ATS Research Desk

ATS Research Desk Minda Industries Limited FUNDAMENTAL REPORT

Minda Industries Limited Minda Industries Limited (MIL) was founded in 1958 as a subsidiary of UNO MINDA Group. The company is a supplier of automotive components to Original Equipment Manufacturers (OEMs). The company is headquartered in Manesar, Gurgaon and has 32 plants in India including Bangalore, Mysore, Hosur, Chennai and Pune, and R&D centers in 6 locations across the world. The company manufactures switching systems, lighting systems, acoustic systems, batteries and alloy wheels. The company’s portfolio has expanded from one product in 1958 to 10 products in 2016. The company has over 120 patents registered or filed. The UNO MINDA group has 40 manufacturing plants in India, Indonesia, Vietnam and Spain. The company has design centers in Japan and Taiwan, sales offices in USA, Europe and Vietnam. It also has a strategic sourcing office in China. Minda Industries Limited (MIL) is the flagship company of UNO MINDA Group. The company is backed by four subsidiaries, two jointly controlled entities and two associates; the company has steadily expanded the product profile across automotive components value chain. The main clients of the company include Tata Motors, Hyundai, Mahindra, Hero, Suzuki, TVS, Eicher, JCB and Escorts in the domestic market. The international clients include Ford, BMW, Nissan, Renault, Toyota, Volkswagen, Honda, Kawasaki, Yamaha, Mitsubushi, Komatsu and Caterpillar. Current Market Price (03/02/2017)(Rs) 52 Week H/L Market Cap (Rs Cr) Equity Capital (Rs Cr) Face Value (Rs) Promoters Holding Non-Promoters Holding Total

346.4

Particulars(Rs Cr) Net Sales Operating Profit Profit after Tax EPS(Rs) PE (x)

FY12 1179.21 84.51 24.24 14.87 10.73

362/146.31 2747.48 19.37 2.00 74.02% 25.98% 100%

Investment Rationale  Positive growth in Automobile production and sales  Stable growth in Revenues and Profits of Minda Industries  Favourable Govt. Policy-100% FDI through automatic route  India is emerging hub to sourcing auto components  Hybrid & Electrical Vehicle components new growth drivers

Financial Summary – Consolidated FY13 FY14 FY15 1340.40 1706.13 2527.33 104.63 96.18 187.29 28.31 5.34 59.41 17.78 3.30 41.11 8.99 48.22 13.76

FY16 2527.33 257.01 110.96 69.87 14.60

Outlook Minda Industries Limited (MIL) is a major player in the Automotive Components market with a significant market share in the sector. Rivals include Bosch India, Wabco India, Exide Batteries, and Motherson Sumi. The company commands a 70% market share in two & three wheeler components ATS Wealth Managers Pvt Ltd.

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market. The Automotive components sector is a growing market in India, and with stable growth of revenues and profits, well diversified portfolio, R&D and tie-ups to move up the value chain, Minda Industries Limited (MIL) is a strong company with strong in-house capabilities. We expect the company to continue to grow and perform in the future.

Company Overview Business Divisions of UNO MINDA Group  Engine & Exhaust This division was formed to consolidate and introduce new components. The components manufactured include Alternate fuel kits & components, Air filtration systems, Intake manifolds & Carbon canisters, CNG cylinders. The companies which manufacture these components include – Minda Auto Gal Ltd, Minda EmerTechnologies Limited and Roki Minda Company Private Limited.  Body & Structure Body and structure domain constitutes Automotive Lighting and Tool Room (ASM) in Pune. The division has an objective of providing OEMs with full fledged service for Auto body and structure parts. The components manufactured include automotive lighting components and Alloy Wheels. The division aims to become preferred supplier of automotive lighting in India and plans to set up lighting assembly plants in Indonesia to cater to ASEAN OEMs. The companies which manufacture these components include- Minda Industries Limited and Kosei Minda Aluminum Company Private Limited.  Interior, Controls & Safety The division is looking to aggressively expand to add new products, businesses and territories into its portfolio through Trade Agreements, Joint Ventures and Acquisitions. The components manufactured include – Switches and HVACs, painted wheel covers, Seat belts & Automatic Gear Shifters, Blow molding components, Safety components and Car Infotainment Systems. The companies which manufacture these components include – Mindarika Private Ltd, Tokairika Minda India Private Ltd, Minda Kyoraku limited etc.  Electrical & Electronics This division is the largest manufacture of two-wheeler switches in the world. Product categories in this domain include two and three-wheeler switches, off-road switches, Handle-bar systems, Automotive Electronics (Sensors, Controllers and Actuators) and Aluminum Die-Casting components. The division has fully integrated manufacturing facility for Conceptualization, Intellectual-property rights, Styling, Benchmarking, and Concurrent Engineering with OEM customers, Design, Development, and Testing & Validation. The division aims to achieve a turnover of Rs. 25 billion by 2016-17 with 25% turnover coming from international business. The companies which manufacture these components include – Minda Industries Limited and MJ Casting Limited.

