Minda Corp Ltd

to two/three wheelers, ... Minda Corp has entered into strategic alliances and technical collaborations with leading ... Hero Moto Corp,...

0 downloads 145 Views 2MB Size
Minda Corp Ltd.

INITIATING COVERAGE

7th April 2017

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 2

Minda Corp Ltd CMP

Target

Potential Upside

INR 105

INR 142

36%

Market Cap (INR Mn) 21988.2

Recommendation

Sector

Buy

Auto Ancillary

Sensing the Automotive Future Minda Corporation Ltd, incorporated in 1985 is one of the largest suppliers of 2 wheeler, 3 wheeler and Off Road vehicles. The company is a diversified company with a product portfolio encompassing from Mechanical & Electronic Security System, Door System, and Electronic Controllers for Electric Vehicles, Plastic Interiors and for Auto OEMs across the globe. We believe Minda Corp is on cusp of revival after dismissal Q3FY17 results. Implementation of BS-4 norms, higher use on cars sensors in future is expected to drive company’s top-line growth ahead. While company’s EBITDA margin is expected to improve by on-going restructuring program the key to success remains in turnaround in its key JVs, namely Minda Furukawa.

Investment Rationale Stricter Implementation of Safety norms, increased use of sensors, Greenfield Expansion in Mexico & Pune to drive top-line growth ahead: Minda Corp’s top-line growth in last 2 years (23.9% CAGR) is phenomenal on account of Minda Furukawa, KTSN and Minda Automotive. In the last 2 years, Minda Corp has slowly transformed itself from major 2-W supplier (40% contribution to revenue in FY15 to 29% in 9MFY17) to a complete solution provider for all OEM’s (PV and CV). Minda Corp’s presence in PV is startling, with backing of strong JV’s and technological partners company has managed to improve its footing. Minda Corp has under taken Greenfield expansion plan in Mexico after been awarded new business for specific models from a leading German car manufacturer in Mexico. The Company is also setting up additional Greenfield capacity in Pune for Die Casting with an intitial investment of INR 750Mn over two years to enhance production capacity . We believe Minda Corp’s presence in last 2 years in PV and CV space has improved and its products are better tested thanks to its technological partners. We now expect Minda Corp to receive strong orders for its product categories in Safety & Security Systems (39% contribution in 9MFY17) and Driver Information & Telematics (47% contribution in 9MFY17) on back of stricter implementation of safety norms, increased use of sensors in PV & CV. Hence, we expect company’s top-line growth of 15.5% CAGR between FY16 to FY19E to reach a top-line of INR 37,707.4 Mn.

MARKET DATA Shares outs (Mn)

209.3

EquityCap (INR Mn)

418.6 21988.2

Mkt Cap (INR Mn) 52 Wk H/L (INR)

144/86

Volume Avg (3m K)

357.85

Face Value (INR)

2

Bloomberg Code

MDA IN

*As on 24th Mar, 2017

SHARE PRICE PERFORMANCE

120

100

Sensex

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

80

Minda Corp

MARKET INFO 29927

SENSEX

9262

NIFTY

Turnaround in JV’s, restructuring and localization to aid EBITDA Margin: Minda Corp’s EBITDA margin in the past has remained volatile on account of higher operational cost. Mainly been driven by import of key raw materials from JV partners, higher personnel cost and increasing other cost. Minda Corp’s standalone business (12% in FY16) and Minda Sai (9.1%) has reported stable margins in the last 3 years leading from strong operational efficiency, tight control over the cost. However, company’s operational performance is weaker in JV’s especially Minda Furukawa (4% to 5% and -2% in 9M FY17) dragging the consolidated margins down. (9.13% in FY16 to 6.7% in 9MFY17). To improve the EBITDA margins company has laid out new plan by undertaking various initiatives like focusing on technologically advanced high yield products, entry into newer geographies, price renegotiations with customers etc. Management is also exploring possibilities for reduction of material cost by localizing content and better utilization of personnel. We believe, these measures should result in better margins for Minda corp. Hence, we have now estimated EBITDA margins to improve drastically from 6.7% in 9MFY17 to 10.1% by FY19E. Low Capex, stable Debt and improving efficiency to boost profitability and return ratios: Minda Corp has not shied away from focusing on inorganic growth and has always been dependent on JVs for technology. However, Minda Corp has been successful in utilizing the JV’s for technology and has added marquee clients to its name but has struggled in bringing operational efficiency. Minda Corp has so far invested ~INR 4,000Mn in last 3 years, while has done another ~INR 2,000 Mn in the current financial year. The Management has further guided a capex of ~INR 1,500Mn over the next two years. We now expect better utilization of assets as company will now seek to improve its efficiency. The current Debt to Equity (D/E) stands at 0.8x which is further expect to go up to 0.9x in this financial year. However, with capex slowing down in coming years D/E is expected to come down to 0.6x by FY19E.

SHARE HOLDING PATTERN (%) Particulars

Dec16

Sep16

Jun16

Promoters

70.21

70.21

65.23

FIIs

0.96

0.06

0.09

DIIs

9.76

12.64

19.13

Others

19.07

17.09

15.55

100

100

100

Total

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

15.5%

24.8%

Revenue CAGR between FY 16 and FY 19E

PAT CAGR between FY 16 and FY 19E

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 3

Minda Corp Ltd We believe with new initiatives been undertaken improving efficiency should result in better profitability for the company. Hence, we now expect the PAT margins to improve over next two years from 4.4% in FY16 and 3.4% in 9MFY17 to 5.3% by FY19E. We believe better EBITDA margins, stable D/E should result in better cash-flow and better return ratios for the company. Hence, we expect company’s Return on Capital Employed (ROCE) to improve from 14.4% in FY16 to 21.4% in FY19E and Return on Equity (ROE) to improve from 21.6% in FY16 to 27.1% in FY19E. Key Financials Particulars (INR mn)

2015

2016

2017E

2018E

2019E

19706.4

24455.2

29265.5

33290.6

37707.4

EBITDA

1817.6

2233.6

2114.7

3006.6

4007.8

PAT

895.3

1072.7

1061.3

1520.6

2088.7

OPM (%)

9.22%

9.13%

7.23%

9.03%

10.63%

NPM (%)

4.54%

4.39%

3.63%

4.57%

5.54%

EPS

4.3

5.2

5.1

7.3

10.0

PE

24.3

20.4

20.6

14.4

10.5

Net Sales

Source: Company Data, KRChoksey Research

Valuation & Recommendation We believe, Minda Corp’s top-line growth is a combination of total volume growth of Automobile Industry, followed by market share gains in CV segment and higher demand for sensors in PV segment. Hence, we expect a revenue growth of 15.5% CAGR between FY16 to FY19E. While company’s EBITDA margin is expected to improve by on-going restructuring program the key to success remains in turnaround in its key JVs, namely Minda Furukawa. We believe better EBITDA margins (6.7% in 9MFY17 to 10.6% by FY19E). We believe, Minda Corp is currently trading at a fair valuation compared to its peers (Minda Corp 20.9X vs. Average 21X). However, on FY19E Earnings Company is trading at a much cheaper valuation (Minda Corp 9X vs. Average of 12.5X). Company in the past has traded at an average multiple of 14.2x forward earnings. While the growth in earnings are expected to be robust (24.8% CAGR FY16 to FY19E) and return ratios (ROE 24.8% by FY19E) are about to turn in to higher orbit, we expect the company to fetch a higher multiple. We have valued the company at 14x FY19E of INR 10 to arrive at a target price of INR142 indicating a 36% upside from CMP of INR 105.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

