Minda Industries Ltd - Surging Ahead in Auto-Ancillary!


(manivannan.g) #1

About the company:

Minda Industries Limited (MIL) is the flagship Company of UNO MINDA Group and one of the leading suppliers of proprietary automotive solutions to OEMs. They are one of the market leaders in Auto ancillary sector (Especially in Switching, Acoustic and Ligting systems, Fuecaps, Alloy wheels). With a consolidated turnover of over Rs.3,505 crore reported on 31 March, 2017, the company has established an entrenched presence in the automotive replacements market with a revenue share of 13%. It has global presence with 12 direct subsidiaries and 7 step-down subsidiaries, 3 joint venture companies and 5 associate entities with their headquarters in Gurgaon.

Business Overview: Consolidated turnover – FY2017

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Business segments:

1. Switches

  • The Switch division of MIL is the largest manufacturer, by volume, of automotive switches in India with market share of ~70%.
  • The Switch Division operates five plants in India and two overseas plants in Indonesia and Vietnam
  • MIL is India’s largest Switch Player, diversified across the 2Wheeler(2Ws) and 4Wheeler(4Ws) segments. The 4W Switches produced through a JV with Tokai Rika, a Japanese company.
  • Switch system that MIL manufactures: 2Ws and 3Ws (Handle Bar Switch, Modular Switch, Gear Indication Switch, Lever Holder Assembly, Panel Switch, Brake Switch) and Off-Highway segment (Rocker Switch, Plunger Switch, Ignition Switch, Column Switch, Push Button Switch, Rotary Switch, Keypad Switch, Brake Switch, Push-Pull Switch, Hazard Warning Switch, Horn Switch, Lever Combination Switch, Neutral Safety Switch, Push-Push Switch, Heater Starter Switch and Ignition Starter Switch).

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2. Lights:

  • MIL commands a market share of ~20% in India in the Lighting segment and 3rd largest player in this segment after Lumax and Fiem.
  • Lights are manufactured in these plants: Pantnagar, Sonepat, Haridwar, Manesar and Chennai. Capacity at Manesar was expanded in FY15 for production of Tail Lamp for Alto K-10 Model of MSIL
  • MIL acquired global lighting business of Spain based Rinder Group in June 2016 for €20mn, which will provide latest technologies with R&D in Spain
  • MIL has Technical Assistant Agreement with AMS Company Ltd. (Korean Corporation) for manufacturing head, rear and exterior lamps.
  • PT Minda Asean Automotive (Indonesia) that makes switches and lighting products and SAM Global Pte Ltd, Singapore is 100% holding company of PT Minda
  • Products: It caters following products to 2W, 3W and 4W: (Room Lamp Assembly, Front Lamp Assembly, Front Turn Signal Lamp, High Mount Stop Lamp, Spot Lamp, Reflex Reflector, Warning Triangle, Lamp Assembly Side Turn Signal, Licence Lamp Assembly, Head Lamp Assembly, Tail Lamp Assembly and Fog Lamp), 2W (Number Plate Lamp, Tail Lamp Assembly, Head Lamp Assembly and Indicator) and Off Road (Plough Lamp Assembly, Tail Assembly, Head Lamp Assembly, Rear Fender Lamp, Front Fender Lamp and Plough Lamp).

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3. Horns (Acoustic), including Clarton Horns:

  • MIL is the leading manufacturer of horns in India with a market share of almost 50%.
  • The Clarton Horns acquisition catapulted MIL to being the second largest manufacturer of automotive horns globally after Fiamm
  • MIL & CH produces, Hypertone Horn, Trumpet Horn, Air Horn and Electronic Horn. It also makes Water-proof Horns
  • MIL is exploring options to introduce electronic horns in India, backed by CH’s technology
  • Plants: Manesar and Pantnagar (India), La Carolina (Spain) and Tanger (Morocco)

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*Other customers include various leaders like: Maruti, Mahindra, Tata, VW, BMW, Piaggio, Suzuki, Tata, Ford, Eicher, Kawasaki, Yamaha, Leyland, Swaraj, Escorts, Renault,

Other segments:
1.Batteries:

  • The batteries segment was making losses when it was started, then the management planned to downscale it, instead of spinning off. In 2015, MIL entered into a JV with Panasonic Corporation of Japan to form a new company “Panasonic Minda Storage Batteries India Private Limited (PMSBIPL)” in order to revive the fortunes of the business. Now its’ catering to 2Ws and planning to cater 4Ws.
  • Since 80-90% of battery market is held by Exide and Amaron, it’s difficult for MIL to expand, one wrong foot might take a hit on the company’s financials.

