Minda Industries

Sector: Auto ancillary/Mid cap

Initiating Coverage
Sensex
26,489

Nifty
8,139

Price: INR 318

19 December
2016
Target Price: INR 440

19 December 2016

BUY

Background: Established in 1958, Minda Industries (MIL) is a flagship Company of UNO MINDA GROUP and one of the leading suppliers of proprietary automotive
solution to OEMs. Headquarter at Manesar, Gurgaon, the company has 32 plants across India and R&D centers spread across the globe in six locations. The company
offers a wide range product across different verticals of auto components like switching systems, lighting systems, acoustic systems and alloy wheels among others. It has more than
145 design registration and more than 10,000 touch points. Company has ~50% market share in switch segment thus leading automotive components supplier with annual
turnover of INR 25 billion and in the last three years Revenue / EPS has grown at a CAGR of 24% & 58% respectively. It serves more than 50 OEMs in India and across
the globe. Key clientele: Bajaj Auto, Maruti Suzuki, TVS Motors, Hero Motors, Honda and RE etc.
52 Week High/Low

403/144

Bloomberg code

MNDA IN

Reuters code
Issued Equity
(shares in mn)
Mkt. Cap in mn
Mkt. Cap in mn USD

Minda Industries (MIL) consolidated revenue has grown robustly at a CAGR of 22% over FY11-FY16, driven by

MNDA.BO

combination of organic and inorganic growth. Going ahead, we believe inorganic growth would be significant on the

79.3

back of acquisition of Rinder Lightings, enhancing stakes in UNO Minda Group companies and foray into alloy wheels

INR 25,226
$ 372

business. MILs Horn business is set to expand its base to American markets from the European markets with the help

Avg. Daily Vol. (000)

Avg. Daily Vol. (mn)

Building a growth machine

of its 100% subsidiary Clarton Horns. We expect MILs consolidated revenues to grow at a healthy CAGR of 22% over

112

FY16-19E aided by ~14% standalone revenue CAGR in same period with 180bps improvement in EBITDA margin to

INR 36/$0.52

11% by FY19E on the back of cost cutting measures, synergy benefit and margin improvement in the subsidiaries. PAT
is expected to grow at a CAGR of ~28% over FY16-19E, with PAT margin expansion of 70bps. Companys focus to

Shareholding

Sep 15

Jun 16

Sep 16

Promoters(%)

70.9

70.89

74.02

FII (%)

0.04

3.57

4.07

DII (%)

2.82

1.03

2.34

26.24

24.51

19.57

0.0

0.0

0.0

3M

12M

Others (%)
Pledge (% of
promoter
holding)

Sep12
ramp
up existing business and take them up to standard level with adding other groups mature businesses into
19.20
business portfolio, we do not expect more than INR 4.0bn capex over FY17-19E. RoCE and RoE is likely to improve by

7.64
460/120bps
over FY16-19E, with strong free cash flow (FCF) generation and maintaining net debt/equity ~0.5.
14.46

Strengthening leadership position in Acoustic system with advanced products

58.7
Catering to brands in the form of Bentley, Rolls Royce, Porche, Daimler, BMW etc in Europe, MILs Horn business is all
set0.00
to tap American market by setting up base in Mexico with help of its 100% subsidiary Calrton Horn. Clarton has
given MIL the technology to access the electronic horn market and is getting the benefit of its R&D centre in Spain to
develop products for the domestic market too. MIL acquired Clarton horn for an EV of EUR 10mn. In order to expand

Performance%

1M

MIL

6.4

5.3

Sensex

0.8

-7.3

market reach, Clarton is set to invest ~EUR 6mn in coming years to set up its base in Mexico.

82.1 Scaling up of new product to drive growth

4.7

Going ahead, we believe alloy wheels segment is going to be another major revenue contributor with the new plant at
Bawal, Haryana, supplying to high selling models like Brezza and Baleno by Maruti Suzuki. Minda aims to raise the

450

250

capacity up to 120,000 units alloy wheels per month by FY18E from 55,000 units alloy wheels per month in FY16.
Currently, penetration of alloy wheels in the passenger vehicle is at ~24%, which is expected to increase to 45% in next

400
200

350
300

150

250
200

100

150

3 to 5 years. MIL has invested INR 2bn in the first phase and currently supplying to OEMs like Toyota, Renault and
Honda.

Valuation: The strategy of shifting the groups matured businesss to MIL, a listed entity and on the back of
expected strong growth in 2W, passenger car sales in the domestic market and improved performance by erstwhile

100

50

50
Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

0
Dec-15

subsidiaries paints a positive outlook for the company. We expect revenue and EBITDA to grow at a CAGR of ~22/29%
over FY16-19E, respectively. Currently, the stock is trading at P/E of 13.6/10.8X FY18E & FY19E EPS, respectively.
We initiate coverage on Minda Industries with BUY rating and a target price of INR 440 (Upside 38%) assigning a P/E
of 15.0x FY19E EPS.

Valuation Summary
MIL

Relative Sensex (RHS)

Y/E March ( INRmn)

Revenue
EBITDA
PAT
EPS

Mugilan K +91-44-30007360
mugilank@chola.murugappa.com

EPS growth (%)

PE
P/ BV
EV / EBITDA
EV / Sales
Dividend Yield (%)
ROCE (%)
ROE (%)
Net Debt / Equity

FY16

FY17E

FY18E

FY19E

25,273
2,320
1,110
14.0
64
22.7
5.3
12.3
1.1
0.4
24
27
0.7

33,623
3,474
1,576
18.2
30
17.4
4.3
8.2
0.9
0.9
27
27
0.5

39,339
4,125
1,871
23.3
28
13.6
3.4
6.9
0.7
1.1
27
28
0.5

45,633
5,027
2,331
29.3
26
10.8
2.7
5.7
0.6
1.4
28
28
0.5

Investment summary:

