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Ready to take off, Multiple tailwinds ahead Minda corp’s Consolidated revenue fell by 70% YoY to Rs.1.78bn in 1Q
led by production cuts taken by various OEMs due to nationwide lockdown. Negative operating leverage, and FX losses turned the EBITDA negative to Rs.203mn.
The management states that recovery in volume of 2W & Tractor, Die casting and aftermarket business will aid revenue and margin from 2Q onwards. 2&3W accounts for 53% and aftermarket 14% of overall revenue.
Minda Corporation is one of the leading suppliers of locksets, wiring harness and instrument clusters in the Indian automotive market. We believe that the stock deserves to trade at higher multiples (compared to current levels 14/10x for FY22/23E) as we forecast EBITDA to grow at 50% CAGR over FY21- 23E and there will a significant improvement in cash flow generation and return ratio.
The key catalysts that would drive stock re-rating are 1) wind up of its loss making KTSN business is structurally positive(significant saving in employee cost, other expenditure) and we expect it to improve both margins and cash flow 2) strong revenue growth in Mechatronics division led by sharp improvement in die casting business 3) wiring harness would be benefited from increase in content per vehicle by 2x in 2W( to be reflect from 2Q and (4) increased focus on cash flow generation and efficient capital allocation. We value the stock Rs 105 (based on 15x FY23E EPS).
Winding up M KTSN to aid margin The decision to close off its loss making KTSN business is structurally positive and we expect it to improve both margins and cash flow going ahead. In the subsequent balance sheet all the assets and liabilities related to MKTSN will be removed and gross debt will reduce by Rs1.10bn. This move would strengthen the profitability and BS of the parent company and expect to improve EBITDA by 250-300bps and RoCE by 400 bps. Q1FY21 Result (Rs Mn)
Particulars Q1FY21 Q1FY20 YoY (%) Q4FY20 QoQ (%)
Revenue 1,780 5,841 (69.5) 5,364 (66.8) Total Expense 1,983 5,174 (61.7) 4,974 (60.1)
EBITDA (203) 667 (130.5) 390 (152.1)
Depreciation 203 213 (4.6) 222 (8.4)
EBIT (406) 454 (189.5) 168 (341.4)
Other Income 89 71 24.4 161 (45.0)
Interest 77 105 (27.0) 110 (30.5)
EBT (394) 420 (193.8) (2,714) (85.5)
Tax (89) 139 (164.1) 70 (226.7)
RPAT (363) 310 (217.4) (2,764) (86.9)
APAT (363) 310 (217.4) 169 (315.0)
(bps) (bps) Gross Margin (%) 37.8 39.0 (122) 40.7 (288)
EBITDA Margin (%) (11.4) 11.4 (2283) 7.3 (1869)
NPM (%) (20.4) 5.3 (2572) (51.5) 3111
Tax Rate (%) 22.6 33.1 (1048) (2.6) 2519
EBIT Margin (%) (22.8) 7.8 (3060) 3.1 (2597)
CMP Rs 72
Target / Upside Rs 105 / 45%
BSE Sensex 37,898
NSE Nifty 11,178
Scrip Details
Equity / FV Rs 453mn / Rs 2
Market Cap Rs 16bn
US$ 219mn
52-week High/Low Rs 122/Rs 53
Avg. Volume (no) 13,07,680
NSE Symbol MINDACORP
Bloomberg Code MDA IN
Shareholding Pattern Jun'20(%)
Promoters 68.1
MF/Banks/FIs 5.5
FIIs 8.9
Public / Others 17.4
Valuation (x)
FY21E FY22E FY23E
P/E 50.6 13.9 10.4
EV/EBITDA 12.2 6.6 4.9
ROE (%) 3.3 11.0 13.0
RoACE (%) 4.1 12.7 15.0
Estimates (Rs mn)
FY21E FY22E FY23E
Revenue 18,153 22,200 25,100
EBITDA 1,341 2,448 2,993
PAT 325 1,183 1,580
EPS (Rs.) 1.4 5.2 7.0
Analyst: Abhishek Jain Tel: +9122 40969739
E-mail: [email protected]
Associate: Kripashankar Maurya Tel: +91 22 40969741
Minda Corporation
BUY
August 17, 2020
August 17, 2020 2
Aluminum die casting business to ramp up well
The top three automotive turbocharger manufacturers globally are BorgWarner (market share ~35%), Honeywell (~35%) and Mitsubishi (~15%) – these players annually consume ~Rs 35bn of housing compressors, a key component of turbochargers. Now these players are in process of diversifying its sourcing for raw material and reducing their share from chinese companies, this is going to drive the die casting business of Minda corp. Management is targeting a strong CAGR in die casting exports. We expect export revenues from the business to rise from Rs 950mn in FY20 to Rs 2bn in FY23. We also expect strong growth in domestic business.
