Minda Industries Limited

Transcription

1 Main Research Report Minda Industries Limited Independent Equity Research March Equentis Wealth Advisory Services (P) Ltd Registered Office: 712, Raheja Chambers, Nariman Point, Mumbai India Tel: info@researchandranking.com

2 BACKGROUND & BUSINESS Group -Minda Industries Limited (MIL) -- M.Cap Rs.14bn Rs.66.6/$); FY15 consolidated revenues Rs.22bn) is the flagship entity of Nirmal Kumar (NK) Minda Group (group turnover more than $500mn); the group recently rebranded itself as UNO MINDA. With humble beginnings way back in 1958 by Late Shri S.L. Minda, the company over the last five decades has evolved into a leading Tier-1 supplier of Proprietary Automotive Solutions to original equipment manufacturers OEMs across a range of automotive components. Segments (Current) -UNO Minda is widely present in almost all the domains of vehicles production such as electrical & electronics, body & structure, chassis & motor systems, engine & exhaust, interior controls and safety, clean tech, distribution & institutional businesses. As a Tier 1 supplier, the Company designs, develops and manufactures a wide range of automotive components such as - switches 2W/HBA & 4W/HVAC, sensor and body electronics, relay, actuators, accelerator pedal assembly, automotive lighting, automotive horns, alternate fuel systems, non-automotive LED lighting, solar renewable energy, automatic gear shifters, blow molding and fuel caps. Business Overview As % Consolidated turnover HY-1-FY16 Products % Sales Channels % Sales Geography % Sales Segments % Sales Switches 45% OEM 80% Domestic 83% 4W 33% Lighting 20% Replacement 20% Overseas 17% 2W 67% Horns 18% Others 17% Segments (New) -During FY15, it entered into a JV with Panasonic Corporation (Japan) to revive its battery business. MIL owns 40% stake in the JV. This business will have an installed capacity of 4mn batteries p.a. and will commence commercial production from FY17 onwards. Another JV formed by Minda was with Kosei of Japan to manufacture alloy wheels for Passenger Vehicles.MIL has 70% stake in this venture. It has set up an alloy wheels facility with capacity of 60,000 units pm at Bawal, Haryana which will commence commercial production in FY17. Business strengths -MIL has 25 manufacturing facilities across 14 locations in India. Presently, MIL is the second largest manufacturer of 2W/3W horns globally (after FIAMM) and the third largest manufacturer of automotive switches in India (after Lumax Industries and Fiem Industries). It has more than 100 registered patents, 129 design registrations till date and three R&D centres across the country. MIL employs more than 6,200 people and through its network of more than 500 business partners and 10,000 dealers, it serves more than 50 OEMs in India and abroad. Recent acquisitions -Its most recent acquisition was that of Clarton Horn (CH), a Spanish company (in March, 2013) for a consideration value of 6.8mn ($8.9mn, Rs.580mn). CH is a leading manufacturer of automotive electronic horns, supplying to all major OEMs in Europe. The firm has manufacturing plants in La Carolina (Spain), Morocco and Mexico and sales office in Germany. In FY14 the first full year of integration with Minda, this business reported sales of roughly Rs.2bn, EBITDA margins of around 4.5% and PBT loss of Rs.110 mn. The management successfully turned around this entity in the second year itself with FY15 sales of ~Rs.4bn, EBITDA margins of ~5% and PBT of Rs.19mn. Business Integration Exercise -As part of broader reorganization at the consolidated level, MIL is increasing its stake in various group companies which have synergies with the portfolio of the company. The objective is to consolidate all businesses of the Uno Minda Group. Already the company has increased stake in the lighting business of its erstwhile Indonesian and Vietnam group companies. Further it has increased stake in the casting business which has also shown a remarkable turnaround. Plans are underway to integrate the businesses of various partnership concerns into the books of MIL. It has appointed KPMG to work on a scheme to simplify corporate structure in a tax efficient manner.we view this initiative as highly constructive and are of the opinion that it would give a huge fillip to the turnover and profits of MIL. 2

3 Group Companies - MIL has formed associations with several global automotive technology players through joint ventures and partnerships. These are summarized below: Sr. No. Partner Entity Partner Country Segment Type MIL's Stake 1 Kyoraku CO Japan Blow Moulding Subsidiary 71.66% MindaKyoraku Company Ltd 2 JBM Group India Die Casting Subsidiary 98.00% M J Casting Ltd 3 Tokairika Co Japan Switches Associate 27.08% MindaRika Private Ltd 4 Panasonic Corp Japan Batteries JV 40.00% Panasonic Minda Storage Batteries India Pvt. Ltd 5 Emer S.p.A. Italy Fuel Systems JV 49.10% MindaEmer Technologies Ltd 6 Kosei Aluminum Co Japan Alloy Wheels JV 70.00% Minda Kosei Alloy Wheels Pvt. Ltd 7 Fujitsu Ten Japan Auto Infotainment Systems JV 51.00% Minda F-Ten Pvt. Ltd Management effectiveness -From its humble beginnings as primarily a maker of automotive switches, the management has been very proactive in diversifying its product portfolio which now includes - lighting products, horns, batteries, fuel caps, auto gas, alloy wheels, etc. Further, it has also successfully ramped up its operations by forging successful partnerships with global leaders which have helped the business add new clients and become a dominant Tier-I vendor for its product portfolio. Alongside it has built a strong brand recall in the after-market segments. Financial Performance A Glimpse -Consolidated Net Revenues have grown at a robust pace of ~25% CAGR over past three years while EBITDA has grown at more than 25% CAGR during the period. This is an impressive run rate and is expected to improve going ahead given that several of its recently formed JVs and associations would turn around and start generating profits over the next 1 2 years. Debt-Equity ratio is comfortably below 1xs while RoCE and RoE have been steadily going up over past three years. While RoCE has improved from 8% in FY12 to 10% in FY15, RoE has gone up from 12% to 20% during the period. Given that there are no plans to set up new facilities in the near future and most capacity expansions are in place, the free cash flow generation (which turned positive) in FY15 (FCFF Rs.878mn) would improve going ahead. Ownership Profile -The promoters have maintained their stake in the company at a steady level (65% - 70%) over the past decade. At the same time no part of the promoter holding is pledged. Motilal Oswal s India PE Fund owns close to 8.5% stake in MIL since The management has been quite transparent regarding periodic disclosures addressing analyst and investor queries through regular quarterly post-result conference calls and analyst meets. Entity 3