Strengthening leadership position in Acoustic system with advanced products

MIL became a leading player in horn manufacturing worldwide after acquisition of Clarton. Clarton Horns has given MIL the
technology to access the electronic horn market with the benefit of its R&D centre in Spain to develop electronic horns for
domestic market too. MIL is Indias largest manufacturer of horns with ~50% domestic market share catering end user segment
such as 2/3 wheeler, 4 wheeler, Off-road and commercial vehicles with global client base. The automotive horns business
contributes close to ~13% of standalone revenues and 22% of consolidated entity in FY16.
The European 100% subsidiary in this segment, Clarton Horn was acquired in FY14 and it generated business of INR3.3bn in
FY16 and is expected to grow at CAGR of 8% over FY16-19E. Catering to brands in the form of Bentley, Rolls Royce, Porche,
Daimler, BMW etc in Europe, Clarton is all set to tap American market by setting up base in Mexico. Hella is the largest competitor
for MIL in the domestic market in this space, with market share of MIL in domestic PVs being only at 30%. We are factoring
optimal growth of 10% CAGR for the domestic Horns business over FY16-19E on the back of increasing domestic market share in
PV segment and robust PV sales. Export revenue is expected to increase as the company commenced manufacturing and supply
to VW, Daimler, and BMW and received fresh order from Renault for Brazil. MIL exports horns to Italy, South Africa, China, and
Thailand. In order to expand market reach, Clarton is set to invest EUR ~6mn to set up its base in Mexico. Clartons product
portfolio includes Electro mechanic horn and Electronic horns with manufacturing facility located in Manesar, Pantnagar, Spain
and Morocco.
In terms of margin India horn business operates at ~14-15% EBITDA margin as against 6-7% margin for Clarton. We expect that
access to new technology for electronic horns, new orders for Hyundai, MSIL YSD, New Honda Jazz and Brio, new offerings in
horns and access to existing client base of Clarton Horns will aid revenue and margin growth for the company.

Exhibit 1: Strengthening leadership in Horns business

Exhibit 2: OEM Mix revenue in Horns business

18%

290

13%

12%

1054

871

780

670

730

650

720

560

200

14%

7%

8%

600
400

16%

10%

958

320

12%

337

14% 14%
330

13%
340

800

500

INR mn

1000

370

14%

1200

15% 15%
306

1400

16%
370

1600

8%

6%

58%
8%

4%
6%

2%

0%

OEM
Source: Company, CSEC Research

Export

EBITA Margin(%)

Bajaj

Fiamm

Source: Company, CSEC Research

HMSI

TVS

Royal enfield

Others

Scaling up of new products to drive growth

Going ahead alloy wheels segment going to be another major revenue contributor with the new plant at Bawal, Haryana, supplying
to high selling models like Brezza and Baleno by Maruti Suzuki. In the alloy wheels business the production has started in April
2016 and has now reached 55,000 units/ month in October 2016. Minda aims to raise the capacity up to 120,000 units alloy
wheels per month by FY18E. Alloy wheels are manufactured In Minda Kosei Aluminum Wheel Pvt. Ltd. (MKAWL) and Kosei
Minda Aluminum Co. Limited. Currently, penetration of alloy wheels in the passenger vehicle is at ~24%, which is expected to
increase to 30% by FY18E and 45% BY FY 20E. Alloy wheels market is expected to grow by 19% CAGR over FY15-FY20E
primarily driven by the introduction of new high-end variant models of passenger vehicle.

Exhibit 3: Passenger vehicles with alloy wheels

70%

64%

60%

51%

50%
39%
33%

40%

42%
35%

22%

30%
20%

51%

43%

10%

24%

24%
21%

18%

12%

42%
37%
21%

10%
0%
Hundai
Motors

Maruti
Suzuki

Honda Cars

Toyota
Kirloskar

Nissan
Motors

2015

Ford India

M&M

Tata
Motors

General
Motors

2020E

Source: Aranca, CSEC Research

Potential for new plants in Gujrat and Mexico

Targeting an overall investment of INR 3bn and installed capacity of 90,000 alloy wheels per month by January 2017, MKAWL has
till date invested INR 2.5bn for a monthly production capacity of 60,000 wheels (UNO Minda holds a 70 percent stake in the JV,
the balance is with Kosei Aluminium Company). In the light of the growing market for alloy wheels in premium cars, MIL is mulling
setting up a third facility in Gujarat. MKAWL targets to start production at its greenfield facility in Gujarat by September 2018 under
an equal partnership with Kosei. Meanwhile, MIL will supply alloy wheels to Suzukis plant in Gujarat from Bawal. Once Gujrat
plant goes on stream, it will also cater to Ford India, General Motors at Talegaon, Volkswagen and Tata Motors.

MKAWL is also exploring growth opportunities outside India. Management indicated that Mexico could be the site for a new plant
after the Gujarat unit is set up. Kosei, which has bagged big-ticket business for alloy wheels from Honda and Nissan in the USA, is
exploring the potential for a JV facility with UNO Minda in Mexico where labour costs are comparatively low compared to the USA.
After the commencement of upcoming plant in Haryana MIL will be largest Aluminium Alloy wheels manufacturer in domestic
market. Currently, MIL is supplying to OEMs like Toyota, Renault and Honda.

In the Battery business, Minda acquired 100% equity recently from Panasonic and it is now being managed along with the
incumbent with two-wheeler battery business. Minda is planning to launch four wheeler and Industrial batteries, which would be
finalised by 4QFY17. As per the plans, three trail runs are required of which first run has been completed and accepted. In the
incumbent business of two wheeler batteries, the focus is on after market and expanding the reach. For technological tie-up the

management is touch with few players and will take 3-4 months. At present, revenue from battery segment is close to INR 500mn
with negative operating margin. However, it is expected to turnaround in next two quarters.
Except for Switches, Light and Horn divisions, most of the products were operating at lower capacity utilization. Ramp-up of these
businesses will drive both, the growth and margins going forward. We believe, revenues from Switches and Horns can also be
significantly ramped up, without significant capex.