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 Chassis & Motor Systems The Chassis and Motor Systems Division manufactures horns with Minda Industries Limited – Acoustics division. This division is a leading manufacturer of automotive horns in India, with 47% market share and 35% exports. The Acoustics division is the most preferred supplier of Horns to Indian OEMs. The division was formed to introduce components which can be mounted on chassis, like Air-Brake Systems, Automotive Motors & Pumps etc. The companies which manufacture these components include – Minda Industries Limited and Minda Nabtesco Automotive Pvt Ltd.  Cleantech & Institutional Business As a part of its expansion and growth plans, the UNO MINDA Group is planning to enter nonautomotive business as well. The company wants to leverage its existing capabilities in Manufacturing, R&D, Project Management & Execution, Quality Management & Distribution. The company seeks to enter the renewable energy sector in Solar and Bio-mass. The range of services and products which the company plans to offer includes – Power Generation Facilities, LED Lights, Solar Lanterns, Solar LED Street lights, home lighting, heating systems and Solar pumps, including solar cells & panels. The companies which will be involved in manufacturing these components will include – Minda Industries Limited-Battery Division, and Minda NexGenTech Limited. The UNO MINDA Group operates the following subsidiary companies for Minda Industries Limited: Body & Structure Domain  Minda Industries Limited – Lighting Division Electrical & Electronics Domain  Minda Industries Limited – Switch Division  Minda Industries Limited – Electronics Division Battery Division Domain  Minda Industries Limited – Battery Division Chassis & Motor Systems Domain  Minda Industries Limited – Acoustics Division Minda Industries Limited Lighting The lighting division was founded in 1980. It is one of the leading automotive lamp manufacturers in India for two, three and four wheelers and off-road vehicles. The division grew at a CAGR of 25%. The division has 980 employees catering to OEM customers like Yamaha, Suzuki, Royal Enfield, Maruti, General motors, Ford, Toyota etc. The division has design centers and customer support offices in Taiwan, Japan and a strategic sourcing unit in China, and has become self-reliant in developing automotive lighting products.


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Switches The switch division was founded in 1960 and has approximately 3000 employees. The division is the largest manufacturer in the world, by, volume, of automotive switches, two& three wheeler switches and handlebar systems. The switch division operates nine plants in India and two overseas plants in Indonesia and Vietnam. The division caters to OEM customers like Yamaha, Suzuki, Royal Enfield, Maruti, General motors, Ford, Toyota, Volkswagen etc. The division has 37 patents and 60 design registrations. With quality certifications like ISO 14001, BS OHSAS 18001:2007, ISO/TS 16949:2009, ISO/TEC 17025, and backed by strong R&D capabilities, the division has set up a design a design office in Japan and Spain. The division also manufactures Off-Highway switches, focusing on Agriculture Equipments, Construction Equipments, Commercial Vehicles, Buses, Snow Mobile Vehicles, ATV’s, Industrial & Recreational Vehicles.

Electronics The electronics division was founded in 2005. The division operates from Pune, supplying to OEM customers like Mahindra, Royal Enfield, Tata, Bajaj, General Motors, Ashok Leyland, Piaggio etc. The division produces a wide range of 2-wheeler and 4-wheeler electronic components such as, contact and non-contact speed sensors, HID Ballast, Tyre Pressure Monitoring System(TPMS), Electronic Accelerator Pedal Module(EAPM), DC-DC Convertor, Position and magnetic sensors etc. The division serves markets in India, US, Europe, Japan and Brazil. Acoustics Established in 2004, and with 600 employees, Minda Industries Limited – Acoustics Division is a leading manufacturer of automotive horns in India, contributing to 47% of the market share. The division acquired Clarton Horn in Spain, from PMAn Domestic AG. Clarton Horn manufactures trumped, disc and electronic horns and supplies to leading OEMs in Europe like BMW, Mercedes Benz, Peugeot and Renault.


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Batteries Established in 2014, Panasonic Minda Storage Batteries India Pvt Ltd, is a 60:40 Joint Venture between Panasonic Corporation & Minda Industries Limited. The division is a retailer of automotive batteries under ‘ULTIMO’ and ‘POWERPLUS’ brands.

