Dimensional Securities Pvt Ltd. Idea-Minda Corp.pdf · 2017. 5. 10. · MCL is also commissioning a facility in China in partnership with SBHAP group for Plastic oil pans and cylinder

Minda Corp. Ltd. Stock Idea

Date: 10th May, 2017

CMP: 113

Recommendation: BUY

Target: 155

Dimensional Securities Pvt Ltd.

1 Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001.

Investors are advised to refer through disclosures made at the end of the Research Report

MARKET DATA NSE TICKER MINDACORP Networth H1FY17 (Rs in Crs) 622 P/BV Ratio (FY17E) (x) 3.9 EPS (TTM )(Rs.) 5.0 Market Price (Rs.) 245 P/E Ratio (TTM) (x) 22.0 52 Week High (04/07/2016)(Rs) 148 52 Week Low (20/02/2016)(Rs) 85 Market Capitalisation (rs. Cr) 378

AVERAGE MONTHLY VOLUME (‘000)

BSE 5.8

NSE 58.7

SHARE HOLDING PATTERN

Promoter 70.2

FII -

DII 9.8

Public 20.0

RETURN (%) 3M 6M 12M Minda Corp 28.4 6.9 -3.6 Sensex 6.7 10.5 20.0

Minda Corporation Limited (MCL) is a diversified automotive components

manufacturer with a product portfolio that encompasses Safety, Security and

Restraint Systems; Plastic Interior Systems and Driver Information & Telematics

Systems for auto OEMs. Company has its manufacturing facilities at India, South-

East Asia and Europe.

Minda-Furukawa JV to turn profitable, big boost to profitability

In order to turn the loss making Minda-Furukawa JV into profitable Unit, the

management has set up a team force to tweak the business arrangements

between Minda Corp and Furukawa Group, Japan. As a part of this

reorganization, this JV will lower import content in its RM procurement while the

Japanese counterpart will reduce Royalty and interest it charges to the JV. They

have also exited the loss making business at their Chennai Plant.

Sensor Business a good catalyst for future growth

Minda, with its technical partner Stoneridge, is expected to generate sizeable

business from Sensors. Currently the market size of Sensors in India, in which

Minda operates, is expected to be around Rs. 550 crore and Minda already has

20% share in it. Going ahead post implementation of BS VI, the size of this

industry is expected to grow to Rs. 1300 cr by 2020 and to Rs. 2300 cr by 2023 as

it will make several sensors compulsory in a vehicle.

Other Capacity Expansion initiatives:

Minda Corp. is doubling its die-casting capacity at Chakan, Pune from 4600 MT

currently to 9600MT by FY20 at an investment of Rs. 75 cr. This will be a big boos

for their export revenue from this segment.

Minda Corp. is setting up a capacity at Mexico with an investment of Rs. 175 cr for

manufacturing of plastic interiors. The revenue potential from this plant is ~Rs.

200-220 cr.

It is also commissioning a facility in China in partnership with SBHAP group for

Plastic oil pans and cylinder heads.

Focus on technology upgradtion brings to fore company’s foresight

Minda Corp has set up a technology Center at Pune, ’Spark Minda Technology

Centre’, to increase engineering capabilities, quality & efficiency. At this

technology Center, the focus of the company would be to modernize and

technologically upgrade its legacy products.

Valuations

On the back of the above triggers and initiatives, MCL’s revenues are expected to

grow at 15-16% CAGR over next 3-4 years. Turnaround of MInda Furukawa JV

and greater contribution of high value products and exports will improve

company’s margins from current (9MFY17) 8.1% to around 10.5-10.8% which will

significantly improve company’s PAT. We recommend a BUY on the stock with

price target of Rs. 155 by FY19, representing a potential upside of ~37%.

.

[email protected]

mailto:[email protected]

Minda Corp. Ltd.



About Company

Minda Corporation Ltd is the leading automotive components manufacturer & Flagship Company of Spark Minda,

Ashok Minda Group. Company has a diversified product portfolio that encompasses Safety Security, Driver Information

& Interior Systems for automobile sector. These products cater to two wheelers, three wheelers, passenger vehicles,

commercial vehicles & aftermarket.