Fresh orders and initiative:

Switch division
Won orders from piaggio, KTM & Arpilla

Lighting division

Received new export orders from Piaggio

To supply for USB Charger & H2O Sensor worth INR 60mnSwitch
Received export order for Accelerator Position Sensor from KTM &
Received export order Handle Bar Switches from Aprillia

Received orders from Tata Motors for Q501 Project

To supply Reflex Reflector & Rear Fog Lamp

Won oders in India

PTMA
Indonesia:
Supplies to Yamaha begins

2W / 3W Switches
Extended
Leadership position
across OEMs & global
platforms

Started supplies of Power Socket to Yamaha Thailand

1sttime Yamaha employing a power socket in ASEAN market

Lighting

Horns

Alloy Wheels

Others

Widen
Presence across OEM to
improve utilization level
across units

Strengthen
With synergies from
Clarton Horns across
globe

Leverage
Existing OEM
Relationships
&
JV relationship

Leverage
Existing OEM
relationship
&
Distribution network

Switching division; largest revenue contributor

The automotive switch business division contributes close to 43% of consolidated revenue. MIL revenue from switch segment has
grown from INR 5bn in FY11 to INR 8bn in FY16 and is expected to grow at CAGR of 16% over FY16-19E on the back of newly
added Gujrat facility of HMSI and addition of new models in the form of KTM & BMW.
MIL is the Indias largest manufacturer of automotive switches with 67% market share. The company exports switch to USA,
France, Italy, Austria, and other country which contributed ~8% of revenue to switch segment in FY16. MIL has recently
commenced the supply for HMSI K74 project, KTM Austria, and developed seat heater switch for High end bikes of BMW.
Management is focusing towards more advanced technology switches and increasing business among OEMs, Exports and
aftermarket. BJAUT is the largest customer for MIL in this segment followed by HMSI, TVS and Hero Motors. Bulk of the domestic
revenue in the 2W switching business of MIL comes from OEMs like Bajaj Auto, TVS Motors, HMSI, Royal Enfield etc. The 4W
switching system business is under a JV with Rika, Japan, named Mindarika, with stake of MIL being at 26% presently and it
generated revenue of INR 5.5bn in FY16.

Exhibit 4: Extending leadership globally (Switch Div.)

Exhibit 5: OEM mix revenue

16000

14%
13%

11.50%

6020

470

3342

12%
10%

26%

8%
45%
6%
6%
4%

6020

5850

4000

220
160
4990

6000

260

7220

8%
440

8000

840 1474

10098

10000

9016

12000

11%
10% 10% 2281

8050

11% 11%

11512

14000

5%
9%

2%

2000
0

9%

0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
OEM

Source: Company, CSEC Research

Export

EBITDA Margin(%)

Bajaj auto

HMSI

TVS

Royal Enfield

Hero

Others

Source: Company, CSEC Research

Going ahead MIL prime target would be to enhance share of business with Hero group from present lows of ~25% and also
enhance the export reach. MIL is planning to ramp up its equity stake in the 4W switching business down the line to consolidate
the large revenue generating business and grow in size. Currently, market share of MIL for Hero Moto, Bajaj Auto, TVS, Royal
Enfield and HMSI are presently at 25%, 65%, 100%, 100% and 90%, respectively.

Entry into LED lighting segment through Rinder

Lighting is the 3rd biggest segment for MIL after switches and Horns, contributing ~21% of standalone revenue and ~18% of
consolidated revenue. We believe, Rinder would not only provide LED technology but will also double its market share in
automotive lightings on the back of Rinders three manufacturing units in India and one in Colombia. Moreover, Rinder would help
the company strengthen its foothold in the European & Colombian Lighting markets. On full year consolidation, Rinder Group is
expected to contribute INR ~3.8bn revenues with EBITDA Margins of 8.5% for FY17E.
MIL is primarily into 4W lighting (75% of lighting div. revenue) segment catering to the customers like MSIL, Volkswagen, and
M&M etc. In 2016, MIL acquired Rinder (Spanish company) for Euro 19.5mn, through this acquisition, MIL forayed into the 2W
lighting segment and strengthened its position. Rinder acquisition includes, India Lighting business, R&D center in Spain and 50%
stake in Rinder Ridcu, Columbia based JV. Currently, 2Ws lighting segment contributes ~35-40% of lighting segment revenue
(Bajaj Auto is its key customer). With strong growth from Maruti Suzuki, Royal Enfield and HMSI, we expect the revenue from
lighting system business to grow at a CAGR of 12% over FY16-19E. In terms of margin, the existing business (Ex. Rinder lighting)
has been operating at ~11% in FY16 and is expected to gradually move up aided by Rinder lighting. Currently, Rinder has
operating margin of ~8% and is expected to increase to 10.5% by FY18E.

Exhibit 6: Ramping up utilization level in 2W lighting division

4500

14%

4000

12.5%
12.0% 12%
11.5%

12% 12%
11%

3500

10%

3000
INR mn

Exhibit 7: OEM Mix revenue in lighting segment

8%

2500
2000

8%

8%

36%

40%

6%

6%

1500

4%

1000
2%

500
0

7%
3%

0%

13%
1%

OEM

Export

EBITDA Margin (%)

MSIL

Volkswagen

Mahindra

HMSI

Source: Company, CSEC Research

Source: Company, CSEC Research

INR mn

Exhibit 8: Rinders revenue trend

5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-

4,691
4,265
3,590

3,030
2,170

FY14

FY15

FY16
Rinder sales trend

Source: Company, CSEC Research

*CY15 Revenues

3,877

FY17E

FY18E

FY19E

Royal Enfield

Others

Rising market share in Replacement Market

MIL revenue from aftermarket sale has grown significantly at a CAGR of 23.6% over FY11 to FY16 from INR 1.5bn (15.7% of
sales) to INR 4.3bn (17.2% of sales) and is expected to grow at a CAGR of 15% over FY16-19E. Company has significantly
increased its dealer network to 764 distributors and more than10000 touch points in aftermarket sales, which translated into higher
revenues. We expect that new product range and strong presence in market can drive growth for the MIL. Lighting division has
28% revenue in aftermarket sale followed by others (23%) and Switches (14%) and Horns (15%). Aftermarket sales has higher
margin than OEMs resulting in increased in overall margin in FY16.