15.5%

24.8%

Revenue CAGR between FY 16 and FY 19E

PAT CAGR between FY 16 and FY 19E

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 4

Minda Corp Ltd About Minda Corp Limited: The Group was founded in 1958 by Late Sh. S. L. Minda in Delhi. Today Minda Corporation Limited has emerged as a leading automotive component player with Worldwide presence. The Company manufactures auto components, accessories from various locations in India and abroad. The Company offers a diversified product portfolio that encompasses safety, security and restraint systems; driver information and telematics systems, and interior systems for auto original equipment manufacturers.Its products cater to two/three wheelers, passenger vehicles, commercial vehicles and after-market. The Company has 35 state of the art manufacturing facilities India (28), South-East Asia (3), Europe (3), North America (1) and a representative office in Japan with a total global workforce of over 10,000.

Business Model

Business Overview Minda Corporation Limited is a holding company. The Company manufactures auto components, accessories from various locations in India and abroad. The Company offers a diversified product portfolio that encompasses safety, security and restraint systems (39% of FY16 Revenue); Driver Information and Telematics systems (44% of FY16 Revenue ), and interior systems (17% of FY16 Revenue) for auto original equipment manufacturers. Its products cater to two/three wheelers, passenger vehicles, commercial vehicles and after-market. The company has an established track record of more than five decades. In these fifty years company has been interspersed by a number of technological innovations that have gone on to become industry standards. Company is India's leading manufacturers of Security Systems, Wiring Harnesses, Couplers & Terminals, Instrument Clusters, Sensors, Die Casting, Interiors, Keys & Key Duplicating Machines, that caters to all major two, three, four wheeler &off-road vehicles manufacturer in India & Overseas. The products are well accepted worldwide both within OEMs and the After-Market. Minda Corp derives 30% of its revenue from overseas market.

Company has a dedicated R&D facility and collaborations with the pioneers and leaders of the Automobile Industry f or assimilating the latest technologies.

Competitive Edge

Minda Corp has entered into strategic alliances and technical collaborations with leading international companies and acquired businesses across Europe. This has provided the group with the cutting edge in product design and technology to meet strict international quality standards. This has led to Strong customer base includes key OEMs such as AshokLeyland, Bajaj, BMW, Daimler, Hero Moto Corp, Honda Motorcycle, Mahindra & Mahindra, Maruti Suzuki, RenaultNissan, Tata Motors, TVS Motors, Yamaha and VW Group.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

15.5%

24.8%

Revenue CAGR between FY 16 and FY 19E

PAT CAGR between FY 16 and FY 19E

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 5

Minda Corp Ltd

Financial Structure

In 9M FY16-17 company’s revenue stood at INR 21,783 Mn, EBITDA atINR1,464Mnwith a margin of 6.7% and recorded a PAT of INR 752 Mn. As of FY16 company’s debt stood at INR 4,590Mn and Net D/E stood at 0.86x.

Key Competitors

The company has been competing with various companies across auto-ancillary segments namely Motherson Sumi, Minda Industries and Rico Auto, etc.

Industry Revenue Drivers

•Increasing Population •Rising per Capita Income leading to rise in per capital consumption of Vehicles •Availability of cheap and skilled workers, Geographical connectivity leading to cost benefit advantage for OEM exporters.

Current business Strategy

Minda Corporation Ltd offers a unique proposition to shareholders by offering a unique business model to participate in India’s Automobile growth story. Improving margins, return ratios along with strong support through its JV’s will result in expansion of business. Hence, we expect the company to deliver stellar returns for shareholders

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 6

Minda Corp Ltd Industry Outlook: The Indian Automotive Industry has made great strides over past two decades, sufficient to be noticed at a global level and be counted as a major auto-manufacturing hub. Over the past ten years, India has emerged as one of the most preferred locations in the world of manufacturing high quality automotive components and vehicles of all kinds. India currently ranks 2 nd largest in two wheelers, 8th largest in commercial vehicles, 6th largest in passenger vehicles and number 1 in tractors taking India to be the most important destination in the world. Exhibit 1: 20

16.9

15.7

15.4

16

18.8

18.5

Total production of automobiles in India (million units)

18 13.4

14 12

10.5

10

7.6

8

8.5

8.4

8

6 4 2

1.3 0.40.4

1.3 0.50.6

1.6 0.60.5

1.8 0.40.5

2.4 0.60.6

FY06

FY07

FY08

FY09

FY10

3.2

3.1

3

3.1

3.2

3.4

0.8 0.8

0.9 0.9

0.8 0.8

0.7 0.8

0.7 0.9

0.8 0.9

FY11

FY12

FY13

FY14

FY15

FY16

0 Passenger Vehicle Source: Company Data, KRChoksey Research, IBEF

Commercial Vehicle

Three Wheelers

Two Wheelers

Over the next decade, the automotive industry at a global level is likely to significant transformation. Principal ones that are expected include the shift in growth in demand for automobiles from developed nations to developing nations, a dramatic increase in the share of electronics in automobiles making them a “Computer on Wheels”, a relentless pursuit of economies of scale and scope in design and engineering of automobiles and components, while also pursuing low cost manufacturing designs. Exhibit 2: 18,00,000 16,00,000

Automotive Industry AMP 2026 Projections (Crs) 1,78,700

14,00,000 4,36,700

12,00,000 10,00,000

2,23,300

8,00,000

1,83,800

6,00,000 4,00,000 2,00,000 -

1,48,500

39,900 69,000 62,500 83,200 84,300 1,25,100

4,45,000

FY 15 Systems/Components (14% CAGR) OEM Exports (14%CAGR)

Components Import (6% CAGR) Components Export (20%CAGR)

FY 26P OEM Value Addition (8%CAGR) Component After Market (16%CAGR)

Source: Company Data, KRChoksey Research, AMP 2026

As per the Automotive Policy 2016-2026, the government of India envisages that the Indian Automotive Industry will grow 3.5-4 times in value from its current output of around INR 4,644,000Mn to INR 16,160,000 MN by 2026 considering on a base case with average GDP growth of 5.8%.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 7

