourage the consumer demand towards new and environment-friendly vehicles.
5. The Finance Minister has also announced that custom duties on specified auto parts, like ignition wiring sets, safety glass, parts of signaling equipment, et cetera, will be hiked to 15%. This bodes for local component makers like Minda.
6. The CV segment has also gotten a welcome push from the Govt announcing a new scheme worth INR 18,000 crores to support the augmentation of public bus transportation services.
7. The management has stated that Minda has been working to upgrade our existing group products to meet requirements specific to electric vehicles like low energy consumption, light weighting. It already has several products in this segment including LED headlamps, tail lamps, side indicators, low-current switches, and electronic horns.
8. Minda has also launched new sensors specific to electric vehicles like APS or accelerated position sensors, brake pedal sensors for regenerative braking, EV battery temperature sensors, and also vacuum sensors for EV brake systems.
9. The management believes that the segment of 2Wheelers and 3Wheelers will have the largest and the quickest adoption in the electric vehicle segment and primarily because there is less dependency on charging infrastructure and as well as the range of these vehicles would be enough for more city driving conditions.
10. Thus Minda’s focus will be on these new products for 2Wheelers and 3Wheelers which include ECUs, DC-DC converters, on-board, and off-board chargers, telematics control units, and smart plugs. It is also working on developing battery management systems for lithium-ion batteries along with its technical partner, Auto Motive Power, in the USA.
11. The lighting business achieved a revenue of INR 426 crores for Q3, contributing to 24% of total turnover. Minda is working to build a master plan for setting up a greenfield plant for meeting increased demand in the 4Wheeler lighting business.
12. LMT segment achieved revenue of INR 270 crores for Q3, contributing to 15% of total turnover.
13. The company saw sales of Rs 30 Cr in Q3 from the new 2W alloy wheels. The last product line in this segment is expected to be completed by March.
14. Acoustics achieved revenue of INR 188 crores for Q3, contributing 10% of total turnover.
15. Other businesses achieved revenue of INR 288 crore for Q3, contributing to 16% of the overall top line. It mainly comprised of sales from sensor business at around INR 55 crores, a similar amount from blow molding parts business, and around INR 33 crores from i-SYS.
16. Total borrowings as of December 31, 2020, were INR 1,083 crores compared to INR 1,152 crores for Q1 FY ’21.
17. The company has done Rs 250 Cr of capex to date in FY21.
18. It has around Rs 190 Cr of cash currently.
19. The aftermarket segment improved 50% QoQ. The management expects this segment to reach annual sales of Rs 1000 Cr.
20. MKL will be incurring an expenditure of around INR 87.3 crores for enhancement of capacity and setting up an in-house paint shop in Bangalore.
21. The paint shop will be set up on a greenfield expansion which is expected to be completed by April 2022.
22. The growth in switches has been above 30-35% mainly on the back of new customer additions in 4W and the addition of many components in 2W due to BSVI.
23. With the rise in sales volumes, the company has been able to achieve operating leverage which has resulted in margin expansion according to the management.
24. The management states that there is still scope for margin expansion in the lighting and acoustics businesses.
25. The management expects Minda to become free cash positive next year.
26. The management states that most of Minda’s products excluding filters can go into EVs.
27. The overall kit value has risen for Minda with the addition of more switches to the average portfolio.
28. In 2W alloy wheels, the management expects to scale up to fast and revenues from this segment to rise to Rs 350-400 Cr in FY22.
29. The new orders from Maruti will be commercialized in FY22 and the company may need to add a new facility in Gujarat to be able to meet this order.
30. The 4W alloy wheel is expected to launch in the upcoming festive season in 2021.
31. The average kit value currently is above Rs 15000 and the new products for EVs should add around 7000-10000 to it.
32. These new products should go into production around the middle of FY22 and should go out in 1.5 years.
33. The annualized revenues from sensors have risen from Rs 120 Cr to Rs 200 Cr currently. The management’s objective is to take this number up to Rs 400-500 Cr in the next 3-5 years.
34. The primary reason for the Delvis acquisition was to bridge the gap and stay competitive with global majors in the lighting industry, all of which are now present in India right now.
35. The company is looking to enhance its marketing in Europe and ASEAN and is setting a new office in Thailand.
36. The management has stated that the focus currently is not to drive sales from new customers but to do so by increasing revenue share from existing customers.
37. ROCE for Q3 has risen above 20%.
38. The management states that from existing facilities, Minda will be able to earn 50% more revenues at the most.
39. Minda intends to start its new customers with some small volumes from the existing 4-million-wheel capacity in the alloy wheel segment and add new customers only after phase 2 is completed in the next 1.5 years.
40. Manpower costs have risen 20% QoQ mainly due to an increase in semi-permanent or blue collar workers due to a rise in volumes.
41. The management expects the sales and volume momentum from Q3 to sustain in the short term at least.
42. The margins will hard to maintain at the current level of 14.7% as many fixed costs will rise as the economy normalizes according to the management.
43. The management has not seen much material impact from the PCB shortage.