Exhibit 9: MILs strong presence in replacement market

6,661

7,000
5,793

6,000

Product

5,037
5,000

4,380
3,720

INR mn

4,000
2,970

3,000

% of Total
Aftermarket sales

Switches

1,460

14%

Lighting

1,210

28%

Horns

770

15%

Others

940

23%

2,470
2,060

2,000

FY16 Market sale

(INR mn)

1,520

1,000
Source: Company, CSEC Research

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

Revenue
Source: Company, CSEC Research

Consolidation of mature businesses to drive margin

Starting with manufacturing of switches, Minda Industries has significantly expanded its product offering by entering numerous
joint ventures. The company has started to consolidate the existing product lines and higher mix of mature business, leading to a
significant strengthening of consolidated financials. We believe creation of single entity with better financial strength will result in
improved competitive position of the business of combined entity, cost optimization and better operating leverage. The company is
planning to bring all major Auto Ancillary JVs under Minda Industries from both NK Minda Group and from its JV partners. Under
this plan, MIL has already increased its stake in MJ Casting from 50% to 98% and in PT Minda Asean from 19% to 33%. Further, it
will increase its stake in SAM Global (which holds 37.5% stake in PT Minda Asean Automotive, Indonesia and 100% stake in
Minda Industries Vietnam) from 19% to 51%. Among the new subsidiaries that will be consolidated, Minda Rica could be the first
followed by Tokairika Minda. We believe 80-85% of the groups businesses will be consolidated in MIL by 4QFY17 and remaining
consolidation activities are expected to be completed by March 2018.

Re-Aligning Group Structure: Phase 1

Phase 1, Stage 1 -Increasing MIL stake through

Investment in JV companies & Group Companies

Phase 1, Stage 2 -Increasing MIL stake in JV companies &

Group Companies

49% interest in Roki Minda has been

purchased for a consideration of INR 429mn,
the enitity is being consolidated from Oct 1,
2016

Additional 48% in MJ Castings for INR

140.4mn, increasing stake to 98%

Invested INR 194.1mn SAM Global PteLtd,

Singapore for 51% equity stake

Minda Storage Batteries Pvt Ltd (Erstwhile

Panasonic Minda Storage Batteries India Pvt
Ltd) will become 100% subsidiary

Invested INR 122.8mn in Kosei Minda

Aluminum Co. for 30% shareholding

MIVCL, Vietnam will become 100% subsidiary

of MindaIndustries Limited

Invested INR 17.85mn in MindaTG Rubber

for 51% equity stake

Invested INR 61.3mn for additional 13% in

PT MindaAseanAutomotive (Indonesia),
increasing holding to 32%

Source: Company, CSEC Research

PTMA, Indonesia will become 100%

subsidiary of Minda Industries Limited
All investments have been done at Book Value of close to Book Value

Turnaround of loss making subsidiary will drive the margin

Previously, MIL has successfully achieved a turnaround amongst its subsidiaries to embark a profitable journey. Three of its
subsidiary MJ casting, MKAWL and Minda Kyoraku have shown turnaround in its business in the past two quarters. Currently, two
subsidiary Minda TG and METL are running in operating loss but we expect that going forward these subsidiary are expected to
turn profitable as most of the capex are over and management has commenced the operation in previous quarter, and has started
supply to few OEMs as well. Management indicated that by 4QFY17E all subsidiary will be profitable and we expect 100-200 bps
addition in the margins.

PBT (INR mn)

1QFY16

1QFY17

2QFY16

MJ Casting

-11

11

MKL

-3

28

Minda TG

-21

MKAWL

-35

METL

-6

-2

-1

2QFY17
21

57

Source: Company, CSEC Research

Demand Drivers:

GST:
Likely to lower indirect
taxation, brining down
vehicel prices by 10-20%

More
componets/vehicle:
Likely to add more
features to enhance
confort and safety

Normal Monsoon:
New Model launches:
Would drive consumption
growth in rural areas

Baleno RS 1.0 , Ignis and

Alto 2017 by MSIL, Tata
Hexa.

Financial overview:
Consolidated Revenue to grow CAGR of at ~22% over FY16-19E
Being a well diversified component supplier cross all major OEM segments with leadership in most of the categories of its
product portfolio, we believe long term focus towards content per car enhancement utilising its strong bonding with the major
OEMs would be the core profitable growth drivers ahead. We expect revenue to grow at a CAGR of ~22% over FY16-19E
to INR 45.6bn from INR 25.2bn in FY16, aided by inorganic growth and increasing market share. Standalone revenue is
expected to grow at CAGR of ~14% over FY16-19E.

Exhibit 10: Cons. Revenue to grow at a CAGR of 22% over FY16-19E

50,000

45,633

45,000

33,623

30,000

25,273
22,321

25,000
20,000
9,542

17,061
11,79213,404

21,664
19,087

20,000
INR mn

35,000
INR mn

25,000

39,339

40,000

15,000

Exhibit 11: Standalone revenue to grow at a CAGR of ~14% over

FY16-19E

15,000

16,817
13,704

14,687

10,832 10,309 11,081

10,000
5,000

10,000
5,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Revenue
Source: Company, CSEC Research

Revenue
Source: Company, CSEC Research

Consolidated EBITDA margin to improve by 180 bps to ~11% by FY19E with strong operating cash flow
We expect Cons. EBITDA margin to expand by 180bps to ~11% by FY19E from current levels of 9.2% in FY16. MIL
standalone EBITDA margin to inch up towards 11.5% by FY19E from 10%, on the back addition of better margin business
like lighting business under Rinder, Alloy wheel business under Minda Kosei. Moreover, in the past one year, margin at
subsidiaries have improved to ~10% on the back of improved margin in casting, ASEAN business and blow moulding
business along with improvement in Horn business. (Currently, Rinder is clocking in close to 10% margin, Minda Kosei 1617%, MJCL around 14.5% and Clorton Horns ~8 %.)
Management is targeting EBITDA margin of ~12% within next 2-3 years at a consolidated level led by inclusion of Rinder
along with maturing of major businesses in the form of 4W switch related Mindarika JV and Alloy Wheels related Kosei JV.
Rinder is set to contribute a significant chunk of incremental revenue ideally would add to the ex-standalone business
EBITDA substantially and push it to 10% plus levels structurally.

