Minda Corporation Ltd. 29 th December, 2015 BUY

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1 Company Report BROKING DEPOSITORY DISTRIBUTION FINANCIAL ADVISORY Minda Corporation Ltd. 29 th December, 2015 BUY CMP Rs Target Price Rs BSE Code Market Cap (Rs Cr.) Week High/Low 99.80/68.50 Industry Auto Ancillaries Face Value Rs.2.00 Shares O/S Cr. EPS(TTM) 4.36 Book Value P/E P/B 3.76 Shareholding Pattern Minda Corporation Ltd. is a leading automotive component company. It has a diversified product portfolio that encompasses Safety, Security & Restraint Systems; Driver Information & Telematics Systems and Interior Systems for auto OEMs. These products cater to 2/3 wheelers, passenger vehicles, commercial vehicles and after-market. The company has registered decent results for the quarter ending September The consolidated revenues grew by 27.16% to Rs crores vs. Rs cr. in the year ago quarter while it grew ~17% q-o-q. The growth was due to the combined effect of new products that started during the year and of increase in the share of business of few of the existing customers. Operating profit too grew sharply by 29% at Rs crores as against Rs crores in the preceding quarter while it climbed 24% on a q-o-q basis. The company s continued focus on value added products coupled with the ongoing cost optimization initiatives helped the profits. The adjusted net profit surged at Rs crore as against Rs crore; registering growth of mere 6% on a y-o-y basis while it surged by 30% as compared to like quarter last year mainly attributed to lower interest outgo. Interest expense decreased on account of better cash management, lower working capital requirements and repayment of term loan. Minda Corporation achieved a higher growth on the back of new business and strong performance by Wiring Harness, After Market & Die Casting operations. Valuation Research Analyst: Vineeta Mahnot research@hemonline.com New product launches through technological advances and developments, client addition, increasing penetration in new territories, operational efficiency, capacity expansion and improving financial metrics bodes well for the company growth going forward. We believe the company is trading at an attractive valuation at 16.87x and 11.49x of FY16EPS of Rs.5.30 and FY17EPS of Rs We initiate a BUY on the stock with a target price of Rs.120 (appreciation of about 34%) with the medium to long term investment horizon. For Private Circulation Only 1 Hem Research

2 Business overview Minda Corporation is a leading automotive component and flagship company of Spark Minda, Ashok Minda Group, which was founded in 1958 by Late Shri S. L. Minda. The company is a diversified company with a product portfolio encompassing from Mechanical & Electronic Security System, Electronic Controllers for Electric Vehicles and for Auto OEM's across the Globe. It also manufactures Die Casting Parts for auto and consumer durable industry. The Company is one of the largest suppliers of 2 wheeler, 3 wheeler and Off Road vehicles Electronic & Mechanical Security System to OEM's and exports about 20% of its products to USA, UK, Europe & South East Asia and ASEAN countries. Headquarter at Noida, Minda Corporation Limited is an erstwhile Joint Venture with Huf Hülsbeck & Fürst GmbH & Co. KG, Germany. It is the only company in India to have its own patented Magnetic Shutters for 2 wheeler application. To enhance the vehicle security it manufactures Lock Sets with conventional keys, 2 Track Keys, 4 Track Keys & Snake Biting Keys for 2 Wheeler Applications. The company designs & manufactures Immobilizers for 2 wheeled vehicle applications and also has patent for the Immobilizer application for vehicles operating with drained or no battery condition. Strong customer base including key OEMs: Ashok Leyland, Bajaj, BMW, Daimler, Hero MotoCorp, Honda Motorcycle, Mahindra & Mahindra, Maruti Suzuki, Renault Nissan, Tata Motors, TVS Motors, Yamaha and VW Group. The Company has 29 state of the art manufacturing facilities - India (24), South-East Asia (2) and Europe (3) and a representative office in Japan with a workforce of over 10,000. The company has a separate Die Casting Division with manufacturing facilities like GDC, LPDC, HPDC for Aluminum & Zinc Hot Chamber Die Casting under one roof. The casting facility is supported with state of the art machining centers for supply of fully finished products. All other related facilities like Die design & manufacturing, Core making, Heat Treatment (T6), Shot blasting, Powder coating, etc. are in- house. Product range includes Compressor Housings for Turbo Chargers, Upper Brackets & Handle Holders used in premium segment bikes, Brake Calipers, Master Cylinders, TMC, In- take manifold, etc. For Private Circulation Only 2 Hem Research

