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Tuesday, August 12, 2014

Minda Industries Ltd:My multibagger bet in the auto ancillary sector

Quote:Minda is a recent recommendation to paid members which should rock big time.Scrip is yet to to be fancied by the investors.Till that happens,Blog readers its time for you to get set go.


Long term Stock tip:-

Scripscan:Minda Industries Ltd
Traded in:Nse-bse
Cmp:288rs
Target:530rs
Percentage returns:80%
Duration:15-18 months

Company:Minda Industries Ltd,part of UNO Minda Group,is one of the leading players in Auto Components Industry,with a wide product portfolio. It is world’s largest manufacturer of 2/3 wheeler switches and horns.It supplies to leading OEM players & caters to the replacement market across the globe, with presence across 11 countries.It has 23 manufacturing facilities in 14 locations in India.

Business:The company offers two and three wheeler switches, such as handle bar, modular, neutral, gear indication, panel, and brake switches, as well as lever holder assemblies; and off road switches, including bake, push pull, push-push, neutral safety, ignition, lever combination, horn, hazard warning, heater starter, and ignition starter switches. It also offers lamps for two, three, and four wheelers, as well as off-road vehicles; electronics sensors/controllers; automobile horns; automotive batteries; blow molding components; alternate fuel kits; renewable and energy efficient devices; and handle bar assemblies.In addition, the company is involved in the trading of auto components and allied products.

Clientele:It boasts of a clientele that includes almost everyone from the likes of Bajaj Auto, Hero, TVS, Honda, Suzuki, Mahindra,Daimler,Swaraj group,Hynundai,Fiat to TAFE,Kawasaki,Aprilla,Komatsu,Torica,Piaggio etc.

Results:Company registered revenues of Rs.1,706 Crores in FY14 ,at a consolidated level, growth of 27% over FY13, from Rs.1,056 Crores.EBITDA of Rs.78 Crores, with margin of 4.6%.Profit after Tax at Rs 7 Crores during FY14.At a standalone basis,company registered revenues of Rs. 1,108 Crores in FY14, growth of 5% over FY13.EBITDA of Rs.76 Crores,with margin of6.9%.Profit after Tax of Rs.27 Crores for FY14.During the quarter, company generated revenue of Rs.303 Crores at a Standalone level, as against Rs.275 Crores in same period last year.EBITDA of Rs. 30 Crores for the quarter, with margin of 9.7%.Profit after Tax stands at Rs.14 Crores for Q4FY14.

Few points to vindicate the bullish stand:-

1)Conference call and sushil finance update aligned with my thoughts:During FY14, the exports contributed 19% to the consolidated top-line while the remaining 81% of the consolidated revenues came from domestic markets; 13% of the revenues were recorded from replacement markets while 87% of the revenues were from OEMs. The two-wheeler and four-wheeler percentage in the consolidated revenues stood at 63% and 37%, respectively. The domain-wise revenues break-up was as follows: Electricals & Electronics (46%), Body & Structure (14%), Chassis & Motor Systems (21%) and remaining others (19%).

2)The Management stated that the FY14 performance lagged on the consolidated basis primarily due to lower utilization levels in the recently expanded capacities and non-recurring extra-ordinary expenses incurred on acquisition of Spanish Company, Clarton Horn. The acquired entity registered a top-line of above 2,000.0 mn but incurred a loss of approximately Rs.110 mn at the PBT levels which included a one-time Management Fees of roughly Rs.60 mn which was paid to the erstwhile stakeholders for the smooth transfer of operations. The EBITDA margin stood at 4.5% which is likely to go up over the period of next two years on account various cost-cutting measures and streamlining activities to synthesize the Indian and Spanish operations. The subsidiary received upgraded business orders from Renault and Nissan. Additionally, the leading horn manufacturer came out with new horn product for both OEM and Aftermarket.

3)The Lighting division which contributed 14% of the top-line was substantially impacted by the slowdown in the four-wheeler category as majority of its revenues are being derived from four-wheelers. The profitability was also impacted in this segment on account of extended investments in Manesar, Pune and Chennai facilities. The Management stated that during last three years, the company has been investing substantially in capacity expansions in lighting division. The capacities are now ready and awaiting a ramp-up in improving the utilization levels. The old facilities have been running at 85-90% but the recently added capacities witnessed low utilization levels of 30-40% which is likely to improve during the current fiscal. The Pune plant is likely to break-even during Q1 FY15. The company has received new orders from Nissan and Mahindra & Mahindra in this division.The EBITDA margin in the lighting division has come down from 14.96% to 13.72% during FY14.