Exhibit 12: Increasing margin

Exhibit 13: Operating cash flow

11.0%

6000
9.4%

8.8%

4000

6.4%

3000

10.0%
8.0%

7.0%

6.0%

5.1%

2000

12.0%

INR mn

INR mn

5000

10.3%

4.0%

1000

2.0%

0.0%

5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-

4,513
3,490
2,775
2,390
1,560
450

770

950
420

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

EBITDA

EBITDA margin(%)

Operating cash flow

Source: Company, CSEC Research

Source: Company, CSEC Research

Healthy balance sheet amid strong growth

MIL currently has a strong return ratio RoE/RoCE of 26.6% / 18%, respectively and we expect the return ratio to improve
further to 27.8%/28.3%, respectively by FY19E, aided by strong consolidated revenue growth of 22% CAGR in FY16-19E.
With plans of acquiring equity stake to the extent of INR 1bn in various promoters held group entities in the form of RokiMinda, Mindarika etc in FY17-18E along with annual maintenance capex to the tune of INR 800mn. We expect, MIL to
reduce its debt/equity to 0.5 by FY19E as against 0.8 in FY16 as it would ideally fund its expansion plans through internal
accruals.
Exhibit 14: RocE

Exhibit 15: Debt to equity

30.0%

26.7%

27.2% 28.3%

1.4
1.2

25.0%
20.0%

15.0%

15.0%
10.0%

18.0%

16.0%

1.2

0.8

0.8

0.8

0.8

12.0%

0.6

0.6

0.6

9.0%
6.0%

0.6

0.5

0.4

5.0%

0.2

0.0%

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E

ROCE (%)
Debt : Equity
Source: Company, CSEC Research

Source: Company, CSEC Research

Exhibit 16: Increasing return on equity

30.0%
25.0%
21.0%

26.6%

27.2%

27.8%

27.8%

FY16

FY17E

FY18E

FY19E

20.1%

20.0%
15.0%

11.8%
9.5%

10.0%
5.0%

2.3%

0.0%
FY11

FY12

Source: Company, CSEC Research

FY13

FY14

FY15
RoE

Industry overview:
As Per ACMA, Indian Auto Components Industry grew by 8.8% YoY to a turnover USD 39bn in 2016. Exports accounted for
USD 10.8bn of the total turnover in 2016. The auto component sector contributes about 7% of Indias GDP and is the largest
employer (Direct and Indirect) in the economy. Original Equipments (OE) sales constitute 54%, while replacement and
exports comprise 17% and 29% of the revenue mix.

Exhibit 17: Auto component Industry

8,000
6,850
60.7%
5,270

5,000
4,000

60.0%

6,160

6,000
4,270

50.0%

40.9%

40.0%

3,030

30.0%

3,000

23.4%

2,000

20.0%

16.9%
11.2%

1,000

10.0%
3.5%

2010-11

70.0%

2011-12

2012-13

2013-14

2014-15

Growth rate in INR terms

Turnover in INR mn

7,000

7,090

0.0%

2015-16

Source: Company, CSEC Research

Major export markets for the Indian Auto Component Industry are in US, EU, ASEAN region which are showing pick-up in
demand. Enthused with success of the Automotive Mission Plan (AMP) 2006-2016, government has planned to work on
similar project for the next 10 years, i.e. AMP 2016-2026 with focus on exports of specific vehicles such as MUVs, small
cars, two and three wheeler vehicle as well as auto components

The Two-Wheeler Industry in India

In FY2016, the overall automobile production in India was about 24.5 million with two-wheelers, comprising of motorcycles,
mopeds and scooters, accounting for more than three quarters of total production. In FY2016, CRISIL estimates Indias twowheelers industry revenue to be around INR 820 billion, with a production of about 19 million. Two-wheeler production grew
at a moderate pace of 5.1% CAGR from FY2012 to FY2016 despite high growth in FY2014 and FY2015 mainly due to two
years of bad monsoon in 2014 and 2015. CRISIL projects two-wheeler production to grow at a CAGR of 8-10% from the
period FY2016 to FY2019.

As of FY2016, motorcycles continued to dominate the two-wheelers industry. Motorcycles

comprised two thirds of the total two-wheeler market in terms of production in FY2016, but this fell steadily during FY2012 to
FY2016, from 77.7% to 68.1%. By contrast, the share of scooters in the total production mix increased during this period
from 17.2% to 28.0%. The growth in scooters is attributed to the strong demand from new model launches, aggressive
marketing strategies such as gender-based positioning and increasing use of scooters by working women in urban areas.
The share of mopeds shrank between FY2012 to FY2016 from 5.0% to 3.8% as demand declined in Tamil Nadu and
Andhra Pradesh the two states that account for most of the domestic market for mopeds due to subdued industrial
activity in Tamil Nadu and political turmoil in Andhra Pradesh over Telangana's statehood.

