Religare Investment Call

Transcription

1 CMP (Rs) Target Price (Rs) Potential Upside Sensex Nifty % 26,349 8,129 is amongst the leading automotive component companies with 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 aftermarket. The Company has 32 state of the art manufacturing facilities - India (26), South- East Asia (2), Europe (3), North America (1) and a representative office in Japan with a total global workforce of over 10,000. It exports about 20-25% of its products to USA, UK, Europe & South East Asia and ASEAN countries. Key Stock data BSE Code NSE Code Bloomberg Shares o/s, Cr (FV 2) Market Cap (Rs Cr) 3M Avg Volume 52 week H/L Shareholding Pattern (%) Promoter FII DII Others 1 Year price performance Analyst Mar Minda Corp Ajay Pasari, CFA ajay.pasari@religare.com Jun Ni y MINDACORP MDA:IN , , /80.1 Sep Investment rationale: is a diversified automotive components manufacturer with operations in three key business segments: 1) Safety, security and restraint systems, 2) Driver information and telematics systems and 3) Interior systems. Apart from these major categories, it also manufactures products for the after market segment. The company plans to spend Rs. 200 Cr in FY17 on setting up an additional Greenfield capacity in Pune for die casting and another plant at Queretaro (Mexico) which will be used to manufacture interior plastic auto parts. The Mexican facility will provide access to new growth markets such as South and North America. It has technological joint ventures with leading global firms. Over the years, the company has gained access to new geographies, new products and advanced technologies. Minda Corp manufactures products catering to commercial vehicles, off road vehicles, passenger vehicles, two wheelers, three wheelers and after market segment. The recent acquisition of Panalfa Autoelektrik will increase its products base and customers. The major customers of the company includes Honda, TVS Motor Company, Hero Motocorp, Bajaj Auto, Maruti Suzuki, Tata Motors, Ashok Leyland, Eicher Motors, Bosch, Daimler, etc. The operational margin of the company was impacted in FY16 due to delay in localization in its Furukawa Electric and Stoneridge Inc. ventures and pre-operative expenses for Mexico plant and R&D centre in Pune. The management has guided to improve operational margins with reduction in employee cost, cost saving initiatives, localization efforts and focus on technologically advanced high yield products. Outlook & Valuation: Not withstanding the recent demonetization act of the government, which will dampen the demand in the automotive industry for the next couple of quarters, we believe the demand for all categories of vehicles should improve from Q1FY18. We expect Minda Corp's total income to grow at CAGR of 19% between FY16-FY18E. Also profitability will improve further with recovery in demand, cost reduction measures, localization efforts and focus on high yield products. At cmp of Rs. 95, the company is available at FY18E P/E of 12.2x, which we believe is attractive given its growth prospects and improving return ratios. We recommend a Buy on the stock with a target price of Rs Financial Summary Particulars, Rs cr FY14 FY15 FY16 FY17E FY18E Total Income EBIDTA OPM (%) APAT APATM (%) EPS (Rs) RoCE (%) RoE (%) 1, , , , , December 6, 2016

2 Robust and diversified product portfolio helps to cater to different automotive segments Investment rationale 1. Diversified and strong product portfolio is a diversified automotive components manufacturer with operations in three key business segments: 1) Safety, security and restraint systems, 2) Driver information and telematics systems and 3) Interior systems which accounted for 39%, 45% and 16% respectively in FY16. Apart from these major categories, it also manufactures products for after market segment. Also with advanced R&D facilities, the company has been able to launch new and better products to expand its product base and cater to new customers. Safety, security and restraint systems includes products namely; Electronic & Mechanical locks, Door Handles, Latches, Door Checker, Key (Mechanical and Electronic), Die Casting: AL (HPDC, GDC, LPDC) and Zn: Hot Chamber, Alternators, Starter motors, etc. Complete Lock Kit Lock f or Of f road Vehicles Steering and Glov e Box Locks Compressor Housing Alternator Starter Motor Mechatronic Handles Outside Door Handles Driver information and telematics systems consists of products like Wiring Harness, Connectors, Terminals, Steering Roll connectors, Relay & Fuse box, Instrument Clusters,, Dashboard Assemblies, Sensors - Speed, Temperature, Position, Pressure etc. Wiring Harness Solutions Plastic Interiors Plastic Injection Molding Parts Instrument Cluster Interior systems include products like Plastic Interior trims & Subsystem, Kinematic Modules, Structural Modules, Soft Touch Technology, etc. Oil Sump Middle Arm Rest Air Vent Ash Tray After market segment: all products made by Group companies and outsourced products like control cables, filters and relays. Filters Control Cables 2/3W Locks Instrument Cluster

