Minda Corporation: Automation is likely to drive both revenue growth and margins | Indianotes.com

We recently met the management team of Minda Corporation ltd. (Minda Corp) consisting of Mr. R. Laxman – Group President, Finance along with head of various departments. We also visited five manufacturing facilities at Pune namely Spark Minda Technical Centre, Security Division, Minda Stoneridge, Minda VAST and Minda Die casting plant.

Following are the key takeaways.

– Minda SMIT (Spark Minda Technical Centre)-
Minda SMIT is the advanced engineering centre of electronics of the Spark Minda Group. The vision behind SMIT is to evolve as a full-fledged advance technology provider that enables the existing businesses to innovate futuristic technologies in Automotive Sub-Systems The division is headed by Mr. Suresh D, he is Chief Technology Officer and has rich background working with Bosch for 17 years, heading various low cost technological innovations for Asia-Pacific market. During our visit the company showcased various products related to low cost innovation. The products which company displayed include Smart and Virtual keys, GPS enabled vehicle tracking systems, connected mobility solutions for passenger cars and Vehicle Immobilizer.

– Security Division- In security division, the company manufactures locking systems for two wheelers, tractors and off-road vehicles. The revenue in FY17 of security divisions was around INR 6,050 Mn. Utilization of the facility stood at ~50-60%. Key customers of the division include Bajaj Auto, KTM, HMSI, TVS, BMW-TVS and Triumph. The facility is semi-automated with most of employees being of a low end skill.

– Minda Stoneridge-
Minda Stoneridge is a JV between Ashok Minda group and Stoneridge inc, USA. Minda group holds 51% stake and rest is held by Stoneridge. Minda Stoneridge manufactures Dashboard Instrument Clusters which forms ~88% of revenue and rest is contributed by Sensors. End users are 2/3 Wheelers, Commercial Vehicles, Farm Equipment and utility vehicles. The division had a revenue of INR 3,020 Mn in FY17. M&M is the largest client with ~17.3% of the top line followed by Ashok Leyland (~13%), Bajaj Auto (~12%). Major competitors in clusters division are JNS instruments Industries, Pricol and Varroc group.

– Minda VAST-
Minda VAST Access Systems Private Ltd. is a 50:50 Joint Venture between Ashok Minda Group and VAST, USA. Minda VAST has facilities at Pune, and Manesar. Manesar facility largely caters to requirement of MSIL. The products of Minda VAST include door handles, ignitors, steering column etc for domestic PV (94%) and CV (6%) industry. Utilization for the Pune facility was ~50-60% across the segments. The division generated a revenue of INR 2,480 Mn in FY17. The key customers (share of revenue) of Minda VAST are Nissan (30%), M&M (16%), Tata Motors + JLR (11%), MSIL (9%), Volkswagen (9%). Major competitors in the segment are Motherson Sumi, HUF, Sandhar and Brose.

– Die-Casting Plant-
The Die-casting divison is engaged in manufacturing of Aluminium castings for automobile (95%) and other (5%) industries. The division also has machining facility to cater to take value addition further. The company has set up its second die-casting facility which became operational in 2Q FY18. The key customers are Bajaj (55%), Endurance (17%), Brembo Racing(4%). The company has an order book of INR 2,500 Mn executable by FY19. Being recently commissioned, utilization level at new plant remained very low in 2Q. Management envisage to export 70-80% of products from this facility by FY20 and targets revenue of INR 4500 mn. Key competitors in the division are Sundaram Clayton, Alicon castalloy and Wuxi Junteng Fanghu Alloy Casting.

Valuation & Outlook

Company’s focus on bringing technologically advanced product and solutions at low cost should help make inroads with large OEMs in both domestic and export markets. Transition from BS-IV to BS-VI from FY20, probable compulsion of ABS for 2Ws above 125 CC engines and CBS for two wheelers below 125CC engines bodes well for Minda Corp. Going forward we believe shifting to electronification and automation is likely to drive both revenue growth and margins of Minda Corp. At CMP of INR 184, the stock is trading at 40x FY17 EPS of INR 4.6.

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