The Research Report is only for reference purposes for residents in India, but not for the purposes of advising or recommending on any investment. Kotak Securities Limited or its affiliates are not seeking any business relationship with any viewer of this report nor does Kotak Securities or its affiliates assume any liability for acting on this report nor does it take any responsibility to update information provided in this report.
Company Report Minda Corp. (MDA) BUY Automobiles December 07, 2015 INITIATING COVERAGE Sector view: Attractive Harness the potential. Minda Corporation is one of the leading suppliers of locksets, Price (`): 89 wiring harness and instrument clusters in the Indian automotive market. Our positive view on the stock is underpinned by (1) Minda’s technology tie-ups with global Target price (`): 110 suppliers that give it access to MNC OEMs, (2) its ability to gain market share across BSE-30: 25,530 segments and (3) robust growth potential from new products such as steering roll connectors and sensors. We expect 25% EPS CAGR over FY2016-20E and initiate coverage with a BUY rating; our TP of `110 is based on 15X September 2017E EPS.
Technology tie-ups and strong relationship with OEMs to drive market share gains
Minda Corporation is well-placed to deliver 20% revenue CAGR over the next five years led by INSIDE (1) market share gains across segments, (2) expansion of product offerings with existing Key technology customers and (3) new products. We expect Minda Furukawa’s market share in wiring harness partners and their to increase to 16% by FY2020 (from 7% currently) led by market share gains with Maruti. capabilities…pg09 Minda’s market share in locksets is likely to increase by 7% over the next five years led by
increase in share with Honda motorcycles and potential new business from Hero MotoCorp. OEMs and product New products to provide US$500 mn opportunity for Minda by FY2020E segments that will drive market share Airbags will likely become mandatory for passenger vehicles in India by CY2018E; this could gains…pg13 lead to ~US$70 mn market opportunity for steering roll connectors (SRC) by 2020E. This augurs
well for Minda as Furukawa is the global leader for this product. Minda Stoneridge JV is Potential of new looking to aggressively expand offering of sensors, which could be a strong revenue driver over the medium term as automotive sensors could potentially be a US$430 mn industry products…pg15 opportunity in India by FY2020E, as per our calculations. Related-party Return ratios to improve led by strong profit growth over FY2016-20E transactions and other We expect consolidated net profit to grow at 25% CAGR over FY2016-20 led by 20% growth issues…pg17 in revenues. Due to limited capex requirements and strong operating cash flow, we expect FCF generation of ₹1.8 bn over FY2015-18. With this, net debt to equity will likely decline to 0.5X in FY2018E from 1X in FY2015. The company’s return ratios are likely to improve over the next three years. We expect Minda to report RoE/RoCE of 22%/19% in FY2018.
Initiate with BUY rating and target price of `110
The stock is trading at 14.3X FY2017 EPS, which is inexpensive given strong growth prospects Nishit Jalan [email protected] and improving return ratios. We initiate coverage on Minda Corporation with a BUY rating Mumbai: +91-22-4336-0873 and target price of `110 based on 15X September 2017E EPS. Weak execution, inefficient capital allocation and break-up with JV partners are the key risks to our investment thesis. Hitesh Goel [email protected] Mumbai: +91-22-4336-0878
Company data and valuation summary
Company data Stock data High Low Price performance 1M 3M 12M Rating: BUY 52-week range 105 65 Absolute (%) 19.7 25.3 0.0 Priced at close of: 07-Dec-15 Rel. to BSE-30 (%) 22.9 24.8 0.0 Current price (Rs) Capitalisation Forecasts/valuation 2015 2016E 2017E 89 Market cap (Rs bn) 18.6 EPS (Rs) 4.2 4.4 6.2 Net debt/(cash) (Rs bn) 4.6 P/E (X) 21.2 20.0 14.3 Kotak Institutional Equities Research Free float (%) 15.4 RoAE (%) 20.5 18.3 21.5
Shares outstanding (mn) 209 EV/EBITDA (X) 12.5 9.9 7.5 Important disclosures appear at the back Source: Company, Kotak Institutional Equities estimates
For Private Circulation Only. In the US, this document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933. This document is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.
Automobiles Minda Corp.
TABLE OF CONTENTS
Minda Corporation—financial snapshot ...... 3
Valuations: Decent growth story at reasonable valuations ...... 4
Investment thesis: Revenues to grow at 20% CAGR over next five years .... 8
Key risks: Inefficient capital allocation and weak execution ...... 17
Financials: Growth led by market share gains ...... 19
Appendix 1: Company profile ...... 28
Appendix 2: Product portfolio ...... 34
Appendix 3: Customers across different segments...... 35
The prices in this report are based on the market close of December 7, 2015
2 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Minda Corp. Automobiles
MINDA CORPORATION—FINANCIAL SNAPSHOT
Exhibit 1: Consolidated forecasts and valuation, March fiscal year-ends, 2013-20E
Net sales EBITDA PAT EPS EV/EBITDA P/E RoACE RoAE (Rs mn) (Rs mn) (Rs mn) (Rs) (X) (X) (%) (%) 2013 21,736 1,087 67 0.3 21.5 279.3 2.0 1.9 2014 15,939 1,257 725 3.5 18.7 25.6 10.4 19.7 2015 19,706 1,855 876 4.2 12.5 21.2 12.3 20.5 2016E 25,790 2,393 929 4.4 9.9 20.0 13.7 18.3 2017E 32,821 3,137 1,298 6.2 7.5 14.3 16.7 21.5 2018E 38,660 3,755 1,651 7.9 6.1 11.3 18.8 22.4 2019E 47,102 4,567 1,937 9.3 4.8 9.6 20.7 21.6 2020E 53,314 5,145 2,248 10.7 4.1 8.3 21.6 20.8
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: We expect Minda Corporation to deliver 25% earnings CAGR over FY2016-20E Minda Corporation, consolidated financial summary, March fiscal year-ends, 2011-20E (` mn)
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Profit model (Rs mn) Net sales 7,322 13,855 21,736 15,939 19,706 25,790 32,821 38,660 47,102 53,314 EBITDA 758 1,349 1,087 1,257 1,855 2,393 3,137 3,755 4,567 5,145 Other income 40 204 362 304 227 179 189 206 220 235 Interest and finance charges (174) (268) (424) (275) (395) (427) (441) (377) (361) (281) Depreciation (172) (455) (771) (478) (603) (756) (849) (941) (1,072) (1,213) Pre-tax profits 452 830 254 808 1,085 1,390 2,035 2,642 3,353 3,884 Extraordinary items — (176) (30) 147 24 — — — — — Income tax (105) (138) (175) (172) (272) (347) (509) (661) (939) (1,088) Share of JVs — 6 — 10 44 — — — — — Minority interest — (2) 10 — 14 (114) (228) (331) (478) (549) Net profits 347 519 60 793 895 929 1,298 1,651 1,937 2,248 Adjusted net profit 347 658 67 725 876 929 1,298 1,651 1,937 2,248 Earnings per share (Rs) 1.8 3.1 0.3 3.5 4.2 4.4 6.2 7.9 9.3 10.7 Balance sheet (Rs mn) Total equity 2,693 3,530 3,462 3,894 4,666 5,470 6,619 8,093 9,817 11,828 Minority interest — 33 51 — 241 355 583 914 1,391 1,941 Total borrowings 2,046 4,759 5,319 5,523 5,018 6,018 5,518 4,718 4,518 3,518 Current liabilities 2,127 3,211 3,596 3,451 4,022 5,274 6,445 7,587 9,223 10,407 Other liabilities 85 390 301 253 269 269 269 269 269 269 Total liabilities and equity 6,951 11,922 12,729 13,122 14,216 17,386 19,434 21,581 25,218 27,962 Cash 655 972 575 540 441 853 562 341 953 986 Total fixed assets 2,646 4,978 5,342 5,418 5,861 6,555 6,906 7,365 8,292 9,079 Investments 38 189 — 245 289 289 289 289 289 289 Current assets 3,612 5,580 6,583 6,765 7,423 9,487 11,475 13,385 15,482 17,407 Other long-term assets — 203 229 154 202 202 202 202 202 202 Total assets 6,951 11,922 12,729 13,122 14,216 17,386 19,434 21,581 25,218 27,962 Cash flow (Rs mn) Operating cash flow, excl. working capital 676 1,082 1,295 861 1,427 2,175 2,777 3,280 3,823 4,262 Working capital (66) (1,314) (617) (326) (88) (813) (816) (768) (462) (741) Capital expenditure/Acquisitions (187) (1,565) (1,150) (321) (455) (1,449) (1,200) (1,400) (2,000) (2,000) Investments (118) 249 — — — — — — — — Free cash flow 424 (1,797) (472) 213 884 (88) 760 1,113 1,361 1,521 Ratios (%) EBITDA margin 10.4 9.7 5.0 7.9 9.4 9.3 9.6 9.7 9.7 9.6 Gross margin 37.3 38.7 39.9 38.9 39.2 37.5 37.0 36.5 36.0 36.0 Debt/equity (X) 0.8 1.3 1.5 1.4 1.1 1.1 0.8 0.6 0.5 0.3 Net debt/equity (X) 0.5 1.1 1.4 1.3 1.0 0.9 0.7 0.5 0.4 0.2 RoAE 20.3 21.2 1.9 19.7 20.5 18.3 21.5 22.4 21.6 20.8 RoACE 13.7 15.4 2.0 10.4 12.3 13.7 16.7 18.8 20.7 21.6
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Automobiles Minda Corp.
VALUATIONS: DECENT GROWTH STORY AT REASONABLE VALUATIONS We initiate coverage on Minda Corporation with a BUY rating and target price of ₹110 based on 15X September 2017E EPS. We expect Minda to deliver 25% earnings CAGR over FY2016-20E led by (1) market share gains across both wiring harness and locksets businesses and (2) new product development for existing customers. The company’s return ratios are likely to improve over the next three years. Valuations are relatively inexpensive at 14.3X FY2017E EPS given decent growth prospects and improvement in RoE.
Minda is trading at 14.3X FY2017E EPS, which is inexpensive given strong growth prospects and potential improvement in return ratios. We initiate coverage on Minda Corporation with a BUY rating and target price of `110 based on 15X September 2017E EPS. We note that smaller auto ancillaries in India (market cap less than US$500 mn) are trading at an average FY2017E PE multiple of 15.2X (see Exhibit 3). Thus, our target multiple for Minda Corporation is broadly in line with the average trading multiple of smaller auto ancillaries in India. Our DCF valuation, which captures the medium-term growth prospects of the company, implies target price of ₹110 and PE multiple of 17.7X FY2017E and 13.9X FY2018E (see Exhibit 4 for details).
We believe that the stock deserves to trade at higher multiples (compared to current levels) as we expect revenues and PAT to grow at 20% and 25% CAGR respectively over FY2016- 20E. Minda will likely generate strong operating cash flows, which should help further strengthen its balance sheet with net debt to equity declining to 0.5X by FY2018E from 1X currently. We expect RoE to improve to 22% by FY2018. In our view, key catalysts that would drive stock re-rating are (1) strong execution in terms of market share gains in both wiring harness and locksets, (2) increased focus on cash flow generation and efficient capital allocation and (3) simplification of group structure.
Historical trading multiples of Minda Corporation are not relevant due to (1) frequent changes in organization structure over the past five years and (2) listing of the company on the Bombay Stock Exchange (BSE) only in October 2014; prior to that it was listed in Delhi Stock Exchange where liquidity in the stock was very low.