Minda Corp Ltd Factors leading to industry growth: 1) Favorable demography, rise in income levels to boost demand for automobile sector The long-term fundamentals for the market remain strong as India evolves into the fastest-growing global economy. The country offers a strong growth potential to the industry, owing to its strong consumption, large youth population, and rise of the middle class and working population. India’s population is approximately 1.25 billion, second only to China. India had an estimated GDP of approximately US$ 7.965 trillion PPP in 2015, which makes it the fourth largest national economy in the world after China, the European Union and the United States of America. According to the IMF Report, India’s near term growth will continue to be driven by private consumption, benefited from lower energy prices and higher real incomes. Exhibit 3: Changing income dynamics of India’s population

Stable Economic Growth (%)

7.3

7.3

7.4

3.8

4.3

5.1

2014

2015

2016

7.6

7.8

30%

26%

5.1

5.4

43%

40%

2017E

India

244 Mn HouseHold

23% 2% 1% 2015 Deprived (<1985 USD) Seekers (4,413-11,032 USD)

2018E

BRICS

273 Mn HouseHold

25% 6%

3% 2020E Aspirers (1985-4,413 USD) Strivers (11,032-22,065 USD)

Source: Company Data, KRChoksey Research

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP).The Indian automotive aftermarket is estimated to grow at around 10-15 per cent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016. It has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product. Exhibit 4: GDP growth vs Auto sales growth

8 7 6 5 4 3 2 1 0

7.4

7.3 7

6.9 5.1 4

4

2.00

FY13

FY14 GDP Growth Rate %

FY15

FY16

Automobile Growth Rate %

Source: Company Data, KRChoksey Research

Historically, consumption recovery was largely due to a pick-up in urban demand as rural demand continues to be slow. Two consecutive years of weak monsoon, unseasonal rains and slow growth in minimum support prices of crops have taken a toll on rural demand. However, purchasing power of rural India is expected to increase with the implementation of various large scale socio-economic reforms of the government like MNREGA, Pradhan Mantri Gram SadakYojana (PMGSY), Pradhan Mantri Jan DhanYojana, 7th PayCommission among others.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 8

Minda Corp Ltd 2) Improving Finance Penetration and Greater availability of financing options to usher growth in Automotive Industry High population in the country, with approximately 66% of people in the middle income class and a large proportion of people in the young age group has poised as an attractive investment opportunity into cars which has led to an increase in demand of car finance for new and pre-owned cars. The country’s growth potential is helped by the existence of large driving population, which is expected to aid growth both in vehicle financing and automotive industry. By 2020, the India’s vehicle penetration is expected to increase by 50% albeit against low base. With a population size expected to hit 1.4 billion in2020E, and large majority of the population belonging to the driving age, the country provides for one of the world’s most attractive auto markets. Exhibit 5: Improving Vehicle Finance Penetration

Vehicle penetration, per 1,000 driving population 184

192

184

169

159 120

23 27 Philippines

32

48

62

81

91

102

74% 80%

India

Indonesia

Thailand

2015

China

Brazil

World

2020E

Source: Company Data, KRChoksey Research, PWC-Auto-finance Report 2017

India’s Auto finance industry in India has registered loan disbursements of INR ~761 billion in FY 2015 largely driven by retail sales of cars. The car finance industry in India has grown at a CAGR of 13.2% from the year 2010-2015 and is expected to grow to USD 30.43 Bn by 2020E. Exhibit 6: Increasing Loan Disbursement & Value

1003

CAGR FY15-FY20E 13.5%

880

397

469

532

603

684

711

694

761

868

997

FY13

FY14

FY15

FY16

FY17E

Used PV Finance (INR Billion)

776

CAGR FY15-FY20E 16.5%

1169

1403

1636

FY18E

FY19R

FY20E

New PV Finance (INR Billion)

Source: Company Data, KRChoksey Research, PWC-Auto-finance Report 2017

The long-term fundamentals for the Automobile market remain strong as the country evolves into the fastest-growing global economy. We believe India’s strong demography offers a strong growth potential to the industry, owing to its strong consumption, large youth population, and rise of the middle class and working population. Furthermore, favorable factors of production and a strong push by Government to improve manufacturing in the country are key enablers for OEMs looking to leverage local production to serve the domestic as well its nearby markets.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 9

Minda Corp Ltd 3)Proactive Government policies, Make in India to provide further fillip to automotive players. Pre-Liberalization the automobile industry was not accorded as much importance by the Indian Government as it has been laid now. Since 1991, various reforms initiated by the government has played a pivotal role in shaping up growth for the automotive industry. Since then, the Government is making continuous efforts to propel growth in the industry by allowing 100% FDI in sector and has been giving tax sops to numerous MNC’s to setup base in India. Today the Indian Auto industry is one of the largest in the world. The industry accounts for 7.1% of the country's Gross Domestic Product (GDP). We believe, with significant number of car makers already present in India and more of them looking to enter the market in the future, the potential of the Indian automobile industry is immense in terms of both revenue generation and employment. While the industry has gone through a slowdown off late, what car makers are now looking forward to are reduction in duties and taxes along with the incorporation of a centralized Goods and Service tax norm that will not only streamline tax norms to make life easier for companies but also boost the industry as a whole. Exhibit 7: Following are the Highlights of Key Policies:

Auto Policy,2002

NATRiP

Dept. of Heavy Industries & Public Enterprises

The Automotive Mission Plan 201626 (AMP 2026)

FAME (April, 2015)

•Automatic approval for foreign equity investment up to 100 per cent; no minimum investment criteria •Encourage R&D by offering rebates on R&D expenditure •Setting up of R&D centers at a total cost of USD388.5 million to enable the industry to be on par with global standards •Nine R&D centers of excellence with focus on low-cost manufacturing and product development solutions •The government has extended the timeline of NATRiP from 2014 to 2017. •Worked towards reduction of excise duty on small cars and increase budgetary allocation for R&D •Weighted increase in R&D expenditure to 200 per cent from 150 per cent (inhouse) and 175 per cent from 125 per cent (outsourced) •AMP 2026 targets a fourfold growth in the automobiles sector in India which includes the manufacturers of automobiles, auto components and tractor industry over the next ten years

•Planning to implement Faster Adoption & Manufacturing Of Electric Hybrid Vehicles (FAME) till 2020 which would cover all vehicle segments, all forms of hybrid and pure electric vehicles

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 10

Minda Corp Ltd Investment Rationale: 1) Implementation of stricter Motors Vehicle norms and need for smart sensors to drive Minda Corp’s top-line growth ahead: Use of sensors can be dated back to 1960s and they have undergone an array of developments with the increasing requirements of the automobile owners. As the technology market started moving to microprocessors based, engine control module was made to meet the emission norms in the U.S.A. The increasing safety concern among passenger car owners is the key drivers for the passenger car sensors market. Passenger car sensors are mainly used in power-train, chassis and body control where they monitor temperature, pressure, currents, vacuum and other related factors. Passenger car sensor detects the changes in the state of its parts and indicates it to the user about it in order to prevent mishaps. The passenger car sensors market for body control are mainly driven due to factors such as stringent safety regulations, weight reduction, and multiplex compatibility, while the market for passenger car sensors used in interior and comfort systems are increasing on account of customers’ demand for comfort, convenience, and safety. Today approx 30-40 sensors are used in a passenger vehicle. Exhibit 9: Representative Image