Revenue by Products

Revenue by Geography Outside India 19%

Others 17%

Horns 22%

Switches 43% India 81%

Lighting Solutions 18%

Key Ratios

Key Ratios Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Total Asset Turnover Ratio Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%) Payout (%)

FY16

FY15

FY14

FY13

FY12

0.28 1.07

0.38 1.06

0.47 1.03

0.53 1.08

0.70 1.01

2.51 18.00 6.98 2.95

2.47 18.16 7.49 2.92

2.20 18.24 6.67 2.44

2.32 17.87 6.42 2.43

2.74 15.91 7.58 2.81

10.67 10.04 6.77 9.41 19.98 19.71 14.43

5.81 8.54 4.94 7.69 14.45 13.37 18.61

3.01 7.20 3.74 5.95 9.14 7.58 18.18

3.43 8.25 4.71 6.88 11.42 10.19 16.21

1.45 5.48 2.25 3.94 6.33 5.87 14.93


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Sales/Net Assets ROE (%)

2.79 19.71

2.90 13.37

2.39 7.58

2.39 10.19

2.55 5.87

Price Earning (P/E) 14.60 13.76 48.22 8.99 10.73 Price to Book Value 3.39 2.51 0.98 0.80 1.03 (P/BV) EV/EBIDTA 7.48 5.93 6.01 3.87 4.82 Market Cap/Sales 0.58 0.38 0.16 0.17 0.23 The current ratio suggests that the company is able to meet its short term obligations with enough liquidity. The asset turnover ratio indicates that the company is able to utilize its existing assets to generate nearly 3x times the revenue which suggests efficiency in management of resources, the ROCE also indicates the same. The company has put away enough cash and cash equivalents to meet the interest obligations on its short-term and long-term debt for FY16-17.

Investment Rationale  Positive growth in Automobile production and sales The Automobile sector registered a growth of 7.06% from 39,19,717 vehicles in FY15 to 41,96,673 vehicles in FY16. The passenger vehicles segment grew from 32,21,419 vehicles in FY15 to 34,13,859 vehicles in FY16, a growth of 5.97%. The commercial vehicles segment grew from 6,98,298 vehicles in FY15 to 7,82,814 vehicles in FY16, a growth rate of 12.26%. The sector has been growing at an average rate of 2.47% from FY12 to FY16. The Automotive Components sector, which closely tracks the growth of automotive sector has a potential for positive growth in the coming years, based on the past performance of the automotive sector. Minda Industries has a good potential for growth in sales of components and spares to OEMs.

Automotive Sales 5000000 4000000 3000000

Passenger Vehicles

2000000

Commercial Vehicles

1000000

Total

0 FY12


FY13

FY14

FY15

FY16

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Automotive Sales Growth 30.00%

Axis Title

20.00% Passenger Vehicles

10.00%

Commercial Vehicles 0.00% -10.00%

FY12

FY13

FY14

FY15

FY16

Total

-20.00% Source: Society of Indian Automobile Manufacturers(SIAM)

 Stable growth in revenues and profits of Minda Industries The Minda Industries’ revenue grew by 21.7% CAGR over last 3 years; Profit after Tax grew by CAGR 293.41% over last 3 years from FY14 to FY16. The PAT grew by Rs.111 crore i.e. 64% YOY in FY16. The Sales revenues grew to Rs.2527 crores i.e. 13% growth YOY. The average growth rate in profits over last 5 years has been an impressive 281.04% and the profits in FY16 have grown nearly 4 times since FY12. The average growth in revenues over last 5 years has been 23.3%. Minda Industries has been a high growth, high profit firm in a growing Auto-Components sector. To have Minda Industries in the investment portfolio would be a good decision.  Favourable Govt. Policy-100% FDI through automatic route The Indian government allows Foreign Direct Investment (FDI) of 100% in Auto components industry through Automatic route. This allows import-export without any licensing requirements. This is a huge advantage to the industry. Earlier, FDI in this sector was allowed on a case-by-case basis, while automatic approval in the sector was granted only for FDI with a maximum equity participation of 51%. This policy was changed in view of giving advantage to indigenous manufacturing in the country of-mopeds, motorcycles, scooters, buses, trucks and tractors. Based on this government policy, the Indian automotive industry is expected to grow 3.5 to 4 times the current value of $74 billion to $302 billion, generate 65 million direct & indirect jobs and contribute to 12% of India’s GDP by 2026.  India is emerging hub to sourcing auto components With many foreign Investors like Bosch, Wabco, ZF, Fag from Germany, Denso and Aisin Seiki Company from Japan, Delphi from UK, Valeo from France and Continential engines and TRW from US, the technology and the quality of the auto components manufactured in the country is expected to improve. Technology partnerships and sales to these OEMs could hugely benefit Minda Industries.  Hybrid & Electrical Vehicle components new growth drivers Challenges posed by high cost of popularizing hybrid and electrical vehicles in India can be overcome by focusing on manufacturing components and vehicles in India. OEMS in India have already formed consortiums to develop a supplier base for critical hybrid and electrical vehicle components. Maruti ATS Wealth Managers Pvt Ltd.