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Minda Corp. Automobiles
Exhibit 3: Minda Corporation trades at 14.3X FY2017E EPS Valuation table of auto component companies, March fiscal year-ends, 2015-17E
Price Market cap. P/E (X) EV/EBITDA (X) (Rs) (USD mn) 2015 2016E 2017E 2015 2016E 2017E Auto ancillaries (Market Cap. >US$2 bn) Bosch 18,496 8,707 43.4 43.4 34.1 32.1 29.0 23.2 Motherson Sumi Systems 280 5,560 38.3 30.1 23.0 12.6 10.7 8.4 Bharat Forge 831 2,901 25.9 26.1 20.8 14.7 14.1 11.6 MRF 39,220 2,494 10.3 8.8 10.8 6.5 4.9 5.6 Amara raja Batteries 846 2,167 35.1 29.9 26.5 20.1 17.6 15.4 Median 35.1 29.9 23.0 14.7 14.1 11.6 Mean 30.6 27.7 23.1 17.2 15.3 12.8 Auto ancillaries (Market Cap. Source: Bloomberg, Kotak Institutional Equities estimates DCF implies a fair value of `110 Our DCF calculation implies a fair value of `110 for Minda Corporation. Our key assumptions for DCF are (1) revenue CAGR of 20% over FY2016-20E led by market share gains and new product launches, (2) moderate revenue growth after FY2020E onwards, (3) steady EBITDA margin of 9.5% over the long term, (4) terminal growth rate of 4% and (5) cost of capital of 11.6% based on 13.5% cost of equity, after-tax cost of debt of 7.7% and debt to capital employed of 35%. Our DCF calculation implies a P/E ratio of 17.7X FY2017E and 13.9X FY2018E. KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Automobiles Minda Corp. Exhibit 4: We value Minda Corporation at ₹110 on DCF basis DCF valuation of Minda Corporation, consolidated basis, March fiscal year-ends, 2015-30E (₹ mn) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Net sales 19,706 25,790 32,821 38,660 47,102 53,314 59,712 66,877 74,902 82,392 90,632 99,695 105,677 112,017 118,738 125,862 YoY (%) — 30.9 27.3 17.8 21.8 13.2 12.0 12.0 12.0 10.0 10.0 10.0 6.0 6.0 6.0 6.0 EBITDA 1,855 2,393 3,137 3,755 4,567 5,145 5,673 6,353 7,116 7,827 8,610 9,471 10,039 10,642 11,280 11,957 Margin (%) 9.4 9.3 9.6 9.7 9.7 9.6 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 Depreciation 603 756 849 941 1,072 1,213 1,361 1,527 1,693 1,858 2,039 2,239 2,435 2,626 2,806 2,977 EBIT 1,253 1,637 2,288 2,814 3,495 3,931 4,311 4,826 5,422 5,969 6,571 7,232 7,604 8,016 8,474 8,980 Margin (%) 6.4 6.3 7.0 7.3 7.4 7.4 7.2 7.2 7.2 7.2 7.2 7.3 7.2 7.2 7.1 7.1 EBIT (1-tax) 877 1,146 1,601 1,970 2,446 2,752 3,018 3,378 3,796 4,178 4,599 5,063 5,323 5,611 5,932 6,286 Capex (455) (1,449) (1,200) (1,400) (2,000) (2,000) (2,240) (2,509) (2,247) (2,472) (2,719) (2,991) (2,642) (2,800) (2,375) (2,517) % of revenues 2.3 5.6 3.7 3.6 4.2 3.8 3.8 3.8 3.0 3.0 3.0 3.0 2.5 2.5 2.0 2.0 Change in WC (88) (813) (816) (768) (462) (741) (1,658) (1,039) (1,164) (1,086) (1,195) (1,314) (867) (919) (975) (1,033) Free cash flow 981 (360) 434 743 1,057 1,225 481 1,358 2,078 2,479 2,725 2,996 4,249 4,517 5,389 5,713 Discounted free cash 704 898 934 329 833 1,144 1,224 1,208 1,191 1,515 1,445 1,547 1,471 After tax cost of debt (%) 7.7 Cost of equity 13.5 Debt/Capital employed (%) 35.1 Equity/Capital employed (%) 64.9 WACC (%) 11.5 Terminal growth (%) 4.0 Discounted free cash flow 14,443 Terminal value 20,499 Enterprise value 34,942 Less: Net debt (Sep. 2017) 4,667 Less: NPV of minority interest 7,685 Equity value 22,590 Equity value per share (Rs) 108 Target price 110 Source: Bloomberg, Kotak Institutional Equities estimates Key strengths of the company that drive our positive view on the stock Market leadership in several segments. Minda Corporation is the market leader in two-wheeler wiring harness and tractor segments with 33% and 41% market share respectively in FY2015. It is the largest supplier of instrument clusters to commercial vehicle and tractor OEMs. Further, Minda is one of the top suppliers of locksets to both two-wheeler and four-wheeler OEMs. In our view, market leadership across several segments reflects the company’s ability to offer consistent and superior product quality at competitive pricing. Strong relationship with OEMs offers opportunities to increase content per vehicle. Minda is the sole supplier of wiring harness to TVS Motors, locksets to Mahindra two-wheelers and Ford India. Further, it has more than 70-80% business share of (1) locksets for Bajaj Auto, Yamaha India, Mahindra UVs, etc. and (2) wiring harness for Mahindra tractors and Ashok Leyland. We believe that strong relationship with OEMs offers opportunities to expand product offerings and increase content per vehicle. For example, Minda has received orders to supply brackets & holders from TVS, compressor housings for Ford and Tata Motors and is also increasing its share in door handles and door latches with more OEMs. Strong and reliable technological tie-ups with global suppliers. Minda has technology tie-ups with strong global players such as Furukawa Electric of Japan for wiring harness, Stoneridge of USA for instrument clusters and sensors and Vehicle Access Systems Technology (VAST) for locksets, door handles, latches and other security products. Apart from superior technology, these tie-ups provide access to OEMs and new innovative products; we note that due to JV with Furukawa, Minda will gain significant market share with Maruti and Nissan going ahead. Diversified customer base leads to lower concentration risk. Unlike several auto component companies, Minda has a reasonably well-diversified customer base with the largest customer accounting for 10% of its revenues and top five customers accounting for just 38% of revenues. 6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Key catalysts that would drive stock performance Strong execution. Market share gains in both wiring harness and locksets segments with steady EBITDA margins would be an important deliverable from the company over the next few quarters. Increased focus on cash flow generation & efficient capital allocation. Historically, the company has made overseas acquisitions and has also allocated capital for plastic business in India, which in our view, did not augur well for the company. Going ahead, investors would like to see increased focus on cash flow generation, reduction in debt levels and efficient capital allocation instead of utilization of cash to make big acquisitions at aggressive valuations. Further simplification of corporate structure. We believe that Minda has made considerable efforts to increase transparency over the past five years by acquiring companies from the promoter and making it part of the listed entity. However, there is more scope to further simplify the corporate structure. The company operates through 100% subsidiaries such as Minda Sai and Minda Automotive Solutions. We reckon that efforts towards merging these businesses with the standalone entity would go a long way in simplifying corporate structure and instill investor confidence in the stock. Exhibit 5: Minda Group organizational structure Minda Corporation Minda Minda KTSN, Minda Sai Minda Automotive Minda Furukawa Management Germany (100%) (100%) (100%) Electric (51%) Services (100%) Almighty Minda VAST Minda KTSN, Minda Stoneridge International PTE, Security Systems Poland (100%) Instrument Ltd (51%) Singapore (100%) (50%) PT Minda Minda Vietnam Automotive, (100%) Indonesia (100%) Other Group Companies: Uz'Minda LLC (50% by Uzbekistan Overseas Domestic Government) Minda Silca Engineering (29.7% by Minda Capital) Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Automobiles Minda Corp. INVESTMENT THESIS: REVENUES TO GROW AT 20% CAGR OVER NEXT FIVE YEARS Minda Corporation is one of the largest suppliers of locksets, wiring harness and speedometers in the Indian automotive market. The company is a market leader across several product segments and has excellent relationships with OEMs due to its ability to offer consistent and superior quality products. The company has technological tie-ups with global suppliers, which offer it an edge over domestic peers and also gives access to MNC OEMs. We believe the company’s revenues can grow at 20% CAGR over FY2016-20E led by—(1) market share gains in both wiring harness and locksets segments, (2) expansion of product offerings to existing customers and (3) new products such as steering roll connectors (SRC) and sensors. Minda Corporation is well-placed to deliver 20% revenue CAGR over FY2016-20E led by (1) 33% revenue CAGR at Minda Furukawa JV due to market share gains in the wiring harness segment and increase in market potential for steering roll connectors as airbags become standard feature in every passenger vehicle in India by CY2018E, (2) market share gains in the locksets segment due to increased share of business from Honda Motorcycles and (3) acquisition of 51% stake in Minda Stoneridge JV, which offers strong growth opportunity in automotive sensors market. We discuss our investment thesis below: Exhibit 6: We expect Minda to deliver 20% revenue CAGR over FY2016-20E Revenue break-up across segments, March fiscal year-ends, 2013-20E (₹ mn) Revenue CAGR (%) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2013-15 2016-20E Revenues (Rs mn) Standalone business 5,842 6,039 6,368 6,733 7,975 9,187 10,753 11,828 4.4 15.1 2-wheeler lock kits for OEM 2,399 2,661 3,351 3,965 4,633 5,152 18.0 Locksets for after-market 1,141 1,090 1,282 1,346 1,454 1,570 1,696 1,831 8.0 Die casting (Products sold outside group) 1,008 1,046 1,322 1,619 2,189 2,386 22.9 Exports 662 823 872 872 959 1,055 1,161 1,277 Others 807 807 888 977 1,075 1,182 Minda SAI 3,624 4,413 5,088 5,308 6,054 7,046 8,191 9,306 18.5 15.1 Minda Furukawa 1,848 4,618 6,210 8,152 12,259 14,511 33.1 Minda KTSN 4,048 4,548 4,515 3,838 4,030 4,231 4,231 4,231 5.6 2.5 PT Minda Automotive Indonesia 1,064 798 838 880 924 970 5.0 Minda Vietnam Automotive 255 255 267 281 295 309 5.0 Minda Automotive Soluction (Replacement) 1,642 1,597 1,938 2,054 2,275 2,534 2,760 3,010 8.6 10.0 Minda Schenk 8,368 — Minda Stoneridge 1,568 3,730 4,580 5,509 6,594 43.2 Minda VAST — — 2,200 3,075 3,493 3,986 4,471 19.4 Revenues 23,525 16,794 21,076 27,370 34,453 40,384 48,908 55,230 (5.3) 19.2 Less: Eliminations 2,176 1,152 1,744 1,785 1,893 2,031 2,180 2,339 Other operating income 387 297 375 205 260 307 374 423 Consolidated net revenues 21,736 15,939 19,706 25,790 32,821 38,660 47,102 53,314 (4.8) 19.9 Domestic 8,657 10,568 13,000 20,027 26,726 32,213 40,492 46,526 22.5 23.5 Exports 662 823 872 872 959 1,055 1,161 1,277 14.8 10.0 Overseas entities (Largely Europe) 12,417 4,548 5,834 4,891 5,135 5,392 5,450 5,511 (31.5) 3.0 Revenues by business segment (Rs mn) Safety security & restraint systems 5,764 6,681 7,913 10,254 12,537 14,343 16,538 18,249 17.2 15.5 Driver information & telematics systems 4,056 4,644 7,116 11,493 15,994 19,778 25,959 30,411 32.5 27.5 Interior systems 11,529 4,317 4,303 3,838 4,030 4,231 4,231 4,231 (38.9) 2.5 Contribution to revenues (%) Safety security & restraint systems 27 43 41 40 39 37 35 35 Driver information & telematics systems 19 30 37 45 49 52 56 57 Interior systems 54 28 22 15 12 11 9 8 Notes: (a) 2013-15 revenue CAGR is impacted by sell-off of Minda Schenk. Source: Company, Kotak Institutional Equities estimates 8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Technology tie-ups with global suppliers offer edge over domestic peers Minda Corporation has technology tie-ups with strong global suppliers such as (1) Furukawa Electric of Japan for wiring harness, (2) Stoneridge of USA for instrument clusters and sensors and (3) Vehicle Access Systems Technology (VAST) for locksets, door handles, latches and other security products. Apart from superior technology, we believe that these tie-ups provide access to OEMs as well as access to innovative products such as steering roll connectors (SRC). All the JV agreements are open ended and have standard clauses for exit such as transfer to third party subject to compliance of the agreement. Exhibit 7: Minda’s technology tie-ups with global suppliers are key growth drivers Key details of technology tie-ups of Minda Corporation Year of Minda's stake Royalty Entity