Minda Industries (MININD)
CMP: | 250 Target: | 300 (20%) Target Period: 12-18 months BUY
April 17, 2020 Growth machine available at reasonable valuations… Minda Industries (MIL) is the flagship company of the UNO Minda group that
has, over the years, evolved from a single-product, single segment player to
one of the largest entities in the domestic auto ancillary space, providing Particulars
solutions in areas of comfort & convenience (automotive switches, interior & exterior lighting, acoustics systems), aesthetics (alloy wheels), safety
Particulars Am o u n t (airbags, sensors & controllers) and others. MIL has grown at a robust pace Market capitalisation (₹ crore) 6,555.0 in the past decade with FY10-19 consolidated revenue CAGR of 28.5% and Total Debt (FY 19, ₹ crore) 1,081.2 associated consolidated PAT CAGR at 32.5%. It was largely driven by its Cash & Inv. (FY 19, ₹ crore) 110.0 knack of early identification of product opportunities that have gone on to
EV (₹ crore) 7,526.1 Coverage Initiating receive regulatory impetus or customer appeal and then addressing them 52 week H/L (₹) 426/209 through the organic as well as inorganic route. Currently, it realises stable Equity capital (₹ crore) 52.4 ~12% EBITDA margins while maintaining a capital efficient business model Face value (₹) 2 with five year average RoCE at 16%. Going forward, with amalgamation of
Harita Seating and Delvis in the near term as well as organic growth in base Key Highlights businesses (especially 2-W alloy wheel segment), we expect sales and PAT Unmatched play on premiumisation to grow at a CAGR of 15% and 33%, respectively, in FY20-22E. By virtue of (alloy wheels, LED lighting), high OEM share in its consolidated sales, MIL is likely to witness demand presence in products with disruption in the near term courtesy Covid-19. However, the sharp stock regulatory tailwinds (airbags, price correction in the recent past (down 40% YTD) provides a lucrative sensors & controllers) – to spur kit entry point. We initiate coverage on MIL with a BUY rating, valuing the stock value growth at | 300 i.e. 10x EV/EBITDA on FY22E basis. Base businesses to support organic growth; recent acquisitions lend Diversified, market-leading presence – products & segments further immediate visibility Diversified player; limited EV risk MIL commands 55%, 65% market share in 4-W, 2-W switches, respectively, Track record of high & profitable ~22% in lighting, ~50% in horns (domestic) and has the largest installed 4- growth; reasonable valuations W alloy wheel capacity in India. Base businesses i.e. switches, lighting, Price chart acoustics form 38%, 22%, 12%, i.e. ~72% of consolidated sales. Its newer product lines i.e. alloy wheels, aluminium die casting, sensors & controllers 500 14,000 400 12,000 (28% of consolidated sales at present) are slated to be the growth drivers, 10,000 300 going ahead. MSIL is MIL’s key anchor client and contributes >20% to MIL 8,000 200 6,000 Research Equity Retail 4,000
sales. However, the company counts most major 2-W and PV OEMs as – 100 2,000 clients, including Hero MotoCorp, M&M, Tata Motors, Royal Enfield, HMSI, 0 0
TVS Motor and Bajaj Auto, among others. OEMs form ~90% of sales with
Apr-17 Oct-17 Apr-18 Apr-19 Oct-19 Apr-20 aftermarket constituting the rest. The company is largely a domestic-focused Oct-18 play with India forming ~84% of consolidated revenues. Minda Industries (LHS) Nifty (RHS)
Valuation & Outlook Research Analyst
Shashank Kanodia, CFA Securities ICICI MIL is uniquely positioned in the domestic auto ancillary space as a provider of a wide variety of product solutions straddling established and growing [email protected]
opportunities. The company is also one of the few credible players in the Jaimin Desai high growth potential segments of airbags and alloy wheels. MIL possesses [email protected] a steady state organic business riding on value migration i.e. higher kit value. We like MIL courtesy its progressive product profile, healthy capital
efficiency and consistent positive CFO generation. Accordingly, we assign a BUY rating to the stock with a target price of | 300. Key Financial Summary
Key Financials FY18 FY19 FY20E FY21E FY22E CAGR (FY19-21E)
Net Sales 4,471 5,908 5,435 6,363 7,165 14.8% EBITDA 534 725 648 732 896 17.6% EBITDA Margins (% ) 11.9 12.3 11.9 11.5 12.5
Net Profit 310 286 184 209 324 32.6% EPS (|) 11.8 10.9 7.0 7.6 11.8 P/E 21.1 23.0 35.6 32.8 21.2 RoNW (% ) 21.3 19.0 11.5 11.6 15.4 RoCE (% ) 17.8 16.6 11.3 11.8 15.0
Source: ICICI Direct Research, Company Initiating Coverage | Minda Industries ICICI Direct Research
Company Background
Minda Industries (MIL) is a leading multi-product auto ancillary with a Client and product-wise revenue mix at MIL diversified presence across industry segments. It is the flagship company of the UNO Minda Group that commenced operations in 1958 as a supplier of ammeters to Royal Enfield. Over time, the group has demonstrated excellent foresight in entering diverse product lines and concurrently built scale in a successful manner, evolving into a Tier-I supplier to various auto components with solutions for most major Indian OEMs across 4-W, 2-W and off road segments. It is the largest manufacturer of 2-W switches, 4-W switches and automotive horns in India and has the largest installed alloy wheel capacity in India. At | 5,909 crore, MIL’s FY19 consolidated revenues represent ~74% of the total group turnover of | 8,014 crore. MIL’s corporate history can be broadly divided into two phases - (i) Building blocks (inception to ~2012): During this time, MIL organically branched out into product lines that continue to constitute its major offerings to this day. Automotive switches, lighting and horns (38%, 22% and 12% of FY19 revenues, respectively) were added during this period. Additionally, MIL also forayed into batteries, aluminium die casting, blow moulded parts and fuel kits, among others (ii) Consolidation, JVs and acquisitions (~2012 to present): Inorganic growth through several acquisitions - Clarton Horns from Spain (2013), Rinder Group from Spain (2015), iSYS RTS from Germany (2018), Harita Seating from India (2019) along with several other JVs have marked MIL’s operations in this period, delivering manifold expansion in revenues
Source: Company, ICICI Direct Research; The company continues to perform strongly via organic and inorganic Note – Client wise mix doesn’t include ‘Others’ product measures, with its presence in new age opportunities (alloy wheels, LED, air segment bags, telematics, sensors and controllers) slated to be the future growth drivers that set MIL apart from peers in the Indian auto ancillary space.
Exhibit 1: MIL evolution through the years
1958 • Commenced operations as ammeter manufacturer for Royal Enfield
1960 • Ventured into automotive switches
1980 • Started manufacture of automotive lighting products
1993 • Entered 4-W switches through associate company Mindarika Pvt Ltd (later converted into subsidiary)
2000s • Forayed into batteries, blow moulded products, alternative fuel kits and aluminium die casting products
2013 • Acquired Spain's Clarton Horns - leading European horn manufacturer
2015 • Entered JV with Kosei for 4-W alloy wheels
2016 • Acquired Spain's Rinder Group, gaining access to LED technology
2017 • Entered JV with Katolec (EMS) & Onkyo (infotainement accessories)
2018 • Entered agreements for upcoming technolgies like ADAS, BS-VI related high end sensors
2019 • Acquired Harita Seating Systems, Delvis GmBH & KPIT Technologies' telematics hardware division
Source: Company, ICICI Direct Research
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With five chief product lines (switches, lighting, acoustics, light metal technology and others), MIL has a widespread manufacturing (62 plants in seven countries), R&D (six locations) and sales presence. Its corporate structure is slightly complex, encompassing 16 direct subsidiaries, eight step down subsidiaries, eight JVs, two associates as of FY19.
Exhibit 2: MIL consolidated corporate structure (as of May 2019)
Source: Company, ICICI Direct Research
Exhibit 3: Product segment wise revenue break-up
FY19 2,237 1,293 717 908 754 5,909
FY18 1,475 1,159 671 585 581 4,471
India accounted for 84% of MIL’s FY19 consolidated revenues, with exports forming the remaining 16% 3,468 FY17 1,110 867 590 - 902
- 1,000 2,000 3,000 4,000 5,000 6,000 7,000
₹ crore Note – LMT = Light Metal Technology. The segment includes alloy wheels and aluminium die casting Switches Lighting Acoustics LMT Others business
Source: Company, ICICI Direct Research; Note – ‘LMT’ segment disclosed separately from ‘Others’ from FY18.
Exhibit 4: Product segment wise EBITDA margin break-up 25.0
20.0
15.0 The company’s replacement/aftermarket channel
% has grown at healthy ~11.4% CAGR over the past 10.0 few years. However, it accounts for just ~9.7% of sales (FY19)
5.0
10.3 10.3 11.9 12.6 11.0 23.2 23.3 13.5 11.1 11.9 12.3 10.2 10.2
9.6 9.6 8.0 9.3 4.4 9.7 9.7 9.5 - Switches Lighting Acoustics LMT Others Consolidated
FY17 FY18 FY19
Source: Company, ICICI Direct Research; Note – ‘LMT’ segment disclosed separately from ‘Others’ from FY18.
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MIL is a domestic-centred ancillary (exports at ~16% of revenues), primarily catering to 2-W and 4-W OEM channels (before Harita Seating acquisition).
Exhibit 5: User segment wise revenue mix (FY19) Exhibit 6: Aftermarket sales growth trend (~10% of revenues) 700 573 600 504 500 438 453 372 400 49%
51% 300 ₹ crore ₹ 200 100 0 FY15 FY16 FY17 FY18 FY19
2-W 4-W Aftermarket sales
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
MIL has emerged as a growth machine over the years (FY10-19 consolidated revenue CAGR 28.5%) accompanied by a strong focus on profitability – with bottomline expansion outpacing topline improvement (FY10-19 consolidated PAT CAGR 32.3%). MIL has significantly outpaced the rest of the Indian automotive component pack (~3x overall industry growth in FY13-19; Exhibit 7) on the back of both organic growth in existing product lines and inorganic additions to business in existing and new product lines.