2. Fuel caps:

  • MIL manufactures fuel caps from 2014 and has technology tie-up with Toyoda Gosei and Toyota Tsusho for manufacturing fuel caps along with other safety parts and has a plant in Manesar.
  • Traditionally, OEMs used to rely on imported products for fuel tank caps; mainly from China and Thailand. However, some OEMs are considering local sourcing of the same. Incremental revenue growth for this division would come from OEMs that start local sourcing of fuel tank caps and also from newer models of existing clients (MSIL).

3.Auto Gas:

  • The Auto Gas Division manufactures LPG/CNG kits and components for OEMs as well as for A.M.s. The OEMs client profile includes MSIL, TAFE, TML and M&M. It also supplies kits & components to Honda Power for Industrial Genset.
  • Over the longer term, with increasing Govt emphasis on using clean fuels and stricter emission norms, CNG/LPG (especially CNG) would be back in reckoning and it can contribute to the growth of the group.

4.Alloy wheels:

  • MIL has entered this segment only in 2015. And has JV with Kosei Aluminum Company Limited of Japan for manufacturing of Alloy Wheels for Passenger vehicles (PVs), with a plant in Haryana.
  • At present the company is supplying to OEMs (includes Maruti, Toyota, M&M, Honda, Renault) and planning for after market supply as well.
  • Aluminum wheels are lower in weight; however they are 4 times more expensive than steel wheels. Hence, they are mainly used in higher end cars. Like the battery segment, the alloy wheel segment has SSWL’s domination, hence the growth is difficult but not impossible :slight_smile:
  • The Alloy Wheels business reported revenues of Rs. 3.95bn in FY17, growth of 115% YoY and EBITDA of Rs. 806mn, implying EBITDA margin of 21%.

5.Blow Moulding:

  • MIL operates in the blow molding business through its subsidiary – “Minda Kyoraku Company Limited”
  • The company has products such as Roof Duct, Air Inlet Duct, Spoiler, Deck Board, Pallet Energy Absorbing Pad, Reserve Tank, Washer Tank, Lapin Energy Absorbing Pad and Resonator and caters to OEMs (MSIL, Toyota, Nissan, Honda, GM, Ford, etc)
  • MIL had a technical tie-up with the two companies since 2007 for Engine Rooms, Interior-Exterior Blow Molding Components for Toyota Innova which has been extended to other OEMs from 2011.

6.Casting:

  • MIL started manufacturing Aluminum Die Casting products for Automobiles in 2010 and in 2011 it formed a 50:50 JV with the JBM Group – MJ Casting Limited (MJCL). Over the past couple of years, MIL has increased stake in the entity to 98% as a part of its consolidation exercise. The JV has facilities at Bawal (Haryana) and Hosur (near Bangalore). MJCL supplies Aluminum Pressure Die-Casting and Precision Machining components for Engine Parts, Side Covers and Crank Cases.

Financials:

Basic Screener:


PS: For some reason, screener.in is reporting PE:83, which wrong, I’ve cross verified multiple websites, it stands between 37-40.

Risks:

  • Growth in business for Auto Ancillary companies like MIL depends on volume growth for domestic OEMs. Hence, any decline in their growth due to broader macro-economic issues or company-specific issues can adversely affect MIL’s business
  • Since that exports contribute more than 20% to MIL’s consolidated revenues, company is exposed to a risk or loss from the foreign exchange rates fluctuation, which may effect on operating results in both positive and negative way.
  • Slower than expected resumption of currency circulation may impact the aftermarket sales.
  • Muted performance from company’s subsidiaries could impact its EBITDA margin, especially the dominent battery and alloy wheels segment.

Catalysts:

  • The biggest catalyst is, the Govt policy on e-vehicles, which will benefit auto & auto-ancillary companies in coming years
  • With the tax rates coming down from 28-30% to 18%, the GST has positive impact on the auto-ancillary companies

    Disclosure:
  • I’m a retail investor, i bought Minda Industries around Rs.190 and sold at Rs.250 level (split adjusted) during the bearish market in 2016 (yes, typical newbie mistake). Since then i don’t have any position in Minda industries. I’m planning to add at around 800 levels.
  • All the information above are collected from various publicly available reports, not my own.

