National Institute of Research & Advisory We care for your financial goals

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1 National Institute of Research & Advisory We care for your financial goals Multibagger Investment Plan is our all-time favorite Investmentt service and this service is quite popular amongst our clients through which we provide one highly potential Multibagger stock recommendation per month with research report. Our long term investment plans help you to achieve your financial goals. These stocks are identified using both fundamental & technical analysis (TechnoFunda Analysis) with more focus on fundamental analysis. 1/4/2017

2 Recommendation : Buy CMP as on Jan-04 : 316 Target : N/A Sector : Auto Ancillary Face Value : 2 Book Value : % Allocation : 5% 52 Week High/Low : 405 / 149 Market Cap : 2,778 Cr. BSE Code : NSE Code : MINDAIND Bloomberg Code : MNDA IN Background: Minda Industries Limited (MIL) is a well diversified auto ancillary manufacturer and country s leading supplier of diversified auto ancillary products. Located at Manesar, Gurgoan in the state of Haryana. It is the flagship company of UNO MINDA Group. MIL offers lightings, switches, horns and electronic components for automobiles. In switchess its solutions range from product development to production and aftermarket sales for 2W, 3W and off- with focus on OEMs. Horns segment road vehicles. Lighting division caters to 2W, 3W, 4W, and off road vehicles largely focuses on 2W. MINDA has 32 plants across India and research & development centers spread across the globe like Japan, Italy. Incorporated in 1958, MINDA is the flagship company of UNO MINDA group and one of the leading suppliers of proprietary automotive solutions to OEMs in India and abroad. Company is striving to strengthen their overseas foothold by strategically tying up and acquiring the foreign companies and is targeting to grow the export at a CAGR of 30% over the next two years. Company s Journey So Far Started with manufacturing of Ammeter for Royal Enfield 1960 Commenced with manufacturing of Automotive Switches 1980 Entered into Automotive Lighting manufacturing 1993 Expanded into Automotive Horns manufacturing 2001 Set-up Kit Integration of CNG/LPG Kits 2007 Started manufacturing Battery 2008 Started manufacturing Blow Moulding 2010 Commenced manufacturing of Aluminium Die Casting 2013 Acquired Spain-based Clarton Horns 2014 Entered in manufacturing of Fuel Caps, Entered into JV with Panasonic for Battery business 2015 Entered into JV with Kosei Minda for Alloy Wheels 2016 Acquired Rinder group, a pioneer in technology related to LED lighting in Automotive lamps

3 Outlook & Valuation We Initiate coverage of Minda Industries Limited (MIL) with a BUY rating. Given the Increasing production, Increasing Demand. MINDA is a diversified auto component company with strong presence in OEM s switching, lights and horn segment. It has track record of outpacing the automotive industry growth with its revenue grew at a CACR of 28% in past seven years compared to 11% growth in the automotive industry. With increased supplies to existing customers and introduction of new products (led by acquisition of group companies), it is expected that company s outperformance to continue going forward. Management is keen to increase its focus on export market in bid to cater the overseas OEMs. Thus, MINDA is tying up with foreign partners in order to get the direct access of the market. Company is also planning to ramp up its new products capacity utilization in order to get the benefits of operating leverage, which would eventually result in margin improvement. Growth is coming back to domestic auto industry amid the effect of 7th pay commission, one rank one pension, normal monsoon to boost farm output and ongoing festive season. Strong monthly OEMs sales volume is indicating the high growth phase in the industry is coming back and associated industry like auto ancillary companies would be benefited most. Hence we hold a positive view on the stock and believe that MINDA will be benefited from the improving prospects of the Indian automotive industry and margin improvement. Investment Rationale Well Diversified Product Portfolio: - Well diversified Product Portfolio Company has a wider range of product portfolio as an auto ancillary supplier and it is one of the leading players in many product categories. Company manufactures more than 20 different products. Its key products include switches and horns where it is no. 1 player in both for 2W/3W/4W in India. It also supplies other auto components like lightning, Alloy wheels, Low pressure Die Casting, Gas kits, Blow Molds, Fuel Caps and Batteries. It is in the process of approaching towards advance technology for the existing products and has developed more electronic switches. Its acquisition of Clarton Horns has given a strategic advantage to horn division. Company recently received order from JLR Model in India for lightning division. We believe well diversified product range not only offset concentrated risk on single as well as fewer products but also help company to add more OEM s in its customer base. Acquisition To Boost Lighting Business: - Lighting business is one of the biggest contributors of revenue, accounting ~30% of total consolidated revenue. Lighting business of MINDA is primarily into 4 wheeler segment catering to Maruti Suzuki, Volkswagen, M&M etc. with minimal presence in two wheelers. With the acquisition of Rinder, the presence of MINDA in the two wheeler lighting segment got strengthened as Rinder is bringing in LED lighting assembly technology to MINDA and thus enhance its presence in the two wheeler segment. Rinder mainly exports commercial vehicle LED lightings to customers like Isuzu, Daimler etc. Rinder is a Spain based company and the deal was valued at Euro 19.5 million, where MINDA has taken over the India s lighting business, R&D centre in Spain and 50% stake in Columbia based JV. Further, with the Rinder acquisition, MINDA will gain access to designing capabilities (Rinder has an in-house design centre) and cutting edge LED technology, whose penetration is likely to increase in the domestic market. The acquisition helps MINDA to double its market share in automotive lighting industry, which increased to 20% and would be the major revenue driver for the company.