Source: Company Data, KRChoksey Research

Safety regulations across the globe are making it mandatory for automotive OEMs to employ technologies such as ABS, ESC, and TPMS in their vehicles. This has created a huge client base for passenger car sensors manufacturers in the form of global automotive OEMs. Exhibit 10:Representative Image

Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 11

Minda Corp Ltd The rising demand for driver-assistance system sensors is further intensified by the demand for these systems at the customer’s end. This segment of the market therefore provides the largest potential for the passenger car sensors manufacturers to capitalize on. Although the ultimate intelligent car with artificial intelligence is still a prototype, several cars produced today have innovative smart features and functions. As per the various industry report the automotive sensors market was valued at USD ~19.69 Billion in 2014 and is expected to grow at USD 30.90 Billion by 2020 and CAGR of 7.72% between 2015 and 2020. We expect the penetration to go up from ~ 30 to 40 sensors per vehicle to ~ 80 to100 sensors by 2019 driven by stricter implementation of safety legislations to increase the safety of the passenger. Developing countries have also become more aware of the requirement of safety features such as air bags, antilock braking, crash avoidance and are opting for the safety systems which is likely to drive the market. The Management expects the gross gas temperature and fluid sensors and emission sensors as a big area of penetration and growth, which they expect to see a mandatory implementation of all these regulatory-driven sensing applications. Further, implementation of Euro-4 norms and BS-6 starting in 2020 is expected to drive the growth forward for the sensors. We believe as road safety norms become stricter need for vehicles with advanced sensors is expected to go up. Minda Corp’s JV with Stoneridge (partner) is the leader in terms of emission, gas and environmental control sensing applications and therefore company enjoys leadership position in the market. Company in Q2FY 17 received orders from Maruti Suzuki for engine temp sensors and is advanced discussions with major OEM’s like M&M and Ashok-Leyland for sensor business at an advanced stage. Going forward, we expect PV vehicles contribution to go up from 38% in FY16 to 42% by FY19E and we expect ~19.4% CAGR growth in PV segment from INR 9,293 Mn to INR 15,837Mn from FY16 to FY19E. Exhibit 11: 18000

Sensors to drive growth in PV (INR Mn)

16000

38%

14000 12000

38%

1583742%

45% 40% 35%

10735

30%

30%

9293

10000 8000

40% 13316

25% 20%

5961

6000

15%

4000

10%

2000

5%

0

0% FY2015

FY2016 FY2017E PV Business for Minda

FY2018E PV Contribution

FY2019E

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 12

Minda Corp Ltd 2) Acquisition of Panalfa Autoelektrik (Minda Autoelektrik Limited) and Greenfield Expansion in Mexico & Pune to further aid growth: In April 2016, Minda Corporation acquired 100% equity of Panalfa Autoelektrik Limited (PAL) and renamed as “Minda Autoelektrik Limited’. Panalfa Autoelektrik was founded in 2007 and manufactures Reduction GearStarter Motors and Alternators. PAL caters to the Agriculture Machinery, Stationary Engine, Construction Equipment and Automotive markets globally. We believe, Reduction Gear Starter Motors are fast replacing the conventional direct-drive starter motors. MAL hasone manufacturing facility located at Bawal, Haryana. Its products are supplied to OEMs in India and also exported to the U.S. and European markets. Key customers of PAL include Eicher, Escorts, Greaves, HMT, Magneton, NewHolland, Polaris, Sonalika and TAFE. Minda Corp’s existing CV business is derived through offering various products like Safety and Security Systems, Driver Information but majorly through Interior Systems in Europe. Through the acquisition Minda Corp offering to CV basket has improved and we believe Minda Corp will further try to capitalize this opportunity by leveraging its technology in sensors and wiring harness. With consolidation in place, we expect the Management to further leverage the clientele of (Panalfa Autoelektrik Limited) leading to healthy growth in CV portfolio. Hence, we expect Minda Corp’s CV business to grow at 22.8% CAGR between FY16-FY19E. Exhibit 12: 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

Growth in CV business (INR Mn) 24.3% 20.0% 4891

16.8%

9050 7990 24.0%

24.0%

5858

30.0% 25.0% 20.0% 15.0%

3301 10.0% 5.0% 0.0% FY2015

FY2016

FY2017E CV Business for Minda

FY2018E

FY2019E

CV Contribution

Source: Company Data, KRChoksey Research

Minda Corp has under taken Greenfield expansion plan in Mexico after been awarded new business for specific models from a leading German car manufacturer in Mexico. This facility will be manufacturing plastic interior components and will cater to the American market. The annual order value is estimated at approx. Euro 19Mn with order life of 5 years. We believe the unit will impart acceleration to company’s global expansion, not only through generated sales, but also by enhancing visibility and confidence among major global automobile manufacturers of the region. Minda Corp is also setting up additional Greenfield capacity in Pune for Die Casting with an intitial investment of INR 750Mn over two years to enhance production capacity. Minda Corp’s existing production capacity is 4,600MTp.a.and FY2019-20 target capacity is expected to 9,600MTp.a. The planned capacity will be exclusively used for Aluminium Gravity and Low Pressure Die-Casting with machining. The plant will also have separate machine shop which will focus on precision parts such as Compressor Housing. The plant will also have well-equipped test lab with facilities including X-Ray, Metallurgy and Mechanical test equipment. The project is expected to be completed by Q2 FY2018.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 13

Minda Corp Ltd 3) Turnaround in JV’s, Mexico and in-house technical center to aid overall profitability Minda Corp conducts majority of the business through its JV’s and Subsidiaries and has relied on technological tie-ups which have gone on to become industry standards. For the technological edge, Minda Corp has done various collaborations with the pioneers and leaders of the Automobile Industry like Furukawa, Stoneridge and Vehicle Access Systems Technology. Exhibit 13:

Source: Company Data, KRChoksey Research

While the company has managed to get the technological edge but has struggled to gain orders in the past and has faced high competition. Furthermore, company’s JV is also heavily reliant on Technological partner and imports 60% of its requirement leading to higher cost of raw materials. However, Minda Corp’s Management has initiated proactive steps by: a) Exiting those deals and product types fetching lower margins b) Bringing down Raw Material Cost by replacing it through localization c) Driving future innovation through in-house Technical Centre (Spark Minda Technical Centre in Pune) Over and above company’s focused approach with particular JV’s like: a) Minda Furukawa: JV with Furukawa, apart from making wiring harness has been extended to junction boxes and steering roll connectors. We believe this along with replacement of raw materials through localization should result in better margins for company. Management has also guided larger share of business coming in from newer models of Mauti Suzuki like Alto, Wagon-R and is also bidding for upcoming high end models. b)Minda Stoneridge: Similarly, Minda Stoneridge JV has been extended to sensors, apart from speedometers. We believe, this JV not only ensures access to technology, but also provides MCL opportunities to widen product offerings in the future. Stricter implementation of BS-4 Norms, ABS should result in better growth prospects for the company. Going forward, we believe more opportunities will emerge from digitization and software integration in speedometers. Similarly, Stoneridge’s sensor technology (started in India in 2014) will be another growth driver as >60% of sensors are currently imported. MS has already set up manufacturing base in India, thereby having a strong competitive edge over imports. MS has a market share of ~4% and targets higher market share of 8-9% on the back of new client additions. c) Minda VAST: The JV agreement (entered in May 2015) provides MCL access to several of VAST’s global portfolio like electronic steering column lock, door modules, latches and hinges, etc. We believe over a period of time, these products will be providing an opportunity of adding substantial sales by 2022. ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 14