Increase in content per vehicle in wiring harnesses business
We expect BSVI emission norms to drive up the per-unit realization on two-wheeler wiring harnesses by 1.5 to 2x due to increasing usage of sensors, thereby estimated to drive wiring harness segment revenues from Rs. 8.2bn in FY20 to Rs 11.8bn by FY23E.
Change in estimates
Rs. Mn FY21E FY22E
New Previous % Chng. New Previous % Chng.
Net sales 18,153 18,586 (2.3) 22,200 22,490 (1.3)
EBITDA 1,341 1,468 (8.7) 2,448 2,451 (0.1)
EBITDA margin (%) 7.4 7.9 (51.4)bps 11.0 10.9 12.6 bps
APAT 325 586 (44.6) 1,183 1,232 (4.0)
EPS 1.4 2.6 (44.6) 5.2 5.4 (4.0)
Source: DART, Company
Assumption table
Financial Year (Rs. Mn) FY18 FY19 FY20 FY21E FY22E FY23E
Mechatronics & After market 12,358 12,615 12,096 10,088 12,090 13,533 Growth% (YoY) 43 2 -4 -17 20 12 Information & Connected system 8,458 12,090 10,127 8,064 10,110 11,567 Growth% (YoY) -19 43 -16 -20 25 14 Plastics & Interior* 5,533 6,215 5,907 - - - Growth% (YoY) 79 12 -5 NA NA NA
Total Segment Revenue 26,350 30,920 28,131 18,153 22,200 25,100
Source: DART, Company, Note*: MKTSN (Company subsidiary) has filed for Bankruptcy in FY20 and MDA made a provision for the same.
August 17, 2020 3
Revenue de-grew YoY EBIDTA fell QoQ/YoY
Source: DART Source: DART
End market revenue break up (%) Segment revenue (%) FY20 (Excluding MKSTN)
Source: DART, Company Source: DART, Company
End market revenue break up (%) FY20 (Excluding MKSTN)
Sharper recovery expected from FY22
Source: DART, Company Source: DART, Company
August 17, 2020 4
Margin to improve from FY22E 1 yr fwd PE/Band
Source: DART, Company Source: DART, Company
Conference Call highlights
The company is witnessing good traction in 2W & Tractor segment. Tractor are growing at 2x their FY18 volume run rate, even the company is struggling to meet the component requirements. export market also showing steady sign of recovery. However, CV segment is still under stress. Aftermarket sales accounted for 20% of revenues in 1Q vs ~10% in Q1FY20.
Capacity utilization level in June was 50% and in July it improved further. Revenue run rate in July and first half of August ~70–80% of pre COVID level.
De-growth in export revenue was largely due to postponement of order and logistical issue. Revenue for 2&3W segment de-grew by 69% YoY vs industry de-growth of 78%, Outlook for CV is still gloomy and expect 30-40% declined in FY21.
Company has taken a various cost cutting measures across the divisions such as reduction in staff and other expenses to protect the profitability during the quarter and expect 30% of reduction to sustain during the year. Reduction in staff cost saved roughly Rs.300mn during the quarter.
Information & Connected Systems revenue de-grew 77% YoY due to fall in CV sales. However de-growth of 62% in Mechatronics and Aftermarket division was partially cushioned by lower fall in exports and aftermarket.
In wire harness segment company won new order from European client for Euro -5 vehicles.
KIT value for 2W wire harness has increased to almost 2X this will be reflected in the upcoming quarters. SOB for 2W segment is ranging from 50-70% depending on the product.
Company is conserving cash for future acquisition and may utilize to meet working capital if required.
Revenue contribution from 2&3 wheelers is-53.3%, After market-20.3%, CV-13% Tarctor-7%, PV 6.6%.