Exhibit 18: Historical and Projected Two-wheeler production growth

30000
25000

18.0%
16.0%

15.60%

14.0%
20000

12.0%
10% 10.0%

10%

15000

9%

8.0%

8%

7%
10000

6.0%
4.0%

5000
2%

2.0%

2%

0.0%
FY2012

FY2013

FY2014

FY2015

FY2016

FY2016

Total 2Wheeler production(in '000 volume terms

FY2017E

FY2018E

Growth (%)

Source: CSEC Research

Traction in Passenger and Commercial Vehicles sales:

The passenger vehicle Sales were muted during FY11-16 growing at a CAGR of 3.2% from 2.9mn units in FY11 to 3.4mn
units in FY16 mainly due to increased economic uncertainty, weak consumer demand, lower disposable incomes due to
high inflation and higher auto lending rates. However, during H1FY17, PV sales volume growth improved achieving ~12.3%
growth. Correction in fuel prices and reducing interest rate cycle has resulted in lower operating cost for consumers along
with improving disposable income due to implementation of the 7th Pay Commission's recommendation is expected to
further aid domestic PV segment growth in near to medium term.
The Commercial vehicle sales witnessed subdued growth trend during FY11-16 growing at a CAGR of 0.7% from 758,943
units in FY11 to 787,393 units in FY16, due to sluggish economic activities. During H1FY17, CV segment registered ~6.0%
volume growth driven by 11.7% growth in LCVs segment. Going forward, with improving economies scenario and easing
financing cost along with the thrust on infrastructure by the government, the CV demand is expected to improve further.

Automotive Components Industry in India

Production of automotive components is driven by consumption from OEMs, exports and the replacement market. In
FY2015, automotive component consumption in India (in terms of OEMs, exports and the replacement market) was INR
2,556 billion. OEMs accounted for nearly two-thirds of this consumption with 64.2%, followed by exports with 18.4% and the
replacement market of 17.4%. OEM demand can be further segregated on the basis of vehicle segments. Among OEMs,
cars and utility vehicle manufacturers remain the largest consumers.

Size and growth of the Automotive Components Industry

FY13
% sale

INR bn

FY14
Growth

INR bn

FY15

Growth

INR bn

FY16E

Growth

INR bn

FY17P

Growth

INR bn

Growth

Domestic Production
OEM

68%

1506

2%

1440

-4%

1526

6%

1617

6%

1779

10%

Replacement

16%

357

7%

373

4%

403

8%

439

9%

474

8%

Exports

16%

345

3%

400

16%

446

12%

463

4%

496

7%

100%

2208

3%

2213

0%

2375

7%

2519

6%

2749

6-8%

567

12%

581

2%

627

8%

671

7%

711

5-7%

2430

5%

2394

-1%

2556

7%

2727

7%

2964

8-10%

Domestic Production
Imports
Domestic consumption

Source: CRISIL, CSEC Research

Engine parts have the biggest share in auto components production, followed by drive transmission, steering parts and
OEMs

brake parts. Of the overall OEM production of approximately INR1,600 billion in FY2015, two-wheelers and three-wheelers
together accounted for about INR 400-450 billion. Further, within two-wheelers and three wheelers vehicle segments,
aluminium castings, alloy wheels, transmission components, brake assembly and suspension account for about 45-47% of
the total auto-component demand.

Exhibit 19: Automotive Component Consumption in India in FY2015 in Value Terms (INR 2,556 billion)

OEMs

54.00%

17.40%
64.2%

26.00%
18.40%
2%

Exports
Source: CRISIL, CSEC Research

after-markets

Cars

2 wheelers

CV

5%

Tractors

13%

3 wheeler

Porters Five Force Model:

Threat of new entrants

(Moderate)
The threat level is medium, given
the concentration of industry
clusters in specific strategic
centers.
Foreign firms are increasing their
footprints in India

Threat of substitute prodcut

(low)
Threat from substitute products
remains low, as public
transportation is underdeveloped
even in most cities.
Rapid growth in Indian economy
has changed travel patterns

Michael Porters Five

Forces

Industry rivalry

Bargaining power of buyers

(High)

(Low)

Competition among industry players is

intense as government has already

High demand from car

manufacturers give them lesser

deregulated the sector.

bargaining power.

Increasing number of foreign firms (Ford,

Volkswagen, etc.) are increasing

Product differentiation is low

Bargaining power of supplier
(Moderate)
Bargaining power of suppliers is
medium, as there are a large
number of steel and aluminum
manufacturers (key raw material).
Some of them have their own
units which give them linkage
power

their presence.
Cheaper imports of components from
China is increasing .

Company Overview:
Established in 1958, by late Shris S l Minda, Minda Industries limited is the flagship company of UNO Minda group and one
of the leading suppliers of proprietary automotive solutions to OEMs. Headquartered at Manesar, Gurgaon, the company
has 32 plants across India and R&D centers spread across the globe in six locations. Company has ten direct subsidiaries,
two joint venture and five associates. The company offers wide range of products across different verticals of auto
component like switching systems, lighting system, acoustic system and alloy wheels among others. Company has
expanded its product portfolio form one products in 1958 to more than 10 products in 2016 across automotive chain.
Revenue share by products, Switch (FY15: 57%, FY16: 43%), Lighting solutions (FY15: 24%, FY16: 18%), Horns (FY15:
12%, FY16: 22%) and others (FY15: 7%, FY16: 17%). Revenue by Geography, India (FY15: 78%, FY16: 81%), Outside
India (FY15: 22%, FY16: 19%). Minda industries has a well diversified customer base and continue to broaden its customer
base its customer profile such as Bajaj, FIAMM, HSMI, TVS, Ford, Royal Enfiled, Hero Motor Corp.MIL has R&D canters
across six locations globally enabling the company to develop products for OEMs. The company has more than 120 product
patents and more than 145 designs that are registered and filed under its own name.

Chronology of events:

1958 Company foryed into auto componenet sector by manufacturing ammeters for Royal Enfiled .
1960

MIL took the first step towards expanding the portfolio by venturing into the realm of automotive switches.