Exhibit 7: MIL outperformance vis-à-vis domestic ancillary pack
7,000 MIL rev enues have grown by 27.1% 40% 34% 32% CAGR ov er FY13-19, ~3x Indian auto 32% 35% 6,000 component industry growth of 9% 30% 5,000 31% 27% 25% 4,000 20% 13% 18% 14% 15% ₹ crore ₹ 3,000 11% 10% 2,000 9% 5% 5% 1,000
-2% 0%
1,706 1,706 2,232 2,527 2,527 3,386 4,471 5,908 - -5% FY14 FY15 FY16 FY17 FY18 FY19
MIL revenues MIN revenue increase YoY % Industry revenue increase YoY %
Source: ACMA, Company, ICICI Direct Research Furthermore, the company has consistently and comprehensively outperformed base user industries (PV & 2-W) despite primarily being an OEM play with limited aftermarket support (Exhibit 8). It was driven by market share gains and rising wallet share with key clients on the back of – (i) introduction of new products, (ii) deeper penetration of existing products, (iii) making constant headways into new OEMs and (iv) inorganic acquisitions (Exhibit 9) These instrumental strategic reasons are behind MIL’s demonstrated ability to deliver industry-beating growth till date.
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Exhibit 8: MIL outperformance vis-à-vis user industries 50% Despite being primarily a PV & 2-W OEM play, MIL performance has consistently been superior to that of core user industries
40%
34%
32%
32% 31%
30% 27%
20% 16%
13%
10%
YoYgrowth
9% 8%
10% 7%
6%
6%
6%
4%
2% 0% 0% FY14 FY15 FY16 FY17 FY18 FY19
-10% 5% -
2-W production volumes PV production volumes MIL revenues
Source: SIAM, Company, ICICI Direct Research
Exhibit 9: Tie-ups, acquisitions into legacy, new products over past decade help MIL’s growth story
Addition of several technical collaborations, FY10 620 Roki Minda : Air filters, canisters; Emer Tech : CNG, LPG kits JV agreements and acquisitions over the FY11 954 Toyoda Gosei: Steering w heels + airbags; Kyoraku : Blow moulding years apart from organic diversification into new product lines has aided MIL's industry- Denso Ten: Car infotainment FY12 1,179 beating grow th over the years FY13 1,340 Acquired Spain's Carlotn Horns (Acoustics) FY14 1,706 Onkyo: speakers and Acquired Spain's Rinder (2-W lighting) FY15 2,232 TTE: DAPS FY16 2,527 iSys: embedded systems ; Sensata: sensors FY17 3,386 Acquired KPIT's telematics hardware FY18 4,471 business and Harita Seating FY19 5,908
- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 ₹ crore Consolidated MIL sales
Source: Company, ICICI Direct Research The company has long-standing technical agreements with global players in several areas and has over time explored the inorganic route to gain and extend capabilities in diverse product offerings. MIL serves as a Tier-I supplier to most major 2-W and 4-W OEMs in India.
Exhibit 10: Key technical agreements Year Company Country Product Area 1995 Tokai Rika Japan 4-W switches 2010 Emer Italy CNG kits 2010 Roki Co Japan Air filters 2011 Kyoraku Nagase Japan Blow moulding 2011 Toyoda Gosei Japan Safety system and hoses 2015 Kosei Japan Alloy wheels 2016 Onkyo Japan Infotainment 2017 Katolec Japan Printed circuit boards (PCB) 2017 TTE Taiwan Driver Assistance Systems & Products (DAPS) 2018 Sensata Technologies USA High-end sensors for BS-VI 2019 Harita Seating Systems India Seating systems
2019 iSys RTS Germany Embedded software Source: Company, ICICI Direct Research
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Exhibit 11: Brief financials of subsidiaries, JVs and associates over the years FY15 FY16 FY17 FY18 FY19
C o m p an y Stak e Sales PAT Stak e Sales PAT Stak e Sales PAT Stak e Sales PAT Stak e Sales PAT (%) (₹ cr) (₹ cr) (%) (₹ cr) (₹ cr) (%) (₹ cr) (₹ cr) (%) (₹ cr) (₹ cr) (%) (₹ cr) (₹ cr)
A. Subsidiaries Minda Auto Components 100 71 2 100 73 2 100 107 2 100 246 5 100 353 4 Minda Distribution & Services 100 361 1 100 424 2 100 455 3 100 452 5 100 527 8 Global Maz inkert SL 100 0 0 100 - 8 100 0 (2) 100 0 (1) 100 0 (1) Minda Rinder (Rinder India) ------100 324 10 100 451 14 100 631 15 Minda Kosei Aluminum Wheel - - - 70 21 (2) 70 197 26 70 456 32 70 601 56 Minda Kyoraku 72 - (1) 72 92 4 72 129 10 72 140 11 68 158 12 MJ Casting - - - 98 187 10 98 202 5 100 290 14 100 316 18 PT Minda Automotive Asean - - - 51 30 13 51 129 9 100 156 9 100 162 19 Minda Storage Batteries ------100 3 0 100 69 (6) 100 81 (17) Minda TG Rubber - - - 51 6 (0) 51 35 (5) 51 54 (4) 51 93 12 Sam Global Pte - - - 51 (0) (0) 51 - 11 100 10 9 100 13 12 Mindarika ------51 206 14 51 804 49 Minda D-Ten ------Minda K atolec ------51 1 (0) 51 14 (6) MI Torica ------60 61 1 i-SY S RTS GmbH ------80 35 2 Clarton Horn, Spain 100 398 6 100 328 14 100 377 22 100 408 17 100 452 19 Clatrton Horn Signalkoustic 100 5 0 100 3 0 100 4 0 100 4 0 100 4 0 Clarton Horn, Morocco 100 3 (0) 100 4 100 5 0 100 6 0 100 6 0 Clarton Horn, Asia 100 - (0) ------Clarton Horn, Mexico 100 0 (0) 100 (1) (5) 100 4 (7) 100 17 (9) 100 40 (7) Light & Systems Techn Cen. ------100 19 3 100 20 2 100 27 3 Minda Industries Vietnam ------100 46 11 100 45 9 100 53 12 PT Minda Trading ------100 15 (0) 100 18 1 100 29 2 MIT IL P olymer ------95 254 4 B. JV s MJ Casting 50 - (3) ------Minda Emer Technologies 49 - 1 49 - 0 49 - - 49 - (1) 49 - 1 Rinder Riduco ------50 - - 50 - 1 50 - 1 Roki Minda ------49 147 4 49 368 12 49 394 12 Minda Onkyo ------50 - (4) 50 - (6) Minda TTE DAPS ------50 - (1) 50 - (1) Denso Ten Minda ------49 90 3 49 419 9 Kosei Minda Mould ------49 - (0) Toyoda Gosei Minda ------48 496 1 Minda D-Ten ------51 92 1 51 - 2 C. Associates Mindarika 27 - 2 27 - 5 27 - 9 ------Minda NextGenTech 26 - - 26 - 0 26 - 0 26 - 0 26 - 0 K osei Minda A lumium 30 - 30 - 0 30 204 1 30 221 2 30 203 (3)
Source: Company, ICICI Direct Research; Note – step down subsidiaries in italics
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Exhibit 12: Brief overview of key subsidiaries, JVs and associates Company MIN stake Products Comments Mindarika 51% Automotive switches - 47% market share in India; serves domestic PV & CV and exports Clarton Horns 100% Automotive horns - Acquired from Spain (2013); Annual capacity of 20 million horns Minda Kosei Aluminum Wheels 70% 4-W alloy wheels - Largest alloy wheel maker in India (annual capacity 2.6 million units) Minda Kyoraku 68% Blow moulded products - Market and technology leader MJ Casting 100% Die casting products - Maximum capacity of 25,000 engine parts/components per day
Rinder India 100% Automotive lighting - Rinder brand has premium positioning in head lamps and tail lamps Source: Company, ICICI Direct Research
Exhibit 13: Product profile and clientele Business segment Products Key customers
Switches
Lighting
Acoustics (Horns)
Light Metal Technology (LMT)
Other products
Source: Company, ICICI Direct Research
Exhibit 14: MIL average kit value for 2-W (|) Exhibit 15: MIL average kit value for cars (|) 8,000 90,000 7,000 80,000 6,000 70,000 60,000 5,000 50,000 4,000 40,000 3,000 Kit value (₹) value Kit 30,000
2,000 20,000 3,450 3,450
1,000 10,000 3,378
32,906 32,906 43,596 44,064 50,452 63,683 68,801 75,879 80,934
4,572 4,572 5,209 5,766 6,801 6,966 4,308 4,664 2,750 5,162 5,162 3,580 25,924 25,924 - - 19,893 MC upto MC upto MC > 135 Scooters Mopeds upto ₹ 2.2 upto ₹ 4.5 upto ₹ 8.3 upto ₹ 16 > ₹ 16 Tractors 110 cc 135 cc cc lakh lakh lakh lakh lakh
2018 2019 2018 2019
Source: Company, ICICI Direct Research; MC - Motorcycles Source: Company, ICICI Direct Research
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Investment rationale
Unmatched play on vehicular premiumisation in India In the second leg of its corporate history, MIL has been ahead of the curve in identification of product segments that have gone on to receive increased market attention. Accelerated adoption of some of these products (e.g. alloy wheels, LED lighting, infotainment systems, etc) coupled with upward value migration by the Indian consumer have stood the company in good stead. Alloy wheels – aesthetic appeal and lightweighting go hand-in-hand Alloy wheel penetration has gathered pace in India over the past few years, as customer preference has evolved in favour of products with higher aesthetic appeal. Aluminium alloy wheels carry the advantage of superior design flexibility potential and lighter weight over their steel counterparts. The trend of alloy wheel adoption over steel wheels has been higher in the UV category, which has outpaced the wider PV category handsomely over FY15-20 (domestic UV CAGR 11.3% vs. domestic PV CAGR 1.3%). UV volumes have been resilient even during the sharp ongoing slowdown, with total volume growth at 0.5% vs. 17.8% decline for domestic PV segment in FY20. Industry has recognised the clear shift among buyers, with UVs forming the bulk of new models launched in India over the past year as well as upcoming product pipeline. Despite having grown quite quickly, alloy wheel penetration levels in the Indian 4-W market are still at only ~30% at present. There is ample space for future growth amid increasing demand for premiumisation and regulatory push for vehicle light-weighting.