Minda Corp Ltd Exhibit 14: 40,000

Revenue Mix (INR Mn)

35,000 30,000 25,000 20,000

1,940 4,310 2,190 5,090

15,000 10,000 5,000

2,310 3,998

2,200 3,920 3,080 4,370

6,368

2,595 4,408

2,426 4,198

9,511 7,609

5,853

5,755

5,093

4,589 5,970

6,268

6,581

5,330 6,933

7,459

8,205

9,189

FY2015 FY2016 Minda Automotive Minda Furukawa

FY2017E KTSN

FY2018E

FY2019E Other Subsidiaries and JV's

Minda Sai

Minda Corp Standalone

Source: Company Data, KRChoksey Research

We believe once the restructuring policies are set in place, we expect the margins to improve on back of improved product mix and localization of raw materials, leading to better pricing. However, in near term margins may remain dented by increasing input cost but we expect it be offset by premiumization of products (sensors and telematics) and localization. Exhibit 15: 14.00%

EBITDA Margin

12.00% 10.8% 9.1% 13.0% 3.0%

4.5%

10.0%

11.00% 9.5%

8.4% 2.5%

7.5%

10.83% 9.2%

11.97% 9.2%

5.0% 6.1% 2.3%

2.00%

2.6%

4.00%

10.99% 8.1% 6.8% 6.3%

6.00%

9.2%

7.2%

11.50% 10.2% 7.2% 12.5%

8.00%

10.5%

9.2%

2.5%

10.00%

FY2015

-2.00% -4.00%

-2.0%

0.00% FY2016

FY2017E

FY2018E

FY2019E

Minda Corp Standalone

Minda Sai

Minda Furukawa

KTSN

Minda Automotive

Other Subsidiaries & JV

Consolidated EBITDA Margin Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 15

Minda Corp Ltd Fnancial iOverview: 1) Consolidation in JVs, better product mix and leveraging customer profile should result in higher revenue growth: Minda Corp’s consolidated top-line has grown at 27% CAGR from FY11 to FY16 largely on account of consolidation of its subsidiaries. We expect the consolidation in it its subsidiaries and JV to continue going forward, mainly driven by Minda Furukawa and Minda Stoneridge. We expect the growth to be further driven by PV segment (21.8% CAGR between FY16-19E) mainly on account increasing penetration of sensors and higher use of wiring harness in cars. CV growth for Minda Corp is likely to be driven by leveraging customer profile of Panalfa Autoelektrik and offering better product mix to CV players both in Domestic and export market. Hence, we expect CV segment for Minda Corp to grow at 18.4% CAGR between FY16 to FY19E.Minda Corp’s (standalone) business is also likely to witness a revival (10.1% CAGR FY16-19E) on back of diecasting order both in domestic and export market. Going forward, we expect normal growth rate in 2-W (10.1% CAGR between FY16-FY19E) and after-market (8.3% CAGR between FY16-19E) considering penetrated market for 2-W and nominal sales growth in after-market segment. Exhibit 16: Growth in CV business (INR Mn)

Growth in PV (INR Mn)

18000 16000

40%

38%

38%

14000 30%

12000

1583742%

13316

10000

40%

9000

35%

8000

30%

10735 9293

10000

45%

25%

8000

20% 5961

4000

10%

2000

2000

5%

1000

0%

0

FY2015

10.0% 5.0% 0.0% FY2016

FY2017E

8070

10181

40%

9321

8588

33%

CV Contribution

45%

2W and Aftermarket Business (INR Mn) 7932

FY2018E FY2019E

CV Business for Minda

40%

10000 8000

15.0%

3301

FY2015

PV Contribution

12000

20.0%

3000

FY2016 FY2017E FY2018E FY2019E

PV Business for Minda

35% 30%

28%

27%

6000

30% 25% 20%

4000 2000

25.0% 24.0%

16.8% 4891

5000 4000

7990 24.0%

20.0% 5858

6000

15%

0

24.3%

7000

6000

30.0%

9050

2069 11%

2663

2640

8%

7%

FY2018E

FY2019E

2290 8%

2201 9%

0

15% 10% 5% 0%

FY2015 2W Business for Minda

FY2016

FY2017E

After Market

2W Contribution

After Market Contribution

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 16

Minda Corp Ltd We believe, Minda Corp’s top-line growth is a combination of total volume growth of Automobile Industry, followed by market share gains in CV segment and higher demand for sensors in PV segment. We believe, company’s 2-W segment is deeply penetrated, hence we expect a nominal growth of 10.1% CAGR between FY16-FY19E. Hence, we expect Minda Corp’s consolidated top-line growth of 18.3% CAGR from FY16 to FY19E to register a top-line of INR 37,707 Mn. Exhibit 18:

Minda Corp Consolidated Revenue (INR Mn) 37,707.4

40,000.0 33,290.6

35,000.0

29,265.5

30,000.0

24,455.2

25,000.0

19,706.4

20,000.0 15,000.0 10,000.0 5,000.0 -

FY2015

FY2016

FY2017E

FY2018E

FY2019E

Source: Company Data, KRChoksey Research

2) Operational efficiency across the group should result in higher EBITDA margins: Minda Corp’s EBITDA margin in the past has remained volatile on account of higher operational cost. Mainly been driven by import of key raw materials from JV partners, higher personnel cost and increasing other cost. Minda Corp’s standalone business (12% in FY16) and Minda Sai (9.1%) has reported stable margins in the last 3 years leading from strong operational efficiency, tight control over the cost. However, company’s operational performance is weaker in JV’s especially Minda Furukawa (4% to 5%) dragging the consolidated margins down. (9.13% in FY16 to 6.7% in 9MFY17). To improve the EBITDA margins company has laid out new plan by undertaking various initiatives like focusing on technologically advanced high yield products, entry into newer geographies, price renegotiations with customers etc. Management is also exploring possibilities for reduction of material cost by localizing content and better utilization of personnel. We believe, these measures should result in better margins for Minda corp. Hence, we estimate EBITDA margins to improve drastically from 6.7% in 9MFY17 to 10.6% by FY19E. We believe, while Minda Furukawa has struggled in nine months we expect the margins to improve gradually to as Minda Corp’s Management take proactive steps like greater involvement of Japanese partner. Exhibit 19: 14.00%