incorporation (%) Business segment (%) Growth areas for Minda (1) Market share gains with Japanese OEMs such as Passenger vehicle wiring Minda Furukawa JV 2007 51 3 Maruti and Renault-Nissan and (2) new products like harness steering roll connectors (1) Potential market share gains in two-wheeler Instrument clusters and Minda Stoneridge JV 2004 51 2-3 instrument clusters segment and (2) launch of new automotive sensors automotive sensors (1) Access to superior technology for four-wheeler Four-wheeler locksets locksets and door handles and (2) new products Minda VAST JV 2015 50 2 and other safety products such as latches and hinges, passive entry passive start systems, etc. Notes: (a) Year of incorporation represents year of original agreement between Minda Group and the JV partner (b) Minda Furukawa became part of listed entity (Minda Corporation) in Feb. 2014 and Minda Stoneridge in Oct. 2015 Source: Company, Kotak Institutional Equities Minda Furukawa JV—strong relationship with Japanese OEMs Furukawa Electric is a Japanese conglomerate engaged in electric and electronics equipment for different industry segments. The company has developed strong technical capabilities (R&D spend is 2% of sales) particularly in wires and optic fibers segment. With over US$7 bn of revenues, Furukawa offers products and services across five segments: (1) optical fiber cables, electronic appliance wires, etc. for telecom segment, (2) copper wires, aluminum wires, power transmission cable for energy and industrial segment, (3) wiring harness, steering roll connectors, electronic component materials, etc. for electronics and automotive segment, (4) copper and copper alloy products, superconducting products, etc. for metals segment and (5) logistics, information processing service, software development, etc. In the automotive segment, with revenues of over US$2 bn, Furukawa has ~3% global market share in automotive wiring harness with strong relationship with Japanese OEMs. The company is targeting to increase its market share in wiring harness to 4.5% by 2020. For steering roll connectors, a component used in air bag system, Furukawa is the market leader globally. It also manufactures other automotive products such as connectors/terminals, slide-door harness, metal core PCB for junction boxes, etc. KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Automobiles Minda Corp. Exhibit 8: Overview of automotive product offerings of Furukawa Electric Source: Company, Kotak Institutional Equities Exhibit 9: Furukawa Electric reported global revenues of more than US$7 bn in FY2015 Electronic and Automotive Systems and total revenues of Furukawa Electric, March fiscal year-ends, 2011-15 (JPY bn) (JPY bn) Electronics and Automotive Systems Total revenues 1,000 900 800 700 600 500 400 300 200 100 - 2011 2012 2013 2014 2015 Source: Company, Kotak Institutional Equities Minda Group entered into a joint venture agreement with Furukawa Electric in August 2007 with 51% stake held by Furukawa Electric while Minda Group had the remaining 49%. As per the agreement, JV was set up to manufacture (1) automotive wiring harness mainly for Japanese OEMs in India, (2) steering roll connectors used for the airbag system and (3) other automotive products such as terminals, relay box, junction box, etc. Further, the JV will have to pay 3% royalty for the sale of products developed based on the technology of Furukawa Electric. In February, 2014, Minda acquired promoter’s 49% stake in the joint venture and then increased it to 51% in October 2014 by acquiring further 2% stake from Furukawa. 10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Key potential growth areas for Minda due to this JV are: Furukawa Electric has 3% market share in wiring harness globally and has strong relationship with Japanese OEMs particularly Suzuki. Leveraging its strong global relationship, Minda Furukawa JV has now acquired 7% market share in domestic passenger vehicle wiring harness segment, market share will likely increase to 16% by FY020E as JV has received 100% business share for Maruti’s new launches and Renault Kwid. For this, JV has set-up two new plants in Chennai and Noida in FY2014-15. Secondly, Furukawa is the market leader in steering roll connectors (SRC), a component used in the airbag system. Crash test norms will become mandatory for passenger vehicles in India by CY2018E, post that, airbags would become a standard feature in every vehicle. This will lead to a market opportunity of around ₹4.4 bn for steering roll connectors in India (see Exhibit 17 for details). JV has an early mover advantage as it already supplies small quantity to Maruti and Nissan. JV invested JPY200 mn (₹110 mn) in 2014 to manufacture SRCs in its New Delhi plant. Minda Stoneridge Instruments—instrument clusters and sensors Stoneridge Inc. is a designer and manufacturer of electrical and electronic components, modules and systems for the OEMs. Electronics and control devices are the key segments under which the company supplies products such as electronic instrument clusters, electronic control units, and driver information systems and sensors, switches, valves, and actuators. Stoneridge supplies to almost all global OEMs with Ford, Scania, Daimler, General Motors and Volvo being the largest customers. Stoneridge has particularly higher market share in the commercial vehicles segment. Stoneridge invests heavily in technology to develop new products (R&D spend is ~6% of sales); this we believe has helped the company grow revenues at 15% CAGR over the past five years. Going ahead, the company is targeting revenue CAGR of 7% over 2013-19E led largely by 42% CAGR in Asia-Pacific markets including India. It competes with global suppliers such as Borg Warner, Bosch, Continental, Delphi, Magneti Marelli, Yazaki Corp., etc. Exhibit 10: Stoneridge is a global manufacturer of automotive electronics and control devices Revenue breakdown and product segments of Stoneridge Inc., December year-end, 2014 (US$ mn, %) Stoneridge Inc. (CY2014 revenues: US$ 661mn) 32% 47% 21% Stoneridge Electronics Stoneridge Control Devices PST Eletrônica (JV, Brazil) • Driver Information Systems • Switches & Actuators • Electronics • Telematic Systems • Sensors: Temperature, • Telematics • Advanced Modules (ECU) Rotational Speed, Pressure, • Safety & Security Fluid Level • Power & Switch Modules • Alarm & Remote Access • Emission Reduction and • Tachograph Systems Solenoid Control Devices • Audio • Sensors & Controls Minda Stoneridge Instruments (JV, India) • Electronics • Control Devices Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Automobiles Minda Corp. Exhibit 11: Stoneridge is targeting to grow its Asia Pacific revenues at 42% CAGR over 2013-19 Revenue growth targets of Stoneridge across different regions over 2013-19E, December year-ends (%) Source: Company, Kotak Institutional Equities Minda Group formed a 51:49 joint venture with US-based Stoneridge Inc. in August 2004 to enter into manufacturing of instrument clusters (speedometers) for all automotive segments. As part of the agreement, Minda Group acquired exclusive manufacturing and marketing rights for India and 17 Asian countries, including Bangladesh, Indonesia, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Thailand and Vietnam. In our view, Minda Stoneridge JV has been extremely successful so far with revenue CAGR of 18% over FY2007-15. We expect the company to deliver 17% revenue CAGR over FY2015-20E. Key potential growth areas for Minda Corporation due to the JV are: In instrument clusters, Minda Stoneridge is the market leader in commercial vehicles and tractor segment with 40-70% market share and has around 13% share in two-wheelers. Going ahead, apart from industry growth, revenue growth will be led by (1) market share gains in the two-wheeler segment where the company will try to leverage its existing relationship with OEMs such as TVS and Honda Motorcycles and (2) increase in content per vehicle led by offering higher features in current products and new products such as complete dashboard solutions. In April 2011, the scope of the joint venture agreement between Minda and Stoneridge was enhanced to include Stoneridge’s sensor technology and products in India. As per the revised agreement, the JV will initially manufacture and supply various speed, low- and mid-temperature, position and level sensors. Gradually, the JV will manufacture more sophisticated high-temperature and other sensor products for Indian OEMs. Therefore, automotive sensors could be a strong growth opportunity for the company. With increased usage of electronics and government’s focus on safety and emission norms, sensors could potentially be US$430 mn industry in India by FY2020E (see Exhibit 18 for details). However, we note that competition will be equally tough due to presence of global Tier-1 suppliers such as Bosch, Continental, Delphi, Denso, etc. 12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 12: Minda Stoneridge’s revenues have grown at 18% CAGR over FY2007-15 Revenues of Minda Stoneridge JV, March fiscal year-ends, 2006-18E (₹ mn, %) (Rs mn) Revenues [LHS] YoY [RHS] (%) 5,000 60 4,500 50 4,000 3,500 18% CAGR over 2007-15 40 3,000 2,500 30 2,000 20 1,500 1,000 10 500 - 0 2006 2008 2009 2011 2013 2015 2007 2010 2012 2014 2018E 2017E 2016E Source: Company, Kotak Institutional Equities estimates Minda VAST Access Systems—four-wheeler security/access control products Minda Corporation entered into a 50:50 joint venture with Vehicle Access Systems Technology (VAST) of the US in April 2015 to strengthen its presence in four-wheeler security products. VAST is a global alliance of three companies, WITTE Automotive of Germany, Strattec Security Corporation and ADAC Automotive of the US. With revenues of around US$1.3 bn, VAST is one of the global leaders in access systems with a superior technological strength in security systems (locksets), door handles, latches and other related products. It supplies to most of the big OEMs globally in both passenger vehicle and commercial vehicle segments. With the JV agreement, Minda VAST will get access to (1) VAST’s superior technology for current products such as locksets and door handles and (2) several new products such as electronic steering column lock, door modules, latches and hinges, passive entry passive start systems, etc. We believe that these new products will be key growth drivers for the company going ahead. We note that over the next two-three years, Minda VAST is targeting revenues of ₹2.5 bn from expanding its product offerings particularly latches, hinges and passive entry systems. Market share gains will help Minda grow faster than auto production We expect Minda Corporation to gain market share going ahead particularly in passenger vehicle wiring harness and two-wheeler locksets. This will be driven by (1) Minda’s strong technical capabilities due to its technology tie-ups with global suppliers and excellent relationship with some of the domestic OEMs, (2) OEMs’ initiatives to reduce costs and give higher share of business to suppliers who can supply quality products at more competitive pricing and (3) OEMs efforts to reduce dependence on a particular supplier (wherever possible) and instead have two or three suppliers. In the passenger vehicle wiring harness segment, Minda’s market share will likely increase to ~16% by FY2020E from 7% currently as the company has become the sole supplier for Maruti’s new models such as S-Cross, and Ciaz and have also won order for Renault Kwid. In the two-wheeler lockset segment, Minda’s market share will increase to 32% in FY2020E from 26% in FY2015 as the company has received 50% share of Honda Motorcycles’ upcoming 1.2 mn units capacity plant in Gujarat. KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Automobiles Minda Corp. Passenger vehicle wiring harness: Increase in share with Maruti Suzuki to drive revenue growth In the passenger vehicle wiring harness segment, Motherson Sumi (JV with Sumitomo Wiring Systems) is currently the market leader with around 65% market share followed by Yazaki and Minda Furukawa. Minda Furukawa has 7% market share and it currently supplies wiring harness to three Japanese OEMs: Maruti Suzuki, Nissan and Honda Cars. In our view, Motherson, Furukawa and Yazaki have largely similar technical capabilities. However, we note that Motherson Sumi makes around 17-18% EBITDA margin while Minda Furukawa is willing to operate at single-digit EBITDA margin and it therefore offers ~5% lower pricing to OEMs as compared to Motherson. As OEMs are looking to reduce costs, we believe that this could lead to some shift in market share to Minda Furukawa and also Yazaki from Motherson Sumi over the next few years. In fact, Minda has already received 100% share of the business from Maruti for its new launches such as Celerio, Ciaz and S- Cross. Minda will also have higher share for some of the Maruti’s existing models, as per the management. With this, we expect Minda’s market share with Maruti to increase to 30% by FY2020E from 12% in FY2015. Further, Minda is likely to gain market share with Renault- Nissan (won orders for Renault Kwid) and Honda Cars. Overall, we expect Minda’s market share in passenger vehicle wiring harness to increase to ~16% by FY2020E from ~7% in FY2015. We note that Minda has set up two new wiring harness plants, one each in Noida and Chennai in FY2015 to cater to increased volume share from the OEMs. Exhibit 13: Minda Furukawa’s market share in wiring harness to increase to 16% by FY2020 Passenger vehicle wiring harness: Industry size and Minda’s revenues, March fiscal year-ends, 2015-20E (` mn) 2015 2016E 2017E 2018E 2019E 2020E Passenger vehicle production (mn units) 3.2 3.4 3.9 4.4 5.0 5.6 Content per vehicle (Rs/unit) 12,000 12,240 12,485 12,734 12,989 13,249 Total industry revenues (Rs mn) 38,627 42,120 48,997 56,272 64,635 74,249 Minda's revenues (Rs mn) 2,700 4,325 5,844 7,695 10,207 12,151 Minda's market share (%) 7.0 10.3 11.9 13.7 15.8 16.4 Minda's market share with Maruti 12.5 18.3 21.8 25.0 29.6 29.4 Source: Company, Kotak Institutional Equities estimates Security Systems: Increase in share with Honda Motorcycles to drive revenue growth Minda Corporation supplies two-wheeler locksets through standalone entity to OEMs. Minda has ~26% market share in two-wheeler locksets and is the preferred supplier for Bajaj Auto, Yamaha Motors and Mahindra two-wheelers (80% plus market share). It also has small market share with Honda Motorcycles but does not supply to Hero MotoCorp currently. Jay Ushin (Joint venture between JP Minda Group and Ushin of Japan) is the primary supplier to Honda Motorcycles while Sandhar Technologies is the main supplier to Hero MotoCorp. We note that post the break-up of joint venture between Honda and Hero MotoCorp, both the OEMs are looking to rejig their supplier base in order to diversify away from existing suppliers. This augurs well for Minda as it has gained 16% market share with Honda Motorcycles in the past two years. Minda’s market share with Honda will further increase to ~30% by FY2018E as Minda has received (1) 50% share of supplies for Honda Activa from HMSI’s upcoming Gujarat plant and (2) 100% share for Honda’s upcoming bike model. Further, Minda might also gain some market share from Sandhar Technologies and can start supplying to Hero MotoCorp in FY2017E. Overall, we expect Minda’s market share to increase to ~36% by FY2020E from ~26% currently. In the passenger vehicle segment, Minda VAST Access supplies locksets to OEMs and has 24% market share currently. It supplies for more than 90% of the requirements of Ford India and M&M and has 50-60% business share with Nissan India and Tata Motors. It also supplies for small requirement of Maruti as well, which will likely increase as Minda is the sole supplier for S-Cross. Overall, we expect Minda’s market share in passenger vehicle locksets to increase marginally to 26% by FY2020E. 14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 14: We estimate Minda’s market share in locksets to increase to 32% by FY2020 Two-wheeler and four-wheeler locksets: Industry size and Minda’s revenues, March fiscal year-ends, 2015-20E (` mn) 2015 2016E 2017E 2018E 2019E 2020E Industry volumes (mn units) Two-wheeler production 18.5 18.7 20.3 22.0 23.8 25.8 Passenger vehicle production 3.2 3.4 3.9 4.4 5.0 5.6 Average ASP (Rs/unit) Two-wheeler locksets 500 510 520 531 541 552 Passenger vehicle locksets 1,500 1,530 1,561 1,592 1,624 1,656 Industry revenue size (Rs mn) Two-wheeler 9,228 9,513 10,535 11,668 12,890 14,240 Passenger vehicle 4,828 5,265 6,125 7,034 8,079 9,281 Total industry revenue size (Rs mn) 14,056 14,778 16,659 18,702 20,969 23,521 Minda's revenues (Rs mn) Two-wheeler 2,399 2,661 3,351 3,965 4,633 5,152 Passenger vehicle 1,150 1,220 1,513 1,775 2,096 2,392 Total lockset revenues of Minda (Rs mn) 3,549 3,881 4,864 5,741 6,729 7,544 Minda's market share (%) Two-wheeler 26.0 28.0 31.8 34.0 35.9 36.2 Passenger vehicle 23.8 23.2 24.7 25.2 25.9 25.8 Market share for PVs and 2W (%) 25.2 26.3 29.2 30.7 32.1 32.1 Source: Company, Kotak Institutional Equities estimates New products that could drive strong revenue growth over the medium term Due to technology tie-ups with global suppliers, Minda Corporation has an edge in terms of access to new technology and innovative products. In our view, there are two new products/segments which could have strong revenue potential for the company in the next five years. 1. Steering roll connectors (SRC): Mandatory airbags in cars could lead to US$70 mn industry opportunity The steering Roll Connector (SRC) is a rotatable connector; which electrically connects the steering wheel and the column with the vehicle body. It transmits signals and supplies power from the vehicle body to the various switches within the steering wheel and the column. In the case of a vehicle accident, the SRC transmits a trigger signal to the air-bag inflator (gas generator) within the steering and the column to activate an air-bag and also transmits signals to the various switches, such as horn switches. Exhibit 15: Steering roll connector Exhibit 16: Steering roll connector fitted in a steering wheel Source: Kotak Institutional Equities Source: Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Automobiles Minda Corp. Crash norms are becoming mandatory from October 2017 for new models and by October 2018 for older models. Post this, airbags will become a standard feature in all passenger vehicles which could lead to an industry opportunity of US$70 mn for SRCs by FY2020E. Furukawa is the global leader for this product and Minda has an early mover advantage as it is already supplying small quantity to Maruti and Nissan India. Therefore, we believe that Minda could potentially capture significant market share in this segment. At 50-60% market share, SRC could be a ₹2.2-2.6 bn opportunity for Minda by FY2020E. Exhibit 17: Steering roll connectors could be a US$70 mn opportunity by FY2020E Estimation of market size for steering roll connectors in India, March fiscal year-ends, 2015-20E 2015 2016E 2017E 2018E 2019E 2020E Domestic passenger vehicle sales (mn units) 2.6 2.8 3.1 3.5 3.9 4.4 Vehicles with airbags (%) 12.0 15.0 20.0 30.0 70.0 100.0 Number of vehicle with airbags (mn units) 0.3 0.4 0.6 1.1 2.8 4.4 Average realizations per SRC (Rs) 900 918 936 955 974 994 Total industry size (Rs mn) 281 380 589 1,009 2,689 4,388 Total industry size (USD mn) 4 6 9 16 41 68 Source: Company, Kotak Institutional Equities estimates Sensors could also be another big opportunity Sensors could be another opportunity for Minda Corporation. Post changes to JV agreement in 2011, Minda Stoneridge can now manufacture and supply various speed, low- and mid- temperature, position and level sensors. Gradually over the next few years, the JV will also be able to manufacture more sophisticated high-temperature and other sensor products for four-wheeler OEMs. With increased usage of electronics and government's focus on safety and emission norms; sensors could potentially be a US$430 mn industry in India by FY2020E from around US$190 mn currently. The growth in industry size will largely be driven by higher content per vehicle in passenger vehicle segment due to changes in emission and safety norms. At 5-10% market share, automotive sensors could be a ₹1.4-2.8 bn revenue opportunity for Minda in FY2020E as compared to company’s current revenue from sensors of ₹0.2 bn. We note that currently global Tier 1 suppliers such as Bosch, Continental, Delphi and Denso (including imports) and domestic suppliers such as Pricol are the key players in the automotive sensors market in India. Exhibit 18: Industry size of automotive sensors could be more than US$400 mn by 2020E Estimation of market size for automotive sensors, March fiscal year-ends, 2015-20E 2015 2016E 2017E 2018E 2019E 2020E Industry volumes (mn units) Two-wheeler production 18.5 18.7 20.3 22.0 23.8 25.8 Passenger vehicle production 3.2 3.4 3.9 4.4 5.0 5.6 Medium & Heavy commercial vehicle production 0.2 0.3 0.3 0.3 0.4 0.4 Average content per vehicle (Rs) Two-wheeler 350 350 350 350 450 450 Passenger vehicle 1,800 1,890 1,985 2,183 2,510 2,887 Medium & Heavy commercial vehicle 600 600 700 800 800 800 Industry revenue size (Rs mn) Two-wheeler 6,460 6,529 7,088 7,697 10,717 11,608 Passenger vehicle 5,794 6,504 7,788 9,646 12,492 16,179 Medium & Heavy commercial vehicle 140 168 215 270 297 327 Total industry revenue size (Rs mn) 12,393 13,200 15,091 17,613 23,507 28,114 Total industry revenue size (USD mn) 191 203 232 271 362 433 Source: Company, Kotak Institutional Equities estimates 16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles KEY RISKS: INEFFICIENT CAPITAL ALLOCATION AND WEAK EXECUTION We believe the key downside risks to our earnings estimate could emanate from (1) weaker-than-expected growth in domestic automobile industry, (2) increase in raw material prices, (3) inefficient capital allocation or aggressive acquisitions and (4) break-up with the JV partners. Further, we would like to closely assess details of any related party transactions. Industry-specific downside risks Weaker-than-expected growth in the domestic automobile sector could lead to downside risks to our revenue growth estimates for the company. We note that Minda has particularly higher exposure to domestic two-wheeler sector; continued weakness in rural markets could impact two-wheeler industry growth. Slowdown in automotive growth in Europe and Indonesia could impact the performance of Minda KTSN and PT Minda Automotive Indonesia. These two entities together accounted for ~28% of consolidated revenues in FY2015. Company-specific downside risks Increase in RM prices could impact profitability in the near term. Normally, major fluctuations in commodity prices are passed on to OEMs with a lag of 1-2 quarters. Therefore, increase in raw material prices could impact profitability in the near term. Further, in situations when profitability of OEMs are under pressure, then due to lower pricing power it might be difficult for Minda to fully pass on the impact of higher commodity prices. Inefficient capital allocation or aggressive acquisitions could impact return ratios. We expect Minda to generate reasonable cash flows and thereby reduce debt over the next three years. Return rations will also likely improve by FY2018E. However, if the company invests more money in its low RoCE overseas subsidiaries or does any acquisition at aggressive valuations, then there could be downside risks to our estimates. As per our assessment, Minda does not have a very successful track record in acquisitions. Minda acquired KTSN in 2007 for EUR43 mn and revenues of EUR50 mn; even in FY2015, KTSN’s revenues were around EUR50 mn and it reported PBT losses in FY2012-13 and only marginal profits in FY2014-15. Schenk Plastic Solutions and Aksys acquired in 2008 and 2010 respectively were incurring losses and were