Exhibit 16: UV category vs. overall PV volume growth Exhibit 17: UVs to dominate fresh launches in CY20 & CY21 OEM Mo d e l 4,000 34.1 40.0 3,500 35.0 Maruti Suz uki Brezza Petrol 28.0 27.9 3,000 25.0 30.0 M&M New Scorpio, New XUV500, SUV with Ford 2,500 21.3 21.0 25.0 Tata Motors Nexon facelift, 2020 Harrier, Gravitas 2,000 20.0 Hyundai New Creta, Tuscon facelift 1,500 15.0 Skoda K aroq 1,000 10.0 K ia Sonet
500 922 5.0
946 946
762 762
2,789 2,789 3,047 3,289 3,377 2,776 2,601 2,601
941 941
Domestic Units sold ('000) sold Units Domestic 587 587
554 554 Volkswagen T-Roc - 0.0 FY15 FY16 FY17 FY18 FY19 FY20 Toyota Rebadged Brezza Source: Media and Industry sources, ICICI Direct Research UV volumes PV volumes UV as % of PV (RHS)
Source: SIAM, ICICI Direct Research
MIL has the largest installed capacity for PV alloy wheels in India at 2.7 million units per annum. With ~| 600 crore of revenue in FY19, the company commands 45% market share in the segment and has manufacturing facilities in Bawal (Haryana) and Gujarat. MIL serves the segment through its subsidiary Minda Kosei Aluminium Wheels (MKAW, MIL has 70% stake while 30% stake is with Japanese player Kosei) and a separate JV i.e. Kosei Minda Aluminium Company (MIL has 30% stake). MKAW supplies to PV market leader Maruti Suzuki (MSIL, 78% of sales) and Mahindra & Mahindra (M&M, 22% of sales), while the JV counts Honda Cars, Toyota & Renault among its clients. The PV alloy wheel business is highly profitable for MIL, with a far superior margin profile compared to other product segments (Exhibit 19; subsidiary MKAW clocks ~10% PAT margins vs. 5.5% for MIL consolidated) – on account of its nature as a premium product as well as better pricing power given imposition of anti-dumping duty on Chinese imports.
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Exhibit 18: MKAW client wise revenue break-up (FY19) Exhibit 19: Product wise EBITDA margin (FY19) 25.0 23.3
20.0 22% 15.0 12.6 12.3
% 10.2 9.3 MSIL 10.0 4.4 M&M 5.0
-
78% LMT
Others
Lighting
Switches Acoustics
Consolidated Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research; Note – Alloy wheels is part of LMT business
At 65%, MIL possesses significant portion of MSIL’s wallet share and expects it to continue in future. MSIL and M&M together form ~44% of the domestic UV segment by volume. We expect UVs to remain a bright spot in the wider PV universe over the coming years, driven by rising incomes, up- trading from entry hatchbacks, new product launches and entry of newer players. This bodes well for MIL’s 4-W alloy wheel segment given market share vs. competitors & entrenchment with incumbent segment leaders. Apart from PV alloy wheels, MIL has also entered 2-W alloy wheels segment The 2-W alloy wheel ASP is | 2,500/set, with the recently. In the 2-W space, alloy wheels score over steel spoke wheels same in PVs at ~| 10,000-14,000/set primarily in terms of lower weight and better braking, stability and control. As per Crisil estimates, 2-W alloy wheels had reached 70% penetration in motorcycles and scooters in FY16. At that time, it was a | 3,200 crore segment that formed 7% of the overall 2-W, 3-W component industry. The penetration levels are at ~80% at present. The space is competitive in nature, with about two-thirds of the industry served by imported wheels in the absence of any anti-dumping duty unlike the PV segment that provides an import substitution opportunity to domestic manufacturers. Among local players, the landscape is dominated by Endurance Technologies, Rockman Industries and Enkei Wheels at present, and is marked by entrenched relationships of existing players with key OEMs, for instance Endurance with Bajaj Auto and Rockman with Hero MotoCorp. Nevertheless, there is scope for MIL to gain market share as the industry moves towards 100% penetration in the years to come. Drive towards increased localisation by OEMs would also benefit domestic manufacturers, including MIL.
Exhibit 20: 2-W alloy wheel industry size by value (FY16) Exhibit 21: 2-W alloy wheel industry size by volume (FY16) 40 30000 35 25000 30 20000 25
20 15000 ₹ billion ₹ 15 units '000 10000 10 5000
5
20674 21397 23395 26031 27015
23 25 28 34 32 0 0 FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
2-W alloy wheel industry size 2-W alloy wheel volumes
Source: CRISIL, ICICI Direct Research Source: CRISIL, ICICI Direct Research
For MIL, the 2-W alloy wheel business would form part of the standalone entity. The company has set up capacity for manufacture of 3.6 million units per annum at a cost of | 500 crore (| 300 crore in Phase I), with production slated to commence in Q1/Q2 FY21E. It expects to reach peak revenue potential of | 500 crore per annum from the segment by FY24E.
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Exhibit 22: Alloy wheel presence in major recent model launches Year … as standard across variants Alloy wheels have witnessed strong aspirational 2016 Toyota Fortuner, Toyota Innova Crysta (except base variant), Ford Endeavour demand among PV users over the last few years. 2017 Maruti Baleno RS, Jeep Compass, Tata Nexon OEMs have catered to the need by introducing them 2018 Maruti Ciaz refresh (except base variant), Mahindra Alturas G4 in most major launches (especially among SUVs) – either as standard fitment across all vehicle variants, 2019 Kia Seltos, MG Hector (except base variant), Maruti XL6 or as a premium feature in higher priced variants of their models Year ... as exclusive to higher priced variants 2016 Maruti Brezza, Tata Tiago 2017 Maruti Swift Dzire, Tata Tigor, Hyundai Verna, Tata Hexa, Maruti Ignis, Honda WRV Maruti Suzuki Swift refresh, Honda new Amaze, Mahindra Marazzo, Maruti Ertiga 2018 refresh, Hyundai Elite i20 refresh 2019 Hyundai Venue, Mahindra XUV300, Renault Triber, Tata Harrier, Hyundai Grand i10 Nios Source: ICICI Direct Research
LED – Illuminating premiumisation Globally, in the PV space, LED lighting growth handsomely outpaced growth of competing technologies such as halogen and xenon in the first half of the last decade (LED 2012-16 CAGR 15.7% vs. flattish growth for halogen & xenon). The technology gained prominence owing to its higher design flexibility and luminous efficacy as well as lower power consumption. Further, LED lights can last up to 50,000 hours (several times more than halogen and xenon lights) and contains fewer moving parts. As per Yole Research (2016), LED was projected to become the dominant lighting technology within the overall exterior PV automotive lighting industry by 2017, with 2016-20 growth projected at ~20% CAGR. The space has seen rapid innovation during the present century, amid ever shortening technological life cycles (first halogen headlamp introduced 70 years after advent of the first electric headlamp; first xenon headlamp introduced 21 years after halogen and first full LED headlamp introduced 15 years later in 2007). LED introduction in tail lamps predated headlamp introduction on account of lower illumination requirement. LED penetration remains skewed towards tail lamps to this day on account of relatively lower ASPs that are more palatable for consumers. Nevertheless, tighter regulatory requirement around fuel consumption, emissions and consumer preference remaining intact for aesthetically appealing products are expected to play a part towards driving headlamp penetration higher in coming years.
Exhibit 23: Global PV lighting market technology wise break-up Exhibit 24: LED penetration in global PV segment
14,000 80 69.4
70 63.1 12,209 12,209
12,000 10,421 57.0 60 51.4
10,000 8,689
50 44.2
7,482 7,482
7,447 7,447
7,440 7,440
7,298 7,298
7,236 7,236 7,218 7,218
6,975 6,975 36.2 8,000 6,668
6,273 6,273 40 5,917 5,917 5,898 5,898 29.3 27.7 23.3 23.3
6,000 4,718 30
4,359 4,359
4,344 4,344
4,329 4,329
4,302 4,302 4,228 4,228
4,094 4,094 19 17.7
3,853 3,853
4,269 4,269
3,783 3,783 3,497 3,497
US$ million US$ 14.7 12.5 3,299 3,299 4,000 2,880 20 8.8 3.9 6 Global PV LED penetration penetration PVLED Global 10 2 2.4 2.9 2,000 0
-
2012 2013 2014 2015 2016
2017P 2018P 2019P 2020P 2021P
2012 2013 2014 2015 2016
2018P 2019P 2020P Halogen Xenon LED2017P Headlamps Tail lamps
Source: Yole Research, ICICI Direct Research Source: Yole Research, ICICI Direct Research
LED adoption is even increasing in the domestic market. However, India remains behind western markets, with overall penetration currently at ~30%. Domestic PV OEMs started introducing LED elements for headlamps in a meaningful manner only from 2014 with the pace of adoption increasing thereafter (Exhibit 25). Most major PV launches (new launches, refreshes) over the past few years have incorporated LED content (Exhibit 27) while the
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trend is expected to continue amid the ongoing premiumisation drive for automotive components in India.