EBITDA Margin 10.8%

9.1%

13.0%

12.5% 3.0%

7.2%

11.50%

10.2%

10.0% 4.5%

11.00%

2.5%

9.5%

8.4%

7.5%

10.83%

9.2%

6.1%

2.3%

5.0%

11.97%

9.2%

6.3%

2.6%

6.8%

2.00%

10.99%

4.00%

8.1%

6.00%

9.2%

7.2%

8.00%

10.5%

9.2%

10.00%

2.5%

12.00%

-2.00% -4.00%

FY2015

FY2016

Minda Corp Standalone KTSN Consolidated EBITDA Margin

-2.0%

0.00% FY2017E Minda Sai Minda Automotive

FY2018E

FY2019E Minda Furukawa Other Subsidiaries & JV

Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 17

Minda Corp Ltd 3) Low Capex, stable Debt and improving efficiency to boost profitability and return ratios Minda Corp has not shied away from focusing on inorganic growth and has always been dependent on JVs for technology. However, Minda Corp has been successful in utilizing the JV’s for technology and has added marquee clients to its name but has struggled in bringing operational efficiency. Minda Corp has so far invested ~INR 4,000Mn in last 3 years, while has done another ~INR 2,000 Mn in the current financial year. The Management has further guided a capex of ~INR 1,500Mn over the next two years. We now expect better utilization of assets as company will now seek to improve its efficiency. Exhibit 20: Improving Asset Utilization 20,000 14,2734.87

13,7234.62

4.75 11,723

4.55

15,000

6.00

5.66 14,723

5.00 4.00

8,921

10,000

3.00 2.00

5,000

1.00

0

0.00 FY2015

FY2016

FY2017E

Gross Block

FY2018E

FY2019E

Net Asset Turnover (x)

Source: Company Data, KRChoksey Research

Minda Corp’s has so far incurred heavy capex, which has been funded by combination of both internal cash-flow and debt. Company also uses debt to fund its working capital. The current Debt to Equity (D/E) stands at 0.8x which is further expect to go up to 0.9x in this financial year. However, with capex slowing down in coming years D/E is expected to come down to 0.7x by FY19E. We believe with new initiatives been undertaken improving efficiency should result in better profitability for the company. Hence, we now expect the PAT margins to improve over next two years from 4.4% in FY16 and 3.4% in 9MFY17 to 5.3% by FY19E. We believe better EBITDA margins, stable D/E should result in better cash-flow and better return ratios for the company. Hence, we expect company’s Return on Capital Employed (ROCE)to improve from14.4% in FY16 to 21.4% in FY19E and Return on Equity (ROE) to improve from 21.6% in FY16 to 27.1% in FY19E. Exhibit 21: Improving Return Ratios Adj. PAT Margin (%) 30.00 6.00 5.54 25.3 25.00 5.00 22.1 4.57 21.9 4.54 21.6 4.39 20.84 20.00 4.00 18.0 3.63 15.64 15.00 3.00 14.38 13.12 10.57 10.00 2.00 1.00

5.00

0.00

0.00 FY2015

FY2016

FY2017E

FY2018E

FY2019E

FY2015

Ankit Merchant, [email protected], 91-22-6696 5533

FY2017E

ROCE

Source: Company Data, KRChoksey Research

ANALYST

FY2016

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

FY2018E

FY2019E

ROE

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 18

Minda Corp Ltd Outlook and Valuation: Minda Corp is a diversified company with a product portfolio encompassing from Mechanical & Electronic Security System, Door System, and Electronic Controllers for Electric Vehicles, Plastic Interiors and for Auto OEM's across the Globe. The company also manufactures Die Casting Parts and high class Surface Finishing parts for auto and consumer durable industry. We believe, Minda Corp’s top-line growth is a combination of total volume growth of Automobile Industry, followed by market share gains in CV segment and higher demand for sensors in PV segment. We believe, company’s 2-W segment is deeply penetrated, hence we expect a nominal growth of 10.1% CAGR between FY16-FY19E. We are also positive about Minda Corp given the strong JV partnerships with foreign players like Furukawa, Stoneridge and VAST which in turn have ensured technological access and opportunities to widen product offerings. We expect Minda Corp’s consolidated top-line growth of 15.5% CAGR from FY16 to FY19E to register a top-line of INR 37,707 Mn. We expect EBITDA margin to improve from 6.7% in 9MFY17 to 10.6% by FY19E on back of various initiatives like focusing on technologically advanced high yield products, entry into newer geographies, price renegotiations with customers etc. Minda Corp’s has so far incurred heavy capex (acquisition), which has been funded by combination of both internal cash-flow and debt. Company also uses debt to fund its working capital. The current Debt to Equity (D/E) stands at 0.8x which is further expect to go up to 0.9x in this financial year. However, with capex slowing down in coming years D/E is expected to come down to 0.6x by FY19E. We expect this should result in better PAT margins over next two years. Hence we expect margins to improve from 4.4% in FY16 and 3.4% in 9MFY17 to 5.5% by FY19E, which will lead to 24.8% CAGR growth in bottom-line from INR 1,072 Mn in FY16 to INR 2,088 Mn by FY19E. Company’s Return on Capital Employed (ROCE) is also expected to improve from 14.4% in FY16 to 20.8% in FY19E and Return on Equity (ROE) to improve from 21.6% in FY16 to 25.3% in FY19E on back of improving operational performance. Peer Valuation: FY17E Earnings (Bloomberg Consensus Earnings) Particulars (INR Mn)

Revenue

EBITDA

PAT

EBITDA %

PAT %

PE

Motherson Sumi

432378

42584.75

15424

9.8%

3.6%

33.7

Rico Auto

10884

1257.5

550.5

11.6%

5.1%

14.3

Minda Industries

34169

3614

2109.5

10.6%

6.2%

16.4

Minda Corp

29265

2114.7

1061

7.2%

3.6%

20.6

FY19E Earnings (Bloomberg Consensus Earnings) Particulars (INR Mn)

Revenue

EBITDA

PAT

EBITDA %

PAT %

PE

Motherson Sumi

585644

64844.5

26081.5

11%

4.5%

19.9

Rico Auto

13761

1641.5

816

12%

5.9%

9.6

Minda Industries

44603

5151.6

3046.0

12%

6.8%

11.4

Minda Corp

37707

4007.8

2089

11%

5.5%

10.5

Source: Company Data, KRChoksey Research

We believe, Minda Corp is currently trading at a fair valuation compared to its peers (Minda Corp 20.9X vs. Average 21X). However, on FY19E Earnings Company is trading at a much cheaper valuation (Minda Corp 9X vs. Average of 12.5X). Company in the PE chart mentioned above below has traded at an average multiple of 14.2x forward earnings. While the growth in earnings are expected to be robust (26.2% CAGR FY16 to FY19E) and return ratios (ROE 27.1% by FY19E) are about to turn in to higher orbit, we expect the company to fetch a higher multiple. Hence, we have valued the company at 14x FY19E of INR 10.4 to arrive at a target price of INR 142 indicating a 36% upside from CMP of INR 105. Exhibit 22: 250

1-Yr Forward PE

200 150 100 50 0 Apr-15

Jul-15

Oct-15 Price Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

Jan-16 6X

Apr-16 9X

Jul-16 12X

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

Oct-16 Avg 14.2X

Jan-17 21X

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 19

Minda Corp Ltd Key Risk: 1.