finally sold off in FY2014. Break-up with JV partners could impact company’s growth prospects. Historically, Minda has had strong relationships with its JV partners Furukawa Electric and Stoneridge. However, going ahead, if due to any reason, there is a break-up in the JV agreement, then there could significant downside risks to our earnings estimates for the company. Related-party transactions need to be closely examined. We would like to closely examine valuation and other details of all related-party transactions going ahead. Over the last five years, Minda has entered into several transactions with promoter to acquire stakes in group companies. Valuation details for all the transactions are not available but valuation of recent transactions such as Minda Stoneridge and Minda Furukawa appear reasonable to us. Further, we note that apart from acquisitions, Minda has provided some loans to promoter’s entities as well as provided corporate guarantees to subsidiaries and joint ventures. KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Automobiles Minda Corp. Exhibit 19: Valuation of acquisitions of promoter entities appear reasonable to us Valuation of transactions between Minda Corporation and Minda Group (Promoter), 2011-15 Minda PT Minda Minda Minda Vietnam Minda Minda Stoneridge Automotive Furukawa Automotive Automotive Schenk Plastic Instruments Indonesia Electric Company Solutions Solutions GmbH Stake acquired (%) 51.0 100.0 49.0 100.0 50.0 94.0 Acquisition date Oct. 1, 2015 Feb. 15, 2014 Feb. 1, 2014 Feb. 15, 2014 Apr. 3, 2012 Oct. 11, 2011 Cost of investment (Rs mn) 649 373 423 78 47 340 Implied valuation of the entity (Rs mn) 1,273 373 864 78 94 362 One-yr forward financials of the acquired entity (Rs mn) Net worth 809 359 493 169 24 682 Revenues 3,136 1,064 3,038 255 1,642 7,846 Net profit 117 46 53 24 (2) 14 Valuation of the acquired entity (one-year forward) P/B (X) 1.6 1.0 1.8 0.5 4.0 0.5 Price/Sales (X) 0.4 0.4 0.3 0.3 0.1 0.0 P/E (X) 10.9 8.1 16.4 3.2 NA 26.1 Source: Company, Kotak Institutional Equities Exhibit 20: Minda Corporation has given loans of ₹ 757 mn to related parties Loans and corporate guarantees given to related parties, March fiscal year-ends, 2012-15 (` mn) 2012 2013 2014 2015 Loans to related parties Minda Capital Limited — 43 444 422 Minda Europe Gmbh 285 237 Minda KTSN Plastic Solution GmbH — — — 67 Minda Management Services — 47 — 20 Minda Sai 268 454 — — Others 43 4 24 11 Total loans given to related parties 311 548 753 757 Corporate guarantees given by the company Minda KTSN Plastic Solutions GmbH & Co. KG, Germany 570 690 1,275 1,030 Minda SAI Limited — — 600 600 Mayank Auto Engineers Pvt. Ltd — 696 — — Minda Furukawa Electric Private Limited — — — 591 Minda Management Services Limited — — — 30 Riddi Techauto Private Limited — — — 12 Total corporate guarantees given by the company 570 1,387 1,875 2,263 Source: Company, Kotak Institutional Equities 18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles FINANCIALS: GROWTH LED BY MARKET SHARE GAINS We expect Minda Corporations’ consolidated net profit to grow at 28% CAGR over FY2016-19E led by 22% growth in revenues and largely steady EBITDA margins over the same period. We expect revenue growth to be driven by market share gains particularly with Maruti and Honda Motorcycles and launch of new products. Due to limited capex requirements, we expect FCF generation of ₹1.8 bn over FY2015-18E. With this, net debt to equity ratio will likely decline to 0.5X in FY2018E from 1X in FY2015. Market share gains in four-wheeler wiring harness and two-wheeler locksets to drive revenue growth We expect the company’s revenues to grow at 22% CAGR over FY2016-19E led by (1) 39% revenue CAGR at Minda Furukawa due to market share gains particularly with Maruti Suzuki and Renault-Nissan, (2) market share in gains in two-wheeler locksets due to increased share from Honda Motorcycles and (3) acquisition of 51% stake in Minda Stoneridge from the promoter in October 2015, which offers strong growth opportunities in automotive sensors market. In the four-wheeler wiring harness segment, we expect market share of Minda Furukawa (MFE) to increase from around 7% in FY2015 to 14% by FY2018E. This will lead to 39% revenue CAGR for the company over FY2016-19E. MFE has ~12% market share with Maruti Suzuki currently, which will likely increase to ~25% in FY2018E as the company has received 100% business for Maruti’s newer models and there will be some increase in market share for existing models as well. With such strong revenue growth, we expect the company’s EBITDA margins to improve to 5-9% levels over FY2016-18E as compared to 2.4% in FY2015. We expect standalone revenues to grow at 17% CAGR over FY2016-19E. In two-wheeler locksets, Minda has received order to supply 50% of Honda Motorcycles’ requirements for its upcoming Gujarat plant. With this, we expect Minda’s share of business for Honda Motorcycles to increase to 30% by FY2018E from 16% in FY2015. In the die casting business, revenues will likely grow by 28% CAGR over FY2016-19E as the company has received new orders to supply (1) brackets & holders from TVS and Bajaj Auto and (2) compressor housings for turbochargers from Ford and Tata Motors. Minda Sai will likely deliver 16% revenue CAGR over FY2016-19E; higher than our expectations of domestic automotive volume growth due to market share gains. The company is the market leader in the two-wheeler wiring harness segment with 33% market share, which will likely increase to 36% by FY2018E due to some increase in share from Hero MotoCorp. The company is targeting new business from other OEMs and is looking to increase market share to ~50%, which we have not built in our estimates. Minda Sai has ~40% market share in tractors and ~20% in MHCVs, which could marginally increase over the next 2-3 years due to consolidation of business from existing customers. For Minda Stoneridge, due to increased usage of electronics in vehicles, sensors could be a strong growth area where revenues could increase significantly over the next 3-5 years as compared to ₹0.2 bn currently. In instrument clusters, Minda Stoneridge is the market leader in commercial vehicles and tractors segments (40-70% market share) while it has around 13% market share in two-wheelers and limited presence in passenger vehicles. Going ahead, the company is targeting to significantly increase its market share in two- wheelers – in our view; this is possible as Minda has strong relationship with all two- wheeler OEMs (except Hero). However, we are not building in any significant market share gains in our estimates. KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Automobiles Minda Corp. We expect performance of the company’s overseas subsidiaries in both Europe and Indonesia to remain muted over the next three years due to lack of any new orders. In Indonesia, the company primarily supplies locksets to two-wheeler OEMs such as Yamaha, Suzuki and Kawasaki. We note that two-wheeler volumes in Indonesia are under pressure with industry volumes down almost 20% yoy in the first nine months of CY2015. Exhibit 21: Wiring harness segment will be the key revenue growth driver over the next three years Revenue break-up across segment, March fiscal year-ends, 2013-19E (` mn) Revenue CAGR (%) 2013 2014 2015 2016E 2017E 2018E 2019E 2013-15 2016-19E Revenues (Rs mn) Standalone business 5,842 6,039 6,368 6,733 7,975 9,187 10,753 4.4 16.9 2-wheeler lock kits for OEM 2,399 2,661 3,351 3,965 4,633 20.3 Locksets for after-market 1,141 1,090 1,282 1,346 1,454 1,570 1,696 8.0 Die casting (Products sold outside group) 1,008 1,046 1,322 1,619 2,189 27.9 Exports 662 823 872 872 959 1,055 1,161 Others 807 807 888 977 1,075 Minda SAI 3,624 4,413 5,088 5,308 6,054 7,046 8,191 18.5 15.6 Minda Furukawa 1,848 4,618 6,210 8,152 12,259 38.5 Minda KTSN 4,048 4,548 4,515 3,838 4,030 4,231 4,231 5.6 3.3 PT Minda Automotive Indonesia 1,064 798 838 880 924 5.0 Minda Vietnam Automotive 255 255 267 281 295 5.0 Minda Automotive Soluction (Replacement) 1,642 1,597 1,938 2,054 2,275 2,534 2,760 8.6 10.4 Minda Schenk 8,368 — Minda Stoneridge 1,568 3,730 4,580 5,509 52.0 Minda VAST 2,200 3,075 3,493 3,986 21.9 Revenues 23,525 16,794 21,076 27,370 34,453 40,384 48,908 (5.3) 21.3 Less: Eliminations 2,176 1,152 1,744 1,785 1,893 2,031 2,180 Other operating income 387 297 375 205 260 307 374 Consolidated net revenues 21,736 15,939 19,706 25,790 32,821 38,660 47,102 (4.8) 22.2 Domestic 8,657 10,568 13,000 20,027 26,726 32,213 40,492 22.5 26.4 Exports 662 823 872 872 959 1,055 1,161 14.8 10.0 Overseas entities (largely Europe) 12,417 4,548 5,834 4,891 5,135 5,392 5,450 (31.5) 3.7 Revenues by business segment (Rs mn) Safety security & restraint systems 5,764 6,681 7,913 10,254 12,537 14,343 16,538 17.2 17.3 Driver information & telematics systems 4,056 4,644 7,116 11,493 15,994 19,778 25,959 32.5 31.2 Interior systems 11,529 4,317 4,303 3,838 4,030 4,231 4,231 (38.9) 3.3 Contribution to revenues (%) Safety security & restraint systems 27 43 41 40 39 37 35 Driver information & telematics systems 19 30 37 45 49 52 56 Interior systems 54 28 22 15 12 11 9 Notes: (a) 2013-15 revenue CAGR is impacted by sell-off of Minda Schenk. Source: Company, Kotak Institutional Equities estimates We expect 28% EPS CAGR; expect EBITDA margins to remain largely steady Minda Corporation has delivered EBITDA margins in the 8-10% range over the past five years except in FY2013 due to lower profitability in Minda Schenk, which was sold off in 1HFY14. We believe that product segments such as locksets and wiring harness do not command strong pricing power with the OEMs. In fact, suppliers normally offer lower prices to get new business and gain market share. Having said that, raw material prices are largely passed through to OEMs; therefore, there are not much margin risk associated from increase in commodity prices either at least over the medium term. For Minda, we expect operating leverage benefits to be largely passed to OEMs to gain market share. Overall, we expect EBITDA margins to remain within 9-10% range over the next three years. 20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 22: We expect 28% PAT CAGR over FY2016-19E Exhibit 23: EBITDA margins to remain largely steady Consolidated net profits, March fiscal year ends, 2009-19E (` mn) Consolidated EBITDA and margins, March fiscal year-ends, 2009-19E (` mn, %) (Rs mn) 2,250 (Rs mn) Consol. EBITDA [LHS] (%) 5,000 14 2,000 EBITDA margin [RHS] 1,750 12 4,000 1,500 10 1,250 3,000 8 1,000 750 2,000 6 500 4 250 1,000 2 0 0 0 2009 2010 2012 2013 2014 2011 2015 2016E 2017E 2018E 2019E 2009 2010 2011 2012 2014 2015 2013 2017E 2018E 2019E 2016E Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates FCF generation and limited capex requirements to strengthen balance sheet We expect Minda Corporation’s net debt-to-equity ratio to decline to 0.5X by FY2018E from 1X in FY2015 led by strong cash flow generation and limited capex requirements. Most of the company’s subsidiaries are operating at ~70% capacity utilization on two-shift basis; therefore, we don’t foresee significant capex requirement over the next three years. There might be some capacity expansion required for die casting division and Minda Sai as these plants are operating at 90%+ and 80% capacity utilization respectively. We conservatively build in annual capex of around ₹0.8-1.4 bn over FY2016-18E (excluding amount paid for acquisition of Stoneridge); maintenance capex is around ₹0.4-0.5 bn. Exhibit 24: We expect net debt to equity to decline over the next three years Consol net debt and net debt to equity, March fiscal year-ends, 2011-18E (₹ mn, X) (Rs mn) Net debt [LHS] Net debt-to-equity ratio [RHS] (X) 6,000 1.6 1.4 5,000 1.2 4,000 1.0 3,000 0.8 4,983 5,166 4,956 4,378 4,744 4,577 0.6 2,000 3,787 0.4 1,000 1,391 0.2 0 - 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Automobiles Minda Corp. Exhibit 25: We expect FCF generation of ₹1.8 bn over FY2016-18E