Annual report: http://www.bseindia.com/bseplus/AnnualReport/532539/5325390317.pdf

Glossary:
MIL: Minda Indsutries Ltd
CH: Clarton Horns
PSA: Peugeot
MSIL: Maruti Suzuki India Ltd
HMSI: Honda Motorcycle and Scooter India
JV: Joint Venture
2W,3W,4W: Two wheeler, Three Wheeler, Four Wheeler

I kindly welcome the members to add your opinions.


(g1) #2

Well written, this has been one of the best performers in my PF. I have been holding since pre split and every quarter they have shown consistent growth. Management seems to be honest and capable, inducing great conviction onto holding it for long term.

G1


(manivannan.g) #3

Yes, MIL was able to deliver a CAGR of 10% in past 3yrs despite the muted demand in domestic market (2Ws, 3Ws and 4Ws, tractor and CVs & PVs). Their notable OEMs like Maruti, Mahindra, TVS, Bajaj etc., are having good relationship and trust on them. Also, they are continuously adding fresh products and handful of foreign JVs and subsidiaries, I expect them to expand and grow much better with the upcoming auto boom.


(manivannan.g) #4

Here’s the insider trading of past 1yr. The promoter is increasing their stake considerably.


(g1) #5

Excellent set of numbers from Minda, PAT up 73%, revenue up 24%. Let us see how market takes these numbers…
G1


(manivannan.g) #6

Q2 Notes


(manivannan.g) #7

Product wise performance:

Overall Minda has posted stellar numbers & performance. With the e-vehicles boom in place and marquee clients, I think Minda would continue to do well.


(AJ) #8

The way market gave thumps up to stellar set of numbers from Minda is really commendable.
Just to give a quick background - I’m invested in this company from 2013 and made a return in excess of 20 times on a very small initial investment. I had to take a very painful decision today to partially exit my holdings. I could well be wrong on my judgement on this - I would say, in a heart vs mind debate today my mind won (for a change!)

Let me quickly put together some data and the rational:

  1. the current market cap of the company which is in excess of 9000 Crore.
  2. the current quarter PAT is at 70 odd crore.
  3. the massive consolidation effort the management has executed beautifully over the last two years is coming to an end by mid 2019, after which Minda will be a pure organic play.
  4. assuming the consolidation of business and improved operating efficiency helps the company achieve a quarterly PAT run rate of 100 Cr by end of next year - we are still looking at an annual bottom line of 400 Cr by end of 2019.
  5. at 9000 Crore the company is valued in excess of 22 times 2019 expected earnings.
  6. company is expected to work with in an EBIT margin of in the range of 11-14%(near to 12% during current year as per the latest management commentary and assuming another 2% will be contributed by operational efficiency) with an expected organic annual growth rate of 15% post 2019(assuming the Indian and the global market is conducive for such rate of growth).

In an increasingly crowded and competitive domestic and global auto ancillary market i’m not sure if Minda can command a two year forward PE in excess of 25.

Minda is brilliant company and its management have done justice to its shareholders. While the company will continue to do justice to its shareholders, the past rate of market cap growth is very difficult to replicate.
My suggestion is not to get carried away with the current exuberance and wait for an opportunity to enter.

Disclosure: Exited 2/3rd of my holdings today and decided to keep the balance for long term.


(manivannan.g) #9

I agree that the past performance is not future’s guarantee, which goes without saying for any stock in the market :slight_smile: There are few of things in my mind to put on here for opinions.

  • I’ve been tracking Minda Industries from 2015 and you are from much earlier (2013), so you know the fact that Minda is quoting a little premium over other players, but it’s steadily catching up. At least that’s what I’m observing from early 2015. I’m fine as long as the EPS is catching my expectation.
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  • In tricky situations, apart from P/E ratio, we should consider PEG ratio as well to see if the stock is really valued exorbitantly. The current PEG ratio is at 0.8

  • Apart from these ratios, coming to business, I feel Minda is better placed compare to the peers due to it’s well diversified products. They are the market leaders (esp. Switching, Acoustic, Lighting). They have strong OEM relationship, they even setup plant in Gujarat to ease the business with Maruti (this was mentioned by Mr. N.K Minda in an interview with CNBC).

  • Minda has did really well even though when the auto industry was going through headwinds in 2015-16. So they will continue to do good when auto industry gonna get a boom (electric vehicle) coming years :slight_smile:

  • The only concerning fact for me is their battery business, apart from that I feel Minda Industries are doing good and with the coming years the electric vehicles boost will push Minda Industries further.

  • Finally, the good thing won’t be available cheap. Isn’t it ?