1980 MIL took another step towards diversification of its business and started manufaucting of automotive lighting products.
1993

1995
2005

MIL added another prodcut to its portfolio by venturing into the horns segment.
Commenced the production of automotive four wheeler siwtches through associate company (Mindarika Private limited).
company made its felt on international shores with a manufacturing facility in Indonesia.

2007 MIL foryed into the Battery segment with a new facility at Pantnagar.
2008

2010
2013
2014

2015

2016

Commenced manufacturing of blow-moulded products from Bangalore.

.Bolstered its prodcut portfolio with the addition of aluminimum of die-cast products from automobiles.
. Acquired Clarton (leading horn manufacturers in Europe) of Spain.
Commenced manufacturing of fuel caps.
Entered into joint venture with Kosei for manufacturing alloy wheels for passenger vehicles
Acquired Rinder group in Spain, widening lightning segment with LED lights.
Source: Company, CSEC Research

Business division:

Exhibit 20: Mindas Business portfolio

Exhibit 21: OEMs relationship

Minda Indsutries limited

Switch

light

Horn

CNG/LPG KIT

Fuel Cap

Source: Company, CSEC Research

Source: Company, CSEC Research

Technology tie ups with global leaders

Technology
partner

Country

Year
of JV

Segments

Comments

Tokai Rika is amongst global leaders in 4W switches

Tokai Rika

Japan

1992

4W switches

with widest product portfolio in E&M segment JV is

Indias largest 4W switches manufacturing with ~47%
market share in OEM segment
Emer, is subsidiary of Westport is a global leader in

Emer

Italy

2001

CNG

natural gas vehicle technology JV is the only

deomestic manufacturer of electronic cylinder valves
Manufacturer of Hoses in Japan ,globally for rake

Toyoda Gosei

Japan

2008

Hoses

hoses, globally for Fuel hoses TG is one of the key

ancillaries of Toyota with market leading technology
in 4Whoses

Kyoraku

Japan

2008

Torica

Japan

2011

Blow

Kyoraku is a leading moulding company with strong

moulding

OEM relationships

Procurement

JV procures raw materials primarily plastic related,

for Minda industries and other groups
Kosei is global supplier for Toyota and Honda; In

Kosei

Japan

2015

Alloy wheels

India the JV has started receiving order from Maruti

and M&M
Source: Company, CSEC Research

Group Profile: Products & Structure

MIL standalone

Domestic Subsidiaries

2W/3W
Switch

MKL (72% Blow moulding

Acoustics

MJ Casting (98% Casting)

Auto Gas

MACL (100% 2W Switch))

Fuel Cap

MDSL (100%
Replacement Market)

Lighting

MKAWL (70% Alloy

wheels)

Overseas
Subsdiaries

Joint Ventures

Associates

METL 49%
CNG/LPG Kits

Sam Gloab (51%)

MNGTL (26%)

Riduco (51%)
MIVCL (100%)

MRPL (27%/4W
Switches)

(Via LSTC)

KMAC (30% Alloy

Wheels)

PTMA (51%)

YogendraEngineering
(49%/ Switches)
Auto components
Haridwar(49%/Lighting)

PTMT (100%)

MindaTG Rubber (51%

Rubber Hoses)

Global Mazinkert (100%)

RIPL (100%)

LSTC (100%)
Clarton Horn (100%)

MSBPL (100%)
YA Auto (51%)

Clarton Horn, Morocco (100%)

Clarton Horn, Mexico (100%)

Source: Company, CSEC Research

CH, Signalakustic (100%)

Management Profile:

Mr. N.K Minda

(Chairman & M.D)
Mr. Anand Minda

Mr. Sudhir Jain

Mr. Pradeep

Mr. Ravi Mehra,

Mr. J.K Menon

E.D. & Group CFO

CEO

CEO

CEO

Director, CEO

Automotive Horns,
Lighting, alternate
fuel system and
CNG/LPG Kits

Switches (4W), blow

moulding and Fuel
caps

Switches (2W),
Sensor, Body
electronics

Alloy wheels and

after market sales

Consolidated revenue distribution:

Exhibit 22: Revenue by product

57%
60%
50%

Exhibit 23: Revenue by geography

90%
80%

43%

81%

78%

70%

40%

60%

24%

30%

22%

18%

20%

12%

10%

17%
7%

50%
40%
30%

22%

19%

20%

0%
Switch

Lighting
solutions

Horns

Others

10%
0%
FY15

Revenue FY15

FY16

Revenue FY16
India

Internatioanl

Source: Company, CSEC Research

Source Company, CSEC Research

Exhibit 24: Channel wise breakup

Exhibit 25: Segment wise revenue breakup

18%
36%

64%
82%

OEM
Source: Company, CSEC Research

Replacement

2 Wheeler

4 Wheeler

Source: Company, CSEC Research

Valuation:
Currently, MILs stock is trading at P/E of 13.6/10.8X FY18E & FY19E EPS respectively. We initiate coverage on Minda
Industries with BUY rating and a target price of INR 440 (Upside 38%) assigning a P/E of 15.0x FY19E EPS on back of
earnings CAGR of ~22% in FY16-19E led by combination of organic and inorganic growth along with improving margin.

Key Risk:
Demonetisation:
The sales of auto and auto components will be impacted in short to medium term post demonetisation. Auto companies are
witnessing 20-30% reduction in demand and more than 50% in new enquiries.

Commodity risk
MIL is exposed to risk in respect of price availability of certain raw materials such as plastic powder, aluminium etc, which
are used as key inputs in the production process.

Currency and Interest rate fluctuations

Since exports constitutes significant revenue for MIL, company is exposed to a risk or loss from changes in foreign
exchange rates whenever it enter into a purchase or sales agreement in a currency other than the Indian Rupee.
Movements in exchange rates and volatility in interest rates have an adverse effect on operating results.