Capex and cash flow generation, March fiscal year-ends, 2011-18E (₹ mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E Operating cashflow (131) (2,627) (1,235) (653) (175) (1,626) (1,632) (1,535) Capex/Acquisitions (187) (1,565) (1,150) (321) (455) (1,449) (1,200) (1,400) FCF 424 (1,797) (472) 213 884 (88) 760 1,113 Source: Company, Kotak Institutional Equities estimates In FY2013, Minda Corporation invested ₹293 mn in subsidiaries to fund losses in its German subsidiary, Minda KTSN. We note over the past two years due to strong focus on cost reduction and disposal of a plant in Czech Republic, KTSN has reported marginal profits in FY2014-15. Therefore, we don’t expect more investment in KTSN from the parent entity. In FY2014, company invested ₹921 mn towards (1) acquisition of stake in Minda Furukawa and (2) investment in Minda Sai to acquire 100% stake in PT Minda Automotive Indonesia and Minda Vietnam. Going ahead, as per our discussions with the management, company does not foresee any meaningful investment in subsidiaries. Exhibit 26: We don’t expect significant investment requirement in subsidiaries/JVs Investment in subsidiaries & joint ventures, March fiscal year-ends, 2009-18E (₹ mn) 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Subsidiaries Minda Automotive Solutions Limited — — 37 37 47 47 47 47 47 47 Minda Europe B.V. Netherlands 17 17 17 17 17 17 17 17 17 17 Minda Furukawa Electric Private Limited — — — — — 423 449 449 449 449 Minda KTSN Plastic Solutions GmbH & Co. KG, Germany 404 404 442 532 815 815 881 881 881 881 Minda Management Services Limited — — — 1 1 56 56 56 56 56 Minda SAI — — 103 155 155 405 405 405 405 405 Spark Minda Foundation — — — — — — — — — — Joint ventures Minda VAST Access Systems Private Limited — — — — — 193 237 237 237 237 KTSN Kunststofftechnik Sachen GmbH & Co 442 — — — — — — — — — Total investments 863 421 599 743 1,035 1,956 2,092 2,092 2,092 2,092 Addition (442) 178 144 293 921 136 — — — Source: Company, Kotak Institutional Equities estimates Working capital to remain steady Minda Corporation has a reasonably well-managed working capital with receivables at two months of sales and one-and-a-half months of inventory. However, we note that creditor days are surprisingly higher at 57 days of sales. In FY2015, this was partly due to complete consolidation of Minda Furukawa’s balance sheet while P&L was consolidated only for six months as it became subsidiary on October 1, 2014. We are building in some decline in creditor days over the next two years (due to increased local sourcing by Minda Furukawa as compared to imports currently where creditor days are high) but the overall working capital will largely remain steady at slightly more than two months of sales. 22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 27: Working capital requirement to remain steady at 55-60 days Working capital and working capital days, March fiscal year-ends, 2011-18E (₹ mn, days) 2011 2012 2013 2014 2015 2016E 2017E 2018E Working capital (Rs mn) Debtors 1,631 2,573 3,055 2,915 3,176 4,157 4,946 5,825 Inventory 967 2,373 2,527 1,867 2,308 3,106 3,985 4,731 Loans & Advances 559 610 935 1,882 1,752 2,038 2,358 2,642 Other current assets 455 23 66 101 187 187 187 187 Creditors 1,692 2,368 2,446 2,488 3,076 4,141 5,098 6,053 Customer advances 52 37 180 284 236 308 392 462 Other current liabilities & provisions 384 805 970 680 710 825 954 1,072 Net working capital (ex-cash) 1,485 2,369 2,987 3,313 3,401 4,214 5,030 5,798 Working capital (days) Debtors 81 68 51 67 59 59 55 55 Inventory 48 63 42 43 43 44 44 45 Loans & Advances 28 16 16 43 32 29 26 25 Other current assets 23 1 1 2 3 3 2 2 Creditors 84 62 41 57 57 59 57 57 Customer advances 3 1 3 7 4 4 4 4 Other current liabilities & provisions 19 21 16 16 13 12 11 10 Net working capital (ex-cash) 74 62 50 76 63 60 56 55 Source: Company, Kotak Institutional Equities estimates Return ratios to improve over the next three years We expect company’s RoE to improve to 22% by FY2018E from ~20% in FY2015. Although leverage will decline, improvement in RoE will be driven by increase in capacity utilization (higher asset turnover) and some improvement in net margins. RoCE will likely improve to 19% in FY2018E from ~12% in FY2015. Exhibit 28: We expect return ratios to improve over the next three years Return ratios, March fiscal year-ends, 2010-18E (%) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Dupont analysis Net margin (%) 3.6 4.7 4.8 0.3 4.5 4.4 3.6 4.0 4.3 Total asset turnover (X) 1.8 1.3 1.5 1.8 1.2 1.4 1.6 1.8 1.9 Equity multiplier (X) 5.0 3.3 3.0 3.5 3.5 3.2 3.1 3.0 2.8 RoE (%) 32.7 20.3 21.2 1.9 19.7 20.5 18.3 21.5 22.4 Other ratios RoCE (%) 15.0 13.7 15.4 2.0 10.4 12.3 13.7 16.7 18.8 Fixed asset turnover (X) 1.9 1.7 1.6 2.4 1.6 1.9 2.2 2.5 2.7 Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Automobiles Minda Corp. Exhibit 29: We expect consolidated net profit to grow at 25% CAGR over FY2016-20E Minda Corporation consolidated profit model, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Net sales 7,322 13,855 21,736 15,939 19,706 25,790 32,821 38,660 47,102 53,314 Cost of raw materials (4,592) (8,491) (13,068) (9,733) (11,975) (16,118) (20,677) (24,549) (30,146) (34,121) Employee expenses (959) (2,239) (4,636) (2,657) (3,365) (4,207) (5,216) (5,999) (7,318) (8,270) Other expenses (1,013) (1,775) (2,945) (2,291) (2,510) (3,072) (3,791) (4,357) (5,071) (5,779) EBITDA 758 1,349 1,087 1,257 1,855 2,393 3,137 3,755 4,567 5,145 Other income 40 204 362 304 227 179 189 206 220 235 Depreciation (172) (455) (771) (478) (603) (756) (849) (941) (1,072) (1,213) Finance cost (174) (268) (424) (275) (395) (427) (441) (377) (361) (281) Profit before tax and exceptional 452 830 254 808 1,085 1,390 2,035 2,642 3,353 3,884 Extraordinary items — (176) (30) 147 24 — — — — — Income tax (105) (138) (175) (172) (272) (347) (509) (661) (939) (1,088) Share of JVs — 6 — 10 44 — — — — — Minority interest — (2) 10 — 14 (114) (228) (331) (478) (549) Profit after tax 347 519 60 793 895 929 1,298 1,651 1,937 2,248 Adjusted net profit 347 658 67 725 876 929 1,298 1,651 1,937 2,248 EPS (Rs) 1.8 3.1 0.3 3.5 4.2 4.4 6.2 7.9 9.3 10.7 Ratios (%) EBITDA margin 10.4 9.7 5.0 7.9 9.4 9.3 9.6 9.7 9.7 9.6 Gross margin 37.3 38.7 39.9 38.9 39.2 37.5 37.0 36.5 36.0 36.0 Source: Company, Kotak Institutional Equities estimates Exhibit 30: We expect consolidated return ratios to improve over the next three years Minda Corporation consolidated balance sheet, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Share capital 236 396 396 395 607 607 607 607 607 607 Reserves & surplus 2,457 3,134 3,066 3,499 4,059 4,863 6,012 7,486 9,211 11,222 Total shareholders equity 2,693 3,530 3,462 3,894 4,666 5,470 6,619 8,093 9,817 11,828 Minority interest — 33 51 — 241 355 583 914 1,391 1,941 Deferred tax liabilities 85 98 103 86 57 57 57 57 57 57 Short-term borrowings 686 3,184 3,427 3,426 3,212 4,212 3,712 2,912 2,712 1,712 Long-term borrowings 1,359 1,575 1,891 2,097 1,807 1,807 1,807 1,807 1,807 1,807 Total borrowings 2,046 4,759 5,319 5,523 5,018 6,018 5,518 4,718 4,518 3,518 Provisions 175 266 261 153 245 320 407 480 585 662 Trade payables 1,692 2,368 2,446 2,488 3,076 4,141 5,098 6,053 7,433 8,413 Other current liabilities 260 577 890 811 701 813 939 1,054 1,205 1,331 Other long-term liabilities — 291 198 167 212 212 212 212 212 212 Other liabilities 2,127 3,502 3,794 3,619 4,234 5,485 6,657 7,799 9,434 10,618 Total liabilities 6,951 11,922 12,729 13,122 14,216 17,386 19,434 21,581 25,218 27,962 Current Investments — 145 — — — — — — — — Inventories 967 2,373 2,527 1,867 2,308 3,106 3,985 4,731 5,809 6,575 Trade receivables 1,631 2,573 3,055 2,915 3,176 4,157 4,946 5,825 6,452 7,303 Cash and bank balances 655 972 575 540 441 853 562 341 953 986 Short-term loans and advances 559 610 935 1,882 1,752 2,038 2,358 2,642 3,034 3,342 Other current assets 455 23 66 101 187 187 187 187 187 187 Total current assets 4,267 6,696 7,158 7,305 7,864 10,340 12,037 13,726 16,435 18,393 Net fixed assets 2,545 4,867 4,665 5,268 5,708 6,402 6,753 7,212 8,139 8,926 Capital work in progress 101 111 677 150 153 153 153 153 153 153 Non-current investments 38 44 — 245 289 289 289 289 289 289 Other non-current assets — 203 229 154 202 202 202 202 202 202 Non current assets 2,684 5,226 5,571 5,817 6,352 7,046 7,397 7,856 8,783 9,570 Total assets 6,951 11,922 12,729 13,122 14,216 17,386 19,434 21,581 25,218 27,962 Ratios Debt/equity (X) 0.8 1.3 1.5 1.4 1.1 1.1 0.8 0.6 0.5 0.3 Net debt/equity (X) 0.5 1.0 1.4 1.3 1.0 0.9 0.7 0.5 0.4 0.2 RoAE (%) 20.3 21.2 1.9 19.7 20.5 18.3 21.5 22.4 21.6 20.8 RoACE (%) 13.7 15.4 2.0 10.4 12.3 13.7 16.7 18.8 20.7 21.6 Source: Company, Kotak Institutional Equities estimates 24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 31: We expect consolidated entity to generate FCF of ₹1.8 bn over FY2016-18E Minda Corporation consolidated cash flow statement, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Profit before tax 452 654 224 956 1,109 1,390 2,035 2,642 3,353 3,884 Depreciation 172 455 771 478 603 756 849 941 1,072 1,213 (Gain) on sale of assets — (4) — — — — — — — — Provisions 5 (10) — — — — — — — — Share of profit from associate — — — 10 44 — — — — — Interest Income (3) (61) (62) (71) (64) (50) (40) (20) (25) (30) Dividend received — — — — — — — — — — Interest expense 132 268 424 275 395 427 441 377 361 281 Others — 5 112 (615) (387) — — — — — Operating cash flow before changes in WC 758 1,308 1,470 1,033 1,699 2,522 3,285 3,941 4,762 5,349 Changes in WC (66) (1,314) (617) (326) (88) (813) (816) (768) (462) (741) Income taxes paid (82) (226) (175) (172) (272) (347) (509) (661) (939) (1,088) Cash flow from operations 610 (232) 677 534 1,339 1,362 1,960 2,513 3,361 3,521 (Purchase) of PPE (187) (1,565) (1,150) (321) (455) (1,449) (1,200) (1,400) (2,000) (2,000) Investments (118) 249 — — — — — — — — Interest income 3 51 62 71 64 50 40 20 25 30 Others (42) (34) (76) (200) (47) — — — — — Cash flow from investing (343) (1,299) (1,164) (450) (438) (1,399) (1,160) (1,380) (1,975) (1,970) Interest expense (132) (254) (424) (275) (395) (427) (441) (377) (361) (281) Change in debt (619) 1,634 560 205 (505) 1,000 (500) (800) (200) (1,000) Change in equity — — — — — — — — — — Dividend and dividend tax paid (25) (34) (46) (49) (101) (124) (149) (177) (213) (237) Others — — — — — — — — — — Cash flow from financing activities 163 1,847 90 (119) (1,000) 449 (1,091) (1,354) (774) (1,518) Net change in cash 430 317 (397) (35) (99) 412 (291) (222) 612 33 Cash at start of year 225 655 972 575 540 441 853 562 341 953 Cash at year end 655 972 575 540 441 853 562 341 953 986 Free cash flow 424 (1,797) (472) 213 884 (88) 760 1,113 1,361 1,521 Source: Company, Kotak Institutional Equities estimates Exhibit 32: We expect standalone net profit to grow at 20% CAGR over FY2015-18E Minda Corporation standalone profit model, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Net sales 4,842 5,597 5,982 6,168 6,491 6,867 8,134 9,370 10,968 12,065 Cost of raw materials (3,047) (3,520) (3,860) (3,847) (4,037) (4,223) (5,043) (5,828) (6,822) (7,504) Employee expenses (489) (647) (700) (737) (813) (895) (1,038) (1,193) (1,408) (1,549) Other expenses (651) (822) (866) (990) (954) (963) (1,120) (1,271) (1,480) (1,628) EBITDA 654 609 556 594 686 787 933 1,078 1,258 1,384 Other income 40 81 123 69 47 39 44 53 59 69 Depreciation (119) (143) (168) (217) (174) (181) (212) (241) (272) (308) Finance cost (130) (130) (138) (112) (78) (56) (56) (51) (37) (23) Profit before tax and exceptional 445 416 373 334 482 589 709 839 1,008 1,123 Extraordinary items — — (23) (22) — — — — — — Income tax (103) (15) (83) (94) (140) (177) (213) (252) (303) (337) Profit after tax 342 402 267 218 341 412 496 587 706 786 Adjusted net profit 342 402 285 286 340 412 496 587 706 786 EPS (Rs) 1.8 1.9 1.4 1.4 1.6 2.0 2.4 2.8 3.4 3.8 Ratios (%) EBITDA margin 13.5 10.9 9.3 9.6 10.6 11.5 11.5 11.5 11.5 11.5 Gross margin 37.1 37.1 35.5 37.6 37.8 38.5 38.0 37.8 