Analyst’s View

Minda Industries has been one of the top auto ancillary providers in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. The company has had a very good quarter with a 35% YoY rise in sales and >100% YoY rise in PAT. It is looking to focus on the new and rising businesses of alloy wheels and sensors and develop a full portfolio geared towards EVs. The company’s acquisition of Delvis is yielding steady orders from global auto majors and is also helping Minda compete effectively in the domestic market against international competitors. There is a big opportunity here for component makers like Minda from the recently announced PLI scheme for the auto industry. It remains to be seen whether this momentum will sustain and whether Minda will be able to realize its export ambitions with the new PLI scheme. The management has a goal of doubling revenues in 4-5 years. It is still early days to comment on that. Nonetheless, given the new orders that the company has bagged, their improving product portfolio, and massive import substitution opportunity, Minda remains a compelling auto ancillary stock to watch out for.

Q2FY21 Updates

Financial Results & Highlights

Detailed Results

1. The company had a mixed quarter with a revenue rise of 8% YoY and consolidated PAT growth of 61.5% YoY.
2. The EBITDA margins rose to 14.71% in Q2FY21 vs 11.9% a year ago. EBITDA for Q1 stood at Rs 215 Cr vs Rs 162 Cr last year growing 33% YoY.
3. The revenue of Lighting, Acoustics, and Others grew in Q2 while Switches and Light Metal saw slight declines.
4. There will a delay in commissioning of plants by 4-6 months for 2W alloy wheel and Sensors.
5. Almost 83% of revenues were from domestic sources while 17% were from exports. In terms of channels, 86% of revenues were sourced from OEMs while 14% were from the replacement market. 48% of sales were for 2 wheelers while 52% were for 4 wheelers.
6. The revenue share of various segments in Q1 is as follows:
   1. Switches: 32%
   2. Lighting: 25%
   3. Acoustics: 11%
   4. LMT: 12%
   5. Others: 19%
7. The plants are now operating at 80% of pre-COVID levels.
8. The NCLT hearing for a merger with Harita Seating Systems is scheduled for 16^th Nov 2020.
9. The rights issue for the company has been completed for Rs 242.8 Cr.
10. The latest operational updates on the company’s various segments are:
    1. Switches:
       1. 2W Switch: Higher kit value on account of new feature and BS-VI change over
       2. 4W: New Product: Sun Roof, Gear Shifters, and Neutral Switches been localized (Import substitution)
    2. Lighting:
       1. 2W Lighting: New orders from RE, E-Bikes TVS, Bajaj, and Honda
       2. 4W Lighting: MSIL new SUV Model LED tail lamp with rear facia
       3. Delvis: New orders from Daimler and Audi
    3. Acoustics: First order for Electronic horn for M&M PV division
    4. LMT:
       1. LPDC Line to start commissioning to be ready for customer inspection by Q4
       2. 2W alloy wheel plant is operational
    5. Others: Started supply of Wheelspeed Sensor has been started for Korean customers (In Korea)
11. Toyoda Gosei Japan (TG) and Minda are consolidating their business under one umbrella. TGMINDA has acquired a 95% stake in TGSIN from TG Japan in Sep-20.
12. Board has in principle approved the merger of MINDATG into TGMINDA.
13. Board has approved the purchase of a ~13% stake in Tokairika Minda Pvt. Ltd. (TRMN) from Minda Finance Limited as part of the group consolidation exercise. TRMN is engaged in the business of Seat Belts, Gear Sifters, Locks, and safety devices. For FY20 TRMN reported a turnover of Rs 600 Cr.

