Recommendation from Auto Parts & Equipment Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.




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HERE IS WHY
Improved product mix
Increase in promoter’s stake
Consistent profit growth 

Shareholding Minda Industries Limited (MIL) is in the business of supplying automotive solutions to original equipment manufacturers (OEMs) for over six decades. Its products range spans various verticals of auto components, such as switching systems, acoustic systems and alloy wheels, among others. The company has presence in four continents and more than seven countries catering to over 50 OEMs. MIL owns 43 manufacturing facilities globally and has created a strong base of more than 1000 suppliers. The company has also invested in four R&D and 21 design centres across the globe and holds more than 145 product patents and over 165 design registrations. Relying on its methodology of greenfield expansion, acquisitions and realigning businesses to create a cohesive entity, MIL has become the second largest in automotive horns in the world and third largest in lighting systems in India. 

In FY17, switches, lighting and horns segment contributed 32 per cent, 25 per cent and 17 per cent, respectively, to the total turnover during the year. On like-to-like basis, switches, lighting and horns grew 13 per cent, 30 per cent and 20 per cent, respectively, during the year. Recently, the board of MIL approved further investment of 23,92,400 equity shares of Mindarika, a company that manufactures 4-wheeler switches and supplies its products to OEMs. After the acquisition of the above shares, Mindarika will become a subsidiary of MIL 

It is expected that with the implementation of BS-4 motorcycles, push for the rural economy in fiscal budget and improvement in overall economic growth would translate in healthy growth for MIL’s products. We also expect MIL’s foray in offering security system will help the company improve its product mix. 

On the financial front, the company’s revenue increased 8.86 per cent from Rs438.80 in Q2FY17 to Rs477.67 crore in Q2FY18. The company’s PBDT also improved 25.74 per cent to Rs66.93 crore in Q2FY18 from 53.23 crore in Q2FY17. The company’s net profit also rose from Rs33.06 crore in Q2FY17 to Rs42.56 crore in Q2FY18, registering 28.74 per cent increase. 

On an annual basis, MIL posted 11.62 per cent increase in its revenue to Rs1,639.45 crore in FY17 from Rs1,468.74 crore in FY16. The company’s PBDT increased 14.14 per cent to Rs173.07 crore in FY17 on a yearly basis. The company’s net profit increased 19.45 per cent to Rs94.82 crore from Rs79.38 crore for the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 45.74x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 27.99 per cent and 21.22 per cent, respectively. MIL rallied nearly 53 per cent in the month of November. Promoter's stake in the company has increased from 69.76 per cent in Q1FY18 to 70.95 per cent in Q2FY18. Also, the company has good consistent profit growth of 55.97 per cent over the last five years. The overall outlook for the company looks better for the current fiscal. We recommend our readerinvestors to BUY the scrip.