3 Product Segment Revenue Mix - FY16 Product Segment Revenue Mix - Q2FY % 39.0% 16.0% 37.0% 45.0% 47.0% Safety, Security & Restraint Systems Driver Informa on & Telema cs Systems Interior Systems Safety, Security & Restraint Systems Driver Informa on & Telema cs Systems Interior Systems End Market Revenue Mix - FY16 End Market Revenue Mix - Q2FY % 9.0% 38.0% 31.0% 9.0% 4% 2% 2% Passenger Vehicles Commercial & Off-Highway Vehicles 2/3 Wheelers A er Market Passenger Vehicles Commercial & Off-Highway Vehicles 2/3 Wheelers A er Market

4 Minda is undergoing expansion to meet i n c r e a s i n g d e m a n d f o r a u t o components globally 2. Expansion plan to meet rising demand and export orders The company plans to spend Rs. 200 Cr in FY17 on setting up an additional Greenfield capacity in Pune for die casting and another plant at Queretaro (Mexico) which will be used to manufacture interior plastic auto parts. The Mexican facility will provide access to new growth markets such as South and North America. The facility is expected to commence production in the February month of CY17. The management expects the Mexico plant to contribute approximately Rs. 150 Cr to the topline by FY18E. The factory will have an interior plastics and a die-casting facility. The company already has booked export orders worth approximately Rs. 340 Cr until FY20. It has won three die-casting export orders for compression housings from a leading global automotive firm in Europe with a lifetime value of about Rs. 350 Crores for which it is undergoing expansion at its Pune plant. The company plans to complete orders worth Rs. 60 Cr in FY17 and gradually increase the same in the coming years. Also, the construction of Spark Minda Technical Centre in Pune is expected to be operational in FY17. The centre would have a state of art testing and leasing equipment facility and designing, high class of software and hardware with well experienced manpower. The R&D centre is approved by the government of India and hence, is eligible to receive tax benefit. The company will receive 200% benefit of the R&D expenses, which is likely to keep their net tax rate low in the current fiscal. Due to recent acquisition of Panalfa Autoelektrik in April 2016 and ongoing capex plan, the debt has increased from Rs. 459 Cr in FY16 to Rs. 500 Cr in H1FY17. The current Debt/Equity ratio stands at 0.9x and may inch up slightly by the end of FY17 due to the current expansion plan. Apart from the existing capex, it will spend around Rs Cr for maintenance work in FY18. The set-up of Spark Minda technical centre will enhance R&D capabilities Geographical Revenue Mix - FY % 5.0% Geographical Rvenue Mix - Q2FY % 4.0% 79.0% 8% India Europe South East Asia India Europe South East Asia

5 Tie ups with global firms provides a c c e s s t o n e w a n d a d v a n c e d technologies 3. Tie ups with MNCs provides access to new geographies, new products and latest technology has technological joint ventures with leading global firms. Over the years, the company has gained access to new geographies, new products and advanced technologies. The major collaborations of the firm include Furukawa Electric Co. Ltd., Stoneridge Inc., Vehicle Access Systems Technology (VAST) LCC and Panalfa Autoelektrik. Furukawa Electric Co. Ltd.- (renamed Minda Furukawa Electric Pvt. Ltd) The JV was formed in 2007 where Minda Corp holds 51% stake in the company. The JV provides opportunity for the company to increase penetration in the ABS wiring harness and steering roll connector segment. Minda Furukawa has reported a 2% growth in Q1, and a concerning, low EBITDA margin of 5% due to delay in material localization. MFE currently imports 60% of its components from Furukawa Japan, which leads to higher material costs. The company is in the process of source localization and expects it to happen in a fixed timeframe. This will see the margins improve significantly. Minda Furukawa currently sources airbag SRC's to 2 clients Maruti Suzuki and Nissan. The orders pertain purely to vehicles that are being exported. The company reaps revenues worth Rs. 20 Cr from the segment. The segment has huge potential if the government introduces vehicle safety norms in the near future. Stoneridge Inc. - (renamed Minda Stoneridge Instruments Ltd.) The JV was formed in 2004 where Minda Corp holds 51% stake in the company. Stoneridge is America based company which manufactures electronic instruments with global footprints in more than 20 locations in 15 countries. The key products are Instrument Clusters, Dashboard Clocks, Fuel Level Sensors, Dashboard Assemblies, Speed Sensors and Temperature Sensors. Minda Stoneridge was under consolidation for the first time in Q1FY17. The subsidiary is facing a delay in localization due to which, operational (EBITDA) margins have been affected 8%. The acquisition of Panalfa Autolektrik will increase its product and customer base Vehicle Access Systems Technology (VAST) LCC- (renamed Minda VAST) The JV was formed in 2015 where Minda Corp holds 50% stake in the company. VAST is one of the global market leaders in the access system business. The company manufactures and markets automotive access control products with Locks & Keys, Steering Column Locks, Immobilizers, Latches, External & Internal Door Handles & Back Door Openers, Remote Controls, PEPS, Hood, Tail & Seat Latches, ESCL and Power Closure for 4 wheelers being its main products. Panalfa Autoelektrik Ltd. (renamed Minda Autoelektrik Ltd.)- Minda Corp acquired Haryana based Panalfa Autoelektrik in April 2016 which manufacturers Starter motors and Alternators catering to commercial vehicles, agricultural machinery, construction equipment and automotive market. This provides Minda Corp access to new product categories to serve different business segments. The revenue of Panalfa Autoelektrik stood at Rs. 70 Cr in FY15. Minda Corp has plans to multiply the revenue and make the acquisition profitable in the coming years. Minda Corp formed a joint venture with China's Shandong Beiqi Hai Hua Automobile Parts Co (SBHAP)- The 50:50 Joint Venture will be known as Minda China Plastics Limited and will focus on producing and selling products such as plastic oil pans and cylinder head along with other plastic under-bonnet/interior parts. The total investment of the JV will be around Rs. 8.4 Cr. The production is expected to start within months and will target major OEMs that have their production facilities in China.