Investor Conference Call Highlights

1. The finance cost is lower on account of reduced interest rates and utilization of cheaper sources of funding like commercial papers.
2. The depreciation had been higher due to the amortization of intangibles related to the acquisition of Delvis and commissioning of the new alloy wheel plant at SUPA.
3. The total borrowings as of September 30, 2020, were at around Rs 1,152 Cr compared to Rs 1,159 Cr for Q1FY21. Approximately Rs 298 Cr of cash was available as of September, resulting in net debt of around Rs 823 Cr.
4. Sales in Sep of the 2W alloy wheels were at Rs 3 Cr. The peak revenues from the segment are expected to be Rs 470 Cr.
5. The cost savings have been Rs 6-6.5 Cr a month.
6. The cost savings have come from a reduction in other expenses and renegotiation of rental agreements to include a full-year reduction.
7. The main rationale behind the consolidation is the savings of nearest overheads and common costs of common functions which should help improve overall margins.
8. A major part of the proceeds from the rights issue has been used by TG Minda for the acquisition of TGSIN. The rest was used to repay debt.
9. In TRMN, the company has the option to increase the shareholding from 13% to 30% and it is looking into it now.
10. The management expects the merger with Harita to be completed by the end of the current financial year.
11. The company has already gotten some business for Harita from a Japanese OEM so far.
12. The company also plans to launch the Harita Seating Systems into our aftermarket channel.
13. The company’s goal remains to outperform industry growth and double revenues in the next 4-5 years.
14. The management is also looking to create significant cross-sell opportunities with customers of Harita.
15. Demand is coming back to the auto sector mainly on the back of increased demand for personal mobility at the expense of public transport due to COVID-19.
16. Gross margins for TRMN have been 25-26% while EBITDA margin was at 8%.
17. The company expects to commence production in all 4 lines for the 2W alloy wheels by the end of FY21 and take roughly around a couple of quarters to stabilize the plant.
18. Maruti has been an Anchor customer for the company and Minda has 5 dedicated plants for Maruti alone.
19. For the wheel speed sensor, the company has not only bought the customers, it has also gotten a few Korean customers with it as well. The company has also manufactured some volumes of inventory in China with the newly constructed lines and then moved those lines to India.
20. The company will be able to start exports from India for this segment from Q4 onwards.
21. The pass-through lag for input commodity price increases is typically 1 quarter.
22. On a full-year basis, most of Minda’s contracts are structured in such a way that they have a quarterly or annual price adjustment only.
23. The company spent Rs 150 Cr in Capex in H1, most of which was in the alloy wheel project and the sensor project. The total Capex for the year is expected to be at Rs 250 Cr.
24. The investment in TRMN should be around INR 65-odd crore in total.
25. Minda TG is a company where Minda has 51% holding and it makes fuel hoses and brake hoses. It has annual revenues of Rs 60-70 Cr.
26. Total revenues for TG are at Rs 600 Cr while for TG Minda is at Rs 300-350 Cr. The merged entity should have annual revenues close to Rs 1000 Cr.
27. The company has seen revenue decline despite volume growth due to a shift in product mix towards lower-end products.
28. The ordering cycle in lighting should yield revenues from FY23 onwards and should bring in Rs 200 Cr.
29. Delvis is not doing any manufacturing on its own and is mainly operating through contract manufacturing.
30. The management has stated that the majority of the Capex to pursue growth has already been done and it does not expect that kind of CapEx cycle to come soon.
31. Penetration of alloy wheels is increasing in general and the company is now in process of installing another 30,000 wheels a month line in Gujarat.
32. The new orders for switches for sunroof and gears have take value of around Rs 500 per car.
33. In acoustics, around 2/3^rd of sales comes from exports while only 1/3^rd comes from India.