Here’s what Mr.N.K Minda said about growth and margin at the end of FY17.

Some management boast about their company and gives sky high numbers as target and fail to achieve it. But so far, Minda Industries management maintains decent target and they do achieve that. Let’s see !!


(AJ) #10

Its really nice to see a healthy debate in this topic :slight_smile: … thank you for your insights Mani. My only concern is that a lot of new retail investors(many of them first time/ inexperienced) are dragged into this stock by the seasoned players calling Minda a multi-bagger at the current price. I thought it was important for me to write down what i believe(its just one of those perspectives that you will find in the market - if anyone do not find merit in it please ignore).

By the way i did not exit all my holdings(I would have exited if i believed that the story is over) and a totally believe that their business is going to mature in the near future(which means i will have to be satisfied with a return of 20% or less annually) - and if some one is calling Minda a multi bagger today then for me he is stretching his/ her imagination.

and @manivannan.g , also note - you just said that good things wont be available cheap! - i totally agree with you - but sometimes you get lucky, back in 2013 this one caught my attention among a plethora of auto ancillary companies that i looked into - it had really good products, brilliant customers, neat financial statements, respectable management, and above all it was dirt cheap. Luckily i had enough patience to wait and see it blossoming!

I hope we debate and learn a lot more together here :slight_smile:

Disclaimer: Invested in Minda

AJ


(manivannan.g) #11

The book definition of a Multibagger is “A stock which provides of return over 100%”. I definitely see Minda Industries there from current levels :slight_smile:

I feel there is still more steam left in Minda Industries. It has rallied about 2500% from Oct-2013 (split adj.). There are lot of fundamentally strong stocks has surged much more than what Minda has rallied till now. For an example, talk about MRF, Eicher, they are keep moving on !! they were once in the same situation as like Minda is currently, but little different.

I’m kind of guy who try to see whether the business is doing well and is the business is sustainable in next 5-10 years ? If yes, I invest in there. If I find them that they can’t sustain over next 2-3yrs, I’ll simply exit. I don’t keep love affairs with stocks :slight_smile:


(manivannan.g) #12

Minda Industries has acquired further stack in Mindarika and with this Mindarika will become a subsidiary of Minda Industries. Mindarika is engaged in the manufacturing of 4 wheeler switches and supplying its products to OEMs including Maruti Suzuki.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/20ae47e2-a47a-40ed-af41-3b2bc6624fb9.pdf


(Vijay) #13

Look at the alloy wheel penetration and few computations will show how this company will gain from it. Two wheelers at entry level provide alloys. This is yet to happen for cars. But it will happen. Just a few cents…


(Manohar T. Patil) #14

Is Minda likely to have significant impact on its business due to EV ramp up expected in next 5-10 yrs? OR the parts manufactured by Minda are protected from disruption thru EV for auto ancilliary companies?


(manivannan.g) #15

To put it simple, MIL’s main products (Switches, Lights, Horns) are quite generic, which is required for any automobile :slight_smile: May be the specification for EVs might change a little, but not the product itself.

Ex: Say if conventional car is using XY watts horn, that might not directly fit in EVs, so you need horns with XZ watts to save the energy in EVs (this is just an example). MIL is already catering their products to each OEMs need, so this would benefit the company for sure.


(HRao) #16

Dear Mr Mani and Mr. AJ for the valuable inputs. Both are right. I cannot write technically, but I understand. I think my assumption is this stock is pretty good to hold for next 2 years,to derive the full benefit of all their expansions. I entered 115 numbers at ₹108(split adjusted). Today I wanted to exit, but held back. I also request you to look at IEX.


(manivannan.g) #17

Sorry, I’m not tracking IEX.


(nayan solanki) #18

People should buy and forget kind of stock is minda ind electric vehicle is not going to have any impact on their business if you open their website you will get idea . Almost all their products are necessary for any vehicle may it be CV bikes etc. Those products will have huge growth over period of time and sales will increase consistently . People can assume that real growth has just started imho


(shampavman) #19

After holding Mothersonsumi for almost 3 years i started looking at other potential buys in the auto ancillaries.
I"m looking at Suprajit, Minda and jamna.

When it comes to Minda, i feel they may be well poised even when the EV interest picks up. They have a power train division which is the most important change in between EV and normal vehicles.
I"m looking at other companies dealing with powertrains right now.
For now i continue to track/read about this especially from the power train aspect.


(manivannan.g) #20

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promoters keep increasing their stake every quarter.