Relative valuation:

3 Years CAGR

Company

FY18E

P/E

EV/EBITDA

EV/Sales

Total
Debt/Equity(x)

Div
yield
(%)

EBITDA

6%

17%

33%

3.0

16

7.5

0.8

21.3

0.0

1.3

23%

83%

127%

3.7

6.4

1.0

32.6

0.1

2.0

5%

11%

5%

1.9

12

6.0

0.7

19.5

1.5

1.2

6%

26%

119%

2.7

14

7.1

0.5

14.2

0.5

2.9

21%

63%

356%

3.4

13.6

6.9

0.7

26.7

0.8

0.4

12%

18%

27%

5.3

21

7.7

0.9

46.5

1.5

0.9

Subros Ltd.

6%

7%

7%

2.9

27

8.0

0.8

7.3

1.2

0.9

Wheels India Ltd.

5%

8%

19%

21

0.7

9.68

0.9

0.9

JBM Auto Ltd.

Lumax Industries
Ltd.
Minda Industries
Ltd.
Motherson Sumi
Systems

P/BV

ROE
(%)

Sales

Gabriel India Ltd.

Jamna Auto
Industries Ltd.

PAT

FY16

P/E band chart:

Exhibit 26: Stock is trading close to +std dev 1
16
14
12
10
8
6
4
2
0

13

Fwd P/E

Source: Bloomberg, CSEC Research

Std -1

Std +2

Std -2

11/22/2016

10/22/2016

9/22/2016

8/22/2016

7/22/2016

6/22/2016

5/22/2016

4/22/2016

3/22/2016

2/22/2016

1/22/2016

12/22/2015

11/22/2015

9/22/2015

Std +1

10/22/2015

8/22/2015

7/22/2015

6/22/2015

5/22/2015

4/22/2015

3/22/2015

2/22/2015

10
9
6
4

Avg P/E

Financial:
Income Statement (Abstract)

Per Share Ratios

INR(million)

Particulars

FY16

FY17E

FY18E

FY19E

14.0

18.2

23.3

29.3

Particulars

FY16

FY17E

FY18E

FY19E

Adjusted EPS (INR)

Net Revenue

25,273

33,623

39,339

45,633

Cash EPS (INR)

8.0

-5.3

7.7

15.4

Growth (%)

13%

33%

17%

16%

BV/Share (INR)

59

74

94

118

Operating
Expenditure

22,954

30,149

35,214

40,606

FCF/Share(INR)

-40.6

12.3

28.9

44.3

2,320

3,474

4,125

5,027

1.4

2.7

3.5

4.4

Growth (%)

53

50

19

22

Depreciation

926

1,345

1,574

1,825

Other Income

199

199

199

199

FY16

FY17E

FY18E

FY19E

Interest

257

359

433

502

Dividend Payout (%)

15

15

15

52

52

52

52

EBIDTA Margin (%)

10

10

11

277

444

497

620

PBT Margin (%)

1,110

1,576

1,871

2,331

PAT Margin (%)

87

42

19

25

RoCE (%)

24

27

27

28

RoE (%)

27

27.2

27.8

27.8

Current Ratio

1.1

1.0

1.1

1.2

Inventory Days

26.6

25.1

25.3

25.0

Debtor days

52.6

53.7

52.4

51.5

Creditor days

51.1

52.9

48.9

50.9

CCC*

28.0

26.0

28.8

25.6

6.4

6.6

6.5

6.9

FY16

FY17E

FY18E

FY19E

4.7

4.8

5.1

Asset Turnover

1.9

2.0

2.0

2.0

Leverage Ratio

3.2

3.2

3.0

2.8

RoE (%)

27

27

28

28

FY16

FY17E

FY18E

FY19E

22.7

17.4

13.6

10.8

P/BV

5.3

4.3

3.4

2.7

EV/Sales

1.1

0.9

0.7

0.6

12.3

8.2

6.9

5.7

0.4

0.9

1.1

1.4

EBIDTA

Exceptional
Items
Tax Paid
Reported PAT
Growth (%)

Balance Sheet (Abstract)

INR(million)
Particulars

FY16

FY17E

FY18E

FY19E

Share Capital

194

194

194

194

Reserves &
Surplus

4,523

5,709

7,227

9,134

Networth

4,717

5,903

7,421

9,328

7,393

9,003

10,269

11,994

2,489

2,630

3,266

3,590

15,695

18,502

21,364

25,315

8,212

8,582

9,267

11,196

Current Assets

7,455

9,889

12,064

14,082

Non-Current
Assets

8,240

8,612

9,300

11,232

15,695

18,502

21,364

25,315

Current
Liabilities
Non-Current
Liabilities
Total
Liabilities
Net Fixed
Assets

Total Assets

DPS (INR)

Key Ratios
Particulars

Interest Cover Ratio

DuPont Analysis
Particulars
Net Profit Margin (%)

Valuation Ratios
Cash Flow Statement (Abstract)

Particulars
INR(million)

Particulars

FY16

FY17E

FY18E

FY19E

Cash flow from

operations
Cash flow from
investing
Cash flow from
financing

1,462

2,775

3,490

4,513

(2,569)

(2,510)

(1,910)

(1,710)

1,234

(684)

(969)

(1,585)

Free cash flow

(644)

975

2,290

3,513

Net change in
cash

127

(419)

611

1,218

P/E

EV/EBITDA
Div Yield (%)

*CCC - Cash Conversion Cycle

Cholamandalam Securities Limited

Member: BSE,NSE,MSE
Regd. Office: Dare House,2 (Old) # 234) N.S.C Bose Road, Chennai 600 001.
Website :www.cholawealthdirect.com
Email id customercarewm@chola.murugappa.com
CIN U65993TN1994PLC028674

Chola Securities is a leading southern India based Stock broker. Our focus area of coverage within the Indian market is Mid and small caps with a focus on
companies from southern India.
Our Institutional Equities services are carried out in partnership with RCCR, a boutique Investment research and Corporate Advisory firm founded by a
team with extensive experience in the Asset management industry.

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