Analyst’s View

Minda Industries has been one of the top auto ancillaries providers in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. The company has had a good quarter with swift demand revival and good reception for its new segments of alloy wheels and lighting orders. The company has also managed to gain good orders for its Lighting business from Audi & Daimler through its acquisition of DELVIS. It has also gained good orders for Lighting from Royal Enfield, Honda, Bajaj Chetak, etc. It remains to be seen whether recovery will be as fast as the management expects. The management has a goal of doubling revenues in 4-5 years. It is still early days to comment on that.  Nonetheless, given the new orders that the company has bagged, their improving product portfolio, and massive import substitution opportunity, Minda remains a compelling auto ancillary stock to watch out for.

Q1FY21 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs (17.2) Cr

^ Includes exceptional item of Rs (8.9) Cr

Detailed Results

1. 1. The company had a devastating quarter with a revenue drop of 71% YoY and consolidated losses of Rs 119 Cr.
   2. The EBITDA margins fell to -17.14% in Q1FY21 vs 11.96% a year ago. EBITDA for Q1 stood at Rs (71) Cr.
   3. The revenue of all segments fell in the quarter.
   4. Almost 83% of revenues were from domestic sources while 17% were from exports. In terms of channels, 84% of revenues were sourced from OEMs while 16% were from the replacement market.
   5. The revenue share of various segments in Q1 is as follows:
      1. Switches: 30%
      2. Lighting: 29%
      3. Acoustics: 16%
      4. LMT: 6%
      5. Others: 19%
   6. The plants are now operating at 80% of pre-COVID levels.
   7. The final NCLT hearing for a merger with Harita Seating Systems is scheduled for 24^th August 2020.
   8. The rights issue for the company has been announced for Rs 243 Cr. It will take place from 25^th August to 8^th September 2020.
   9. The latest operational updates on the company’s various segments are:
      1. Switches:
         • 2W Switch: Nominated for oil temperature sensors Japanese 2W OEM.
         • 4W: New Product: Roof top-mounted switches to a Japanese OEM.
      2. Lighting: Strong order wins and order pipeline in India backed by Technology from Delvis.
      3. Acoustics: Clarton Mexico has received orders from Ford for electronic horns. CH nominated for 0.3 million horns by large Korean OEM in India.
      4. LMT:
         • New Customer: Large Korean OEM for LPDC wheel in their upcoming model.
         • 2W alloy wheel plant expected to be commissioned in September 2020.
      5. Others:
         • Smart Plug for TVS E Cute Electric Scooter.
         • HTS sensor line has been commissioned, however other products are delayed due to the COVID pandemic.

Investor Conference Call Highlights

1. The production level in June end was close to 40%.
2. The overall production levels have since grown progressively to around 70% in July and around 80% in August of the pre-COVID levels.
3. 2Wheeler segment has so far done better than the 4Wheeler segment, backed by good harvest and direct benefit transfer by the government to Jan-Dhan account holders.
4. The production levels in August have reached around 85% of pre-COVID levels in Europe, 75% in Mexico, and around 60% in Asia.
5. The LPDC order from the Korean OEM is expected to have its production starting somewhere from the middle of next year.
6. The annual business opportunity here is around 75,000 wheels per year.
7. The sensor project has been delayed due to COVID-19 as equipment for the projects is supposed to come from China. There are 3 main parts of this project which are HTS (high-temperature sensor), cam & crank, and wheel speed sensor. The delay is of almost 6 months currently.
8. The guidance for additional revenue of Rs 300-400 Cr in the next 4 years remains intact. The management expects an additional revenue increase of at least Rs 100 Cr by FY22.
9. The main reason for the fall in LMT is the fact the consumer shift towards lower models which require steel wheels which have caused demand for alloy wheels to drop.
10. The company expects September’s performance to exceed pre-COVID levels.
11. The company has gotten 3 businesses from DELVIS. Two of them are for LED tail lamps for Japanese OEMs and one is for headlamp from MSIL. The peak annual value to be captured here is greater than Rs 150 Cr.
12. The management expects ROKI to revive and turn green in August. TG is 4 wheeler heavy and is expected to do good on an annual basis. Losses in Onkyo are coming down. Kosei Minda remains a challenge in terms of customers.
13. There hasn’t been any confirmation of any PLI schemes by Govt of India in sensors and auto equipment yet.
14. The management sees opportunity in 2wheeler alloy wheels from the China substitution phenomenon.
15. The management remains committed that India will remain the primary focus for the company. Once the company has anchor customers in India in any segment, only then will it look to expand outwards in other geographies.
16. The management sees RM costs coming down in the near future.
17. DELVIS revenue rate is Rs 250 Cr annually. For Q1, revenues from DELVIS were at Rs 20-30 Cr.
18. The company is looking to source almost 50% of its power from solar and reduce electricity costs going forward.
19. The management expects salaries for staff to reinstated to pre-COVID levels in the next 2 months.
20. The company has been looking to reduce finance costs by raising CP of 5-5.5%.
21. Inventories actually are lower than what they were compared to pre-COVID levels, thus increasing room for the market to absorb more than production before the festive season.
22. The management doesn’t see any challenges from the supply side. The initial labour issues are also getting resolved with migrant labour slowly coming back.
23. The management remains confident of their decision to put in the new Aluminium alloy wheel line as around 65% of industry demand is imported thus highlighting a good opportunity for the company.
24. The company is now making around 3.5 to 4 million wheels. After the expansion, its capacity will be around 8 million which is still small compared to the industry demand for 24 million per year.
25. The utilization rate at the Gujarat plant was almost 75%.
26. The company is expected to move to the new tax regime innFY22 when all the MAT credit is exhausted.
27. RM imports stand at almost 50% for Minda Kosei. For all other units, this is at 15-17%.