4 INVESTMENT THESIS Minda is at the cusp of a strong new growth cycle, led by a powerful play of twin factors of a highly attractive opportunity at its end-user Indian automotive industry, as well as by its dominant Tier-I auto vendor status, resulting in high entry barriers and market leadership across its diversified product portfolio. Over the years, the management has shown tremendous foresight in scaling up the operations, led by successful diversification of product portfolio and strong client additions. Importantly, this successful ramp-up has been supported by partnerships with global leaders, which in turn has ensured high quality products and robust acceptance of the same amongst OEMs. Alongside, the company has built strong brand equity in the more profitable after-market, which also helps to some extent smoothen business cycle volatilities. In our opinion, the next leg of growth would be driven by the following a) Steady growth in existing product portfolio mainly of switches, lighting and acoustics led by its dominant market leadership across OEMs and after-markets. For the same, Minda has already invested in building new capacities that offer visibility to support strong double digit revenue CaGR over the next 3-5 years. b) The group has initiated a Business Integration Exercise, with the objective to bring the operations of various group companies mostly owned by the promoters into the books of Minda Industries. As a part of this process we expect the following businesses to be fully merged with Minda Industries over the next 6-9 months 1) Operations of the lighting business of Indonesia and Vietnam - during the current financial year, Minda paid roughly Rs. 260mn to increase stake from 19% to 51% and plans are to increase stake to 100% (at similar valuations) by end of this fiscal or by first quarter of FY17. This business is estimated to post revenues to the tune of Rs. 650mn in FY16. 2) MJ Casting which was earlier a 50:50 JV with JBM Auto is now 98% owned by Minda Industries. FY16 will be the first year of full integration of the financials of this business which is estimated to report a turnover of ~Rs. 2bn. The company paid Rs. 140mn to increase its share from 50% to 98%. 3) Partnership firms Yogendra Engineering and Auto Components, Haridwar both in which Minda has 49% interest are expected to be fully merged within a time frame of 6-9 months. These businesses are estimated to have a topline of around Rs. 3bn and are debt-free. Note We d like to highlight that an important line of business of 4W switches housed in the associate company Mindarika which presently is a ~27% associate is not considered in our estimates as part of the integration exercise. Mindarika has a turnover of ~ Rs. 5bn with a large balance sheet base of ~ Rs. 2bn. It has debt: equity ratio of ~1:1 and integration of this company would have meaningful implications on the cash flows of Minda. Whilst, there is a business case for bringing it in the books of Minda given its synergies with the existing mainstay business of switches for 2W/3W/off the road vehicles, we will keep a close watch on the developments on this front and revise our estimates as and when there is greater clarity on the transaction details and the means of funding. c) Investments in new business lines alloy wheels (70% subsidiary with Japanese leader Kosei Aluminium) and batteries (40% JV with global major Panasonic), both of which have an extremely favourable industry opportunity, are in process to commence commercial production shortly and are estimated to contribute in a meaningful way to the financials of the company going forward. Key assumptions for Base Case Forecasts over FY15-20 Revenue:As per our estimates, consolidated turnover of Minda is projected to report strong double-digit CaGR in the range of 20-25% over FY15-20, off which revenues coming through business integration exercise and through new product additions are likely to account for ~9% of turnover in FY16 and thereafter jump to ~22% from FY17 itself. Existing operations across standalone and subsidiaries are projected to grow at 16% CaGR over FY15-20, with revenues from integration of group companies and new product additions registering ~60% CaGR over FY Accordingly, turnover from ~Rs. 22bn in FY15 is estimated to grow to ~Rs. 27bn in FY16 a growth of 25% YoY. Off this, existing operations are estimated to grow at ~15% YoY with the balance growth coming on account of integration of a few group companies. Taking forward, we estimate FY17 to be the first full year reflecting the revenues on account of integration and revenue from new product additions like alloy wheels and batteries. We estimate FY17 revenues of ~Rs. 38bn, growth of 37% YoY. Off this, the current existing business is estimated to grow at 17% YoY with the remainder coming from integration exercise 4

5 and revenues kicking in from new product additions. Thereafter, we project consolidated sales to grow at ~18% YoY each in FY18/19&20. Basis these assumptions, consolidated turnover is expected to grow nearly 3xs over FY As stated above, these estimates may be revised upwards if the associate company Mindarika and/or other family owned companies (on which there is no information presently) are also brought in the fold of Minda. EBITDA: We estimate consolidated EBITDA to grow at a CaGR of ~35% over FY15-20, higher than the topline CaGR aided by EBITDA margin expansion of ~450bps over FY We d like to draw attention to the fact that much of the EBITDA margin expansion of nearly 315bps is expected in FY16 itself, with Minda posting consolidated EBITDA margins of close to 10% in FY16 as against ~7% in FY15. This is in-line with the strong boost in EBITDA margins reported by Minda in first half this fiscal with management guidance of closing this fiscal with nearly double-digit EBITDA margins. Thereafter through FY17-20 we forecast around 115bps EBITDA margin expansion. EBITDA contribution from integration of group companies and new product additions is expected to account for ~22% of consolidated EBITDA in-line with its contribution to the turnover as covered above. Capex& Asset-sweating: In the past 5 years, Minda has invested cumulative Rs. 8bn which is sufficient to support our growth estimates over the next 3 years. FY16 we estimate capex at ~ Rs. 2.5bn mainly towards the alloy wheels facility. Thereafter, the management has guided for nominal capex of around Rs. 500mn in FY17. Over our forecasted period FY16-20 we estimate cumulative capex of Rs. 6.5bn. We estimate steady improvement in asset sweating from current levels of roughly 2xs to 3xs+ over FY20. Investments: We estimate Minda to have a cash outflow of ~ Rs. 1.5bn over FY16 & 17 towards increasing its stake in group companies as part of the on-going business integration exercise. As covered before, this does not factor in the potential integration of the associate company Mindarika, which we reckon would require substantial outgo. Cap-structure: Based on the above assumptions, we estimate Minda to become debt-free by FY19. Over the nearterm we expect leverage to remain well below 1xs and with a steadily declining bias. PAT: With a topline CaGR of 22%, EBITDA CaGR of ~35%, we estimate PAT CaGR of ~39% over FY We have assumed tax rates at ~25% each year in our forecasted period. Dividend Payout: We have maintained dividend payout ratio as % net profits to be constant at current levels of ~17% over our forecasted period. Working Capital Intensity: Minda has an efficient working capital management with Net working capital as % net sales at around 5%. We project it at similar levels going forward. Return Metrics: RoCE is expected to double to 20%+ in FY16 itself over FY15 levels and steadily increase to 25%+ in FY17 and further to 30%+ in FY18 and inch towards 40% levels in FY19 & 20. Valuations& Recommendation Basis the above explained growth opportunity and Minda s strong competitive positioning, alongside benefits of scaling up through business integration exercise and new product additions; over FY15-20, we forecast Consolidated Turnover to grow ~3xs, EBITDA to grow ~4.5xs and PAT to grow ~5.5xs. After building in cumulative capex and investments worth ~Rs. 8.5bn, we estimate Minda to become debt-free by FY19, with cumulative free cash flows to the firm worth Rs. 12bn. RoCE is expected to double to 20%+ in FY16 itself over FY15 levels and steadily increase to 25%+ in FY17 and further to 30%+ in FY18 and inch towards 40% levels in FY19 & 20.Such rampant pace of improvement in financials puts Minda in a sweet spot, wherein it should see the twin benefits of sharp upward revision in earnings as well as multiple re-rating. We forecast base case EPS at Rs. 75/- in FY16 (77% YoY), Rs. 107/- in FY17 (42% YoY), Rs. 145/- in FY18 (35% YoY), Rs. 180/- in FY19 (25% YoY) and Rs. 215/- in FY20 (20%) YoY. This implies EPS CaGR of 38% over FY Over the next months, we expect the stock has the potential of more than doubling over the current levels.this is based on valuing average FY16 & 17 estimated EPS of ~ Rs. 90/- at 20xs PE multiple. Given our high conviction in the business model and the favourable medium-term outlook, we are of the opinion, that apart from the strong near-term stock price appreciation, Minda also has the potential of creating significant wealth and fits well into our 5x5 strategy. 5