Exhibit 25: Timeline of LED penetration in headlamps over past decade Year Developments 2011-13 Introduction of halogen headlamps with clear PC lens and MFR in PVs 2011-13 Optional projector lamps with LED like DRL in top variants 2014-15 Increased instances of projector headlamps with halogen for new vehicles as standard fitment 2014-15 Enchanced shift towards LED for DRL & signature lighting features 2016-17 Accelerated introduction of LED DRL or projector headlamps in new models 2016-17 Headlamps with signature DRLs or LED styling features from 2016 onwards 2016-17 Introduction of LED projector headlamps in latter half of 2016 2016-17 Higher local manufacturing of LED head lamps with signature DRLs in 2017 2017-19 Model refreshes launched with projector head lamps or projector head lamps with LED
Source: Industry sources, ICICI Direct Research; Note – DRL is Daytime Running Light For MIL, LED lighting forms 40% of its 2-W lighting business while the share of LED is lower on the PV side at ~25-30%, largely tracking the large price differential for the product in these two segments (2-W LED ASPs at ~| 250- 750 while the same in a 4-W can go as high as ~| 8,000-10,000). LED lamps The company has won all-LED lamp orders for are priced at 2.5-3x their halogen counterparts. Going forward, LED prices XUV300 and Tata Harrier (PV) along with Honda are expected to start maturing on the back of increasing volumes, higher Activa and TVS Apache RTR310 (2-W) during FY20 localisation and better cost competitiveness. Nevertheless, the segment is seen as remaining a higher margin product when compared to conventional halogen lighting. We expect demand for LED lighting to form an important leg of MIL’s premiumisation play once the current slowdown abates. Further, the technological edge provided by acquisitions of Rinder and Delvis are expected to help MIL further improve LED share of overall lighting business and gain incremental market share in this space. Apart from the premiumisation aspect of LED content, the space also offers an opportunity for increased localisation. At the industry level, current localisation levels are at 30-50% on average. In its LED function, MIL currently manufactures and assembles most components locally (except semiconductor and bulbs themselves, which are imported in line with other industry players). MIL has already embarked on backward integration drive and under its JV with Katolec manufactures one of the LED components i.e. surface mounted technology (SMT) internally. Move towards higher localised sourcing from domestic OEMs as a cost control measure during the ongoing industry downturn is a positive development for the company. On the 2-W side, LED adoption rate has increased post implementation of AHO regulations with effect from 2017. LED emerged as a natural choice for standard fitment given the requirement for 2-W lamps to be in switched on mode at all times when the vehicle is running on account of the technology’s characteristic of lower power consumption. Impending switchover to BS-VI norms are also expected to act as a tailwind for LED penetration as the technology is friendlier to energy efficiency than conventional halogen.
Exhibit 26: Timeline of LED penetration in tail lamps over past decade Year Developments 2011-12 Introduction of tail lamps having clear lenses with multi colour molding technique 2013-14 New styling with introduction of split tail lamp design 2014-15 Tail lamps with one or more LED features 2014-15 LEDs with signature shapes in tail lamps 2016 Almost all new models incorporate LEDs as one of the functions or for signature lighting 2017-19 Enhanced application of LEDs in new models for better aesthetic and signature appeal
Source: Company, ICICI Direct Research
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Exhibit 27: Instances of LED integration in recent major PV launches LED content Model LED content in PVs has been on a healthy rise in the … as standard across variants … as exclusive to higher priced variants past few years as customer preference has evolved Year 2016 towards better aesthetics and lower energy Maruti Brezza Guide lights Stop lamps consumption. The table alongside provides instances of LED element integration in various Tata Tiago - Turn indicators functions of major recent PV launches, both – as Toyota Fortuner Projector headlamps, DRLs - standard fitment across all price variants of a model Toyota Innova Crysta Projector headlamps Clearance lamps as well as exclusive to higher priced model variants Ford Endeavour Tail lamps, DRLs - Year 2017 Maruti Swift Dzire Projector headlamps DRLs Jeep Compass DRLs Tail lamps Maruti Baleno RS Projector headlamps, DRLs, tail lamps - Tata Nexon Projector headlamps with DRL Tail parking lights Tata Tigor Tail lamps Turn lights Hyundai Verna Projector headlamps with DRL Tail lamps Tata Hexa Tail lamps DRLs Maruti Ignis Projector headlamps with DRL - Honda WRV DRLs, position lamps - Year 2018 Maruti Swift refresh Projector headlamps with signature DRLs - Maruti Ciaz refresh Headlamps with DRL Tail lamps Honda new Amaze Headlamps with signature position lights - Mahindra Marazzo Headlamps, DRLs Tail lamps Maruti Ertiga refresh Tail lamps - Year 2019 Hyundai Venue Headlamps, DRLs Tail lamps Kia Seltos Headlamps, DRLs, tail lamps - Headlamps (except base variant), DRLs, MG Hector - tail lamps Maruti XL6 Headlamps, DRLs, tail lamps - Mahindra XUV300 Tail lamps DRLs Renault Kwid refresh DRLs, tail lamps with guide lights - Renault Triber - DRLs
Tata Harrier DRLs (except base variant) - Source: ICICI Direct Research
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Presence in products with regulatory tailwinds to spur kit value Vehicular safety has grabbed greater mindspace among buyers, OEMs and regulators in recent years. From 2015 onwards, the government has moved legislation in areas related to crash tests (NCAP), braking (ABS/CBS), better on-road visibility (AHO), vehicular safety and pedestrian safety (Exhibit 28). Regulatory push and higher consumer awareness have resulted in the trend of gravitation towards safer vehicles emerging as a potential product differentiator for OEMs.
Exhibit 28: Recent vehicular safety related regulations in India Regulation Description New models Existing models Headlamps to remain switched on for all new 2-W to aid Automatic Headlight On (AHO) for new 2-W 1/4/2017 - better visibility even in daylight hours
Crash tests for Full frontal impact (AIS096), Offset frontal Crash test norms for Indian cars i.e. Bharat NCAP 1/10/2017 1/10/2019 impact (AIS098) and Side impact (AIS099) Prevention of skidding instances even under hard braking or Anti-lock Braking System (ABS) for 2-W above 125 cc wet conditions (ABS) and use of single lever to enable braking 1/4/2018 1/4/2019 and PV /Combi-brake system (CBS) for 2-W upto 125 cc on both wheels simultaneously (CBS) Incorporation of driver airbag, speed warning system, seatbelt Vehicle safety norms for cars reminder (driver & front passenger) and rear parking sensors 1/7/2019 - as standard fitments Pedestrian safety norms For greater safety of pedestrians in case of accidents 1/10/2018 1/10/2020
Source: ICICI Direct Research, Company Safety including airbags – MIL one of the few listed plays Safety scores for Indian cars tested under the global NCAP crash procedures have improved significantly over the past decade, with three models having received the highest possible five-star rating for adult safety since 2018. Component makers in areas of airbags, sensors, ABS/CBS and other electronics are set to benefit from realisation-led growth in this space in the future. For MIL, accelerated preference for safer 4-W, in particular, represents a large opportunity on the airbag and sensors/controllers side. The 4-W airbag industry in India is ~| 2,000 crore in size. Front airbags have reached ~65% penetration (heavily skewed towards driver side airbag), Average realisation for a set of front airbags at MIL while other airbags (side, side torso, knees, curtain, rear, etc) are penetrated at ~| 3,500 to the extent of ~10%. MIL is well placed in this space as one of the leading players, commanding ~23% market share. It serves the segment through its 48% JV with Toyoda Gosei i.e. TG Minda India and counts Toyota Kirloskar and Maruti Suzuki among chief clients.
Exhibit 29: Dual front airbag penetration in India, top 10 models (2018) 120 100 100 100 95 89
80 76 64 58
% 60 49 40 40
20 0
0
Tata
Ford
M&M
Honda
Toyota
Datsun
Renault
Hyundai Volkswagen Maruti Suzuki Maruti Source: JATO Research, ICICI Direct Research With effect from July 1, 2019, all new cars in India are required to mandatorily provide driver airbag as standard fitment (earlier draft regulation required front passenger airbag as standard fitment also), which significantly expands the addressable market for MIL, going forward.
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Future regulatory push towards compulsory front passenger airbag would Evolution of crash test results for Indian cars provide an additional leg of growth. Nevertheless, a vast proportion of Airbags Adult safety Child safety popular new models launched over the past few years already feature dual Model (No.) (Stars out of 5) front airbags as a standard fitment (Exhibit 30). Further, it is becoming more common for top end variants of new launches to feature up to six (or even Year 2014 eight) airbags in some cases e.g. Tata Harrier, Kia Seltos, Hyundai Venue, Tata Nano 0 0 0 MG Hector, Hyundai Creta all carry six airbags in premium model variants. Hyundai i10 0 0 1 Exhibit 30: Dual front airbag presence in major recent model launches Maruti Swift 0 0 1 Year … as standard across variants VW Go 0 0 2 2016 Toyota Fortuner, Toyota Innova Crysta, Ford Endeavour Maruti Alto 0 0 2 Maruti Swift Dzire, Maruti Baleno RS, Jeep Compass, Tata Nexon, Maruti Ignis, 2017 VW Figo 0 0 2 Hyundai Verna VW Polo 0 0 3 Maruti Swift refresh, Maruti Ciaz refresh, Honda Amaze, Mahindra Marazzo, Maruti 2018 Ertiga refresh, Hyundai Elite i20 refresh VW Polo 2 4 3 Hyundai Venue, Kia Seltos, MG Hector, Maruti XL6, Mahindra XUV300, Renault Triber, 2019 Year 2016 Tata Harrier, Hyundai Grand i10 Nios Honda Mobilio 0 0 1 Maruti Celerio 0 0 1 Year ... as exclusive to higher priced variants Tata Zest 0 0 1 2016 Maruti Brezza, Tata Tiago M&M Scorpio 0 0 2 2017 Tata Tigor, Tata Hexa Hyundai Eon 0 0 2 2018 Hyundai Santro Maruti Eeco 0 0 2 2019 Maruti Wagon R, Renault Kwid, Maruti S Presso Renault Kwid 0 0 2 Source: ICICI Direct Research Renault Kwid 0 0 2 Safety systems like airbags are considered ‘passive’ in nature. Passive safety technologies are those that are protective in function and serve to limit Renault Kwid 1 0 2 damage during or after an accident, e.g. seat belts, airbags, emergency SOS, Renault Kwid 1 1 1 energy absorption pads etc. On the other hand, technologies geared Honda Mobilio 2 3 2 towards preventive function are termed ‘active’, and encompass solutions Tata Zest 2 4 2 for detection, avoidance and mitigation of accidents (Exhibit 31), e.g. Toyota Etios 2 4 2 advanced driver assistance system (ADAS), braking assistance & electronic stability control. Year 2017 Chevrolet Enjoy 0 0 2 Exhibit 31: Passive vs. active safety Renault Duster 0 0 2 Renault Duster 1 3 2 Ford Aspire 2 3 2 Year 2018 Renault Logdy 0 0 2 Maruti Swift 2 2 2 Maruti Brezza 2 4 2 M&M Marazzo 2 4 2 Tata Nexon 2 4 3 Tata Nexon 2 5 3 Year 2019 Source: Frost & Sullivan, ICICI Direct Research Datsun Redigo 1 1 2 Passive safety technologies (e.g. airbags) have reached near full penetration Hyundai Santro 1 2 2 levels in western & developed markets while active safety technologies now Maruti WagonR 1 2 2 serve as the area on which regulatory accent & product innovation is focused. Maruti Ertiga 2 3 3 Year 2020 For MIL, greater focus on the role of active systems in occupant and pedestrian safety in India opens up the possibility of technology Tata Altroz 2 5 3 introduction and value migration from present product portfolio i.e. steering Tata Tiago 2 4 3 wheels, EA pads and CBS to sensor based applications and higher electronic Tata Tigor 2 4 3 content. The mandatory implementation of safety features like seatbelt M&M XUV300 2 5 4 reminders, reverse parking assist function, manual override for central Source: Global NCAP tests, ICICI Direct Research locking systems during emergencies and speed warning system in PVs from July 1, 2019 is a step in this direction.