Analyst’s View

Minda Industries has been one of the top auto ancillaries providers in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. The company has had a dismal quarter which was mostly due to plant shutdown during lockdown and production is expected to revive soon. Their foray into alloy wheels is expected to deliver good growth for the company in the future particularly considering the import substitution opportunity but the opportunity seems to be delayed due to COVID-19 along with the company’s sensor project. The company has also managed to gain good orders for its Lighting business through its acquisition of DELVIS. It remains to be seen how long this auto sector slowdown shall continue or whether recovery will be as fast as the management expects. Nonetheless, given the new orders that the company has bagged, their improving product portfolio and massive import substitution opportunity, Minda remains a compelling auto ancillary stock to watch out for.

Q4FY20 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs (17.2) Cr

**Includes exceptional item of Rs (5.2) Cr

*** Includes exceptional item of Rs (22.4) Cr

^ Includes exceptional item of Rs (8.9) Cr

^^ Includes exceptional item of Rs (14.1) Cr

Detailed Results

1. 1. The company had a dismal quarter with a revenue drop of 10% YoY and consolidated profits drop by 83% YoY.
   2. The EBITDA margins fell to 9.11% in Q4FY20 vs 12.47% a year ago.
   3. The revenue shares of most segments fell except for others.
   4. Almost 82% of revenues were from domestic sources while 18% were from exports. In terms of channels, 87% of revenues were sourced from OEMs while 13% were from the replacement market.
   5. The revenue share of various segments in FY20 is as follows:
      • Switches: 39%
      • Lighting: 21%
      • Acoustics: 12%
      • LMT: 13%
      • Others: 16%
   6. The DELVIS acquisition has been fully consolidated in Q4.
   7. The final NCLT hearing for a merger with Harita Seating Systems is scheduled for 23^rd July 2020.
   8. Net debt to equity is at 0.41.
   9. Cash & cash equivalents for the company stood at Rs 251 Cr on 31^st March 2020.