4 New product launches to boost future growth: - Minda Industries has historically outpaced the automotive industry growth by consistently introducing high value products. Given its focus on innovation and its wide product range, the company has gained access to new platforms of clients, thus enabling it to gain market share. Company recently commenced plant operation at Mexico facility for horn segment. Starting FY17, company to commence commercial production of alloy wheel, where it has a technology tie up with Japanese major Kosei. Company has already received orders from Maruti & M&M for this product. Further, it will commence commercial production of batteries with Panasonic as its strategic partners. Going ahead, we believe new ventures by the company to boost revenue as well as margin growth in coming years. Switching System The Largest Revenue Contributor: - Company s switching system is the largest revenue contributor, contributing almost 38% of total consolidated revenue. In this segment, export accounts mere 8% and bulk of the domestic revenue in the two wheeler switching business of MINDA comes from OEMs like Bajaj Auto, TVS Motors, HMSI, Royal Enfield etc. In the four wheeler switching system business, MINDA has JV with Rika, Japan with stake of MINDA being at 26%. In two wheeler switching business, MINDA has experience over five decades and has a 67% market share in the OEMs. Market share of MINDA for Hero Moto, Bajaj Auto, TVS, Royal Enfield and HMSI are presently at 25%, 65%, 100%, 100% and 90%. Management set a target to enhance the share of business with Hero group from present lows of ~25% and also to increase the export reach, company is planning to ramp up its equity stake in the four wheeler switching business. Company s increased focus to enhance its export reach by increasing its equity stake would definitely provide much needed fillip to company s earnings growth. Increased Capacity Utilization And Improvement In Subsidiary Performance To Boost Margins: - MINDA is planning to ramp up the supplies of recently introduced products like Alloy wheels and rubber hoses by increasing its capacity utilization. Increased capacity utilization would enable it to spread its cost structure over a larger revenue base, thereby reducing the cost and enhancing the margin. Company is also looking to consolidate units and manufacturing process for established products, which would further aid to expand margins. Company is also aiming to improve the financial performance of its key subsidiaries, which contribute ~40% to its consolidated revenue, driven by enhanced operational efficiencies and reduction in wastage. During FY16, subsidiaries have reported improved performance and expectation is that the improvement to gain space going ahead, resulting in better margins. Improving Margins & Return Ratios:- Company s revenue & profitability has grown 23% CAGR from FY11-FY15. During FY11-FY15, company s debt to equity ratio has also improved from 1x to 0.65x. Also, ICRA has upgraded the credit rating of the company to A+ for long term facilities, which indicates strong financial performance. Company has also improved its operational margins to 9.6% in first nine month of FY16 from low of 5.1% in FY14 owing to better capacity utilization & consolidation of two Asian subsidiaries under standalone entity. Company expect double digit margin to sustain as new venture starts commissioning from FY17.

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7 Introducing FY19E estimates:- The company has indicated that it would complete group consolidation by FY18E which accordingly is expected to drive sales at a CAGR of 19.1% during FY16-19E where EBITDA and PAT are expected to grow at CAGR of 20.8% and 25.7% during the same period respectively. The company is expected to incur capex of about Rs Mn in the 2-3 years time for their geographical and capacity expansion. However, their Net debt/equity position is expected to maintain at 0.5x levels on account of higher operating efficiencies and order book growth driven by addition of OEMs. Also, asset turnover ratio is expected to increase to 4.6x in FY19E from the current 3.6x level. Key Takeaways of Conference Call Switches Division- Standalone revenues declined by 8.8% QoQ affected by 2-Wheeler growth this quarter as BAJAJ Auto Volumes, which constitutes ~50.0% for the switches division, declined by 16.5% QoQ, and switches segment contributes ~60.0% to standalone revenues. Contributed 33.0% to the consolidated revenue in Q3FY17 where India constitutes 85.0% of the sale. This division operates at EBITDA 10.0% level. Posted revenue growth of 4.0% YoY this quarter. Lighting Division- Contributed 29.0% to the consolidated revenue in Q3FY17 where India constitutes 85.0% of the sale. Posted growth of 19.0% YoY (Excluding Rinder Sales) driven by volume growth and product mix. Operates at 12% EBITDA level. The company has acquired Spain based Rinder group whose consolidation has been done this quarter. Rinder s 9MFY17 revenue recorded Rs Mn at 10.9% EBITDA level. Procured orders from Hero motors. Acoustic Division- Contributed 16.0% to the consolidated revenue in Q3FY17 where India constitutes 31.0% of the sale. Operates at 14.0% EBITDA level. Acquired Clarton Horns which recorded sales of Rs. 2840Mn for 9MFY17 having EBITDA at 7.7%. Clarton Horns to expand capacity by adding an additional line at Mexico with capital outlay of Rs. 200Mn.

8 Alloy Wheels Minda Kosei posted a turnover of Rs Mn in 9MFY17 which has been consolidated fully. During Q3FY17, revenue was Rs. 360Mn, down by 18.1% QoQ due to annual maintenance shut down at Maruti Plant for one week. Around ~52000 alloy wheels are sold a month with a total capacity of 60,000 wheels per month. By April 2017E, the capacity is expected to increase to 90,000 wheels per month. Furthermore, a new alloy wheel plant is going to be set up at Gujarat with a capacity of 120,000 wheels per month having a capital outlay of Rs Mn which will be deployed in two phases for the next two years. Their major clients in this segment are Maruti Suzuki India Ltd and Mahindra& Mahindra. New entities this quarter Roki Minda has been consolidated as a Joint Venture company from the Q3FY17 (49%), which manufactures filters.

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