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Suzuki India Ltd, Mahindra & Mahindra Ltd, Ford India Pvt. Ltd, Mahindra Reva Electric Vehicles Pvt. Ltd and Tata Motors Ltd have created a consortium that will help develop a supplier base for critical hybrid and electric vehicle components. Code named xEV, the project aims to develop components for two different power-trains, hybrid and pure electric. These critical under-the-hood components, which will be localized, include the motor, motor controller, charger, DC-DC converter and battery. The government and industry plan to invest Rs.12,000 crore each. It is part of the Indian government’s efforts to have six million electric and hybrid vehicles on the roads by 2020 under the National Electric Mobility Mission Plan (NEMMP) 2020 and FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles). Participating in these plans can give a huge revenue and profit boost to auto car component manufacturers like Minda Industries.

Risks and Concerns 

 

Recently, due to growth in the indigenous Chinese car manufacturing industries, the technological competence and the quality of Chinese automotive components have improved dramatically. One of the major risks is cheaper sourcing of Chinese products, both by Indian and International OEMs. Low investment in R&D and poor infrastructure for supply chain and exports can hurt profitability Developments in new technologies like fuel cells, hydrogen-powered vehicles and electric vehicles may affect the Auto-components industry, specifically Minda Industries.

Conclusion and Recommendation Minda Industries has been a high growth, high profitability company in a growing Auto-Components sector. The Automotive industry in India as a whole has been on the growth trajectory. The government policies in FDI have been and continue to be highly supportive of the Auto-Components industry with renewed investment in Electric and Hybrid vehicle sector, by both industry and government through ‘Make in India’ initiative. We recommend having this stock in the portfolio, with BUY recommendation at CMP.

Industry Overview The auto-components industry employs nearly 19 million people and accounts for nearly 2.3% of India’s GDP. The Indian auto-components industry can be broadly classified into organized and unorganized sectors. The organized sector caters to Original Equipment manufacturers (OEMs) and consists of highvalue precision instruments. The unorganized sector comprises low-value products and caters mostly to aftermarket categories. The Indian auto-components industry is expected to register a sales turnover of $200 billion by 2026 backed by strong exports which currently stand at $11.2 billion. The exports are expected to grow between $80 and $100 billion by 2026. Over the last decade, the automotive components industry has grown three times to $39 billion in FY2015-16, while exports have grown to $10.6 billion. The Indian ATS Wealth Managers Pvt Ltd.

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Auto Component Industry is expected to grow by 8-10% in FY2017-18, because of higher localization of OEMs, higher component content per vehicle, and rising exports from India. It is estimated that demand of vehicles will reach 75.8 million per year in 2026.

Sales Turnover (Rs. Cr) 300000 250000 200000 150000 100000 50000 0

Growth Rate (CAGR 6%) 40.00% 30.00% 20.00% 10.00% 0.00% -10.00%

Turnover (Rs. Cr)

Growth Rate

Growth Rate - Exports

Exports (Rs. Cr)

80.00%

800

60.00%

600

40.00%

400

20.00%

200

0.00%

0

Growth Rate

Exports (Rs. Cr)

The main drivers of growth are expected to be from investments in R&D operations and laboratories, which are being set up to conduct activities such as analysis, simulations and engineering animations. Reduction in excise duties in motor vehicles sector will increase demand for auto-components. The growth of OEMs sourcing from India, the increased indigenization of global OEMs and presence of a large pool of skilled and semi-skilled workforce, is making the country into a preferred designing and manufacturing base. 100% FDI is allowed for the sector under automatic route. Manufacturing and imports in this sector are exempt from licensing and approvals. A stable framework, increased purchasing power, large domestic market, and constantly increasing investments in infrastructure have made India a favourable destination for investment. The industry consists of following components that are manufactured to med the OEM requirements 

Engine & engine parts like turbochargers and common-rail systems


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  

Transmission & steering parts like gears and clutches Suspension and Braking parts like shock absorbers and brake calipers Metal parts like sheet-metal parts, body & chassis, fan-belts, pressure die castings and hydraulic pneumatic instruments

It is estimated that there will be a huge demand in India for low cost hybrid & electrical vehicle parts. Electrical vehicles are suitable for short distance urban commutes (50-100km). The industry also exports to countries like US, UK, Mexico, Germany, Turkey, Italy, Thailand, UAE and France.

