Minda Industries: LED by vehicle sales

The current upturn in auto sales bodes well for Minda Industries, a diversified component supplier. Through its standalone operations and various subsidiaries, joint ventures and associate entities, the company is into products such as switches, lights, horns, fuel caps, CNG/LPG kits, die castings, and so on, for two-wheelers, cars and commercial vehicles.

The company’s market leadership position in some of the segments it operates in and its efforts to add value to its product line lend a promising outlook to the stock.

Valuations too are reasonable, with the stock trading at around 17 times its trailing 12-month consolidated earnings.

This is cheaper than many other auto component stocks whose valuations have catapulted to over 20 times in the last one to two years due to the cyclical upturn in auto sales.

Cheaper borrowing costs, Seventh Pay Commission dole outs and good monsoon are expected to boost rural and urban consumption. Segments such as cars, two-wheelers and tractors will be direct beneficiaries.

While cars have already shown about 8 per cent volume growth in 2015-16, two-wheelers and tractors are beginning to do well after lacklustre sales in the last one to two years. With the good run expected to continue, Minda Industries will be a beneficiary. The company is a leader in the manufacture of switches, with a two-thirds market share domestically. It is also a leading manufacturer of horns with 47 per cent market share.

Switches bring about 45 per cent of the total revenue, while lights and horns chip in with around 20 per cent each. Bajaj Auto, TVS, Honda, Hero, Royal Enfield, Maruti Suzuki, and Mahindra and Mahindra are among its major domestic clients.

The company has focused on improving its product mix with value-added offerings. It has also diversified its geography mix by building an export market for its products and acquiring global companies. In 2014, the company acquired Spain-based Clarton Horns which boasts premium clients such as Bentley, Rolls Royce and Porsche.

The acquisition gave Minda access to technology for electric horns. Clarton has since set up a new manufacturing facility in Mexico to tap the Latin American markets and has commenced supplies to Volkswagen, Daimler and BMW. Last year, Minda commenced supply of switches to KTM bikes, Austria. With many of the high-end cars moving to LED lighting, Minda acquired Spain-based Rinder group last year that is a pioneer in LED technology for automotives.

Besides, through a group company, Minda has entered into manufacture of aluminium alloy wheels for passenger vehicles. Its new plant for this purpose in Haryana supplies alloy wheels to Maruti Suzuki’s premium vehicles such as the Baleno and Vitara Brezza. All these moves spell well for higher product realisations and expansion in profit margins in the next few years.

For the year ended March 31, 2016, the company’s consolidated net sales grew by 13.6 per cent to ₹2,506 crore. Consolidated (adjusted) net profits moved from ₹56 crore in 2014-15 to ₹107 crore last year. Cheaper raw material costs helped operating margins move up from 6.8 per cent a year ago to 9.4 per cent now. Apart from good operational performance, the strong growth of 91 per cent was helped by a turnaround in two of its subsidiaries as well as an ongoing restructuring exercise by which Minda gained higher stake in some of the group entities. But even on a standalone basis, the company recorded a 7 per cent growth in net sales and a 58 per cent growth in adjusted net profits.

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