37.8 37.8 Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Automobiles Minda Corp. Exhibit 33: We expect standalone net debt to decline Minda Corporation standalone balance sheet, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Share capital 236 396 396 396 608 608 608 608 608 608 Reserves & surplus 1,606 2,280 2,501 2,673 2,707 2,995 3,342 3,752 4,245 4,794 Total shareholders equity 1,842 2,676 2,897 3,068 3,315 3,603 3,950 4,360 4,853 5,402 Deferred tax liabilities 46 51 62 52 35 35 35 35 35 35 Short-term borrowings 183 978 829 781 518 518 468 318 168 18 Long-term borrowings 304 105 179 137 70 70 70 70 70 70 Total borrowings 487 1,083 1,008 918 589 589 539 389 239 89 Provisions 90 88 84 73 102 107 127 147 172 189 Trade payables 957 902 870 783 617 647 726 851 991 1,122 Other current liabilities 50 91 170 333 176 185 202 218 239 255 Other long-term liabilities — 87 47 62 83 83 83 83 83 83 Other liabilities 1,096 1,168 1,170 1,251 978 1,023 1,138 1,300 1,484 1,649 Total liabilities 3,471 4,979 5,136 5,290 4,917 5,249 5,661 6,084 6,611 7,175 Current Investments — 145 — — — — — — — — Inventories 321 498 382 401 348 364 409 479 558 632 Trade receivables 860 1,017 1,180 1,210 1,049 1,107 1,243 1,450 1,685 1,908 Cash and bank balances 459 758 160 239 93 172 254 328 402 564 Short-term loans and advances 197 508 734 156 210 220 231 243 255 268 Other current assets 17 9 14 5 2 2 2 2 2 2 Total current assets 1,855 2,934 2,471 2,012 1,701 1,865 2,139 2,502 2,902 3,373 Net fixed assets 923 1,035 1,113 1,387 1,239 1,408 1,546 1,605 1,733 1,826 Capital work in progress 94 97 362 36 42 42 42 42 42 42 Non-current investments 599 743 1,035 1,763 1,855 1,855 1,855 1,855 1,855 1,855 Other non-current assets — 170 155 91 80 80 80 80 80 80 Non current assets 1,616 2,044 2,666 3,278 3,215 3,385 3,523 3,582 3,710 3,802 Total assets 3,471 4,979 5,136 5,290 4,917 5,249 5,661 6,084 6,611 7,175 Ratios Debt/equity (X) 0.3 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.0 0.0 Net debt/equity (X) 0.0 0.1 0.3 0.2 0.1 0.1 0.1 0.0 (0.0) (0.1) RoAE (%) 28.1 17.8 10.2 9.6 10.7 11.9 13.1 14.1 15.3 15.3 RoACE (%) 26.1 22.3 11.8 8.3 10.5 11.5 13.0 14.4 16.1 16.7 Source: Company, Kotak Institutional Equities estimates 26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 34: We expect company to generate strong operating cash flows over the next three years Minda Corporation standalone cash flow statement, March fiscal year-ends, 2011-20E (` mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Profit before tax 445 416 350 311 489 589 709 839 1,008 1,123 Depreciation 119 143 168 217 174 181 212 241 272 308 (Gain) on sale of assets (34) 1 (4) 25 21 — — — — — Provisions 5 (4) 1 3 2 — — — — — Interest Income (3) (61) (78) (46) (17) (39) (44) (53) (59) (69) Dividend received — (10) (15) — — — — — — — Interest expense 105 118 128 112 78 56 56 51 37 23 Others — 8 1 (10) 5 — — — — — Operating cash flow before changes in WC 637 612 552 613 752 787 933 1,078 1,258 1,384 Changes in WC (156) (545) (259) 625 (142) (40) (76) (128) (141) (145) Income taxes paid (82) (109) (59) (72) (114) (177) (213) (252) (303) (337) Cash flow from operations 398 (42) 235 1,167 496 569 644 698 815 902 (Purchase) of PPE (176) (277) (514) (201) (205) (350) (350) (300) (400) (400) Investments (178) (288) (293) (728) (91) — — — — — Interest income 3 54 83 55 20 39 44 53 59 69 Others 37 25 166 36 144 — — — — — Cash flow from investing (314) (487) (558) (839) (133) (311) (306) (247) (341) (331) Interest expense (105) (124) (130) (113) (80) (56) (56) (51) (37) (23) Change in debt (478) 484 (76) (90) (330) — (50) (150) (150) (150) Change in equity 939 502 — — — — — — — — Dividend and dividend tax paid (25) (34) (70) (49) (99) (124) (149) (177) (213) (237) Others — — — 3 — — — — — — Cash flow from financing activities 331 828 (275) (249) (509) (180) (255) (378) (400) (409) Net change in cash 415 299 (598) 79 (146) 79 83 73 74 162 Cash at start of year 44 459 758 160 239 93 172 254 328 402 Cash at year end 459 758 160 239 93 172 254 328 402 564 Free cash flow 222 (320) (279) 965 291 219 294 398 415 502 Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Automobiles Minda Corp. APPENDIX 1: COMPANY PROFILE Minda Corporation is the flagship company of Spark Minda-Ashok Minda Group and was incorporated in 1985. The company is one of the leading suppliers of security systems & locksets and wiring harness to both two-wheeler and four-wheeler OEMs. The company is also engaged in manufacturing of electronic and mechanical speedometers with market leadership in commercial vehicles and tractor segments. Through its European subsidiaries, Minda also supplies interior plastic components to global OEMs. The company has a well-diversified customer base with particular dominance in two-wheelers. Minda Corporation (MCL), incorporated in 1985, is the flagship company of Spark Minda- Ashok Minda Group with revenues of ~`20 bn in FY2015. The company has around 30 plants spread across India as well as in Europe (three plants) and South East Asia (two plants). Minda is primarily an OEM supplier with replacement accounting for only 11% of its revenues. It has a well-diversified customer base; Bajaj Auto, Yamaha, Mahindra & Mahindra, Maruti and Volkswagen are the top five customers accounting for ~38% of consolidated revenues in FY2015. The company generated 68% of its FY2015 consolidated revenues from the domestic market while overseas entities in Europe, Indonesia and Vietnam and some exports from India contributed the remaining 32% of revenues. The company supplies automotive components to OEMs under three main segments: Safety & security systems. This segment accounted for 41% of company’s consolidated revenues in FY2015. Minda has 26% market share in two-wheeler locksets and around 24% share in four-wheeler locksets. Through Minda VAST JV, Minda also supplies other products such as door handles and latches primarily to Nissan, Ford and M&M in India. Driver information & telematics systems. The company supplies wiring harness to passenger car OEMs through Minda Furukawa JV and has ~7% market share currently. Minda is the sole supplier of wiring harness to TVS and has 33% market share in the overall two-wheeler segment. It also has high market share with Ashok Leyland and M&M in MHCVs and tractor segments respectively. Minda acquired 51% stake in Minda Stoneridge JV in October, 2015 which is the market leader in speedometers for CVs and tractor segment and has around 13% market share in two-wheelers. Interior systems. Minda KTSN Plastic Solutions supplies several plastic components to global OEMs through its three plants in Europe. This segment has hardly reported any revenue growth over the past three years. 28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 35: Business segment and plant locations of key subsidiaries and joint ventures Company Products Plant locations Key customers Saftey & security systems Two-wheeler locksets Noida, Pune, Aurangabad Bajaj, Honda Motorcycles, Minda Corporation Die casting products like Brackets & Holders, and Pantnagar Yamaha, TVS, Honeywell Compressor Housings for Turbochargers, etc Four-wheeler locksets M&M, Ford, Nissan, Tata Minda VAST JV Pune and Manesar (Haryana) Door Handles, Door latches, etc Motors Two-wheeler locksets PT Minda Automotive Indonesia West Java, Indoneiua Yamaha, Suzuki, Kawasaki Speedometers Two-wheeler locksets Yamaha, Suzuki, Kawasaki, Minda Vietnam Automotive Hanoi, Vietnam Speedometers & Wiring harness Piaggio Driver information & telematics systems Wiring harness for passenger vehicles Bawal (Haryana), Chennai, Minda Furukawa JV Maruti, Nissan, Honda Cars Steering Roll Connectors (SRCs), Junction box Noida, New Delhi Greater Noida, Mumbai, Wiring harness for two-wheelers, CVs, tractors and TVS, Honda Motorcycles, Minda Sai Chennai, Pithampur, Pune three-wheelers M&M, Ashok Leyland and Haridwar Instrument clusters for all auto segments Tata Motors, M&M, Ashok Minda Stoneridge Pune and Chennai Sensors Leyland, TAFE, Escorts, Bajaj Interior systems Plastic products like Glove Box, Cup Holder, Ashtray, Audi, Mercedes, VW Group, Germany, Poland, Czech Minda KTSN Plastic Solutions Centre Console, Door & Steering Column, Engine Faurecia, Magna, Delphi, Republic Compartment, Air Ducts, Seat ,Noise Absorber etc. Bosch Source: Company, Kotak Institutional Equities Exhibit 36: Locks and Wiring harness are key business segments Exhibit 37: Domestic market accounts for ~68% of revenues Revenue break-up by business segments, March fiscal year end, 2015 Revenue break-up by geography, March fiscal year ends, 2015 (%) (%) Asia America, exculding Interior 0.9 India, 7.9 systems, 22.3 Safety security & restraint Euope, systems, 23.2 40.9 Driver information & telematics India, 68.0 systems, 36.8 Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities Well-diversified customer base with dominance in two-wheelers Minda Corporation has successfully diversified its customer base from being heavily dependent on Bajaj Auto a few years ago. Currently, Minda caters to several OEMs across all automotive segments; top five OEMs now account for ~38% of consolidated revenues. Minda derives 39% of its revenues from two-wheelers, 32% from passenger vehicles and 18% from commercial vehicle segment. KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 Automobiles Minda Corp. Exhibit 38: Minda Corporation: well-diversified customer base Customer-wise revenue break-up, March fiscal year-end, 2015 (%) Bajaj Auto, 10 Others, 16 Plastal, 2 After market, 10 BMW, 2 Hero MotoCorp, 2 Audi, 2 Yamaha, 8 Tata Motors, 2 Nissan, 3 Daimler, 3 M&M, 7 Ashok Leyland, 4 Escorts, 5 Maruti Suzuki, 7 TVS, 5 HMSI, 6 Volkswagen, 6 Source: Company, Kotak Institutional Equities Exhibit 39: Two-wheeler is the largest segment for the company Revenue break-up by end-user markets, March fiscal year end, 2015 (%) Replacement, 11.0 Commercial veicles 2/3 Wheelers, 39.0 (CVs), 18.0 Passenger vehicles (PVs), 32.0 Source: Company, Kotak Institutional Equities Update on changes in company structure over the past few years Prior to 2011, apart from the standalone business (two-wheeler locksets and die-casting business), only Minda KTSN Plastic Solutions were part of the listed entity, Minda Corporation. All other business entities such as Minda Sai, Furukawa JV, etc. were directly held by the Ashok Minda Group. Over the past five years, Minda Group has made considerable efforts to simply the organization structure. As part of the exercise, Minda Corporation has acquired most of the key companies of the group. Valuation details for all the transactions are not available but valuation of recent transactions such as Minda Furukawa JV appear reasonable to us. Post these transactions, only two key entities with combined FY2015 revenues of only ₹1.5 bn are not part of Minda Corporation. These are (1) Minda Silca Engineering (29.7% stake held by Minda Group) with revenues of around ₹1 bn and (2) Uz’Minda LLC (50% stake held by Minda Group) with revenues of ₹0.5 bn. 30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Key transactions between Minda Corporation and the group In 2011, Minda Corporation. acquired 100% stake in Minda Sai and 94% stake in its German subsidiary, Minda Schenk. The company also acquired 50% stake in Minda Automotive Solutions, after-market distributer of the group’s products. In 2012, company acquired the remaining 50% stake in Minda Automotive Solutions. In 2013, Minda sold its entire stake in Minda Schenk as this entity was incurring heavy losses. In 2014, Minda acquired (1) 51% stake in Minda Furukawa JV and (2) 100% stake in PT Minda Automotive Indonesia and Minda Vietnam. In 2015, the company has acquired the group’s 51% stake in Minda Stoneridge JV. Exhibit 40: Minda Corporation: Brief history and key events Year Event 1958 Formation of Minda group 1985 Minda Corp. commences operation under the name of Minda Switch Auto Pvt. Ltd. 1989 Commercial production started for two-wheeler locks 1994 