Auto Component Industry Breakup Electrical Parts 9%

Others 7% Engine parts 31%

Suspension & Braking 12%

Equipments 10% Body & Chassis 12%

Drive Transmission & Steering 19%

Source: Automotive Component Manufacturers Association of India (AMCA)

Export Destinations Brazil Mexico 4% France 4% 5% UAE 5% Thailand 5% Italy 7%

USA 39%

UK 9% Turkey 10%

Germany 12%

Source: Automotive Component Manufacturers Association of India (AMCA)


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Financials Balance Sheet – Consolidated

Sources Of Funds Total Share Capital Equity Share Capital Preference Share Capital Reserves Net worth Secured Loans Unsecured Loans Total Debt Minority Interest Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances Current Liabilities Provisions Total CL & Provisions Net Current Assets Total Assets Contingent Liabilities Book Value (Rs)


FY16

FY15

FY14

FY13

FY12

19.37 15.87 3.50 452.34 471.71 218.95 134.11 353.06 109.61 934.38

19.37 15.87 3.50 345.91 365.28 170.35 38.41 208.76 21.33 595.37

19.37 15.87 3.50 291.96 311.33 233.99 43.89 277.88 13.81 603.02

19.37 15.87 3.50 289.46 308.83 138.62 30.90 169.52 12.33 490.68

19.37 15.87 3.50 266.79 286.16 127.52 32.39 159.91 11.48 457.55

1,402.81 1,120.70 1,043.86 830.06 709.46 643.32 572.75 411.24 400.54 130.11 9.32 21.87 43.62 28.36 47.47 183.84 140.59 124.67 363.91 289.46 261.04 56.66 28.02 27.76 604.41 458.07 413.47 135.95 89.61 98.07 740.36 547.68 511.54 499.99 359.29 343.68 52.48 41.95 34.73 552.47 401.24 378.41 187.89 146.44 133.13 934.37 595.36 603.01 168.38 253.92 126.99 295.11 228.03 194.03

582.81 264.18 318.63 42.23 21.81 89.49 217.26 38.53 345.28 77.62 422.90 286.07 28.82 314.89 108.01 490.68 132.97 192.44

498.69 224.10 274.59 5.14 22.81 80.81 196.26 66.57 343.64 70.60 414.24 233.64 25.59 259.23 155.01 457.55 126.51 178.16

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Profit and Loss Statement – Consolidated

FY16 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax PBT (Post Extraordinary Items) Tax Reported Net Profit Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lakhs) Earnings Per Share (Rs) Book Value (Rs)


FY15

FY14

FY13

FY12

2,713.97 2,374.58 186.64 147.96 2,527.33 2,226.62 19.17 38.88 17.65 7.47 2,564.15 2,272.97

1,834.16 128.03 1,706.13 18.37 8.56 1,733.06

1,457.24 116.84 1,340.40 11.18 11.22 1,362.80

1,179.21 0.00 1,179.21 8.66 -8.20 1,179.67

1,677.27 1,524.14 54.61 48.11 326.34 287.85 0.00 0.00 248.94 219.65 2,307.16 2,079.75 237.82 154.34 256.99 193.22 25.68 25.01 231.31 168.21 92.62 83.49 138.69 84.72 138.69 84.72 27.75 19.38 110.96 65.33 11.49 -0.25 -11.67 -2.39 105.93 52.01

1,203.89 43.30 224.85 0.00 164.84 1,636.88 77.81 96.18 24.18 72.00 59.08 12.92 12.92 7.59 5.34 -1.02 -0.82 5.68

972.14 29.02 143.93 20.66 92.42 1,258.17 93.45 104.63 19.06 85.57 46.27 39.30 39.30 10.99 28.31 -0.58 0.67 28.02

827.07 23.42 134.32 0.00 110.33 1,095.14 75.87 84.53 19.78 64.75 40.18 24.57 24.57 0.31 24.24 0.22 -4.23 35.93

629.88 0.11 11.11 2.28

555.61 0.11 9.52 1.94

432.98 0.11 4.76 0.83

286.03 0.11 4.76 0.83

268.08 0.66 4.76 0.88

158.65 69.87 295.11

158.65 41.11 228.03

158.65 3.30 194.03

158.65 17.78 192.44

158.65 14.87 178.16

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Stock Performance Chart

1

Research by: Vivek. S. Anavatti Equity Research Analyst ATS Wealth Managers Pvt Ltd. Email: [email protected]

Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be constructed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.


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