Business Overview:

Product Portfolio:

Segments Revenue (%) Products

Driver information and telematics

system

45% Wiring Harness & Components, Battery Terminals,

Variety of Sensors. Steering Roll Connectors.

Safety, security & restraint systems

(SSR)

39% Complete Lock Kits, Door Handles & Latches, Remote

Key Less Antenna, Locksets, Starter Motor. MCL is

largest supplier of locksets, latches and keys for 2W in

ASEAN markets.

Aluminum Die-Casting Part of SSR Compressor Housing, Intake Manifold, Low-Pressure

Die-casting products.

Plastic interior systems 16% Oil Sump, Arm rests, Glove Box, Steering Column,

Seat Panels, Air Vent.

Minda Corp has technological collaboration for different products with many leading global Auto Ancillary companies

like Furukawa from Japan and Stoneridge and VAST from USA. This not only gives them a technological edge but also

helps them roll out new products with their partners. As can be seen above, Minda Corp has a wide product basket

which gives them an added advantage as it can cross sell its products to different OEMs and thereby increase their

share of business (SoB) with them.

Minda Corp. Ltd.



Investment Rationale

Driver Information and Telematics System Division:

Minda-Furukawa JV to turn profitable to big fillip to profitability.

Minda Furukawa Electric Pvt. Ltd. is a 51:49 JV between Minda Corp and Furukawa, Japan. The company develops and

produces wiring harness for four wheelers and components related to them. It is one of the company’s biggest

subsidiaries with revenue of Rs. 450 crore. However, it has been a drag on company’s profitability. It suffered losses of

Rs. 42 crore during FY16 and the losses further widened during FY17. This JV was working positively only for the

Furukawa group as major portion of the Raw Material was procured from them (at higher prices) while the JV also paid

4% royalty on Sales to them.

The management finally took remedial measures and formed a taskforce to rejig the business arrangement in a way

that would be profitable to both the parties. They have finally reached a consensus and both the parties have signed a

MoU to make this JV profitable and viable.

Some of the steps taken to turnaround this JV include;

• Lowering import content, it currently stands at 60% of total import.

• Reduction in Royalty charged by Furukawa from 4% to 1.5%

• Reduction in interest rate from 9% to 4.5% on overdue payment to Furukawa.

• The JV has also exited loss making business at its Chennai Plant.

The focus of the JV would now be to generate more business by entering new OEMs and by increasing its market share

with existing ones. In Maruti, it expects to increase its share of business from 18% to 30%. All these initiatives will help

the JV turn profitable which will also improve the overall profitability of the company. This JV is also sole manufacturer

of Steering Roll Connectors in India, which is a critical component for Airbags. With Airbags expected to become

compulsory in Indian PVs once Road Safety Bill passes, this component will see a huge demand and company is in a

good position to capture that opportunity.

Safety, Security & Restraint Systems (SSR) Division:

Sensor Business a good catalyst for future growth

Minda Corp in its JV with Stoneridge, USA, manufactures range of sensors like Fuel Level Sensors, Speed Sensors,

Temperature Sensors, Exhaust Sensors, etc. The usage of sensors in Automobiles has increased drastically over the

years. Increasing concerns for passenger safety and implementation of new emission norms are the key drivers for

increasing demand for sensors. Not only are the traditional mechanical components being replaced for ease of driving

but new types of sensors like Parking Sensor, Speed Sensor, etc. are being added to meet the stricter safety and

emission norms. The global sensor industry is estimated at $18-20 bn and the same is expected to grow at 8% CAGR

over next 4-5 years as many new sensors are also expected to be introduced.

In India the sensor marke is still at a nascent stage but is expected to witness steep growth due to modernization of

vehicles and implementation of stricter norms. The implementation of BS VI in 2020 will make usage of certain sensors

in the vehicles compulsory in India. It is expected that the number of sensors used will go up from 20-30 currently to

around 50-60. Minda, with technical expertise of Stoneridge, will cash in on this opportunity. Currently the market size

of Sensors in India, in which Minda operates, is expected to be around Rs. 550 crore and Minda has 20% share in it.

