Minda Inds Ltd (Minda) reported a disappointing quarterly performance in Q2FY20, as net sales dropped by 11% yoy to INR 1360 cr. Sharp drop of 16% yoy in overall automobile productionimpacted company’s overall performance. Performance across all the business were impacted,however the new product lines such as sensors, controllers and telematics which gets included in the other segment grew by 25% yoy. EBITDA came in at INR 162 cr, which was lower by 15% yoy, EBITDA margins dropped by 55 bps yoy. However despite significant negative operating leveragecompany’s ability to maintain healthy margins on the back aggressive cost control and change in product mix was comforting. We believe with concerns of high inventory levels now behind in PV and 2W segments, industry may see sequential improvement. Further with new businesses like HSS, Sensors, Controllers, Delvis and 2W alloy business to start kicking in from FY21, we expect notable upside to the MIL topline and profitability from these levels next year onwards. Hence we maintain BUY rating on the company with the Target Price of INR 388.
For this MIL has established a technical centre, CREAT, which works towards providing technological assistance to Minda group and create new products suitable for Indian market in areas ranging from embedded systems, telematics, software and design. It sees a 2X rise in electronics component in a car in the next 5 years and is preparing itself accordingly. We see good growth in lighting, LMT and Switches division in next two years and maintain a BUY with price target of Rs 410 giving an upside of 27% from CMP.
The company has planned varied products along with the current diversified product portfolio (more than 20 different products) and is well placed to benefit from upcoming regulatory environment spread across diversified client base along with industry wide growth opportunities in terms of increasing electronics content and premiumization in vehicles. The company aspires to be a leading player both by volume and sales without impacting the margins. We have slightly toned down our estimates to factor in the recent slowdown expected in automobile sales and introduced FY21 estimates. We maintain a BUY with price target of Rs 410 giving an upside of 12% from CMP.