August 17, 2020 5
Profit and Loss Account
(Rs Mn) FY20A FY21E FY22E FY23E
Revenue 28,131 18,153 22,200 25,100
Total Expense 25,632 16,812 19,752 22,106
COGS 16,991 10,891 13,132 14,833
Employees Cost 5,027 3,016 3,468 3,885
Other expenses 3,614 2,904 3,152 3,388
EBIDTA 2,499 1,341 2,448 2,993
Depreciation 1,179 892 989 1,084
EBIT 1,321 449 1,459 1,909
Interest 499 387 373 369
Other Income 443 430 400 451
Exc. / E.O. items (2,933) 0 0 0
EBT (1,669) 492 1,486 1,992
Tax 454 128 386 518
RPAT (1,998) 325 1,183 1,580
Minority Interest 0 0 0 0
Profit/Loss share of associates 125 (40) 83 106
APAT 935 325 1,183 1,580
Balance Sheet
(Rs Mn) FY20A FY21E FY22E FY23E
Sources of Funds
Equity Capital 453 453 453 453
Minority Interest 0 0 0 0
Reserves & Surplus 9,298 9,694 10,887 12,486
Net Worth 9,751 10,147 11,340 12,939
Total Debt 5,155 4,205 3,706 3,208
Net Deferred Tax Liability 333 333 333 333
Total Capital Employed 15,240 14,685 15,380 16,481
Applications of Funds
Net Block 5,402 5,448 5,556 5,567
CWIP 285 285 285 285
Investments 2,342 2,486 2,674 3,018
Current Assets, Loans & Advances 15,256 11,061 12,436 13,909
Inventories 3,949 2,536 3,102 3,507
Receivables 3,898 2,735 3,345 3,782
Cash and Bank Balances 4,724 4,266 4,080 4,851
Loans and Advances 14 97 97 97
Other Current Assets 2,671 1,427 1,812 1,672
Less: Current Liabilities & Provisions 8,044 4,594 5,570 6,298
Payables 5,092 3,233 3,953 4,470
Other Current Liabilities 2,952 1,361 1,617 1,828
sub total
Net Current Assets 7,212 6,468 6,866 7,611
Total Assets 15,240 14,685 15,380 16,481
E – Estimates
August 17, 2020 6
Important Ratios
Particulars FY20A FY21E FY22E FY23E
(A) Margins (%)
Gross Profit Margin 39.6 40.0 40.8 40.9
EBIDTA Margin 8.9 7.4 11.0 11.9
EBIT Margin 4.7 2.5 6.6 7.6
Tax rate (27.2) 26.0 26.0 26.0
Net Profit Margin 3.3 1.8 5.3 6.3
(B) As Percentage of Net Sales (%)
COGS 60.4 60.0 59.2 59.1
Employee 17.9 16.6 15.6 15.5
Other 12.8 16.0 14.2 13.5
(C) Measure of Financial Status
Gross Debt / Equity 0.5 0.4 0.3 0.2
Interest Coverage 2.6 1.2 3.9 5.2
Inventory days 51 51 51 51
Debtors days 51 55 55 55
Average Cost of Debt 9.5 8.3 9.4 10.7
Payable days 66 65 65 65
Working Capital days 36 41 41 41
FA T/O 5.2 3.3 4.0 4.5
(D) Measures of Investment
AEPS (Rs) 4.1 1.4 5.2 7.0
CEPS (Rs) 9.3 5.4 9.6 11.7
DPS (Rs) 0.4 0.1 0.4 0.6
Dividend Payout (%) 8.5 8.5 8.5 8.5
BVPS (Rs) 42.9 44.7 49.9 56.9
RoANW (%) 8.6 3.3 11.0 13.0
RoACE (%) 11.0 4.1 12.7 15.0
RoAIC (%) 10.7 4.3 13.4 16.7
(E) Valuation Ratios
CMP (Rs) 72 72 72 72
P/E 17.6 50.6 13.9 10.4
Mcap (Rs Mn) 16,417 16,417 16,417 16,417
MCap/ Sales 0.6 0.9 0.7 0.7
EV 16,849 16,356 16,043 14,774
EV/Sales 0.6 0.9 0.7 0.6
EV/EBITDA 6.7 12.2 6.6 4.9
P/BV 1.7 1.6 1.4 1.3
Dividend Yield (%) 0.5 0.2 0.6 0.8
(F) Growth Rate (%)
Revenue (9.0) (35.5) 22.3 13.1
EBITDA (14.5) (46.4) 82.6 22.3
EBIT (35.3) (66.0) 224.9 30.9
PBT (174.0) (129.5) 201.9 34.0
APAT (44.8) (65.3) 264.4 33.5
EPS (44.8) (65.3) 264.4 33.5
Cash Flow
(Rs Mn) FY20A FY21E FY22E FY23E
CFO 4,504 1,549 1,840 2,846
CFI (1,371) (677) (977) (977)
CFF (2,490) (1,328) (1,050) (1,098)
FCFF 3,042 871 863 1,869
Opening Cash 3,530 4,724 4,266 4,080
Closing Cash 4,724 4,266 4,080 4,851
DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%
Rating and Target Price History
Month Rating TP (Rs.) Price (Rs.)
Nov-19 BUY 115 95 Feb-20 BUY 126 111
Mar-20 Buy 101 63
Mar-20 Buy 101 58
Apr-20 Buy 80 56
Jul-20 BUY 93 70
*Price as on recommendation date
DART Team
Purvag Shah Managing Director [email protected] +9122 4096 9747
Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745
CONTACT DETAILS
Equity Sales Designation E-mail Direct Lines
Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709
Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735
Yomika Agarwal VP - Equity Sales [email protected] +9122 4096 9772
Jubbin Shah VP - Derivatives Sales [email protected] +9122 4096 9779
Ashwani Kandoi AVP - Equity Sales [email protected] +9122 4096 9725
Lekha Nahar AVP - Equity Sales [email protected] +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728
Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702
Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715
Dinesh Mehta Co- Head Asia Derivatives [email protected] +9122 4096 9765 Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705
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(Rs) MDA Target Price
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