6 The table below details the sensitivity of FY20 Target Price to different levels of EPS estimates and PE multiple. FY-20 EPS sensitivity -5% -10% -15% 0% 5% 10% 15% FY-20 EPS est. (Rs./-) PE 10xs 2, , , , , , , PE 12xs 2, , , , , , , PE 15xs 3, , , , , , , PE 20xs 4, , , , , , , PE 25xs 5, , , , , , , PE 30xs 6, , , , , , , PE 35xs 7, , , , , , , Note shaded cells indicate fair value of equity range Recommendation - Minda forms part of our top conviction investment ideas with strong potential of delivering 3-5xs returns over current levels through FY20. We have a strong BUY recommendation on the stock and would advise adding the stock at current levels.we have high levels of confidence in the business model, its product portfolio and sustainability of demand drivers in its end-markets across OEMs and aftermarket, as well as on the management s ability to deliver going forward. Sensitivity Sensitivity of EPS CaGR over FY15-20 at different levels of topline CaGR and EBITDA margin estimates EBITDA Margin Est. FY20 Consolidated Topline CaGR (FY15-20) 10% 15% 20% 22% 25% 30% 35% 40% 6.0% % -7.46% 7.13% 11.50% 17.89% 26.91% 34.96% 42.38% 6.5% % -1.31% 11.58% 15.64% 21.68% 30.38% 38.25% 45.58% 7.0% % 3.60% 15.42% 19.26% 25.05% 33.52% 41.26% 48.53% 7.5% -7.39% 7.73% 18.81% 22.49% 28.10% 36.38% 44.03% 51.25% 8.0% -2.36% 11.31% 21.84% 25.41% 30.87% 39.03% 46.61% 53.80% 8.5% 1.81% 14.48% 24.61% 28.08% 33.44% 41.48% 49.01% 56.18% 9.0% 5.38% 17.33% 27.14% 30.54% 35.81% 43.78% 51.27% 58.43% 9.5% 8.53% 19.93% 29.49% 32.83% 38.04% 45.94% 53.40% 60.56% 10.0% 11.35% 22.32% 31.68% 34.98% 40.12% 47.98% 55.42% 62.58% 10.5% 13.92% 24.54% 33.74% 36.99% 42.09% 49.91% 57.34% 64.50% 11.1% 16.71% 27.01% 36.05% 39.26% 44.32% 52.10% 59.53% 66.70% 11.5% 18.44% 28.55% 37.50% 40.70% 45.74% 53.50% 60.92% 68.10% 12.0% 20.46% 30.39% 39.24% 42.42% 47.43% 55.17% 62.60% 69.79% 12.5% 22.36% 32.12% 40.89% 44.05% 49.05% 56.78% 64.21% 71.42% 13.0% 24.15% 33.77% 42.48% 45.62% 50.60% 58.32% 65.76% 72.98% As can be seen in the yellow highlighted cell above at 22% topline CaGR and ~11% EBITDA margins in FY20, we project EPS CaGR ~40% over FY Risks to the recommendation The key risk we see to our recommendation is any large outflow of cash and or leverage to fund the stakes for buyout as part of bringing group companies into the fold of Minda Industries. Importantly, since these stakes are largely to be purchased from the promoters, it will be important that the terms and valuations for the purchase are clearly shared with the investors and all stakeholders. The next significant risk is slower than estimated growth in revenues led by decline in market share, loss of business to other players and/or inability to successfully ramp up the operations after the business integration exercise. Any pressure on core operating profitability would impact our estimates of net earnings and would have negative implications on our estimates of fair value of equity. Any large capex and or funds outflow/ deterioration in cap-metrics to fund large acquisitions would have material impact to our estimates of intrinsic value of equity. 6

7 BUSINESS SEGMENTS Overview CaGR CaGR Revenue Mix (Rs. Mn.) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11-15 FY ) Switches 5,880 7,040 7,390 7,740 8,950 10,372 12,851 15,638 19,042 23,200 11% 21% 2) Lighting 2,250 2,660 2,920 3,080 4,130 4,853 5,702 6,700 7,872 9,250 16% 18% 3) Horns / Acoustics 1,390 1,560 1,490 3,763 5,516 5,972 6,634 7,369 8,188 9,098 41% 11% 4) Batteries Na Na 5) Alloy Wheels ,260 1,680 2,100 Na Na 6) Casting ,764 2,646 3,440 4,300 5,375 Na Na 7) Others* ,604 2,479 3,670 4,080 8,294 8,905 9,560 10, % 23% Consol. Revenues 9,542 11,792 13,404 17,061 22,266 27,303 37,464 43,890 51,249 59,922 24% 22% Note * Includes our assumptions for revenue inclusion due to on-going business integration exercise CaGR CaGR EBITDA Mix (Rs. Mn.) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11-15 FY ) Switches ,250 1,592 1,987 2,434 2,982 4% 27% 2) Lighting % 19% 3) Horns / Acoustics ,015 1,159 26% 19% 4) Batteries Na Na 5) Alloy Wheels Na Na 6) Casting Na Na 7) Others (392) (538) (291) (348) (198) Na Na Consol. EBITDA ,514 2,716 3,772 4,673 5,605 6,650 16% 34% EBITDA Margins FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 1) Switches 13.00% 11.00% 11.00% 8.00% 10.00% 12.05% 12.39% 12.71% 12.78% 12.85% 2) Lighting 12.00% 12.00% 8.00% 6.00% 8.00% 8.10% 8.21% 8.31% 8.42% 8.52% 3) Horns / Acoustics 14.00% 13.00% 12.00% 8.56% 8.82% 11.42% 11.75% 12.07% 12.40% 12.74% 4) Batteries 6.00% 10.00% 12.00% 13.00% 5) Alloy Wheels 12.50% 15.00% 17.50% 17.50% 17.50% 6) Casting 11.00% 12.00% 13.00% 13.00% 13.00% 7) Others 4.03% 5.60% 5.77% 5.94% 5.57% Consol. EBITDAM 8.77% 6.43% 6.97% 4.56% 6.80% 9.95% 10.07% 10.65% 10.94% 11.10% Consol. Revenue Mix FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 1) Switches 62% 60% 55% 45% 40% 38% 34% 36% 37% 39% 2) Lighting 24% 23% 22% 18% 19% 18% 15% 15% 15% 15% 3) Horns / Acoustics 15% 13% 11% 22% 25% 22% 18% 17% 16% 15% 4) Batteries 0% 0% 0% 0% 0% 0% 1% 1% 1% 1% 5) Alloy Wheels 0% 0% 0% 0% 0% 1% 2% 3% 3% 4% 6) Casting 0% 0% 0% 0% 0% 6% 7% 8% 8% 9% 7) Others 0% 5% 12% 15% 16% 15% 22% 20% 19% 17% Consol. EBITDA mix 1) Switches 91% 102% 87% 80% 59% 46% 42% 43% 43% 45% 2) Lighting 32% 42% 25% 24% 22% 14% 12% 12% 12% 12% 3) Horns / Acoustics 23% 27% 19% 41% 32% 25% 21% 19% 18% 17% 4) Automobile Batteries 0% 0% 0% 0% 0% 0% 1% 1% 1% 1% 5) Alloy Wheels 0% 0% 0% 0% 0% 1% 3% 5% 5% 6% 6) Casting 0% 0% 0% 0% 0% 7% 8% 10% 10% 11% 7) Others -47% -71% -31% -45% -13% 6% 12% 11% 10% 9% 7