6 The company has diversified exposure to different customers and segment categories 4. Strong customer base in the entire automotive industry Minda Corp manufactures products catering to commercial vehicles, off road vehicles, passenger vehicles, two wheelers, three wheelers and after market segment. The recent acquisition of Panalfa Autoelektrik will increase its products base and customers. The major customers of the company are categorized in the respective segments. 2/3 wheelers: Honda, TVS Motor Company, Bajaj Auto, Hero Motocorp, Royal Enfield, Piaggio, Yamaha, Kawasaki, Ducati, Mahindra two wheelers, Force Motors, Triumph. Passenger vehicles: Tata Motors, Maruti Suzuki, Honda, Nissan, Audi, BMW, GM, Skoda, Ford, Isuzu Motors, etc. Commercial and off road vehicles: Ashok Leyland, Tata Motors, Eicher Motors, Daimler, Escorts, John Deere, Mahindra, Tafe, Volvo, etc. Others: Bosch, BorgWarner, Endurance, Honeywell, Schneider Electric, Legrand, Magneton, etc. 2/ 3 Wheelers Passenger Vehicles Commercial & Off Highway Vehicles Others Source : Company

7 Operational margin to improve due to localization efforts, cost reduction measures and focus on high yield products 5. Revenue to grow at CAGR of 19% between FY16-FY18E with improvement in operational margins by FY18E We expect Minda Corp to benefit from the revival in the automobile industry which started in late FY15. The recent demonetization move by the government is likely to negatively impact the overall demand in the automotive industry in the short term. But we foresee the demand for all categories of vehicles to improve from Q1FY18 with stability in the economy, rising income, recent seventh pay commission hike, capex revival due to falling interest rates, infrastructure spending and GST implementation in FY18. The operational margin of the company was impacted in FY16 due to delay in localization at its Furukawa Electric and Stoneridge Inc. ventures and pre-operative expenses for Mexico plant and R&D centre in Pune. The management has guided to improve operational margins with reduction in employee cost, cost saving initiatives, localization efforts and focus on technologically advanced high yield products. On revenue front, new capacity, new products and access to new markets will further provide boost to the total topline. In recent quarters, it received single source nominations for Locksets and Door Handles for the new car platform of Mahindra & Mahindra. It also won an order for wiring harness business for Piaggio, Vietnam and order for the plastic interior components for Audi Q3 and Q6 at Minda KTSN, Germany. It added new blue chip customers to its portfolio such as Suzuki, Indonesia for Lead Harness business along with Yamaha, Colombia and Piaggio, China for export of Locksets from the ASEAN plants. New products introduced during Q1FY17 include Push to Open and Push to Close Magnetic Module Locksets in Suzuki Indonesia, which are under a joint patent with Suzuki Japan. It has received new order from Royal Enfield which is currently under development. Also increasing focus on automobile safety regulation in India will improve demand of products like ABS and SRC for airbags. Currently the company manufactures ABS and SRC only for export models. On implementation of stricter safety norms, it has immense potential to serve the domestic market. Net sales to report CAGR of 19% over FY16-18E Operational margins to improve Demonetization will have negative impact on automobile component industry in the next two quarters, but demand should revive from Q1FY18 4,000 3,500 3,000 2,500 2,000 1,500 1, ,564 1,933 2,416 2,905 3,431 FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E Net sales (Rs. Cr) EBITDA (Rs. Cr)- LHS OPM% -RHS Net profit margin to improve FY14 FY15 FY16 FY17E FY18E PAT (Rs. Cr)- LHS PAT% -RHS

