Minda Industries Fundamental Analysis

India is a developing economy and an emerging market, and like every emerging market, there is a higher need for mobility to reach from point A to point B as soon as possible. One of the best and the most convenient way to do this is by owning a private vehicle. Emerging markets like India have a huge demand for automobiles. As the time passes a larger part of population will join the workforce which will require mobility.

Keeping these macro facts in mind we have come across a mid-cap, potential multibagger, auto ancillary company that will grow multi fold in the coming years. The company’s name is Minda Industries

Minda Industries established in 1958, company offers wide range of products such as switching systems lighting systems and alloy wheels. Company has 5 divisions. Switches (ignition switches), light (headlights tail lights etc) Horns, CNG or LPG Kit and Fuel Cap. Company operates through its direct and step down subsidiaries. As of march 2016 company has 9 direct subsidiaries, 6 step down subsidiaries, 5 associates and one joint venture. Each of these subsidiaries, associates or joint ventures are involved in production of various products that company sells to automobile companies:

Business Divisions:

Minda Industries works in multiple divisions, which manufactures various automobile parts for their customers around the world. Some of the business divisions of Minda are as follows:

Lighting Division:

This division of the company is engaged in manufacturing of premium lights for two wheeler, three wheeler, four wheeler and off road vehicles. This division makes automobile lamps, such as headlamp and tail lamps and signaling devices. Company is involved in design, Research and Development, manufacturing and delivery supply chain. Company manufactures these product in four plants, Manesar, Pantnagar, Sonepat and Pune.

 Switch and handle bars division:

Company is a global leader in manufacturing 2 way switches, and off road vehicle segment. Almost 60% of company’s standalone revenue comes from this segment. Company manufactures these products through 5 plants in India and 2 plant in Indonesia and Vietnam respectively. Company’s major customers for this segment are Honda, Hero Motocorp, Royal Enfield, and Yamaha

Acoustic (Horns) Division:

Company enjoys 50% market share in this segment. Minda Industries manufactures horns in two of its plants situated in Pantnagar and Manesar. Major customers for the company in this segment are Maruti, Renault,Nissan, Tata Motors, Bajaj Auto. Company has recently acquired Carlton Horns SAU in 2013, with this acquisition, company has become one of the top two manufacturers in the horns segment.

Sensors, Actuators and controllers:

This division of the company was set up in 2005, company manufactures TPMS( Tire Pressure Monitoring System), Headlamp levelling motors etc. Company manufacture these product in its plant situated in Pune, major customers of the company are, GM,Mahindra, Volvo, Eicher, Royal Enfield, Tata, Bajaj.

Other Businesses:

Minda Industries is also in business of manufacturing  batteries, fuel caps and LPG/CNG kits via it’s 98% subsidiary MJ casting Pvt Ltd. Company also engaged in aluminum die casting business, rank case cover, and cylinder for air brakes.

Company also makes blow moulding components via its 72% subsidiary Minda Koryaku Limited. It also manufactures products like AC ducts and spoilers. Major customers for the company are Maruti, Renault, Toyota and Nissan.

Minda Industries has recently expanded its product portfolio to alloy wheels Minda kosei Aluminium Co Ltd. With this subsidiary, Minda Industries will be the largest manufacturer of alloy wheels in India with a capacity of 1.44 million pieces per annum. Major customers for Minda Industries in this segment are Maruti, Toyota, Renault, Honda, Nissan.

Revenue by segment:

Company’s major revenue comes from switches (43%) light solutions (18%) and horns (22%). As company is entering product segments, its market share will expand in the future, and Minda Industries will emerge as a complete auto ancillary solutions company for automobile manufacturers.

Revenue by Geography:

India is the major revenue contributor for the company as 81% of total revenue of the company comes from its business in India. Rest about 19% comes from other countries. In the previous year India contributed 78% to the revenue of the company while revenue outside the country was 22%. This shows that company’s business is India centric and if the automobile industry in India prospers, Minda Industries will prosper too.

Financial Highlights:

Minda industries had a great financial performance in the past 5 years, company’s EPS has seen  healthy growth from Rs. 20.98 in 2013 to Rs. 49.96 in 2017. Profit margins of the company have also seen significant improvement, form 3% in 2013 to 5.4% in 2017. Some of the major financial highlights of Minda industries are discussed below:

Basic EPS:

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.

In the past 5 years, company’s EPS has seen a growth of 18.95% CAGR, while in 2013, company’s EPS was Rs. 20.98 per share, in 2017 it was Rs. 49.96 per share.