Investor Conference Call Highlights

1. In May the company had started production at all manufacturing plants located in India and overseas with 50% staff and capacity utilization in the range of 40% to 50% based on customer demand.
2. NCLT has pronounced the order to merge 4 wholly-owned subsidiaries in MIL. This is expected to strengthen the stand-alone balance sheet of MIL.
3. In terms of segment mix, 4Wheelers have contributed around 48% of the overall revenue and the 2Wheeler is at 52%.
4. The drop in EBITDA margins has been due to the depreciation of rupee and Mexican peso and the fixed costs in the shutdown period.
5. The company has started supplying 4Wheeler switches to Hyundai for meeting the requirements in Turkey and Indonesia for their upcoming platforms.
6. Lighting business division has been awarded 2 new businesses from 2 large customers for LED taillights, which on an annual basis will be over Rs 100 Cr in annual revenue.
7. LATAM has received orders from Ford for electronics horns in Mexico and Spain while India business has secured orders for electronics horns in India from Tata and Mahindra which is expected to start from September 2020.
8. The other products division has received orders from MSIL for the wireless chargers which the company is already supplying to M&M.
9. The Board has announced the raising of funds by a rights issue of INR 250 crores, wherein the promoters have confirmed they will be subscribing to the full extent and any unsubscribed portion.
10. The production of 2 wheeler alloy wheel is expected to start from the first 2 weeks of August.
11. The company has planned 20 lines for these alloy wheels and will be able to commission all of it in 8-10 months. The revenue capacity of these lines is around Rs 100 Cr in FY21.
12. Cam and Crank BS-VI sensors will start immediately in July or August. Wheel speed sensor addition was done in January.
13. Forex losses in Q4 were around Rs 15-16 Cr.
14. The company is instituting staff salary cuts and deferring annual price reductions as part of its cost optimization strategy.
15. Capex for FY21 is expected to be around Rs 250-300 Cr.
16. The management expects the Harita transaction to be done by December at the latest.
17. The company is looking at a significant opportunity from import substitution of 2 wheeler alloy wheels. Currently, around 60-65% of this is imported from China.
18. The company has also won a big order from Kia for LPDC and will start production from next year.
19. The management is optimistic that the company will be able to outpace industry growth by at least 1.5 times.
20. Current capacity utilization at major product lines is around 50%.
21. 3 of the company’s subsidiaries have been in losses in Q4 which include Minda Onkyo and Kosei Minda and Minda TG.
22. The company is looking to invest Rs 34 Cr in Minda TG as it will be acquiring another business, which is the TG South India business. After the acquisition, the entity should become a Rs. 800-1000 Cr entity.
23. The management hopes to maintain upward momentum in absolute kit value per car per segment going forward.
24. The company has also gotten an order for some controllers from Royal Enfield.
25. The company has won 2wheeler switch order from Piaggio USA. In Minda Rika, it has won orders from Hyundai in Turkey and Indonesia.
26. 2 wheeler switches are currently accounting for revenues of Rs 25 Cr.
27. The total potential in the sensor business is expected to be above Rs 600 Cr in the next 3-4 years. Currently, this division earned Rs 133 Cr in FY20.
28. The revenue potential of telematics business is expected to be around Rs 75 Cr in FY21.
29. The company has a net debt of around Rs 853 Cr as of March 2020.
30. Harita’s likelihood of dilution is around 2%, assuming a 50% conversion in equity.
31. The losses from 2 months of the shutdown are estimated to be around Rs 80-85 Cr per month on account of manpower expenses, lease rentals, and certain other expenses.
32. Around 30-35% of 4 wheeler alloy wheels are imported. This also represents an opportunity for import substitution for the company.
33. At full capacity, the enhanced 2 wheeler lines should earn revenues of up to Rs 300 Cr in FY21.
34. The company is a market leader in switches with a market share of 60-65%.
35. Excluding Harita, Capex should be around Rs 250 Cr at max for FY21.
36. The jump in kit value in FY20 is mainly from onboard chargers and DC converters in cars and LED taillamp and headlamps in 2 wheelers.
37. In the lighting division, the company has secured orders from 2 leading Japanese OEMs and from EV units of TVS and Chetak platform of Bajaj.
38. The management is hopeful of improving margins once things normalize for the industry.
39. The purpose of the DELVIS acquisition was to gain more market share in India.

Analyst’s View

Minda Industries has been one of the top auto ancillaries providers in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. Their foray into alloy wheels has rewarded them well and is expected to deliver good growth for the company in the future particularly considering the import substitution opportunity. The company has also managed to gain more market share through its acquisition of DELVIS which speaks for the market strength of the company. It remains to be seen how long this auto sector slowdown shall continue or whether recovery will be as fast as the management expects. Nonetheless, given the new orders that the company has bagged, their improving product portfolio and massive import substitution opportunity, Minda remains a compelling auto ancillary stock to watch out for.

Q1 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a flat quarter revenue-wise with a drop in consolidated profits of 26% YoY.
   2. The EBITDA margins have been maintained at 11.96%.
   3. The revenue shares of most segments remained as it is except switches and lighting which saw a drop and rise of 3% respectively. There was a shortfall of Rs 43 Cr in switches which were mitigated by a rise of the same magnitude in Lighting revenues.
   4. Almost 83% of revenues were from domestic sources while 17% were from exports. In terms of channels, 92% of revenues were sourced from OEMs while 8% were from the replacement market.
   5. Out of the 26 product lines of the company, only 3 lines will require changes to continue on the onset of BS-VI regulations while 5 product lines will be positively impacted by the new regulations. This shows the robust nature of its product portfolio.
   6. Light Metal technology continues to be important for the company as it contributes only 14% to revenues but accounts for 32% of total EBITDA.

Investor Conference Call Highlights

1. Like most auto OEMs, the company is also expecting some prebuying in H2FY20 to bring up volumes before BS-VI regulations come into place on March 2020.
2. The company was able to maintain its revenues and margins despite industry slowdown challenges due to robust cost control through cost management and various other austerity measures.
3. The PBT declined substantially about 26% YoY on account of lower operating leverage and partial utilization of new facilities which resulted in higher depreciation.
4. The management has reassured that they will remain cautious in making new investments and capital expenditures.
5. Finance costs were higher this year due to a rise in total borrowings to Rs 1119 Cr from Rs 546 Cr last year. Most of this debt is has been undertaken for investments into TG Minda, controllers, 2 wheeler sensors, etc.
6. The 4 wheelers business division has received new business from the newly launched venue of Hyundai.
7. The Light Metal Technologies division saw a good uptick with revenues close to Rs 200 Cr and EBITDA margins of 26%. This segment benefitted from better operational efficiency, favorable commodity prices, and improved customer mix.
8. The company is moving forward with the proposed merger of the 4 wholly-owned subsidiaries. They have filed the merger schemes with the exchanges and they expect to get this merger done by the end of the fiscal year.
9. The company has also received new orders from Kawasaki and PSA for engine speed and oil temperature sensors.
10. The capacity utilization for the alloy wheel section is almost 50% in Gujarat and 70% in the Bawal facility. The 4 wheel lighting division is close to 85%. In the 2 wheeler lighting division volumes dropped 6% and capacity utilization is between 80-85%.
11. The acoustics business has been flat with capacity utilization close to 90%.
12. In the sensor division, the company expects annual revenues of Rs 120-130 Cr based on the existing plant. The new plant in this division should be running by the second half of the year.
13. The telematics division netted Rs 50 Cr this year and the company expects this figure to rise to Rs 90-100 Cr by next year.
14. The company expects Capex for the year to be at Rs 350 Cr plus Rs 150 Cr. The 350 Cr is earmarked for 3 new projects earlier this year.
15. The management is working to keep revenues and margins sustained at current levels in this difficult environment for auto and auto ancillary sectors.
16. The management maintains that long-term sustainable margins for the LMT division should be around 20%. The company was able to deliver 26% margins in the current quarter from this division mainly due to a fall in aluminum prices.
17. The 2 wheeler alloy business will be independent of Minda Kosei mainly because Kosei is a global 4 wheeler alloy maker and they do not have any 2 wheeler exposure. This division is expected to be commissioned by April 2020.
18. The management expects pressure on volumes from OEMs and aftermarket sales to remain resilient at current levels.
19. The management expects to complete the Harita consolidation transaction by January.
20. The company is targeting all OEMs for their LMT division. The anchor customer for this division is Bajaj Auto.
21. The EBITDA margins for acoustics in India is around 19% while it is around 6% for global operations. Overall margins for this division were at 6% and are expected to improve over time as initial costs of starting new units have kept margins low for this division.