Minda Corp’s complex structure including its JV’s and partners makes it difficult for the company’s Management to excise a complete control over the cost. In the past, company had spin-off one of its JV where it was not able to control losses. However, the Management remains prudent in its strategy for turnaround the process could be difficult when actually pursued.

2.

The company has various partnerships and JV’s to conduct business across various regions and is also heavily reliant on technological transfer. Any strain in relationship with partners could lead to significant losses for the company. Not only it could result in uncertainty for the JV but company may also lose relationship with its key clients.

3.

Minda Corporation’s subsidiaries span across Europe and Asia. In Europe the sales is anticipated to remain flat but government policies and regulations in the region could impact the business. Demand across Asia has been uneven across countries, though the overall growth was flat, thereby affecting the sales of the company.

4.

The Company has manufacturing facilities globally and also exports to different countries. Due to the high currency volatility, Minda Corporation’s profitability may be impacted. These fluctuating currencies would likely impact the pricing of the products and the financial performance.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 20

Minda Corp Ltd Annexure: Company Background: Minda Corporation is the flagship company of Spark Minda-Ashok Minda Group and was incorporated in 1985. Minda Corporation Ltd is one of the largest suppliers of 2 wheeler, 3 wheeler and Off Road vehicles Electronic & Mechanical Security System. The company is a diversified company with a product portfolio encompassing from Mechanical & Electronic Security System, Door System, and Electronic Controllers for Electric Vehicles, Plastic Interiors and for Auto OEM's across the Globe. The company also manufactures Die Casting Parts and high class Surface Finishing parts for auto and consumer durable industry.

Source: Company Data, KRChoksey Research

Group Structure:

Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 21

Minda Corp Ltd Product Portfolio: Safety and Security Systems

Source: Company Data, KRChoksey Research

Driver Information and Telematics

Source: Company Data, KRChoksey Research

Interior System

Source: Company Data, KRChoksey Research

After Market

Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 22

Minda Corp Ltd Product Offering:

Source: Company Data, KRChoksey Research Customer Profile:

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 23

Minda Corp Ltd Strategic Geographic Presence:

Source: Company Data, KRChoksey Research

Plant Location:

Source: Company Data, KRChoksey Research ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 24

Minda Corp Ltd Management team: Name

Designation

Executive / Non-Executive

Ashok Minda

Chairman & CEO

Executive

A P Gandhi

Independent Director

Non-Executive

Rakesh Chopra

Independent Director

Non-Executive

Ajay Kumar Sancheti

Company Secretary

NA

Sudhir Kashyap

Executive Director & CEO

Executive

Ashok Kumar Jha

Independent Director

Non-Executive

Source: Company Data, KRChoksey Research

Share Holding Pattern:

19%

10% 1% 70%

Promoters

FIIs

DIIs

Others

Source: Company Data, KRChoksey Research

Top Shareholders: Fund Name (as on Feb 2017)

Market Value (INR Mn)

No of Shares

% of Holding

Birla Sun Life Mutual Fund

202.02

2100000

1.00%

96.2

1000000

0.48%

UTI Mutual Fund Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 25

Minda Corp Ltd Q3FY17 Result update: Particulars (Mn)

Q3FY17

Q2FY17

Q3FY16

Q-o-Q

Y-o-Y

Net Sales

7129

7744

6501

-7.94%

9.66%

Other operating income

101

78

64

28.86%

58.15%

Net Sales & Other Operating Income

7230

7822

6565

-7.57%

10.13%

Total Expenditure

6983

7190

5884

-2.87%

18.69%

(Increase) / Decrease In Stocks

-57

3

-41

-2072.41%

39.51%

Purchase of Finished Goods

151

168

196

-10.46%

-23.32%

Cost of Raw Materials

4695

4686

3813

0.20%

23.13%

Operating & Manufacturing Expenses

928

897

773

3.44%

20.01%

Employee Cost

1267

1257

1142

0.76%

10.95%

0

179

0

-100.00%

-

PBIDT (Excl OI)

Provisions & Write Offs

247

632

681

-60.96%

-63.76%

EBITDA Margins (%)

3.4%

8.1%

10.4%

-467bps

-696bps

Depreciation

211

205

214

2.97%

-1.31%

EBIT & Exceptional Item

36

427

467

-91.65%

-92.36%

Exceptional Items

0

23.1

29.4

-100%

-100%

Other Income

202

94

31

115.34%

560.78%

EBIT

238

544

527

-56.29%

-54.88%

Interest

90

139

96

-35.40%

-6.65%

EBT

148

405

431

-63.46%

-65.65%

Tax

117

102

92

13.99%

26.08%

Net Profit from ordinary activity after tax

32

303

339

-89.57%

-90.67%

-169

-17

23

890.64%

-830.17%

Minority Interest PAT

201

320

316

-37.23%

-36.29%

PAT Margin (%)

0.4%

3.9%

5.2%

-344bps

-472bps

EPS

0.96

1.53

1.51

-37.23%

-36.29%

Source: Company Data, KRChoksey Research

Key highlights: •Minda Corp’s revenue in Q3 FY17 grew by 9.6% Y-o-Y and declined by 7.9% Q-o-Q mainly on back of demonetization. •EBIDTA stood at INR 247 Mn, which declined by 64% Y-o-Y and was down by 60.9% Q-o-Q. Margins declined by 696bps Y-o-Y and 467bps Q-o-Q, mainly dragged by increase in COGS by 21% Y-o-Y, 11% Y-o-Y rise in employee cost and 20% Y-o-Y jump in other expenses led by Mexico plant. •Company recorded a Adj. PAT of INR 201Mn which declined by 36.2% Y-o-Y and was down by 37.2% Q-o-Q, largely on back of weak operational performance. Company’s Finance cost reduced by 6% Y-o-Y and declined 35% Y-o-Y. •During the quarter company added new customers like Royal Enfield for Lockset and Nissin Brakes for Die Casting. Company’s domestic orders stood at INR 1,350 and additional exports orders stood at INR 450 Mn. •During the Q3 FY2017, company filed 3 patents and has total of 18 patents filed.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 26

Minda Corp Ltd Income Statement: Particulars (INR Mn)

2015

2016

2017E

2018E

2019E

Total Sales

19706.4

24455.2

29265.5

33290.6

37707.4

COGS

11969.1

14986.1

18088.0

20269.6

22594.8

EBITDA

1817.6

2233.6

2114.7

3006.6

4007.8

Depreciation

602.6

744.6

837.1

899.2

957.0

Interest & Finance charges

356.8

333.8

386.2

399.5

414.8

Other Income

226.7

172.9

496.6

499.4

452.5

Extraordinary items

22.4

137.3

100.0

100.0

100.0

EBT (as reported)

1107.3

1465.4

1488.0

2307.3

3188.5

Tax

271.1

365.7

410.2

761.4

1052.2

PAT

836.2

1099.7

1077.7

1545.9

2136.3

Min. Int.