Cash EPS:

Cash EPS is a measure that looks at how much cash flow the company has generated during the financial year. Cash EPS shows how much cash the business is generating in a year. Cash EPS not only includes Cash received by the business for the products sold or services provided, it also includes any upfront payments, such as cash advance received by the business.

In the last 5 years, Minda Industries has seen good growth in its cash EPS. Company’s Cash EPS grew at 12.95% CAGR, while in 2013, company’s Cash EPS was Rs. 45.31 per share, in 2017, the cash EPS of Minda Industries was Rs. 83.3 per share.

Revenue from Operations/Share:

Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.

Company’s Revenue from operation/Share has seen a decent growth in the last 5 years. Minda Industries’ Revenue from operations/Share has grown at almost 6% CAGR in the last 5 years. While in 2013, company’s Revenue from Operations/Share was Rs. 696.74 per share, in 2017, it was Rs. 925.75 per share.

Net Profit Margin:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

Few years back, company had very low net profit margins, bu in the past 5 years, company has been able to expand its Net Profit Margin at 7.17% CAGR. While in 2013, company’s Net Profit Margin was 3.82%, in 2017 it went up to 5.4%.

ROCE:

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

In the last 5 years, company ROCE has seen a healthy growth of 11.7% CAGR. In 2013, company’s ROCE was 9.46%, while in 2017 it was 16.46%. Growth in ROCE shows, company is utilizing its capital efficiently.

Debt/Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds)

Minda Industries has significantly reduced its debt in the past 5 years. Company’s Debt/Equity ratio in 2013 was 0.5, which means, half of the company’s total capital was financed by debt and half by equity. In 2017, company Debt/Equity ratios was down to 0.23, which means only 23% of company’s total capital was contributed by debt and rest 77% was financed by equity or internal sources.

Dividend Payout Ratio (%NP):

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.

For the past 4 years, that is from 2013 to 2016, company’s Dividend Payout Ratio was increasing, while in 2013 company’s Dividend Payout Ratio was 14.24%, in 2016 it was 17.89%, However, company’s Dividend Payout Ratio dropped to 13.98% in 2017,as company needs capital to expand its business, adding new products to its current portfolio, and expanding capacities of its current product line (a detailed discussion about company’s expansion plans is given in future expansion plans section).  

Dividend/Share:

Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.

Company’s Dividend/Share has seen a good growth in the past 5 years. While in 2013, company’s Dividend/Share was Rs. 3 Per Share, in 2017 it was, Rs. 7 Per Share.

Future Expansion plans:

A company’s plans for its future decides where the company will stand few years from now, what will be its revenue and profitability, and if it makes the business good investment. This is why it is important for investors and the company to have clear and time bound future goals for its business.

Minda Industries is going to launch add new products to portfolio such as EMS, ADAC, and sensors.

Company is going to invest Rs. 1,000 crores in the next 5 years, which will be used in capacity expansion, and introduction of new product line. In the next 3 years, company aims to achieve revenue of Rs. 10,000 crores from its business.

Company also expects to improve its margins, by the end of this financial year, company’s target for profit margin is 15%.

Minda Industries is the second largest horn maker in the world, and recent acquisition of Carlton Horns will help company expand its international presence, making it largest horn maker in the world.  

Company’s international business and exports contribute almost 17% to its total revenue, in the next 3 years, company plans to increase revenue contribution of exports to 25%. Company has also set up two new plants in Hosur(Karnataka) and one in Manesar(Haryana) which will expand company’s lighting business capacity.

Company recently entered fuel cap manufacturing business, which was non existent previous year has managed to contribute 35 crores this year. Company supplies fuel caps to two models of Maruti Suzuki. Company will add clients to its existing fuel caps business which will contribute to the company’s topline.

What makes Minda Industries a good investment:

• Company is leading auto ancillary company in India
• Company has 61% market Share in switch segment, and 47% in horns segment
• Company expects demand pickup in commercial vehicle segment which will improve company’s revenue and profits.
• Company is adding new products to its current portfolio, such as EMS, ADAC, and sensors used in two and four wheelers.  
• Company’s recent acquisition of Carlton Horns will help in expanding its international business
• Company is targeting margin expansion to 15% by the end of financial year.
• Company’s current revenue is Rs. 6,000 crores, company aims to achieve target revenue of Rs. 10,000 crores in next 3 years.