Entry into four-wheeler locksets segment 2003 Formation of Minda SAI Ltd through merger of Sylea Automotive India Ltd. & Minda Wire links 2004 Establishment of Minda Stoneridge JV 2005 Set-up of PT Minda Automotive Indonesia 2007 Start of Minda Furukawa JV Start of Minda Valeo JV Start of Minda Silca JV Acquired KTSN Plastic Solutions in Germany 2008 Acquired Schenk Plastic Solutions in Germany Acquired Schenk Plastic Solutions in Czech 2009 Setup Minda Vietnam Co. Ltd. Setup Minda Automotive Solutions in Uzbekistan 2010 Acquired Aksys, Plant Koengen in Germany Acquired Tectro in Poland 2011 Kotak Private Equity acquired close to 15% stake over 2011-12 Acquired 100% stake in Minda Sai and Mayank Auto from the Group Acquired 94% stake in Minda Schenk from the Group Acquired 50% stake in Minda Automotive Solutions from Group 2012 Acquired remaining 50% stake in Minda Automotive Solutions from Group 2013 Sold its entire stake in Mayank Auto and Minda Schenk 2014 Acquired 51% stake in Minda Furukawa JV from the Group Acquired 100% stake in PT Minda Automotive Indonesia and Minda Vietnam from the Group 2015 Start of Minda VAST - JV between Minda and Vehicle Access Systems Technology Llc (VAST), USA Minda KTSN Plastic Solutions acquires a new manufacturing plant in Czech Republic. Acquired 51% stake in Minda Stoneridge JV from the Group Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Automobiles Minda Corp. Exhibit 41: Valuation of transactions between Minda Corporation and Minda Group Minda PT Minda Minda Minda Vietnam Minda Minda Stoneridge Automotive Furukawa Automotive Automotive Schenk Plastic Instruments Indonesia Electric Company Solutions Solutions GmbH Stake acquired (%) 51.0 100.0 49.0 100.0 50.0 94.0 Acquisition date Oct. 1, 2015 Feb. 15, 2014 Feb. 1, 2014 Feb. 15, 2014 Apr. 3, 2012 Oct. 11, 2011 Cost of investment (Rs mn) 649 373 423 78 47 340 Implied valuation of the entity (Rs mn) 1,273 373 864 78 94 362 One-yr forward financials of the acquired entity (Rs mn) Net worth 809 359 493 169 24 682 Revenues 3,136 1,064 3,038 255 1,642 7,846 Net profit 117 46 53 24 (2) 14 Valuation of the acquired entity (one-year forward) P/B (X) 1.6 1.0 1.8 0.5 4.0 0.5 Price/Sales (X) 0.4 0.4 0.3 0.3 0.1 0.0 P/E (X) 10.9 8.1 16.4 3.2 NA 26.1 Source: Company, Kotak Institutional Equities Exhibit 42: Minda Group organizational structure Minda Corporation Minda Minda KTSN, Minda Sai Minda Automotive Minda Furukawa Management Germany (100%) (100%) (100%) Electric (51%) Services (100%) Almighty Minda VAST Minda KTSN, Minda Stoneridge International PTE, Security Systems Poland (100%) Instrument Ltd (51%) Singapore (100%) (50%) PT Minda Minda Vietnam Automotive, (100%) Indonesia (100%) Other Group Companies: Uz'Minda LLC (50% by Uzbekistan Overseas Domestic Government) Minda Silca Engineering (29.7% by Minda Capital) Source: Company, Kotak Institutional Equities 32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Exhibit 43: Promoters hold 63% stake in the company Shareholding pattern of Minda Corporation, as of September 30, 2015, (%) Others, 20.5 Institutional investors, 16.4 Promoters, 63.2 Source: BSE, Kotak Institutional Equities Exhibit 44: Minda Corporation: brief profile of board of directors Name Position Remarks Mr. Ashok Minda is the main promoter and he has been the Chairman of the Group since its Ashok Minda Chairman & Group CEO inception. He is a commerce graduate from Delhi University and has been involved in the business for more than 30 years now. Mr. Avinash Gandhi has a graduate degree in Mechanical Engineering from Birla Institute of Technology. During his more than 45 years of work experience; he has worked in a number of Avinash P. Gandhi Independent Director positions with Tata Motors and has served as President of Hyundai Motors India from 1998 to 2002. Currently, he is the Non-Executive Chairman of Fag Bearings India Ltd and sits on the Board of Hyundai Motor India, Havells India, Lumax Industries, etc. Mr. Rakesh Chopra is a Chartered Accountant (England & Wales) and MBA from Cranfield University, U.K. He has more than 37 years of work experience and is currently director of Bharat Rakesh Chopra Independent Director Gears and is also the founder member and Chairman of Indraprastha Cancer Society (Rajiv Gandhi Cancer Hospital & Research Centre) Mr. Sunil Behari Mathur is the Chairman of National Stock Exchange and the Secretary General of Life Insurance Council. He is also former Chairman of LIC of India and Administrator of SUUTI. Sunil Behari Mathur Independent Director Currently, he serves on the Board of ITC, ILFS, Ultratech Cement, DCM Shriram Industries, IDFC Trustee Company, Hindustan Oil Exploration Company Limited, and Havells India. Mr. Ashok Jha, an IAS officer (1969 batch) has a graduate degree in Economics from St. Stephen`s college and a Masters degree in Development Economics from the Australian National Ashok Kumar Jha Independent Director University, Canberra. During his stint in the civil services, he has served as the Finance Secretary of to the Government of India. He has also served as President of Hyundai Motors India Limited. Mr. Laxman Ramnarayan is the nominee director appointed by Kotak Private Equity. He holds Director - Kotak Private Laxman Ramnarayan various academic and professional qualifications including CWA and MMS. Currently he is also the Equity Director and audit committee member of Mahindra Aerospace and Mahindra Aero Structures. Mrs Thankom Mathew is a post graduate in Chemistry and has over 30 years of experience and specialises in the fields of marketing, finance, underwriting, administration and audit. She is a Thankom T Mathew Independent Director former Executive Director of the LIC of India and currently also a nominee director on the board of Alok Industries Mr. Sudhir Kashyap is a mechnical engineer and an MBA graduate from Indian Institute of Sudhir Kashyap Executive Director & CEO Management, Ahmedabad. He has over 25 years if experience in suto component industry and has been associated with Minda Group for over 12 years. Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 Automobiles Minda Corp. APPENDIX 2: PRODUCT PORTFOLIO Exhibit 45: Minda Corporation: Product portfolio Minda Stoneridge Source: Company, Kotak Institutional Equities 34 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles APPENDIX 3: CUSTOMERS ACROSS DIFFERENT SEGMENTS Exhibit 46: Minda Corporation: Major customers across different business segments 2/3 Wheelers Passenger vehicles Commercial vehicles Agricultural vehicles Offroad vehicles Others Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 Automobiles Minda Corp. "I, Nishit Jalan, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report." 36 KOTAK INSTITUTIONAL EQUITIES RESEARCH Minda Corp. Automobiles Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships Percentage of companies covered by Kotak Institutional 70% Equities, within the specified category. 60% Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided 50% investment banking services within the previous 12 months. 40% 35.9% * The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the 30.6% next 12 months; Add = We expect this stock to deliver 5-15% 30% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We 17.6% 20% 15.9% expect this stock to deliver less than -5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with 10% 4.7% applicable regulations. As of 30/09/2015 Kotak Institutional 0.6% 1.2% 0.0% Equities Investment Research had investment ratings on 170 0% equity securities. BUY ADD REDUCE SELL Source: Kotak Institutional Equities As of September 30, 2015 Minda Corp (MDA IN) Kotak Institutional Equities rating and stock price target history 120 35,000 30,000 100 25,000 80 20,000 60 15,000 40 10,000 20 5,000 - 0 Jul-13 Jul-14 Jul-15 Price Jan-13 Jan-14 Jan-15 Jun-13 Oct-13 Oct-14 Index Feb-14 Feb-15 Sep-13 Sep-15 Apr-13 Apr-14 Apr-15 Dec-12 Dec-13 Nov-12 Nov-14 Nov-15 Mar-13 Aug-14 Aug-15 May-14 May-15 StockPrice Source: Kotak Institutional Equities Research for ratings and price targets, Bloomberg for daily closing prices. Rating Covered by Nishit Jalan Price target Not covered by current analyst X Price target removal BSE-30 Index (RHS) The price targets shown should be considered in the context of all prior published Kotak Institutional Equities research, which may or may not have included price targets, as well as developments relating to the company, its industry and financial markets Analyst coverage Companies that the analyst mentioned in this document follow Covering Analyst: Nishit Jalan Company name Ticker Amara Raja Batteries AMAR.BO Ashok Leyland ASOK.BO Bajaj Auto BJAT.BO Bharat Forge BFRG.BO Eicher Motors EICH.BO Exide Industries EXID.BO Hero Motocorp HROM.BO Mahindra & Mahindra MAHM.BO Mahindra CIE Automotive MAHN.BO Maruti Suzuki MRTI.BO Minda Corp. MDA IN Motherson Sumi MOSS.BO Suprajit Engineering SUPE.BO Tata Motors TAMO.BO Wabco India WABC.BO Source: Kotak Institutional Equities research KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 Disclosures Ratings and other definitions/identifiers Definitions of ratings BUY. We expect this stock to deliver more than 15% returns over the next 12 months. ADD. We expect this stock to deliver 5-15% returns over the next 12 months. REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months. SELL. We expect this stock to deliver <-5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. Other definitions Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious. Other ratings/identifiers NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. CS = Coverage Suspended. Kotak Securities has suspended coverage of this company. NC = Not Covered. Kotak Securities does not cover this company. RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA = Not Available or Not Applicable. The information is not available for display or is not applicable. NM = Not Meaningful. The information is not meaningful and is therefore excluded. 38 KOTAK INSTITUTIONAL EQUITIES RESEARCH Corporate Office Overseas Affiliates Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 369 Lexington Avenue Bandra Kurla Complex, Bandra (E) 155-157 Minories 28th Floor, New York Mumbai 400 051, India London EC3N 1LS NY 10017, USA Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1 212 600 8856 Copyright 2015 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. 3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected]. This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India’s largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), MSEI and United Stock Exchange of India Limited (USEIL). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on our website i.e. www.kotak.com Research Analyst has not served as an officer, director or employee of Subject Company. We or our associates have received compensation from the subject company in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company in the past 12 months. We or our associates have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates have received any compensation or other benefits from the subject company or third party in connection with the research report. Research Analyst or his/her relative’s may have financial interest in the subject company. Kotak Securities Limited or its associates have financial interest in the subject company. Research Analyst or his/her relatives does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: Kotak Securities Limited does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Associates of Kotak Securities Limited may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Subject Company has been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the “three years” icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, Research Analyst INH000000586, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP- NSDL-23-97. CDSL: IN-DP-CDSL-158 -2001. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022-4285 6825 or Email: [email protected]