4)The Switches business also dragged the overall performance as the Hosur Plant which started production only in Q1 FY14 took almost three quarters to break-even. The Management expects the full benefits of this added facility only in the second half of FY15. The old capacities of this segment run at 85% utilization levels but the Hosur one ran at  55% in the recent quarter which is likely to move up to 80% within two quarters.

5)Minda Distribution & Services Ltd. (MDSL) which is a distribution company for the aftermarket segment is primarily run as a cost-centre and all the profits are passed on to Minda Industries Ltd. and thus, despite a good top-line the profits are negligible.

6) The top-line of another subsidiary, Minda Kyurako doubled from Rs.210.7 mn in FY13 to Rs.467.0 mn in FY14, however, the losses at the PBT levels widened from Rs.15.7 mn in FY13 to Rs.44.3 mn in FY14 primarily due to addition of Bawal facility which started commercial production only during the last year and a paint shop which was added recently. Due to high investments, as reflected in higher interest and depreciation costs, led to widened losses.Nevertheless, the Management expects improved capacity utilization levels in FY15 which will positively impact the profitability levels.

6)During the fiscal, the Company has started production of Fuel Caps for Maruti Suzuki India Ltd. The fuel cap business is currently running at 50% capacity utilization levels and is likely to go to 75-80% levels during H2 FY15. In addition, the revenues of Minda Auto Components jumped from Rs.550 mn to Rs.650 mn while the PBT levels improved moderately from Rs.35 mn in FY13 to Rs.40 mn in FY14.

Dividend:The Board of Directors has recommended a dividend of Rs.3 per share for the year ended March 31, 2014.

Auto ancillary industry outlook:Am not making the report lengthier as be it a small or a big company all will have the same positive outlook.But its the leaders with size and scale who will make the most out if it.

Concerns:Slowing down of economy,raw material prices etc.

Conclusion:An uptick in the domestic auto industry, besides a pick-up in replacement demand, will give a fillip to the auto ancillary industry.Company consistently has generated lot of operating cash flows over the last several years.Debt too is under control with interest cover of well over 3.Company has a clean management with strong vision backing them up.I am not putting any estimate for fy15.During the recently concluded conference call, the Management has guided a top-line growth of 40% in FY16 over FY14 and has also commented upon the scope of improvement in profitability.Net margins for fy15-16 can be around 3.5-4% on a turnover of 2300crs.Taking a conservative 3.4% NPM,I get a PAT figure of 80crs.Company marketcap is just 450crs and it trades at just 5.6 times its fy16 earnings.Industry average PE is above 15.Putting a multiple of 10x,the figure comes at 530 bucks,which is your target price.


BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

211 comments:

«Oldest   ‹Older   201 – 211 of 211
Anonymous said...

Dear Arunji
Knowing that you don't like reliance counters but I have reliance power as well as India cement I will be happy if you give your views on this

Equity wealth said...

1)Jik,jayjay,amit spinning,krishna life all are craps.Sell them at rallies.Acknit is somewhat better than them.

2)Its a scrip and not filmy script.Never ever traded.Invest to win and trade to loose.

3)Cinevista had some land but management not investor frndly,only cares for themselves.Digjam a brand but management not much focused.

4)Check the other comments for views on marksans.

5)I have posted about fluidomat today.So have your answers.

6)Conc should relist after some time.Who would want to miss out on stormy bull markets?

7)Suven been a 3 bagger for my memebrs.Good long term story along with astec.

8)Mercator too been a 3 bagger for members,can find the note in the blog.Good long term prospects.

9)DCW management is tremendously lethargic.

10)Rubflia is a good stock for long term.Pretty underrarted.Good prospects.

11)Clutch lacks consistency.Comes out with great numbers sometime andthen disappoints the next few years.

12)Confidence petro got good products but some how not able to translate that in numbers.Wait and watch.

13)No idea about cyient.Prfer camlin to linc pen.

14)Abg infra and steel strips wheels got good long term stories.Steel strips is one heck of a counter with TATA backing.

Anonymous said...

Please if you could throw some light on the land bank of control print and its valuation and how it can change the future valuations of the company..moreover what is your future outlook and fair value for the company based on its distinguished position in the industry..

STOCK FUTURE TIPS said...

i think it was good bet in auto sector

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kuheli said...

Is JP Associate invest-able stock?

Anonymous said...

Dear arun sir,
whats ur view on mm forge ltd?
for long term

Anonymous said...

Dear arun sir,
whats ur view on mm forge ltd?
for long term

Anonymous said...

Dear VP sirji,
can i buy mmfl shares @ current level 485?

Unknown said...

thanks a lot arun target achived

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