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Exhibit 32: Shift from passive safety towards active safety - Global
Source: Frost & Sullivan, ICICI Direct Research Average kit value for electronics content in PVs is estimated at ~US$2,800 globally. However, the comparable average in India is currently limited to ~US$700. There is significant potential for Indian component makers to cater to this space as domestic OEMs move towards introduction of higher value electronic content in areas related to cockpit (infotainment, ADAS), engine & powertrain and safety. MIL’s present electronics kit value is above industry average but it sees potential to increase it by a further 50% in times to come. The focus on road safety in India is only set to intensify in coming times. India is home to some of the most dangerous roads in the world. As per MoRTH, India recorded 4.67 lakh road accidents and 1.51 lakh road fatalities in 2018, ~11% of total such fatalities globally. Further, accidents tend to be severe in nature, with ~56% resulting in death or grievous injury. While the country has worked towards putting in place measures to prevent this loss of life (fatality rate down from 103.5 per 10,000 vehicles in 1970 to 5.8 in 2017; Exhibit 33), there remain grave concerns over vehicular safety.
Exhibit 33: Trend in road accidents and accident fatalities Exhibit 34: Road accidents by vehicle type (2018)
600 12.0
501 501
500 500
498 498
490 490
489 489
486 486
481 481 467 467 465 465 11% 500 10.5 10.0 10.0 Motorised 2-W 8.7 5% 400 7.6 8.0 Auto rickshaw 7.3 7.0 6.6 35% 300 6.0 Car/Jeep/Van/Taxi
5.8 12%
('000 nos.)('000 151 151
151 151 Bus
148 148
146 146
142 142
140 140 138 138
200 138 4.0 135 135 Truck/Lorry 100 2.0 7% Fatalities per 10,000 vehicles 10,000 per Fatalities Tempo/Tractor - - 6% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Others 24% Road accidents Road accident deaths Fatality rate (RHS)
Source: MoRTH, ICICI Direct Research Source: MoRTH, ICICI Direct Research
Sensors, controllers and embedded software MIL’s sensors, actuators and controllers (SAC) division, established in 2005, manufactures products such as start-stop sensors, contact and non-contact speed sensors, tyre pressure monitoring systems, electronic accelerator pedal modules, DC-DC converters and headlamp levelling motors among others. It caters to leading OEMs like M&M, Bajaj Auto, VECV, Royal Enfield, Tata Motors and General Motors. The sensors and controllers business is expected be a prominent beneficiary of regulatory push related to:
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1. Vehicular safety – Shift towards active safety systems is leading to introduction of products like reverse parking assistance systems i.e. MIL’s acquisition of Germany-based iSYS RTS in RPAS and futuristic solutions catering to ADAS through JV with TTE FY19 marked its entry into electronic control unit DAPS. Average realisations for RPAS sensors are currently at (ECU) business that has application in areas of ~| 250/unit, with average kit value at ~| 750 in entry level PV models lighting, body & comfort and cockpit electronics. iSYS clocked revenues of | 35 crore in FY19 2. BS-VI norms - MIL has already received BS-VI sensor orders from leading OEMs. It has entered into a distribution agreement with Sensata Technologies of US for high end BS-VI sensors using Magnetic Speed and Position i.e. MSP technology in areas of cam, crank and TISS. Sensata would provide technical & engineering support for five years and the collaboration allows MIL to enter critical engine sensors business 3. Vehicular tracking (AIS 140) – MIL has acquired the telematics business of KPIT Technologies for addressing emerging space of vehicle tracking and fleet management services using technologies like IVTS and OBITS Further, the general trend of increasing electronics content in vehicles (India average US$700 vs. global average US$2,800) necessitates higher usage of sensor based applications in PVs and is a longer-term demand driver for the space. For MIL, SAC contributed ~| 130 crore to consolidated revenues in FY19. The company expects regulatory tailwinds, increasing penetration of vehicle electronics to help the division to clock ~| 700 crore per annum by FY25. BS-VI Apart from air bags, MIL is present in a few other product categories that are benefiting from enhanced regulatory tightness towards occupant safety and vehicular emissions.
Exhibit 35: India’s switch to Euro 6 equivalent norms (three years) fastest globally
Source: Industry sources, ICICI Direct Research
Roki Minda, a JV between MIL and Japan’s Roki Company (MIL has 49% The company as of FY18 was the second largest stake) manufactures air filtration systems and carbon canisters. The player in air-filters domestically and has already upcoming transition to BS-VI norms sets stringent standards on emissions developed BS-VI compliant filters. BS-VI of particulate matter and nitrogen oxides, which directly affects the implementation is expected to provide strength to company’s products in this segment – while simultaneously opening up new the company’s filter and canister businesses from opportunities to cater to these tighter regulations such as diesel particulate FY21E onwards filters (DPF) and selective catalytic reduction (SCR) modules.
Exhibit 36: Revenue, profitability trend at JV Roki Minda 400 6.6
350 6.5 6.5 300 6.4 6.4 250 6.3 200
₹ crore ₹ 6.2 6.2 150 6.1 100
50 6.0
368 368 394 147 147 - 5.9 FY17 FY18 FY19
Revenues PAT margins
Source: Company, ICICI Direct Research
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Base businesses to offer steady state support to overall growth MIL’s traditional business lines i.e. automotive switches, lighting and horns contribute ~72% of consolidated sales at present. As part of its longer term strategy, the company wants to reduce dependence on these products and sees them forming ~35-40% of revenues by FY25. While newer products and emerging opportunities (alloy wheels, sensors/controllers, seating systems, airbags etc.) are seen growing faster than legacy verticals, the latter would nevertheless continue to play an important supportive role in the overall picture for MIL in coming years through its status as a leading player in all these segments with a presence across key OEM clients.
Exhibit 37: Segment wise contribution to MIL revenue growth in FY13-19
7,000 Legacy products Legacy products have accounted for ~ two thirds of 6,000 714 5,909 MIL’s consolidated revenue growth in FY13-19. They 908 are expected to assume a supportive role over the 5,000 coming years amid faster anticipated growth for 544 newer products i.e. alloy wheels, sensors/controllers, airbags, etc 4,000 987
₹ crore ₹ 3,000 1,427
2,000 1,340 1,000
- FY13 Switches Lighting Acoustics LMT Others FY19
Source: Company, ICICI Direct Research Switches MIL is the largest automotive switch player in India (4-W & 2-W) and the largest 2-W switch manufacturer worldwide by volume. Its domestic 4-W, 2- W switches market share is at 55%, 65%, respectively. The segment is the company’s oldest and largest and still contributes ~38% to revenues currently. Its products on the 4-W side include audio & cruise switches, door lamp switches, HVAC, power window switches, mirror switches, panel switches and lever combination switches. The 2-W switch products include handlebar assemblies, CBS, off-road switches, noise suppressor caps and other customised switches. The company serves the 4-W segment through subsidiary Mindarika (MIL has 51% stake, rest with Japanese partner Tokai Rika) while the 2-W switch business is part of the standalone entity.
Exhibit 38: Switch segment revenue growth 2,500
2,000
1,500
₹ crore ₹ 1,000
500
810 810
1,014 1,014 1,257 1,078 1,475 2,237 1,110 1,110 - FY13 FY14 FY15 FY16 FY17 FY18 FY19
Switches segment revenues
Source: Company, ICICI Direct Research
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Switch segment revenues have grown at a formidable 18.4% CAGR in FY13- 19 on the back of consistent market share gains in a segment that itself has been riding on tailwinds in the form of increasing consumer gravitation MIL’s competitors in the automotive switches space towards (a) comfort e.g. HVAC systems, (b) convenience e.g. power include Varroc Engineering in 2-W & Kostal in 4-W windows and (c) ride quality e.g. noise suppression. The company has been able to grow faster than the industry by taking advantage of technology evolution in favour of ease of riding, e.g. climate control and the transition from manual to automatic. This has enabled healthy growth in realisations, with average ASPs today to the tune of | 2,500-8,500 in 4-W and | 400–6,000 in 2-W. The company has a strong presence at MSIL and Toyota in 4-W and Bajaj Auto, TVS Motor and HMSI on the 2-W side.
Exhibit 39: Client wise 4-W switches sales mix (FY19) Exhibit 40: Client wise 2-W switches sales mix (FY19)
MSIL Bajaj Auto 32% 34% TKML 40% TVS 42% M&M HMSI TML Royal Enfield TGMI Yamaha 4% Others Others 6% 11% 3% 3% 6% 10% 9%
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
The ongoing slowdown in FY20 is expected to weigh on near term prospects for the switching division. Going forward, however, we expect the company to return to positive growth territory and continue to grow faster than the industry. We conservatively build in lower growth rate of 4.8% CAGR over FY20E-22E accompanied by stability in margins at present ~12% levels.
Exhibit 41: Future growth projection for switches division 2,500
2,000
1,500
₹ crore ₹ 1,000
500
2,237 2,237 1,901 2,087 1,863 1,863 - FY19 FY20E FY21E FY22E
Source: Company, ICICI Direct Research Lighting The lighting business is MIL’s second oldest product segment (entered in 1980) and contributed ~22% of consolidated revenues for the company in FY19. MIL is India’s third largest automotive lighting player with overall market share of ~22%. Its capabilities on the lighting side span the product life cycle from design to aftermarket, backed by R&D facilities in India (for PV), Spain (for 2-W) and Taiwan (including design centre).