-13.7

29.8

26.4

40.2

67.6

Share in gain/loss of assoc.

44.3

2.8

10.0

15.0

20.0

RPAT

894.2

1072.7

1061.3

1520.6

2088.7

Extraordinaries adj. APAT

1.0

0.0

0.0

0.0

0.0

895.3

1072.7

1061.3

1520.6

2088.7

Source: Company Data, KRChoksey Research

Balance Sheet: Particulars (INR Mn)

2015

2016

2017E

2018E

2019E

Equity Share Capital

414.6

416.0

416.0

416.0

416.0

Reserves

4059.0

5065.6

5883.8

7042.8

8651.6

Net worth

4473.6

5481.5

6299.7

7458.8

9067.5

Preference capital

192.0

192.0

192.0

192.0

192.0

Total loans

4451.1

4590.2

5590.2

5290.2

5090.2

57.0

112.7

100.0

100.0

100.0

Deferred tax liability (Net) Capital Employed

9626.9

11257.1

13124.6

14017.1

15461.2

Gross Block

8920.6

11722.8

13722.8

14472.8

15222.8

Depreciation

4374.8

5974.8

6811.9

7711.1

8668.1

Net block

4545.8

5748.0

6910.9

6761.7

6554.7

CWIP

153.2

131.3

171.1

196.0

220.8

Intangible

1162.2

1438.7

1625.8

1812.9

2000.0

Investments

289.1

52.1

139.1

245.6

377.1

Inventories

2307.7

3210.2

3260.7

3576.3

3899.9

Sundry debtors

3176.2

4352.7

4473.2

5052.4

5681.9

Cash and bank

441.1

882.0

1998.9

2372.9

3284.6

Loans and advances

1752.0

1600.9

1921.0

2191.2

2488.7

Other Current Assets

186.8

19.7

35.2

53.3

75.4

Total Current assets

7863.9

10065.5

11689.0

13246.1

15430.5

Total Current liabilities

4588.9

6450.4

7776.8

8704.9

9692.6

Net Current assets

3274.9

3615.1

3912.2

4541.2

5738.0

Capital Deployed

9626.9

11257.1

13124.6

14017.1

15461.2

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 27

Minda Corp Ltd Cash Flow: Particulars (INR Mn)

2015

PAT

2016

2017E

2018E

2019E

783.6

836.2

1099.7

1077.7

1545.9

Depreciation & Amortization

15.8

1600.1

837.1

899.2

957.0

Incr/(Decr) in Deferred Tax Liability

-29.0

55.7

-12.7

0.0

0.0

(Incr)/Decr in Working Capital

-157.6

100.7

819.7

-255.0

-285.1

0.0

0.0

0.0

0.0

0.0

Cash Flow from Operating

651.8

2886.0

2748.3

2230.3

2875.8

(Incr)/ Decr in Gross PP&E

(Incr)/Decr in Mis. Expense not written off

-448.8

-2802.2

-2000.0

-750.0

-750.0

(Incr)/Decr In Work in Progress

-3.0

21.9

-39.8

-24.9

-24.8

(Incr)/Decr In Investments

-43.9

237.0

-87.0

-106.5

-131.5

(Incr)/Decr in Other Non-Current Assets

-55.1

-346.7

-280.7

-281.3

-298.0

Cash Flow from Investing

-550.8

-2890.1

-2407.5

-1162.7

-1204.3

(Decr)/Incr in Debt

-390.7

171.2

1048.8

-266.6

-164.7

(Decr)/Incr in Share Capital

212.0

1.4

0.0

0.0

0.0

(Decr)/Incr in Securities Premium

-212.0

0.0

-983.9

0.0

0.0

(Decr)/Incr in Minority Int.

255.1

365.6

-13.2

-40.2

-67.6

(Decr)/Inc in Other reserves

35.9

31.5

-4916.2

-1184.3

-1656.3

Dividend

-100.4

-124.7

-243.1

-361.6

-480.0

Cash Flow from Financing

-200.0

445.0

776.0

-693.6

-759.8

Incr/(Decr) in Balance Sheet Cash

-99.1

440.9

1116.8

374.0

911.7

Cash at the Start of the Year

540.2

441.1

882.0

1998.9

2372.9

Cash at the End of the Year

441.1

882.0

1998.9

2372.9

3284.6

Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 28

Minda Corp Ltd Ratios: Particulars

2015

2016

2017E

2018E

2019E

Total Sales

23.6

24.1

19.7

13.8

13.3

EBITDA

44.6

22.9

-5.3

42.2

33.3

APAT

12.8

19.8

-1.1

43.3

37.4

9.2

9.1

7.2

9.0

10.6

Growth (%)

Profitability (%) EBITDA Margin Adj. Net Profit Margin

4.5

4.4

3.6

4.6

5.5

ROIC

9.9

10.8

7.7

10.5

14.0

ROE

21.9

21.6

18.0

22.1

25.3 10.0

Per Share Data (Rs.) AEPS

4.3

5.2

5.1

7.3

Reported CEPS

6.8

8.8

9.2

11.8

14.9

BVPS

21.6

26.3

30.3

35.9

43.6

PER (x)

24.3

20.4

20.6

14.4

10.5

PEG (x)

-0.3

1.0

-19.4

0.0

0.0

P/BV (x)

4.9

4.0

3.5

2.9

2.4

EV/EBITDA (x)

14.7

12.2

13.4

9.3

6.9

EV/Net Sales (x)

1.4

1.1

1.0

0.9

0.7

Dividend Yield (%)

0.4

0.5

0.9

1.4

1.8

Valuations (x)

Turnover days Debtor Days

57.5

56.9

55.7

53.0

52.9

Payable Days

132.3

134.4

143.5

148.4

148.6

1.0

0.8

0.9

0.7

0.6

Gearing Ratio D/E Source: Company Data, KRChoksey Research

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

India Equity Institutional Research II Initiating Coverage II 7th April, 2017

Page 29

Minda Corp Ltd Analyst Certification I, Ankit Merchant (M Com, BMS), research analyst, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I 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. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vide SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions 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. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that, Ankit Merchant (M Com, BMS), research analyst, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. Since associates (Group Companies) of KRCSSPL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that, Ankit Merchant (M Com, BMS), research analyst, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Please send your feedback to [email protected] Visit us at www.krchoksey.com Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: 91-22-6633 5000; Fax: 91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

ANALYST Ankit Merchant, [email protected], 91-22-6696 5533

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com