8 R e t u r n r a t i o s t o i m p r o v e w i t h improving profitability ROC% to inch up going forward FY14 FY15 FY16 FY17E FY18E ROC% ROE% to improve FY14 FY15 FY16 FY17E FY18E ROE% 6. Increase in promoter stake: The promoter of the company, Ashok Minda, recently purchased lakh shares of Minda Corp from Kotak Private Equity group for an estimated Rs. 120 Cr through open market transactions. The current promoter shareholding stands at 70.2% as compared to 65.2% in June Promoter stake increased Promoters increased their stake by 5% in the latest quarter Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Promoter stake %

9 Company background: 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 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 aftermarket. Strong customer base includes key OEMs such as Ashok Leyland, Bajaj, BMW, Daimler, Hero Moto Corp, Honda Motorcycle, Mahindra & Mahindra, Maruti Suzuki, Renault Nissan, Tata Motors, TVS Motors, Yamaha and VW Group. The Company has 32 state of the art manufacturing facilities - India (26), South-East Asia (2), Europe (3), North America (1) and a representative office in Japan with a total global workforce of over 10,000. It exports about 20-25% of its products to USA, UK, Europe & South East Asia and ASEAN countries. Company Structure Minda SAI Minda Automotive Minda Management Services Minda Furukawa Electric (51%) Minda AutoelektrikLtd Minda KTSN Plastic Germany* Minda Stoneridge (51%) Minda VAST Access Systems (50%) Minda KTSN Plastic Poland Almighty International PTE, Singapore Minda KTSN Plastic Czech Minda Vietnam PT Minda Automotive, Indonesia Minda KTSN Plastic Solutions Mexico Domestic Overseas * Entered into a 50:50 Joint Venture with SBHAP, China (a BAIC group subsidiary) in Aug 2016 Source : Company

10 Industry: The size of the Indian Auto Component Industry was USD 39 Billion turnover in and contributed 2.3% to India's GDP. The sector reported a handsome 8.8% growth rate in FY16 and grew at a CAGR of 6.3% from Exports have grown significantly to USD 10.8 Billion in 2016, at a CAGR of 18.5% in In the last financial year, the auto component exports contributed 4% to India's overall exports. The Indian Auto Components Industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-quality products while the unorganized sector caters mostly to the aftermarket. A revival in the demand for automobiles will lead to an increase the demand for the domestic auto component industry. After witnessing a slowdown for past few years, the Indian automotive components industry started to recover in late FY2015. An improved macroeconomic scenario backed by faster GDP growth, lower financing and fuel cost and a slew of launches, especially in the compact car and utility vehicle segments have supported the growth through FY2016. Currently, 100% FDI is allowed under the automatic route in the auto components sector which will further enhance investment in the sector. As per Automotive Mission Plan (AMP), the Indian auto component industry may attain an ambitious USD 200 billion in revenue by 2026, with exports of USD 80 billion. According to ICRA, the Indian Auto Component industry is expected to grow by 8-10% in FY , based on higher localization by Original Equipment Manufacturers (OEM), higher component content per vehicle, and rising exports from India. Although the demonetization move of the government could negatively impact the overall demand from the auto industry in the next 2 quarters, we expect demand for automobiles to recover from Q1FY18. The key drivers for the growth of auto ancillary industry are robust outlook for automobile sector, Make in India campaign (will boost exports too), GST implementation (will benefit organised players), increasing demand for advanced auto components, latest and upgraded technology, higher R&D spend, new scrapping policy and BSIV and BSVI implementation. Industry Turnover (Cr) Exports Turnover (Cr) 300, , , , ,000 50, , , , , , ,600 FY11 FY12 FY13 FY14 FY15 FY16 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000-30,300 42,700 52,700 61,500 68,500 70,900 FY11 FY12 FY13 FY14 FY15 FY16 Industry Turnover (Cr) Exports Turnover (Cr) Geographical Segmentation of Exports Africa, 6% NZ, Australia, 1% South America, 4% Asia, 25% Central America, 3% North America, 25% Europe, 36%

11 Risks & Concerns Slowdown in the automobile sector will negatively impact the company's revenue as it is completely dependent on the sector. Delay in localization efforts of foreign joint ventures may further dent operational margins and impact profitability of the company. The major raw material for the company is Zinc. Any sharp increase in raw material prices will impact the overall operating cost and margins of the company. The recent demonetization act of the NDA government will have certain negative impact on the overall consumption in the automotive industry. We expect subdued growth in H2FY17, but foresee demand to recover from Q1FY18.