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Exhibit 42: Lighting segment revenue growth 1,400 Pre Rinder Post Rinder
1,200
1,000
800 The 4W:2W product revenue mix in lighting division (including Rinder) is at ~50:50. MIL has ~13%
₹ crore ₹ 600 market share in PV headlamps 400
200
1,159 1,159 1,293 1,293
306 306 529 451 867 372 372 - FY13 FY14 FY15 FY16 FY17 FY18 FY19
Lighting segment revenues
Source: Company, ICICI Direct Research This segment grew organically for much of the company’s history. However, acquisition of Spain-based Rinder group in 2016 pushed it into a higher growth orbit (Minda Rinder forms ~50% of overall lighting segment at the consolidated level at present). The Rinder acquisition boosted MIL’s competitiveness in the premium lighting space given its technological prowess, especially on the LED side. The acquisition of Germany-based Delvis in 2019 is set to further complement the competitiveness of MIL’s lighting division, particularly in PV headlamps. MIL aims to leverage Delvis’ technological, design and R&D capabilities as well as the company’s presence with global 4-W OEMs like Volkswagen, Audi and Skoda.
Exhibit 43: Client wise revenue mix – Lighting (FY19) Exhibit 44: Future growth projection for lighting division 1,400 1,350
MSIL 1,300 29% 32% 1,250 M&M 1,200 Toyota
₹ crore ₹ 1,150 Renault 1,100 Tata Motors
6% 1,050
1,293 1,293 1,228 1,204 1,348 Others 1,000 9% 12% FY19 FY20E FY21E FY22E 12%
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Going forward, the overall prospects of the lighting division are expected to remain tied to (a) segment tailwinds benefiting LED division and (b) market share gains from peers in non-LED division amid focus on increasing share of higher margin products such as PV headlamps. We see the profitability of the segment remaining around present ~10% EBITDA margin territory and build in muted 4.8% CAGR in FY20E-22E conscious of the present slowdown in the wider automotive space in India.
Acoustics Acoustics i.e. automotive horns form ~12% of consolidated revenues. The company is India’s largest player in this segment (commanding 50% domestic market share) and also the second largest player globally. It manufactures electronic automotive horns, trumpet horns and disc horns for PVs, 2-W, CVs and off-road vehicles.
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Exhibit 45: Acoustics segment revenue growth 800 700 600 500 400
₹ crore ₹ 300 200
100
265 551 589 671 717 0 FY15 FY16 FY17 FY18 FY19
Acoustics segment revenues
Source: Company, ICICI Direct Research The company acquired Spain based Clarton Horns in 2013, which significantly expanded MIL’s scale in the segment. Clarton chiefly serves leading European PV OEMs and contributes two-third of the acoustics division revenues at present. The Indian acoustics business, on the other hand, caters equally to PV, 2-W segments. Major global clients for the division include BMW, Volkswagen, Daimler and Audi while major Indian clients are Maruti Suzuki, Bajaj Auto, Tata Motors, Hyundai and Honda Motorcycles.
Exhibit 46: Client wise revenue mix – Acoustics (FY19) Exhibit 47: Future growth projection for acoustics division 770 13% 720 BMW VW 13% 670 Hyundai 52% Daimler crore ₹ 620 9% Audi Others 570
8%
717 717 663 637 700 5% 520 FY19 FY20E FY21E FY22E
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
While the acoustics division would support MIL’s overall performance in coming years in absolute terms, we expect the growth rate to lag that of the consolidated business, largely on account of a significant presence in Europe. Given the high exposure of the segment to Europe (traditionally a relatively lower growth geography), we conservatively build in 2.8% revenue CAGR for acoustics in FY20E-22E. Nevertheless, MIL’s presence across product technologies, diverse client mix and evolving industry landscape in favour of value migration towards premium products like electronic horns are supportive of the division.
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Recent acquisitions to help outpace industry from FY21E HSSL Financials Harita Seating: Prudent, inexpensive purchase In February 2019, MIL announced the acquisition of Harita Seating Systems Particulars Un its FY16 FY17 FY18 FY19 (HSSL), with the latter slated to merge into MIL post receipt of regulatory P&L Line Item s approvals (awaited as on date). HSSL (established in 1988) is a domestic Topline ₹ crore 636.9 710.6 863.5 975.0 leader in seating solutions for the tractor, commercial vehicle (including ₹ buses) and construction equipment segment. It has 12 manufacturing plants EBITDA crore 50.7 64.4 81.7 78.1 across India and counts Tata Motors, TVS Motor, Royal Enfield, TAFE, EBITDA % 8.0 9.1 9.5 8.0 Daimler, John Deere, etc, as its key clients. MIL offered two exit options to PAT ₹ crore 25.9 28.3 37.6 28.8 the existing shareholders of HSSL: B/S Line Item s Netw orth ₹ crore 96.5 118.8 154.3 178.4 (i) Share swap option; 152 shares of MIL for every 100 shares of HSSL Debt ₹ crore 5.0 11.3 22.4 31.7 (ii) Four fully paid up non-convertible redeemable preference share(s) of D:E x 0.1 0.1 0.1 0.2 | 100 each at a premium of | 21.25 each of MIL for every fully paid equity Capital Efficiency Ratios share of | 10 held in HSSL (i.e. exit option at | 485/share) RONW(%) % 26.9 23.8 24.4 16.1 We believe HSSL acquisition is a strategic fit for MIL as it augments its ROCE(%) % 26.9 26.9 29.0 22.6 product profile while at the same time helping MIL make inroads into HSSL’s RO IC(% ) % 59.2 51.1 45.4 36.0 clientele. HSSL is a financially sound company with minimum leverage on Cash Flow Statem ent Line Item s books, consistent history of CFO generation and strong capital efficiency CFO ₹ crore 54.4 38.3 34.7 117.4 ratios (RoCE>20%). Moreover, it is being acquired at a valuation of ~<12x CFI ₹ crore -14.7 -35.8 -38.5 -103.8 P/E, ~<2x P/B and ~<6x EV/EBITDA on FY19 numbers. Source: Capitaline, ICICI Direct Research Delvis: Global lighting play to augment MIL’s lighting competitiveness We incorporate HSSL’s financials in our forward MIL recently completed the acquisition of Delvis GmbH, which is a German estimates & for simplicity of our calculation, we consider player providing advanced lighting solutions to major German PV OEMs entire quantum of purchase to be made via share swap (VW, Audi, Porsche) for exterior and interior lighting (including overhead control units, ambient lighting, indicator and locator lighting and LED backlights), lighting electronics and testing services. Its capabilities in the space span automotive lamps engineering, design & testing, along with contract manufacturing for some components. Delvis offers the full range of products from cost-optimised basic headlights and design solutions up to adaptive LED headlight systems with dynamic lighting functions. MIL acquired Delvis at an enterprise value of €21 million (~| 150-160 crore). It is expected to clock sales of ~€40 million (~| 300 crore) with corresponding EBITDA margins at ~7% in FY21E. We view this acquisition as a strategic play in the premiumisation drive that will further augment the content provided by MIL to its customer. The acquisition cost at ~0.5x EV/sales prima facie also looks reasonable. Being predominantly exposed to lower-growth European clients, however, Delvis currently realises lower double digit return ratios.
Exhibit 48: Segment-wise contribution to expected MIL revenue growth (FY19-22E) 8,500 Inorganic contribution 770 352 7,165 7,500 171 75 6,500 55 5,500 5,909 4,500
3,500 ₹ crore ₹ 2,500 1,500
500 (150) (17)
(500)
LMT
FY19
Harita
Delvis
Others
FY22E
Lighting Switches Acoustics Source: Company, ICICI Direct Research
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Minimal EV risk; strong R&D slant key to mitigate disruptions MIL has quite limited exposure to engine and engine related parts in its product portfolio. The company makes CNG, LPG kits (alternate fuel systems), fuel hoses and fuel caps, which would all be rendered obsolete in the event of increased adoption of EVs. These products contribute ~5-10% to consolidated revenues at present. The company is proactively working on development of EV components such as battery management systems, on-board chargers, DC controllers and innovative technologies like wireless charging systems to mitigate the risk of EVs as well as open up new areas of possible revenue generation.