Analyst’s View

Minda Industries has been one of the top auto ancillaries in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. Their foray into alloy wheels has rewarded them well and is expected to deliver good growth for the company in the future. Despite the slowdown in the auto market, Minda aspires to maintain a double-digit growth rate mainly on the back of their expanding product portfolio and the greater demand for their products post-BS-VI implementation. But at the same time, they are totally dependent on the domestic auto market very heavily and any negative surprise in this sector or from one of their key clients like Maruti may put a question mark over their growth trajectory. Nonetheless, Minda Industries is definitely one stock to keep an eye on as they seem to be one of the companies best positioned to benefit rapidly once the BS-VI regulations are implemented and become the norm.

Q4 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a good FY19 with consolidated revenues rising almost 30% YoY which rises to 32% net of excise duty.
   2. The revenue division for Q4 and FY19 respectively are:
      • Switches: 8% & 37.9%
      • Lighting: 1% & 21.9%
      • Acoustics: 7% & 12.1%
      • Others: 4% & 28.1%
   3. The company’s revenues are almost evenly divided in 4 wheelers and 2/3 wheelers.
   4. 89% of the company’s revenues are in the replacement channel and only 11% are used directly by OEMs.
   5. Around 84% of sales of the company take place abroad while only 16% are sold in India.

Investor Conference Call Highlights

1. The company has experienced low demand environment in H2FY19 due to regulatory challenges, rising insurance costs and transition from BS IV to BS VI.
2. Their new 2wheeler and 4wheeler plant is set to start production April ’20.
3. The company has already received an order for one of their BS VI virtual centres from a leading OEM.
4. The company had borrowed Rs 130 Cr last year for financing projects of KPITs and TATA and some other projects which caused the interest costs to rise for FY19.
5. The controller plant should start production from Q2 of FY20 onwards.
6. In FY19, the company underwent a capex of Rs 450 Cr. According to current estimates, the capex for FY20 should be around Rs 400 Cr.
7. The management hopes to secure around 30% of market share in the next few years for the company in market systems space.
8. The management is confident of double digit growth for the company excluding the Harita and the 2wheeler divisions.
9. The company is targeting an EBITDA margin of 12%-12.5%. They aim to sustain at these margin levels mainly by improving product mix.
10. The switch business Minda Rika has been adversely affected by the volume cuts in the 4 wheeler business and thus margins for this division have also been lower.
11. Alloy wheels business has been good for the company with around Rs 300 Cr in revenues in FY19. The company aims to double this figure to Rs 600 Cr in FY 20.
12. The management has said that capacity utilization has been operating in between 75% to 90% in the past financial year.
13. In the current year capex, around Rs 300 Cr is expected to go in the alloy wheels division with Rs 84 Cr in control and Rs 125 Cr in the sensor divisions.
14. The company is aiming to be spend around 3%-4% of revenues in R&D each year.
15. Around 78% of the alloy wheels business is sold to only one client which is Maruti.
16. Despite the slowdown in auto market, the company aims to deliver double digit growth in FY20 mainly in the back of their larger product portfolio (like the addition of alloy wheels) and their increased Kit Value which has been growing and is expected to stay that way. The management also expects Harita to add an additional Rs 1000 Cr to revenues in FY20 thus increasing their confidence in meeting their growth targets.
17. The company’s net debt level was at Rs 950 Cr in FY19. The management maintains that they will sustain the debt to equity ratio at the current levels of nearly 0.5 for the near future.
18. The company expects the revenue potential of BS VI and electric vehicles to be above Rs 700 Cr for the sensor and controller divisions in the next 3-4 years. Currently they are only accounting for Rs 100 Cr from these factors in FY20.
19. The management is expecting the market share in airbags to improve from current level of 23% in the following year.
20. The company is also expecting faster penetration in LEDs for 4 wheelers which has been slow until now.

Analyst’s View

Minda Industries has been one of the top auto ancilliaries provider in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. Their foray into alloy wheels has rewarded them well and is expected to deliver good growth for the company in the future. Despite the slowdown in the auto market, Minda aspires to maintain a double digit growth rate mainly on the back of their expanding product portfolio and the greater demand for their products post BS VI implementation. But at the same time they are totally dependent on the domestic auto market very heavily and any negative surprise in this sector or from one of their key clients like Maruti may bring their growth to standstill easily. Nonetheless, Minda Industries is definitely one stock to keep an eye on as they seem to be one of the companies best positioned to benefit rapidly once the BS VI regulations are implemented and become the norm.

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