Going ahead post implementation of BS VI, the size of this industry is expected to grow to Rs. 1300 cr by 2020 and to

Rs. 2300 cr by 2023. Minda would focus on 10-15 sensors (it is already present in 6-7) where they believe their

technology edge and would try to increase its market share to 30-35%.

Doubling of die-casting capacity to boost export revenue

Minda Corp. is doubling its die-casting capacity at Chakan, Pune from 4600 MT currently to 9600MT by FY20 at an

investment of Rs. 75 cr. At its Die-Casting plant, Minda mainly focuses on Aluminum Gravity and Low-Pressure Die-

casting, where there are only few players present. The plant is expected to get commissioned by Q2FY18.

Minda Corp. Ltd.



During FY16, company’s exports from this division stood at only Rs. 1 cr but now they already have order book of Rs.

150 cr of which ~Rs. 30 cr will be exported during FY18.

Other Capacity Expansion initiatives:

Minda Corp. is setting up a capacity at Mexico with an investment of Rs. 175 cr for manufacturing of plastic interiors

like Glove box, Columns, End cap, etc. Through this facility it’ll target to get business from North American market

where their presence is negligible (0.5% of sales). The revenue potential from this plant is ~Rs. 200-220 cr.

MCL is also commissioning a facility in China in partnership with SBHAP group for Plastic oil pans and cylinder heads.

The target customers for this JV are expected to be OEMs like Daimler, Beiqi Foton Motor Co. Ltd., etc. Construction of

this plant is expected to be completed in FY18 and production planned in FY19.

In the aftermarket space, Minda has around 500 dealer network across country. Until now company’s focus was only

on its few owned products. However, now it has launched new advanced product lines for 2 wheelers and 4 wheelers

which includes high value products such as Clutch Plates, Brake Shoe, control cables, CDI, wipers and automotive

filters. Company will outsource the manufacturing of these products to third party.

New Client addition to aid faster than industry growth

MCL is focusing on adding new OEM clients across all its verticals. Setting up of plants at Mexico and China, expansion

of Die-casting facility and foray into new segments like Off-the-road and electric vehicles augurs well for company’s

plans to add new clients.

Recently Recent customer additions:

• Royal Enfield for locksets

• Nissin Brakes for Die-Casting

• Maruti Suzuki for Engine Temperature Sensors

Focus on technology upgradtion brings to fore company’s foresight

Minda Corp has set up a technology Center at Pune, ’Spark Minda Technology Centre’, to increase engineering

capabilities, quality & efficiency. The Center is already operational and it employs 35 highly qualified engineers. At this

technology Center, the focus of the company would be to modernize and technologically upgrade its legacy products

such as clusters, locks, door handles, immobilizer, etc. Improved technology will also be adapted for Engine

fuel/Management systems, Anti-lock braking systems, Sensors, integrated starter-generator systems and Advanced

Driver Assistance Sytems (ADAS). This Center will also be able to carry out EMI/EMC testing for vehicles.

Valuations:

On the back of the above triggers and initiatives, MCL’s revenues are expected to grow at 15-16% CAGR over next 3-4

years. Turnaround of MInda Furukawa JV and greater contribution of high value products and exports will improve

company’s margins from current (9MFY17) 8.1% to around 10.5-10.8% which will significantly improve company’s PAT.

We recommend a BUY on the stock with price target of Rs. 155 by FY19, representing a potential upside of ~37%.

Minda Corp. Ltd.



9MFY17 Performance:

Key Risks & Concerns:

Delay in Expansion plans: Company’s Die-Casting and Chinese Plant are still under commissioning stage and it

can face execution or regulatory delays.

Severe slowdown in Auto industry

Inability to ramp up business: Our thesis is based on company being able to grow faster than industry by adding

more OEMs, foraying into new products or taking market share in existing products. Failure on these front posses

downside risk to revenue and profits.

Minda Corp. Ltd.



Financials:

Minda Corp. Ltd.


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Documents

Dimensional Securities Pvt Ltd. Idea-Minda Corp.pdf · 2017. 5. 10. · MCL is also commissioning a facility in China in partnership with SBHAP group for Plastic oil pans and cylinder