Axis Securities picks Minda Corp as top pick of the week; order win, focus on margin among key reasons

After a 65 percent rise in the last 1 year as well as in 2023 so far, brokerage house Axis Securities has picked Minda Corporation as its top pick of the week. This is on the back of strengthening technical collaborations, focusing on margin expansion and inorganic growth opportunities.

The brokerage has a ‘buy’ recommendation on the stock with a target price of ₹375, indicating an upside of over 10 percent from its current market price of ₹339.50.

Minda Corporation is one of India's leading manufacturers of automotive components – electronic and mechanical Security Systems, Die Casting, Key Solutions, Telematics, ITS & IoT, Wiring Harnesses, SRCs, Components, Instrument Clusters, Sensors, Interior Plastics that cater to the leading Passenger Vehicle, Commercial Vehicle, Motorcycle & Scooter, Off-road Vehicle & Tier 1 manufacturers in India with presence in Germany, Poland, Czech Republic, Mexico, China, Indonesia, Vietnam, Uzbekistan and Japan. The $539 million Group, with a workforce of more than 16,000, has several JVs with leading companies from the USA, Japan, Italy, Uzbekistan & China.

Stock Price Trend

The stock has jumped over 65 percent in the last 1 year and in 2023 YTD. It has given positive returns in 8 of the 10 months in the current calendar year so far and declined in just 2 - June 2023 (-0.5 percent) and February 2023 (-9.5 percent). The stock is up over 1 percent in October so far, extending gains for the fourth straight month since July, gaining over 20 percent in this period. Meanwhile, it rose the most in April 2023, up 31.5 percent.

The stock hit its record high of ₹355.45 early last month on September 8. However, it has consolidated a bit post hitting its peak, down 4.6 percent to date. Meanwhile, currently trading at ₹339, the stock has advanced over 81 percent from its 52-week low of ₹187.00, hit on March 28, 2023.

Earnings

For the June quarter (Q1FY24), the company's net profit fell 14 percent to ₹45 crore versus ₹52 crore in the same period last year. Meanwhile, its revenue rose 6 percent YoY to ₹1,075 crore.

The firm's EBITDA declined marginally to ₹115 crore in Q1FY24 from ₹117 crore a year ago whereas EBITDA margin also fell to 10.7 percent in Q1FY24 from 10.9 percent in the year-ago period.

During the quarter the company won orders valued at around ₹3,000 crore, of which, 50 percent came from the EV segment. This included ₹750 crore for the battery chargers announced recently.

“Moving forward, we’ll continue to build out our product portfolio and sharpen our competitive edge by investing in R&D, and partnerships, to produce high-quality products backed with cutting-edge technology that best adapts to the evolving needs of customers worldwide. Demonstrating our focus on innovation, we filed 4 patents during the quarter, taking the total number of patents filed to 255,” said Ashok Minda, Chairman and Group CEO.

Investment Rationale

New order wins: The brokerage informed that the company has won lifetime orders of more than ₹3,000 crore during the quarter ended June 2023, out of which, 50 percent is for the EV business. It has also won a ₹750 crore order for battery chargers from a single OEM. Order wins are ₹1,100 crore for the Mechatronics division, ₹1,050 crore for the ICS division and the remaining is from other segments. Based on markets, orders worth ₹2,600 crore have been received from new businesses ( ₹860 crore for EV products) and ₹400 crore is from the replacement market, stated Axis. Meanwhile, exports constituted ₹138 crore of the total orders won, it added.

Strengthening technological partnership: The company continues its efforts to drive higher content per vehicle in all its business segments, said Axis. Minda’s key products such as locksets (smart keys now forming 15 percent of 2W lockset revenue), Die casting, Wiring Harnesses (compliant with OBD-2 norms), and clusters (from analogue to digital TFT clusters), are going through the Premiumisation trend, it further noted. It expects incremental orders in its smart lock business from EV manufacturers given their technological expertise and engineering capabilities. The company is constantly engaging in strengthening technological capabilities in ADAS solutions, Antenna Systems, EV Battery Charger, Cluster and sensors, Telematics, and others. It believes more such partnerships to be announced in the future which shall enable the company to gain market share in import substitute products.

Focus on margin improvement: As per the brokerage, the company is focused on increasing efficiencies, streamlining fixed costs, and increasing component localisation initiatives to achieve a targeted EBITDA margin of 12-13 percent in the medium term. Furthermore, softening commodity prices and premiumisation trends (higher realisations) are expected to aid in margin expansion, it added.

Outlook & Valuation

"The management shows confidence in outperforming the industry with consistently growing revenue and double-digit EBITDA margins. It expects domestic demand to pick up with the onset of the festive season, changing consumer preference in the premium 2W space, rise in demand for SUV-style vehicles/new launches in PV. Moreover, CV demand is expected to be sustained with increasing economic activities. Exports are expected to recover gradually post-Q3FY24," highlighted Axis.

The brokerage has maintained a positive view on the company as it will be a beneficiary of product premiumisation, EV growth, increased business from CV/PV OEMs and growth opportunities via organic and inorganic routes in the future (stake increase in Pricol – which has over 40 percent market share in margin accretive digital instrument cluster business will be a positive trigger for the stock).

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.