3 New order wins in line with product portfolio expansion Minda Corporation s continuous focus on technology, research and development helped it to procure orders for supply of ABS wiring harness to some of the leading CV OEMs. Further, with the tightening in regulatory requirement for safety equipment, there will be strong growth in the demand for these high value added product lines. In line to it, in Germany the company has secured a couple of new business from BMW and Audi. The company s European subsidiary, Minda KTSN has a couple of sizeable orders from VW for the models which are expected to be launched in or The company is in the process of evaluating the proposal on account of profitability, entry in new territories like china and Mexico and new production locations. Further, the company has also started a couple of new products during the last six months under the aftermarket segment namely filters, control cables etc. The company also started the sensor business this year which is witnessing a good response. The market for the various sensors for the year is about Rs.1,400 crores in India. Sensors which are used in passenger vehicles, two-wheelers and many other vehicles; Minda corporation has only about 3 to 4% of market share. The company started this business this year only and invested a good amount of money to build a world class facility in Pune. This sensor business is continuously supported by the JV partner through with it focuses on technology for new product development and improvement in existing product. Given that the company already has orders and new products are under development, the company may have good growth over the next twothree years both in topline and bottomline. The major customers currently in this space are Hero Motor Corporation, Tata Motors and Mahindra & Mahindra. The company plans to roll out these sensors to other OEMs too which will increase their market share to 8-9% in the next three years. For Private Circulation Only 3 Hem Research

4 Strong growth ahead Revenues for the first half of the current financial year stood at Rs.1,144 crores which is expected to increase by 25-30%; thereby turning into about Rs.2,500 crores for the full year. With the launch and start of supply of new products with the OEMs in the area of wiring harness; there is scope in improvement in EBIDTA margins going forward. Further, operational efficiency owing to lowering of the costs, margins are expected to improve by at least half percentage by the end of the year. Minda SAI (a 100% subsidiary of Minda Corporation) has acquired 51% equity of Minda Stoneridge Instruments Ltd. in Q2FY16. FY2017 will witness a strong growth and 11% of margins on the back of a full year impact of this acquisition combined with an introduction of a couple of good products in die-casting and security segments. Further, the company expects good business from HeroMoto Corporation and Bajaj in die casting segment. The sensor business is witnessing a good response and has good customers too which may increase its market share form 3-4% to 8-9% in about three year s time. Further, the new products launched under the aftermarket segment namely filters and control cables are expected to be about Rs crores in this financial year. On the financial parameters, the company expects to improve its debt equity ratio as it is retiring its debt by about crores every year. The company already has a huge built up space available in all its existing 29 plants in India; thereby capex would not be more than Rs crores annually. The average tax rate is expected to stay around 30-33%. Riding the power of a much healthy balance sheet, new products, new clients, new geographies; the company aims to achieve Rs.5000 crore of turnover in the coming three-four years timeframe. For Private Circulation Only 4 Hem Research

5 Consolidated Profit & Loss Account Rs. Crore Particulars FY13 FY14 FY15 FY16E FY17E Net sales Growth % 23.64% 25.00% 25.80% Expenditure EBITDA Growth 15.69% 47.55% 28.77% 32.28% EBITDA margin 5.00% 7.89% 9.42% 9.70% 10.20% Other income Depreciation & Amortisation EBIT EBIT margin 3.12% 6.80% 7.51% 7.66% 8.43% Interest PBT Tax PAT Share of Associates Minority Interest (1.03) 0.00 (1.37) Adjusted PAT Growth Net Profit margins Exceptional item 2.98 (14.75) (2.38) Reported PAT Equity Capital Res. & Surplus , , Equity Shares Adjusted EPS* * Adjusted for current no. of equity shares For Private Circulation Only 5 Hem Research

6 Balance Sheet Rs. Crore Particulars FY13 FY14 FY15 FY16E FY17E Equity Share Capital Preference Capital Reserves & Surplus Shareholders funds Borrowings Deferred tax liability Minority Interest Sources of funds Gross block , Accumulated Depreciation Net block Capital WIP Investments Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets Current liabilities and provisions Net current assets Uses of funds , , Ratios Particulars FY13 FY14 FY15 FY16E FY17E Return on Equity Return on Capital employed Debt/Equity Asset turnover Current Ratio Interest coverage For Private Circulation Only 6 Hem Research

7 Consolidated Quarterly Financial Highlights Rs. Crore Particulars Q2FY16 Q2FY15 Q1FY16 YoY% QoQ% Revenues Expenditures Operating Profit Adjusted Net Profit Exceptional item Reported PAT OPM% bps 56bps NPM % (110bps) 39bps Adjusted EPS* *Adjusted for current number of equity shares Past Price movement of the stock MINDA CORPORATION ( , , , , ) April May June July August September October November December For Private Circulation Only 7 Hem Research

8 HEM SECURITIES LIMITED MEMBER-BSE,CDSL, SEBI REGISTERED CATEGORY I MERCHANT BANKER Sebi Registration No For Research Analyst: INH MUMBAI OFFICE: 14/15, KHATAU BLDG., IST FLOOR, 40, BANK STREET, FORT, MUMBAI PHONE FAX JAIPUR OFFICE: , JAIPUR TOWERS, M I ROAD, JAIPUR PHONE FAX GROUP COMPANIES HEM FINLEASE PRIVATE LIMITED MEMBER-NSE HEM MULTI COMMODITIES PRIVATE LIMITED MEMBER-NCDEX, MCX HEM FINANCIAL SERVICES LIMITED NBFC REGISTERED WITH RBI For Private Circulation Only 8 Hem Research

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