8 1. SWITCHES What is the division about? -- Started in 1960, the Switch division of Minda Industries Limited (MIL) is the largest manufacturer, by volume, of automotive switches in India with market share of ~70%. MIL as a company started its operations with manufacture of switches and then diversified into several other product lines. It is present in the entire value chain of switches;from product development to manufacturing and after-market sales. Products -- Within the switches category, MIL has products that cater to Two-Wheelers (2W) and Three-Wheelers (3W) (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). In 2014, MIL launched illuminated switches for 2Wand acquired patents for the same. These kinds of switchesprovide more reliabilityand visibility at night. New Products -- R&D department of the company is currently working on new developments in switching technology namely -- Tactile Switching Technology, Smart Switch System, and Integrated Blinker with Hazard Switching System. A new range of patented Rocker Switches, Keypads and Illuminated Column Switches are being introduced with special focus on exports. Plants With approximately 3,000 employees, the Switch Division operates nine plants in India and two overseas plants in Indonesia and Vietnam. The company added a plant at Hosur in FY14 for manufacturing switches for TVS Motors. Subsidiaries, Joint Ventures (JVs) and Associates MIL conducts business in the switching division through the following entities: Sr. No. Name of Entity 1 Minda Auto Components Limited 2 MindaRika Private Limited 3 Yogendra Engineering 4 Minda Distribution and Services Limited (MDSL) Nature of Entity Function Subsidiary Manufacturing / Assembling of switches for automobiles Associate Design, development and Manufacturing all kinds of Electrical Associate (Partnership Firm) Subsidiary Switches for 4W. Manufacturing / Assembling of switches for automobiles Caters to the After- Market / Replacement market through its distribution network MIL's stake Partner Entity and Stake FY15 Sales (Rs. Mn.) FY15 PAT (Rs. Mn.) Cost of Investment in entity (Rs. Mn.) % NA % Tokai Rika Co. Ltd., Japan (72.92%) 48.90% Sanjeev Garg (12.50%), Birender Garg (12.50%) and Suman Minda (26.10%) 4, NA NA % NA 3, Customers Within its clients, Bajaj Auto is the largest client with 46% revenue contribution (FY15) followed by HMSI (11%), TVS (10%), Hero Motocorp (6%), Royal Enfield (4%) and Others (23%).In the switching division, MIL caters to OEMs likebajaj Auto, Yamaha, Suzuki, Hero Motorcorp, Honda Motor Cycle and Scooter India Pvt. Ltd. (HMSI), TVS Motors (TVS), New Holland, Eicher Motors, Mahindra& Mahindra (M&M), TAFE, Royal Enfield (RE), etc. In addition, it also supplies switches in the Aftermarket segment in India and exports to countries such as USA, France, Italy, Austria, etc. 8

9 Competitors (Peers) Particulars (Standalone) Minda Industries Limited Jay Ushin Limited Net Sales FY15 (Rs. Mn.) 13,704 6,502 5yr Sales CAGR (FY10-15) 18.0% 12.7% 3yr Sales CAGR (FY12-15) 7.4% 12.3% EBITDA FY15 (Rs. Mn.) 1, yr EBITDA CAGR (FY10-15) 9.8% 0.6% 3yr EBITDA CAGR (FY12-15) 16.0% 10.3% EBITDA Margin FY15 (%) 8.2% 2.7% 5yr Average EBITDA Margin (FY11-15) 7.8% 3.2% 3yr Average EBITDA Margin (FY13-15) 7.8% 2.7% PAT FY15 (Rs. Mn.) yr PAT CAGR (FY10-15) 18.4% -9.6% 3yr PAT CAGR (FY12-15) 16.8% 16.2% PAT Margin FY15 (%) 3.9% 0.6% 5yr Average PAT Margin (FY11-15) 3.2% 1.1% 3yr Average PAT Margin (FY13-15) 3.1% 0.9% RoCE FY15 (%) 11.1% 10.7% 5yr Average RoCE (FY11-15) 9.9% 14.1% 3yr Average RoCE (FY13-15) 9.1% 11.7% RoE FY15 (%) 15.1% 8.4% 5yr Average RoE (FY11-15) 13.6% 16.8% 3yr Average RoE (FY13-15) 11.2% 12.8% D/E (x) (FY15) yr Average D/E (x) (FY11-15) yr Average D/E (x) (FY13-15) CMP (Rs.) TTM P/E (x) P/BV (x) Current Mcap (Rs. Mn.) 11, Dividend Payout Ratio (%) (FY15) 21.6% 21.1% 5yr Average Div Payout Ratio (%) (FY11-15) 18.2% 12.7% 3yr Average Div Payout Ratio (%) (FY13-15) 20.2% 17.4% Promoter Stake (%) (Sep-2015) 70.90% 68.59% Promoter Stake Pledged (%) (Sep-2015) 0.00% 0.00% FII Stake (%) (Sep-2015) 0.04% 0.00% DII Stake (%) (Sep-2015) 2.83% 0.03% Marquee Investors India Business Excellence Fund (8.49%), IL&FS Trust Company Ltd (2.83%) Nil 9

10 Segmental Peer Comparison Switch Segment Revenues Particulars FY11 FY12 FY13 FY14 FY15 FY11-FY15 CAGR (%) --- Minda Industries 5,880 7,040 7,390 7,740 8, % --- Jay Ushin % YoY (%) --- Minda Industries 19.7% 5.0% 4.7% 15.6% --- Jay Ushin 6.7% 22.0% -4.1% 32.6% as % of total revenues --- Minda Industries (as % of consol revs) 61.6% 59.7% 55.1% 45.4% 40.2% --- Jay Ushin (as % of stal revs) 11.0% 11.6% 12.6% 10.8% 12.7% Historical Financials SWITCHES (Rs. Mn.) FY11 FY12 FY13 FY14 FY15 FY11-15 CaGR H1FY15 H1FY16 Total Revenues 5,880 7,040 7,390 7,740 8, % 4,421 5,448 as % of consol revs 61.6% 59.7% 55.1% 45.4% 40.2% 43.0% 46.0% YoY (%) 19.7% 5.0% 4.7% 15.6% 23.2% OEM 4,990 5,850 6,020 6,020 7, % as % of Switches Revs 84.9% 83.1% 81.5% 77.8% 80.7% YoY (%) 17.2% 2.9% 0.0% 19.9% Replacement ,170 1,240 1, % as % of Switches Revs 12.4% 13.8% 15.8% 16.0% 14.4% YoY (%) 32.9% 20.6% 6.0% 4.0% Exports % as % of Switches Revs 2.7% 3.1% 3.5% 6.1% 4.9% YoY (%) 37.5% 18.2% 80.8% -6.4% EBITDA Margin (%) 13.0% 11.0% 11.0% 8.0% 10.0% YoY (bps) (200) - (300) 200 EBITDA % as % of consol EBITDA 91.3% 102.1% 87.0% 79.6% 59.1% YoY (%) 1.3% 5.0% -23.8% 44.5% Commentary on Financial Performance Switch segmentis largest contributor to MIL s top-line comprising 40% of FY15 consolidated revenues (45% in Q2FY16). Within this segment, OEM is the largest contributor at ~80% followed by Replacement at 15% andexports at 5%. The company has been actively tapping global clients to increase contribution of high margin exports. In FY15, it began exporting modular and handlebar switches worth Rs.200mn to Piaggio,Italy for its two wheelers while in H1FY16 it received fresh export orders from Piaggio and Moto Guzzi to supply switches and from BMW for developing seat heater switch for its high end bikes. MIL managed to successfully diversify its product portfolio by bringing down revenue contribution from the segment to current 40% levels from more than 60% in FY11. This wason account of successful introduction of new product segments (alloy wheels, batteries, fuel caps, etc.)and robust growth in otherbusiness lines (namely horns and lighting). Thus, it has successfully transformed itself from a switch manufacturer to a diversified auto components manufacturer dealing with 10

11 multiple products. Over the years, revenues from this division have grown at 11% CAGR (FY11 FY15) through introduction of new types of switches and addition of new clients in India and abroad. The switch segment is also the largest contributor to EBITDA at ~60% of consolidated EBITDA (FY15). EBITDA for the segmenthas grown at 4% CAGR over FY11 FY15 while EBITDAmargins have remained in the range of 10%- 11%. Outlook MIL currently supplies to most OEMs operating in India and is increasingly focusing on improving higher margin exports. As mentioned above, the company s R&D division is currently working on developing new switch products with certain products being specially developed for exports (Rocker Switches, Keypads and Illuminated Column Switches).Going ahead, the management aims to increase market share of switches in India, tap more markets globally and improve blended capacity utilization. Led by revival in domestic economy and auto sector demand,company expects capacity utilization to improve going forward from current 80% level to higher than 90%. SWITCHES FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Consol. Revenues 5,880 7,040 7,390 7,740 8,950 10,372 12,851 15,638 19,042 23,200 YoY 19.7% 5.0% 4.7% 15.6% 15.9% 23.9% 21.7% 21.8% 21.8% Consol. EBITDA ,250 1,592 1,987 2,434 2,982 YoY 1.3% 5.0% -23.8% 44.5% 39.6% 27.4% 24.8% 22.5% 22.5% Consol. EBITDAM 13.00% 11.00% 11.00% 8.00% 10.00% 12.05% 12.39% 12.71% 12.78% 12.85% 2. LIGHTING What is the division about? MIL entered into manufacturing of lighting products in 1980 and is currently the 3 rd largest player in the segment in India after Lumax Industries and Fiem Industries. MIL commands a market share of ~20% in India in the Lighting segment.owing to their better design and looks, longer life, robust functionality and emission of lesser heat, LED adoption by Automakers is expected to pick up going ahead. Increasing adoption of LEDs by OEMs offers an opportunity for Auto Lighting players to expand their customer base and get more business from existing clients. Products MIL has products catering to all vehicle segments such as 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). During FY15, MIL s Lighting Division at Manesar, Haryana expanded its manufacturing capacity for production of Tail Lamp for K-10 Model for Maruti Suzuki India Limited (MSIL). The said expansion was completed on schedule and commercial production commenced from the month of September, Plants -- With approximately 980 employees, lighting division operates through Pantnagar, Sonepat, Haridwar, Manesar and Chennai. As explained above, capacity at Manesar was expanded in FY15 for production of Tail Lamp for K-10 Model ofmsil. Subsidiaries, JVs and Associates MIL conducts business in the Lighting division through the standalone entity and through the partnership firm Auto Component in which it holds a 49% stake with the remaining stake being held by family members Nirmal K. Minda (25.55%) and PalakMinda (25.55%).In FY13,the company entered into Technical Assistance Agreement with M/s. AMS Company Ltd. (Korean Corporation) for manufacturing of automotive lighting Equipments and Component Parts for Combination as Head Lamps, Rear Combination Lamps and Small Exterior Lamps. In addition, the Company has design centre in Taiwan for lighting business. Consolidation of Vietnam and Indonesian arms -- As part of the broader reorganization at the consolidated level, MIL announced plans to increase stake in PT MindaAsean Automotive (Indonesia) that makes switches and lighting products and SAM Global Pte Ltd, Singapore (100% holding company of PT Minda Vietnam Company) to 51% in FY16 from 19% in FY15. The transaction is expected to be completed in current fiscal and would enable MIL to tap new platforms of premium Japanese two-wheeler customers namely Yamaha, Suzuki and Kawasaki.MIL spent Rs.194mn (purchased 3,18,750 shares at Rs per share from Minda Investments and SinghalFincap) for 11

12 acquisition of stake in Sam Global Pte Ltd and Rs.61mn (purchased 13,845 shares at Rs per share from Minda Investments) for acquisition of stake in PT MindaAsean Automotive, Indonesia. Customers -- Within its clients, MSIL is the largest client with 37% revenue contribution, followed by VW (9%), M&M (12%), HMSI (6%), Royal Enfield (5%) and others (31%). In the lighting division, MIL caters to OEMs such asyamaha, Suzuki, Swaraj Mazda, New Holland, Eicher, Mahindra, Tafe, Royal Enfield, Maruti, General Motors, Fiat, Volkswagen, Toyota, Tata, Ford etc. International customer base includes Daihatsu, Mbk, Suzuki, Piaggio, Kawasaki, Torica, Volkwagen etc.mil supplies switches in the Aftermarket segment in India and exports to countries such as Italy, Indonesia, France, Japan, etc. Competitors (Peers) Particulars (Standalone) Minda Industries Ltd Lumax Industries Ltd FIEM Industries Ltd Net Sales FY15 (Rs. Mn.) 13,704 11,426 8,248 5yr Sales CAGR (FY10-15) 18.0% 12.5% 22.9% 3yr Sales CAGR (FY12-15) 7.4% 5.1% 15.6% EBITDA FY15 (Rs. Mn.) 1, ,024 5yr EBITDA CAGR (FY10-15) 9.8% 6.7% 30.3% 3yr EBITDA CAGR (FY12-15) 16.0% 9.0% 14.8% EBITDA Margin FY15 (%) 8.2% 5.2% 12.4% 5yr Average EBITDA Margin (FY11-15) 7.8% 5.3% 11.6% 3yr Average EBITDA Margin (FY13-15) 7.8% 5.2% 12.1% PAT FY15 (Rs. Mn.) yr PAT CAGR (FY10-15) 18.4% 22.8% 31.5% 3yr PAT CAGR (FY12-15) 16.8% 9.0% 26.0% PAT Margin FY15 (%) 3.9% 1.5% 5.1% 5yr Average PAT Margin (FY11-15) 3.2% 1.4% 4.3% 3yr Average PAT Margin (FY13-15) 3.1% 1.1% 5.0% RoCE FY15 (%) 11.1% 8.8% 23.0% 5yr Average RoCE (FY11-15) 9.9% 9.6% 19.1% 3yr Average RoCE (FY13-15) 9.1% 8.5% 21.2% RoE FY15 (%) 15.1% 9.8% 21.3% 5yr Average RoE (FY11-15) 13.6% 8.9% 18.2% 3yr Average RoE (FY13-15) 11.2% 7.7% 20.9% D/E (x) (FY15) yr Average D/E (x) (FY11-15) yr Average D/E (x) (FY13-15) CMP (Rs.) TTM P/E (x) P/BV (x) Current Mcap (Rs. Mn.) 11,986 3,692 8,311 Dividend Payout Ratio (%) (FY15) 21.6% 31.0% 19.8% 5yr Average Div Payout Ratio (%) (FY11-15) 18.2% 35.9% 19.9% 3yr Average Div Payout Ratio (%) (FY13-15) 20.2% 34.8% 18.8% Promoter Stake (%) (Sep-2015) 70.90% 73.62% 69.96% Promoter Stake Pledged (%) (Sep-2015) 0.00% 0.00% 0.00% FII Stake (%) (Sep-2015) 0.04% 1.67% 5.14% DII Stake (%) (Sep-2015) 2.83% 0.05% 1.68% 12

13 Segmental Peer Comparison Particulars FY11 FY12 FY13 FY14 FY15 FY11-FY15 CAGR (%) Auto Lighting Segment Revenues --- Minda Industries 2,250 2,660 2,920 3,080 4, % --- Fiem Industries 3,472 4,167 4,412 5,247 5, % --- Lumax Industries 8,662 9,852 10,702 11,167 11, % YoY (%) --- Minda Industries 18.2% 9.8% 5.5% 34.1% --- Fiem Industries 20.0% 5.9% 18.9% 12.9% --- Lumax Industries 13.7% 8.6% 4.3% 2.3% as % of total revenues --- Minda Industries (as % of consol revs) 23.6% 22.6% 21.8% 18.1% 18.6% --- Fiem Industries (as % of consol revs) 81.2% 77.9% 72.8% 72.8% 71.8% --- Lumax Industries (as % of stal revs) 100.0% 100.0% 100.0% 100.0% 100.0% Historical Financials LIGHTING (Rs. Mn.) FY11 FY12 FY13 FY14 FY15 FY11-15 CaGR H1FY15 H1FY16 Total Revenues 2,250 2,660 2,920 3,080 4, % 1,748 2,250 as % of consol revs 23.6% 22.6% 21.8% 18.1% 18.5% 17.0% 19.0% YoY (%) 18.2% 9.8% 5.5% 34.1% 28.7% OEM 1,730 1,960 2,080 1,960 2, % as % of Switches Revs 76.9% 73.7% 71.2% 63.6% 71.4% YoY (%) 13.3% 6.1% -5.8% 50.5% Replacement , % as % of Switches Revs 18.7% 21.8% 22.9% 26.6% 25.2% YoY (%) 38.1% 15.5% 22.4% 26.8% Exports % as % of Switches Revs 4.4% 4.9% 5.8% 9.7% 3.6% YoY (%) 30.0% 30.8% 76.5% -50.0% EBITDA Margin (%) 12.0% 12.0% 8.0% 6.0% 8.0% YoY (bps) - (400) (200) 200 EBITDA % as % of consol EBITDA 32.3% 42.1% 25.0% 23.7% 21.8% YoY (%) 18.2% -26.8% -20.9% 78.8% Commentary on Financial Performance MIL is the third largest player in the lighting segment in India (with nearly 20% market share) after Lumax and Fiem. At ~20% (FY15), Lighting is the second largest contributor to MIL s consolidated revenues after Switches. Within this segment, OEM is the largest contributor at ~70%, followed by Replacement at ~25% and the remaining ~5% from exports. Revenues from this segment have grown at 16% CAGR over FY11-15 with FY15 reporting a spurt in growth (34% YoY). This was mainly due to commencement of the new facility at Manesar (Haryana) catering to MSIL. The facility commenced commercial production from September, 2014 onwards. The revenue contribution from lighting segment has also steadily gone down from FY11 to FY15 owing to increasing contribution from new segments such as fuel caps, alloy wheels and so on. 13

14 Lighting segment accounts for 22% of MIL s consolidated EBITDA (FY15) while growth has been 5% CAGR over FY11 FY15. Lightinghas better EBITDA margins compared to the consolidated entity. Over FY11 FY15, lighting segment has reported average EBITDA margins of more than 9% versus less than 7% for the consolidated entity. This is because of increasing contribution from replacement and exports which enjoy better margins than OEM segment. In recent times, the management has announced its intention of extending focus from tail and interior lighting to headlamps, which command premium, thereby improving scope for margin improvement going ahead. Outlook MIL is the third largest player in Auto Lighting segment in India. It supplies products to almost all major OEMs in India while also actively catering to the replacement and export segments. With the shift in focus from tail and interior lighting to head lamps, we expect segment margins to move upwards going ahead. Owing to their better design and looks, longer life, robust functionality and emission of lesser heat, LED adoption by Automakers is expected to pick up going ahead. Increasing adoption of LEDs by OEMs offers an opportunity for Auto Lighting players to expand their customer base and get more business from existing clients. MIL is jointly working with Honda & Panasonic (Japan) to develop high end LED lamps. Given that LED comprises less than 20% of the domestic auto lighting market currently, it provides ample scope for revenue growth going ahead for the auto lighting segment as a whole. LIGHTING FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Consol. Revenues 2,250 2,660 2,920 3,080 4,130 4,853 5,702 6,700 7,872 9,250 YoY 18.2% 9.8% 5.5% 34.1% 17.5% 17.5% 17.5% 17.5% 17.5% Consol. EBITDA YoY 18.2% -26.8% -20.9% 78.8% 19.0% 19.0% 19.0% 19.0% 19.0% Consol. EBITDAM 12.00% 12.00% 8.00% 6.00% 8.00% 8.10% 8.21% 8.31% 8.42% 8.52% 3. HORNS (including CLARTON HORNS) What is the division about The Acoustics division of MIL is the leading manufacturer of horns in India with a market share of almost 50%. The company diversified into horns in 1993 as a part of its transformation from a switch manufacturer to a diversified auto component manufacturer. The horns business of MIL was initially housed in the company, Minda Acoustics Limited (MAL), which was amalgamated into MIL in FY11. MAL was earlier known as Fiamm Minda Automotive Limited wherein Fiamm S.p.A. was its JV partner. In August, 2009 the partner transferred all its equity to promoters of MAL. Acquisition of Clarton Horns (CH) MIL acquired Spain based company Clarton Horn S.A.U. in April, 2013 for 6.8mn ($8.9mn, Rs.580mn). Quantum Kapital had acquired CH from auto component giant Robert Bosch GmbH in 2008 and restructured to turn around the unit, so that it became one of the top manufacturers of automotive horns globally.the CH acquisition catapulted MIL to being the second largest manufacturer of automotive horns globally after Fiamm. CH has 7 fully automated assembly lines equipped with modern technologies like Milkrun & KANBAN along with 9 product patents. Products The Acoustic division of MIL produces different variants of horns Hypertone Horn, Trumpet Horn, Air Horn and Electronic Horn.It also makes Water-proof Horns. The acquisition of CH addedseveral new technologically advanced products to MIL s portfolio besides increasing its exposure to global OEMs.Backed by CH s technology, MIL is exploring options to introduce electronic horns in India. Plants MIL has plants in Manesar and Pantnagar dedicated to manufacturing of horns along with more than 600 employees. CH has its facilities at La Carolina (Spain) and Tanger (Morocco). The facility at Morocco was started in A new facility is being set up in Mexico for Clarton Horns (CH) which will be operational in April, This plant is expected to cater to major orders that MIL received from North America. MIL plans to invest 6mn over next 3 years in this facility.in addition, Clarton Horn has Sales offices in Germany, France, South Korea, USA and Brazil. Subsidiaries, JVs and Associates Clarton Horn and its subsidiaries are housed under the Special Purpose Vehicle (SPV), Global Mazinkert S.L. Hence, Global Mazinkert, S.L., Spain is a foreignsubsidiaryand Clarton Horn S.A., Spain, Clarton Horn, Asia, ClartonHorn,Morocco and ClartonHorn,Signalkoustik, CH Mexico are thestep down subsidiaries of Global Mazinkert S.L. 14

15 Sr. No. Name of Entity Nature of Entity Function MIL's stake FY15 Sales (Rs. Mn.) FY15 PAT (Rs. Mn.) Cost of Investment in entity (Rs. Mn.) 1 Global Mazinkert S.L., Spain 2 Clarton Horn S.A. Spain 3 Clarton Horn, Morocco 4 Clarton Horn, Asia 6 Clarton Horn, Signalkoustik 7 Clarton Horn, Mexico Subsidiary Step-down Subsidiary Step-down Subsidiary Step-down Subsidiary Step-down Subsidiary Step-down Subsidiary SPV for housing CH Manufacturing of Horns for global OEMs % 0 (36) % 3, % 31 (2) % - (0) % % 0 (2) - Customers -- Within its customers, Bajaj Auto is the largest client comprising of 21% of total acoustics sales, followed by FIAMM (14%), HMSI (10%), TVS (10%), Ford India (9%), Royal Enfield (6%) and Others (30%).In India, MIL Acoustics division caters to all OEMs in 2W, 4Ws, Off-road and Commercial Vehicles segment like Bajaj Auto Ltd., Honda Motorcycle and Scooter India, Royal Enfield Motorcycles, India Yamaha Motor, Suzuki Motorcycle India, TVS Motor Company, Maruti Suzuki India, Renault India, Tata Motors, General Motors, Mahindra & Mahindra, Ashok Leyland, Ford India, Hyundai Motors, Fiat India Automobiles, Swaraj, Escorts Group, Sonalika Group, etc. In addition, it also caters to global OEM majors such as Mazda, BMW, Renault, Ford, Piaggio, Torica, GM - Global, Hino Motors, Piaggio, Kawasaki, Peugot, Seat, etc. Competitors (Peers) Nikko Auto Limited (based in Gurgaon), Roots Industries India Limited (based in Coimbatore)and Padmini Engineering Private Limited (based in Gurgaon) are major competitors to MIL in the horns manufacturing segment. None of these are listed either on BSE or NSE. Historical Financials HORNS (Rs. Mn.) FY11 FY12 FY13 FY14 FY15 FY11-15 CaGR H1FY15 H1FY16 Total Revenues 1,390 1,560 1,490 1,610 2, % 2,673 2,500 as % of consol revs 14.6% 13.2% 11.1% 9.4% 10.5% 26.0% 17.0% YoY (%) 12.2% -4.5% 8.1% 45.3% -6.5% Domestic Sales , % as % of Switches Revs 40.3% 46.2% 43.6% 45.3% 57.7% YoY (%) 28.6% -9.7% 12.3% 84.9% Replacement % as % of Switches Revs 23.7% 30.1% 33.6% 34.2% 28.6% YoY (%) 42.4% 6.4% 10.0% 21.8% Exports % as % of Switches Revs 36.0% 23.7% 22.8% 20.5% 13.7% YoY (%) -26.0% -8.1% -2.9% -3.0% EBITDA Margin (%) 14.0% 13.0% 12.0% 14.0% 14.0% YoY (bps) (100) (100) EBITDA % as % of consol EBITDA 23.2% 26.7% 19.1% 29.0% 21.6% YoY (%) 4.2% -11.8% 26.1% 45.3% 15

16 CLARTON HORNS (Rs. Mn.) FY14 FY15 H1FY15 H1FY16 Total Revenues 2,153 3,176 1,670 1,530 as % of consol revs 12.6% 14.3% 16.2% 12.9% YoY (%) 47.5% -8.4% EBITDA Margin (%) 5.0% EBITDA 159 as % of consol EBITDA 10.5% PBT (114) as % of consol PBT -89.0% 2.2% 8.7% 1.8% YoY (%) LTP -64.0% PBT Margin (%) -5.3% 0.6% 1.5% 0.6% YoY (bps) 587 (91) Commentary on Financial Performance The horns segment (not including CH) contributed approximately 10% to MIL s consolidated revenues in FY15 and has grown at 14% CAGR over FY Domestic salescontributed ~60% to segment revenues followed by replacement at ~30% and the remaining (~10%) from exports. If revenues from CH are considered, then the two combined contributed ~25% to consolidated revenues making it the second largest revenue contributor ahead of lighting division (~20% of consolidated revenues). Going ahead, CH is expected to see strong revenue growth on account of the recently set up Mexico facility which will be operational from April, Horns enjoy superior profitability (EBITDA margin of 14% for FY15) compared to the Consolidated entity (7% for FY15). MIL successfully managed to turnaround CH s operations in FY15 after acquiring it in FY14. In fact, CH reported EBITDA margin of 5% for FY15 and also for the latest quarter. Going ahead, CH is expected to see margin improvement from low cost domestic manufacturing (by MIL for CH) and increasing synergy benefits between the two entities. Also, CH s strategy of setting up plant closer to major client (Mexico, Morocco) ensures that the product is delivered to the client in optimum time with logistical benefits. Outlook Boosted by the CH acquisition, MIL s horns division is the largest automotive horn manufacturer in India and second largest in the world. We expect the horns division (standalone) to continue to report superior margins as the company would get access to CH s technology. For CH, margins are expected to improve on the back of increasing synergies between the two entities and increasing local manufacturing. Given that MIL has almost all Indian OEMs as its clients, the company would be a beneficiary of any resurgence in automobile sales and growth in its export markets. HORNS (Incl. Clarton Horns) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Consol. Revenues 1,390 1,560 1,490 3,763 5,516 5,972 6,634 7,369 8,188 9,098 YoY 12.2% -4.5% 152.5% 46.6% 8.3% 11.1% 11.1% 11.1% 11.1% Consol. EBITDA ,015 1,159 YoY 4.2% -11.8% 80.2% 50.9% 40.2% 14.3% 14.1% 14.1% 14.2% Consol. EBITDAM 14.00% 13.00% 12.00% 8.56% 8.82% 11.42% 11.75% 12.07% 12.40% 12.74% 4. BATTERIES What is the division about MIL s batteries division,started in 2007, has had a mixed performance track record. It entered into this segment, dominated by Exide and Amara Raja but suffered due to issues with service network, product quality and stiff competition. Consequently, the division started incurred losses due to which it obtained shareholder approval in December, 2011for hiving off into a separate entity. However, the decision to hive off was reviewed in March, 2012 and later on it was decided to scale down operations instead. During this time, the division catered only to the 2W after-market segment. The company created impairment charges of Rs.220mn and Rs.19mn during FY12 and FY13 respectively to account for the scaling down of operations. In FY15, 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. The 16

17 JV, which began production in Q1FY16, currently manufactures batteries only for 2Ws and plans to catering to the 4W segment going ahead. Products The batteries division manufactures all types of batteries for two wheelers ranging from Valve Regulated Lead Acid (VRLA) Battery to Flooded Batteries. The warrantees on batteries range from 15 to 36 months, depending upon the model and the type. The company has over 650 distributors and the distribution is done through its arm Minda Distribution and Services Limited (MDSL). The batteries are available under the brands ULTIMO and POWERPLUS and are available in three sizes 2.5Ah, 5.0Ah and 9.0Ah. New Products Through the JV, MIL plans to increase coverage from 2W segment to 4Ws and industrial segment as well. It also plans to increase capacity to 4mn units by 2018 from current 3mn units. Plants MIL has a battery manufacturing plant at Pantnagar which will be used by the JV (PMSBIPL) going ahead. Management targets to increase capacity to 4mn units by 2018 from 3mn units currently. Current capacity utilization stands at 30% which provides ample scope for future scale up. Subsidiaries, JVs and Associates In order to turn around the fortunes of its flagging batteries division, MIL entered into a JV with Panasonic Corporation of Japan in FY15 to make automotive batteries in India. MIL owns 40% in the JV with the remaining 60% being owned by Panasonic Corporation. The new joint venture company will address the growing market of lead acid storage batteries for two & four wheeler vehicles and UPS in India with leveraging know how and technology owned by Panasonic as well as customer bases of both parties. The joint venture will produce Starting, Lighting & Ignition (SLI) and lithium ion battery. The demand for lithium ion batteries expected to go up with new electric mobility plan envisaged by the central government. The JV plans to tap the A.M. market in India along with the UPS market to begin with. The details of the JV are as follows: Sr. No. Particulars Details 1 Name Panasonic Minda Storage Batteries India Private Limited (PMSBIPL) 2 Date of establishment of JV 01-Oct-15 3 Share Capital Rs.1.6bn 4 MIL Stake 40% (Rs.640mn). 5 Panasonic Stake 60% (Rs.960mn) 6 Scope To manufacture, develop and sell lead acidstorage batteries 7 Target Segment Currently only 2Ws. Scope to be expanded toinclude 4Ws and industrial segment 8 Capacity Currently 3mn units. To be expanded to4mn units by No. of employees 500 by 2018 Outlook -- The JV holds several advantages for MIL. Firstly, it would utilize technological prowess of Panasonic which is a renowned name in the battery space since Secondly, MIL does not have to commit any new funds to the JV as its 40% share in the JV would comprise of the manufacturing facility at Pantnagar that is already in place. The plant has an installed capacity of 4.2mn units p.a. and currently has capacity utilization of only 30%, thereby providing significant scope for scaling up. The company plans to enter into 4W and industrial batteries segment on the strength of its JV. MIL currently plans to focus mainly on the After-Market (A.M.) segment in India and expects 60% of battery sales to come from A.M. from FY16 onwards. Most of the plant and machinery is already in place and production is expected to start by December, 2015 or January, The management aims to establish its product in OEM and A.M. segments over next 3 years and to achieve double digit market share over next 5 years. We feel that the double digit market share target set by the management looks a bit too ambitious given that the market is strongly held (more than 80%) by Exide Industries and Amara Raja Batteries and also considering the shaky history that this division has had in the past. Hence, we would keep a close eye on the progress of this division. 17