Exhibit 49: Product wise impact of technological disruptions Application C o m p o n e n ts C o m p an y BS-VI Plug in Electric Battery electric Alternate Fuel Systems Minda Emer Tech Unchanged O bsolete O bsolete A ir Filtration Systems Roki Minda Continue with changes Continue with changes O bsolete Engine & Canisters Roki Minda Continue with changes Continue with changes O bsolete Transmission Brake Hoses Minda TG Unchanged Unchanged Continue with changes Fuel Hoses Minda TG Unchanged Unchanged O bsolete Alloy Wheels Minda Kosei Unchanged Unchanged Unchanged Cameras MFTL, Minda TTE Positive impact Unchanged Unchanged Safety Parts EA Pad Minda Kyoraku Positive impact Unchanged Unchanged Steering Wheels, Airbags Toyoda Gosei Positive impact Unchanged Unchanged Fuel Caps Minda Industries Unchanged Unchanged O bsolete Lamps Minda Industries Unchanged Continue with changes Continue with changes Air Ducts & Washer bottle Minda Kyoraku Unchanged Unchanged Unchanged Body Parts Spoiler Minda Kyoraku Unchanged Unchanged Unchanged Body Sealings Toyoda Gosei Unchanged Unchanged Unchanged 4-W Switches & HVAC Mindarika Unchanged Continue with changes Continue with changes Cigar Lighters & Chargers Mindarika Unchanged Unchanged Unchanged Wheel Covers Mindarika Unchanged Unchanged Unchanged Infotainment Systems Minda D-Ten Unchanged Unchanged Unchanged Speakers Minda Onkyo Unchanged Unchanged Unchanged Comfort & RPA S/A DA S Minda Industries Positive impact Unchanged Unchanged Convenience Sensors Minda Industries Continue with changes Continue with changes Continue with changes A ctuators Minda Industries Unchanged Unchanged Unchanged Controllers Minda Industries Unchanged Continue with changes Continue with changes Telematics & connected MIL Controllers Positive impact Unchanged Unchanged Horns Minda Industries Unchanged Continue with changes Continue with changes O thers Batteries - lead acid Minda Industries Unchanged Continue with changes Continue with changes
Source: Company, ICICI Direct Research MIL has consistently demonstrated a focus on R&D as a means to be more R&D expenses trend at MIL (| crore)
self-reliant in areas of technology and product innovation. Its state-of-the-art 100 2.5 2.2 2.2
Centre for Research, Engineering and Advance Technologies (CREAT) is a 80 2.0 2.0 1.7 1.7
significant step in this direction. The centre works on embedded electronic 1.5
60 1.5 1.5 products related to connected vehicles, telematics, ADAS, infotainment, EV 40 1.0 technologies, controllers and sensors, advance lighting and others in four
20 0.5
51 51 59 67 91 product spaces – (1) cockpit electronics and advanced technologies (2) body 47 - - exterior and safety technologies (3) creative design and innovation and (4) FY15 FY16 FY17 FY18 FY19 product assurance lab. R&D expenses as % of revenues
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 22 Initiating Coverage | Minda Industries ICICI Direct Research
Financials
Exhibit 50: Topline trend 7,500 35.0% 32.2% 7,000 28.9% 30.0% We expect consolidated revenues to grow at a 25.0% 6,500 healthy CAGR of 14.8% in FY20E-22E largely on the 20.0% back of integration of HSSL and Delvis financials 6,000 17.1% 15.0% 5,500 12.6% 10.0% 5,000 ₹ crore ₹ 5.0% 4,500 0.0% 4,000 -5.0% -8.0%
3,500 -10.0%
4,471 4,471 5,908 5,435 6,363 7,165 3,000 -15.0% FY18 FY19 FY20E FY21E FY22E
Revenues YoY Growth
Source: Company, ICICI Direct Research
Exhibit 51: Product wise revenue trend
8,000 Base business segments i.e. switches, lighting, 7,000 acoustics are expected to lend a supportive role to overall growth while new age products of the likes 6,000 1,951 754 1,760 of alloy wheels, sensors & controllers and LED 5,000 825 lighting are expected to drive organic growth 908 1,079 581 817 899 4,000 717 585 700 ₹ crore ₹ 663 637 3,000 671 1,293 1,348 1,228 1,204 2,000 1,159
1,000 2,237 1,901 2,087 1,475 1,863 - FY18 FY19 FY20E FY21E FY22E
Switches Lighting Acoustics LMT Others
Source: Company, ICICI Direct Research Exhibit 52: EBITDA trend 1,200 12.6 12.5 12.4 1,000 Consolidated EBITDA is expected to grow at 17.6% 12.3 12.2 CAGR in FY20E-22E, faster than revenue growth. 800 This is on account of increasingly favourable product 12.0 mix e.g. higher proportion of sales from alloy wheels 11.9 11.9 and LED lights. EBITDA margins, however, are 600 11.8
expected to remain range bound near present levels ₹ crore ₹ 11.6 amid predominant share of OEMs in channel mix and 400 11.5 assumed gradual nature of import substitution 11.4 efforts 200
11.2
534 534 648 732 896 725 725 - 11.0 FY18 FY19 FY20E FY21E FY22E
EBITDA EBITDA Margin % (RHS)
Source: Company, ICICI Direct Research
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Exhibit 53: Trend in profitability 400 7.0 6.6 350 6.0 We expect consolidated PAT to grow at a fast rate 5.5 300 of 32.6% CAGR in FY20E-22E. Betterment of product 5.0 5.0 mix along with improvement in share of profits from 250 large JVs/associates catering to air bags, 4.0 3.9 3.7 200 infotainment systems and switches on the back of revival in automotive space are seen driving ₹ crore ₹ 3.0 150 profitability higher on an absolute basis. Large capex 2.0 undertaken over past few years and higher debt on 100 books, however, are seen resulting in larger interest
50 1.0 and depreciation outgo, keeping margin
310 310 286 184 324 324 209 209 performance in check - - FY18 FY19 FY20E FY21E FY22E
PAT PAT Margin % (RHS)
Source: Company, ICICI Direct Research
Exhibit 54: Return ratios trend 25.0
MIL had entered into a healthy double-digit return 20.0 ratio orbit around FY17. Several acquisitions and high capex outgo over the past several years, 15.0 however, have dragged return ratios down to early and mid-teen digits now. We expect them to gradually inch higher in FY20E-22E as capex cycle is 10.0 largely behind the company, with new facilities ready to contribute to revenues and profitability. 5.0 Revival in the wider automotive space would also
aid positive direction in return ratio profile
21.3 21.3 19.7 19.0 17.5 11.5 12.4 11.6 12.3 15.8 17.8 17.8 16.6 11.3 11.8 15.4 15.0 - FY18 FY19 FY20E FY21E FY22E
RoE (%) RoCE (%) RoIC (%)
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 24 Initiating Coverage | Minda Industries ICICI Direct Research
Risks & Concerns Covid-19 leading to prolonged slowdown in domestic auto industry Covid-19 is a black swan event with far reaching implications for businesses worldwide. The Indian economy is no exception with a stringent ~40-day lockdown period underway. There is almost nil manufacturing activity in this period with slow ramp up thereafter amid conflicting views on automobile purchase as a discretionary spend getting deferred vs. the preference for personal mobility for safety purposes. Hence, there are risks to our estimates with OEMs forming bulk of MIL’s consolidated sales at ~89%. Our underlying assumption is of a complete shutdown for April, partial resumption of operations in May and normalised operations by the end of quarter i.e. Q1FY21. For the domestic automobile industry, we largely assume ~5% volume decline in FY21E followed by ~10% YoY growth in FY22E, primarily following two years of underperformance.
Exhibit 55: OEMs as proportion of channel mix
90 89 88 88 86 86
% 84 82 82
80
78 FY16 FY17 FY18 FY19
Source: Company, ICICI Direct Research
Weak FCF generation In pursuit of acquisitions, group consolidation as well as greenfield capex; FCF generation has been weak over a longer time horizon. Over a seven year period i.e. FY13-19, total CFO generation was at | 1531 crore with corresponding investment in plant & machinery (PPE) at | 1898 crore, thereby leading to negative FCF of ~| 367 crore in the aforesaid period. With consolidation of recent acquisition of Harita Seating and Delvis in FY21E, meaningful FCF generation is expected at MIL only in FY22.
Exhibit 56: FCF generation trend 800
600
400 324
200 95 118 70 42 0
₹ crore ₹ -33 -73 -39 -200 -131 -400 -256
-600
-800 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E CFO Net Fixed Asset Addition FCF
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 25 Initiating Coverage | Minda Industries ICICI Direct Research
Further stretching of working capital cycle Working capital discipline has traditionally been MIL’s strength (net working capital days stringently maintained at <=33 days in FY13-18). In pursuit of growth and group consolidation, however, it got stretched to 41 days in FY19. This has led to sub-optimal CFO generation with CFO: EBITDA for FY19 at 0.6x vs. FY13-18 average of 0.8x. Going forward, we conservatively build in NWC days in the range of 35-40 days, with any further elongation of working capital cycle limiting CFO generation.
Exhibit 57: Working capital cycle trend 70
60
50
40 41 40 35 35 33 33 days 30 30 27 27 25 20
10
0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E Inventory Days Debtor Days Creditor Days NWC cycle
Source: Company, ICICI Direct Research
Exhibit 58: CFO generation trend
1000 1.2 900 1.0 1.0 800 1.0 0.9 0.9 700 0.8 0.8 0.8 600 0.7
500 0.6 0.6 x 0.5 0.6
400 ₹ crore ₹ 300 0.4 200 0.2 100 0 0.0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
CFO EBITDA CFO:EBITDA (LHS)
Source: Company, ICICI Direct Research Possible delay in panning out of rising kit value thesis The domestic automotive space is currently in the midst of severe demand challenges. With the prolonged slowdown (starting September 2018) coinciding with transition to BS-VI norms, there are increasing instances of calls from within the industry to extend some relief to customers on the pricing front to lower cost of vehicle ownership and consequently induce demand. This could also make OEMs withhold altogether or cut back on the pace of introduction of premium features e.g. LED lights/alloy wheels/infotainment systems in their products in favour of basic alternatives such as halogen lights and steel wheels. The same could cause a delay in the playing out of our thesis with respect to higher kit values helping MIL outperform peers and the wider auto component industry. Vehicle recall due to quality deficiencies may alter OEM relationship In the Indian context, vehicle recalls due to safety issues have been minimal in nature. Except airbags, MIL largely does not manufacture products that do carry recall risk and the company has no such cases in this division either, thus far. However, in case such a situation was to arise due to any quality deficiencies in the product supplied (airbags or any other product) by MIL, it can greatly alter the relationship of OEMs with MIL.
ICICI Securities | Retail Research 26 Initiating Coverage | Minda Industries ICICI Direct Research
Valuation & Outlook MIL has grown at a robust pace over the past decade with FY10-19 consolidated revenue CAGR of 28.5% with associated consolidated PAT CAGR at 32.5%. It was largely driven by its penchant for early identification Currently it realises stable ~12% EBITDA margins of product opportunities that have gone on to receive regulatory impetus or while maintaining capital efficient business model customer appeal and then addressing them through organic as well as with five year average RoCE at 16%. inorganic route. MIL has commanded premium valuations primarily tracking its formidable presence in new age technology products like airbags, sensors, alloy wheel and aluminium die casting. Going forward, by virtue of high OEM share in its consolidates sales, MIL is likely to witness demand disruption in the near term in response of Covid-19. However, the sharp stock price correction in the recent past (down 40% YTD) provides a lucrative entry point. We like MIL courtesy its progressive product profile, healthy capital efficiency and consistent positive CFO generation. We assign a BUY rating to MIL with a target price of | 300, valuing it at 10x FY22E EV/EBITDA i.e. implied 25x FY22E P/E of | 11.8.
Exhibit 59: MIL trades at ~21x P/E on FY22E EPS of | 11.8 while its long period average P/E ratio is placed at ~20x
600
500
400 )
₹ 300 (
200
100
0
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19
Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20
Jan-17 Jan-18 Jan-15 Jan-16 Jan-19 Jan-20
Price 45x 36x 24x 28x 20x 12x 16x
Source: Bloomberg, ICICI Direct Research In peer comparison, we have largely compared MIL with domestic market oriented auto ancillary players with comparable scale of operations in India. All these companies follow a capital efficient business model and have controlled leverage on B/S- in tandem with the key financial factors at MIL.
Exhibit 60: Peer comparison on trailing basis C o m p an y Mcap Sale s (₹ cro re ) EBITDA Margins (%) PAT (₹ cro re ) Ro C E (%) Valuation (FY20E) ₹ cro re FY18 FY19 FY20E FY18 FY19 FY20E FY18 FY19 FY20E FY18 FY19 FY20E P/E P/B EV /EBITDA Minda Industries 6,555 4,471 5,908 5,435 11.9 12.3 11.9 310 286 184 17.8 16.6 11.3 35.6 3.5 11.6 Endurance Tech 8,304 6,426 7,411 7,128 14.5 15.2 16.4 387 495 579 14.9 16.6 17.7 13.5 1.7 7.0 Exide Industries 11,050 9,210 10,588 10,013 13.5 13.3 13.8 668 844 802 19.0 18.4 16.4 13.5 1.7 7.6 Amara Raja Batt 8,541 6,059 6,793 7,014 14.6 14.0 16.3 471 483 684 23.3 21.2 22.2 12.5 2.2 7.0
Source: Bloomberg, ICICI Direct Research
Exhibit 61: Peer comparison with forward numbers and valuation C o m p an y Mcap Sale s (₹ cro re ) PAT (₹ cro re ) Ro C E (%) P/E P/B ₹ cro re FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E Minda Industries 6,555 5,435 6,363 7,165 184 209 324 11.3 11.8 15.0 35.6 32.8 21.2 3.5 3.4 2.9 Y oY (% ) 17% 13% 14% 55% Endurance Tech 8,304 7,128 7,372 8,216 579 570 662 17.7 18.0 17.7 14.4 14.5 12.5 2.8 2.5 2.2 Y oY (% ) 3% 11% -2% 16% Exide Industries 11,050 10,013 8,688 9,691 802 647 800 16.4 12.8 14.7 13.5 17.1 13.8 1.7 1.6 1.5 Y oY (% ) -13% 12% -19% 24% Amara Raja Batt 8,541 7,014 7,627 8,020 684 732 796 22.2 21.5 20.6 12.5 11.7 10.7 2.2 1.9 1.7 Y oY (% ) 9% 5% 7% 9%
Source: Bloomberg, ICICI Direct Research
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Annexures I – UNO Minda Group
Exhibit 62: UNO Minda group revenues Exhibit 63: Group product profile – revenue mix 9,000 8,014 Switches 8,000 7,010 Lamps 7,000 16.4% 5,662 6,000 27.7% Alloy wheels
5,000 4,262 6.1% Gear shifters, seat belts 4,000 3,500 ₹ crore ₹ 7.8% Horns 3,000 Safety systems 2,000 9.0% 13.9% Car infotainment 1,000 8.7% systems 10.5% Others - FY15 FY16 FY17 FY18 FY19
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 64: Channel mix at group level Exhibit 65: Segment mix at group level 1.6% 0.4% 7.3%
12.9%
35.3%
62.7%
79.7%
OEM (India) International business Aftermarket 4-W 2-W Tractor 3-W
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
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II – Indian auto component industry
Exhibit 66: Channel mix of Indian auto component industry Exhibit 67: Segment wise break-up - auto component industry
₹ 3.6 lakh crore (FY19) FY19
Engine components 5% 3% 15% Suspension & braking 12% 26% Drive transmission OEM Body / chassis 19% Exports 10% Electricals & electronics Replacement 66% 14% Interiors (non-electronics) 17% Exhaust management sys. 13% Cooling systems
Source: CRISIL Research, ICICI Direct Research Source: CRISIL Research, ICICI Direct Research
Exhibit 68: BS-VI and safety norms impact on sub segments
Source: CRISIL Research, ICICI Direct Research
Exhibit 69: Huge import substitution opportunity 120,000 98,100 100,000
80,000 65,800
60,000 ₹ crore ₹ 40,000
20,000
- FY14 FY19
Auto component industry imports
Source: CRISIL Research, ICICI Direct Research
ICICI Securities | Retail Research 29 Initiating Coverage | Minda Industries ICICI Direct Research
Financial summary
Exhibit 70: Profit and loss statement | crore Exhibit 71: Cash flow statement | crore (Year-end March) FY19 FY20E FY21E FY22E (Year-end March) FY19 FY20E FY21E FY22E Net Sales 5908.1 5435.2 6362.7 7165.0 Profit after Tax 285.6 184.0 208.9 323.6 Other Operating Income 0.0 0.0 0.0 0.0 Add: Depreciation 234.4 293.5 324.5 351.1 Total Operating Incom e 5,908.1 5,435.2 6,362.7 7,165.0 (Inc)/dec in Current Assets -290.3 142.7 -186.1 -225.4 G row th (% ) 32.2 -8.0 17.1 12.6 Inc/(dec) in CL and Provisions 0.4 -92.6 133.6 132.2 Raw Material Expenses 3,622.5 3,267.7 3,913.1 4,406.5 O thers 63.2 90.5 110.8 92.8 Employee Expenses 791.3 841.9 954.4 1,003.1 CF from operating activities 293.2 618.1 591.7 674.3 Other Operating Expense 769.1 678.0 763.5 859.8 (Inc)/dec in Investments -246.4 -25.0 -25.0 -25.0 Total Operating Expenditure 5,182.9 4,787.6 5,631.0 6,269.4 (Inc)/dec in Fixed Assets -631.3 -500.0 -550.0 -350.0 EBIT DA 725.2 647.7 731.7 895.6 O thers 99.1 25.0 28.0 33.0 G row th (% ) 35.8 -10.7 13.0 22.4 CF from investing activities -778.6 -500.0 -547.0 -342.0 Depreciation 234.4 293.5 324.5 351.1 Issue/(Buy back) of Equity 35.0 0.0 2.3 0.0 Interest 63.2 90.5 110.8 92.8 Inc/(dec) in loan funds 472.2 50.0 100.0 -200.0 O ther Income 27.0 26.8 24.3 25.5 Interest and Dividend outgo -94.0 -120.4 -138.2 -125.7 PBT 454.7 290.4 320.7 477.2 Inc/(dec) in Share Cap 0.0 0.0 0.0 0.0 O thers 35.0 26.1 22.0 20.0 O thers 22.6 0.0 0.0 0.0 Total Tax 134.1 80.3 89.8 133.6 CF from financing activities 435.9 -70.4 -35.9 -325.7 PAT 285.6 184.0 208.9 323.6 Net Cash flow -49.5 47.7 8.9 6.6 G row th (% ) -7.9 -35.6 13.5 54.9 Opening Cash 159.5 110.0 157.8 166.7 EPS (₹) 10.9 7.0 7.6 11.8 Closing Cash 110.0 157.8 166.7 173.3
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 72: Balance sheet | crore Exhibit 73: Key ratios (Year-end March) FY19 FY20E FY21E FY22E (Year-end March) FY19 FY20E FY21E FY22E Liabilities Per share data (₹) Equity Capital 52.4 52.4 54.8 54.8 EPS 10.9 7.0 7.6 11.8 Reserve and Surplus 1,651.7 1,805.8 1,987.4 2,278.1 Cash EPS 19.8 18.2 19.5 24.6 Total Shareholders funds 1,704.1 1858.3 2,042.1 2,332.9 BV 65.0 70.9 74.6 85.2 Total Debt 1,081.2 1,131.2 1,231.2 1,031.2 DPS 1.2 1.1 1.0 1.2 Deferred Tax Liability 0.6 0.6 0.6 0.6 Cash Per Share (Incl Invst) 4.2 6.0 6.1 6.3 Minority Interest / O thers 342.3 367.3 395.3 428.3 Operating Ratios (%) Total Liabilities 3,128.2 3357.4 3,669.2 3,793.0 EBITDA Margin 12.3 11.9 11.5 12.5 A ssets PA T Margin 4.8 3.4 3.3 4.5 Gross Block 2,237.9 2,619.4 3,319.4 3,669.4 Inventory days 34.7 35.0 30.0 30.0 Less: Acc Depreciation 523.0 816.5 1,141.0 1,492.1 Debtor days 55.6 55.0 55.0 55.0 Net Block 1,714.9 1,802.9 2,178.4 2,177.3 Creditor days 49.3 50.0 50.0 50.0 Capital WIP 131.5 250.0 100.0 100.0 Return Ratios (%) Total Fixed Assets 1,846.4 2,052.9 2,278.4 2,277.3 RoE 19.0 11.5 11.6 15.4 Investments & Goodwill 530.2 555.2 580.2 605.2 RoCE 16.6 11.3 11.8 15.0 Inventory 561.0 521.2 523.0 588.9 RoIC 17.5 12.4 12.3 15.8 Debtors 899.2 819.0 958.8 1,079.7 Valuation Ratios (x) Loans and Advances 56.3 51.8 60.6 68.2 P/E 23.0 35.6 32.8 21.2 Other Current Assets 227.6 209.4 245.1 276.0 EV / EBITDA 10.4 11.6 10.4 8.3 C as h 110.0 157.8 166.7 173.3 EV / Net Sales 1.3 1.4 1.2 1.0 Total Current Assets 1,854.1 1,759.1 1,954.1 2,186.1 Market Cap / Sales 1.1 1.2 1.0 0.9 Current Liabilities 981.2 896.7 1,010.9 1,126.4 Price to Book V alue 3.8 3.5 3.4 2.9 Provisions 121.2 113.1 132.4 149.1 Solvency Ratios Current Liabilities & Prov 1,102.4 1,009.8 1,143.4 1,275.5 Debt/EBITDA 1.5 1.7 1.7 1.2 Net Current Assets 751.7 749.3 810.7 910.5 Debt / Equity 0.6 0.6 0.6 0.4 Others Assets 0.0 0.0 0.0 0.0 Current Ratio 1.7 1.7 1.7 1.7 Application of Funds 3,128.2 3,357.4 3,669.2 3,793.0 Quick Ratio 1.2 1.2 1.2 1.2
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
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RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
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I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Jaimin Desai, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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