12 P&L Account - Consolidated Particulars, Rs cr FY14 FY15 FY16 FY17E FY18E Net sales 1, , , , ,431.2 Other operating income Total income 1, , , , ,466.4 Expenditure Raw material consumed , , , ,120.9 Employee cost Other expenses Total expenditure 1, , , , ,134.2 EBITDA OPM (%) Other income Depreciation PBIT Interest expenses PBT Exceptional items Tax Tax rate % PAT Less: Share of minority interest Add: Profit/Loss of associates Adjusted Net Profit PATM (%) EPS

13 Balance sheet - Consolidated Particulars, Rs cr FY14 FY15 FY16 FY17E FY18E Share Capital Reserves & Surplus Total Shareholder's Fund Share application money pending Non-Current Liabilities Long term borrowings Deffered tax liability Other long term liabilities Long term provision Current Liabilities , ,121.3 Short term borrowings Trade payables Short term provisions Other current liabilities Total liabilities 1, , , , ,254.6 Fixed Assets Goodwill on Consolidation Religare Investment Call Non Current investment Long Term loans & advances Other non-current assets Current Assets , , ,377.3 Inventories Trade receivables Cash & Cash equivalents Short term loans and advances Other current assets Total assets 1, , , , ,254.6

14 Key ratios - Consolidated Particulars FY14 FY15 FY16 FY17E FY18E Dividend per share Rs Dividend Yield (%) Payout % EPS Rs Book Value per share Rs Profitability Ratios EBITDA / Total income (%) PBT/Total income (%) NPM / Total income (%) ROCE (%) ROE (%) Liquidity ratios Debt-Equity Ratio Current Ratio Interest Cover Ratio Turnover ratios Total Asset Ratio Fixed Assets Ratio Debtors Velocity Overall (Days) Inventory (Days) Creditors Velocity (Days) Cash Conversion cycle GROWTH YOY% Sales Growth % Operating Profit % Net Profit Growth %

15 Cash Flow Statement - Consolidated Particulars, Rs cr FY14 FY15 FY16 FY17E FY18E Profit Before Tax Add: Depreciation Add: Interest cost Others Op profit before working capital changes Changes In working Capital Direct taxes Cash Flow From Operating Activities Cash Flow from Investing Activities Purchase of Fixed assets Sale of Fixed assets Net proceeds from Investment Others Cash Flow from Investing Activities Cash from Financing Activities Proceeds from issuance of shares Net proceeds from borrowings Dividend (incl dividend tax) Interest cost Others Cash Flow from Financing Activities Net Cash Inflow / Outflow Opening Cash & Cash Equivalents Closing Cash & Cash Equivalent

16 Before you use this research report, please ensure to go through thedisclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 and Research Disclaimer at the following link : Specific analyst(s) specific disclosure(s) inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 is/are as under: Statements on ownership and material conflicts of interest, compensation Research Analyst (RA) [Please note that only in case of multiple RAs, if in the event answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) below, are given separately] S. No. Statement Answer Tick appropriate YES I/we or any of my/our relative has any financial interest in the subject company? [If answer is yes, nature of Interestis given below this table] I/we or any of my/our relatives, have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance? I / we or any of my/our relative, has any other material conflict of interest at the time of publication of the research report or at the time of public appearance? I/we have received any compensation from the subject company in the past twelve months? I/we have managed or co-managed public offering of securities for the subject company in the past twelve months? I/we have received any compensation for brokerage services from the subject company in the past twelve months? I/we have received any compensation for products or services other than brokerage services from the subject company in the past twelve months? I/we have received any compensation or other benefits from the subject company or third party in connection with the research report? I/we have served as an officer, director or employee of the subject company? I/we have been engaged in market making activity for the subject company? Nature of Interest ( if answer to F (a) aboveis Yes :... Name(s)with Signature(s)of RA(s). [Please note that only in case of multiple RAs andif the answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) above, are given below] SS.No Name(s) of RA Signatures of RA Serial Question of question which the signing RA needs to make separate declaration / answer YES Copyright in this document vests exclusively with RSL. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose, without prior written permission from RSL. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Disclaimer: