spa RESULT UPDATE cdi M MINDA CORPORATION...
Transcript of spa RESULT UPDATE cdi M MINDA CORPORATION...
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Edelweiss Securities Limited
Minda Corporation’s (MCL) Q1FY18 EBITDA at INR443mn (down ~9% YoY) beat our estimate ~4% spearheaded by Minda Furukawa (MFE). MCL’s initiatives to improve profitability of MFE, including closure of the loss-making Nissan unit, led to breakeven at the PAT level (~INR10mn). During the quarter, MCL continued to gain traction in new orders (~INR7.8bn) across businesses. Cost saving measures to bolster margin are underway and MCL is targeting ~10% margin by March 2018. We perceive higher share of business (SOB) with key clients, new products and upcoming regulations (crash test & BS-VI norms) as key revenue drivers. Maintain ‘BUY’ with revised TP of INR151 (INR116 earlier).
Good operating performance led by improvement in MFE
Consolidated revenue at INR5.8bn, up 19% YoY, came 2% above estimate led by ~10%
growth across business systems and ~9% spurt in tooling revenue. Consolidated
margin at 7.6% (in line with estimate) fell ~240bps YoY impacted by higher R&D spend
(INR30mn), GST dent on aftermarket business (INR15mn) and currency hit (INR25mn).
MFE’s operational improvement was key positive surprise and according to
management, EBITDA margin for the business stood at ~5%.
Growth story intact, but margin expansion key
Expanding SOB from Hero Motocorp & Honda Motorcycles and higher penetration in
Maruti remain key growth drivers for 2W security systems and wiring harness
business, respectively. MCL is also well placed to benefit from upcoming regulations
like BS-VI norms (EGT/EGRT sensors) and crash test norms (steering roll connectors).
However, we believe, sustained margin improvement in MFE and localisation progress
remain key for margins going forward.
Outlook and valuations: Robust revenue outlook; maintain ‘BUY’
We estimate consolidated EPS to clock ~24% CAGR over FY17-19 led by higher SOB
across key clients and new product launches. We estimate RoE to improve to ~20% in
FY19 (13% in FY17) given improving margin outlook. We revise up target multiple to
18x (from 15x) in sync with upgrade of multiples across the sector (refer – Race of
Unequals for details) and Motherson. We maintain ‘BUY’ with TP of INR151 (18x
FY19E EPS). At CMP, the stock trades at 15.5x FY19E PER.
RESULT UPDATE
MINDA CORPORATION Minda Furukawa springs a positive surprise
EDELWEISS RATINGS
Absolute Rating BUY
Investment Characteristics Growth
MARKET DATA (R: , B: MDA IN)
CMP : INR 132
Target Price : INR 151
52-week range (INR) : 142 / 85
Share in issue (mn) : 209.3
M cap (INR bn/USD mn) : 28 / 431
Avg. Daily Vol. BSE/NSE (‘000) : 495.9
SHARE HOLDING PATTERN (%)
Current Q4FY17 Q3FY17
Promoters *
33.7 70.2 70.2
MF's, FI's & BKs 12.5 8.3 9.8
FII's 43.5 0.1 1.0
Others 10.3 21.4 19.1
* Promoters pledged shares (% of share in issue)
: NIL
PRICE PERFORMANCE (%)
BSE Midcap Index
Stock Stock over
Index
1 month 5.8 23.7 17.8
3 months 8.1 22.8 14.8
12 months 22.0 16.1 (5.9)
Chirag Shah +91 22 6623 3367
Karthik Subramaniam +91 22 6620 3156
Financials (INR mn)
Year to March Q1FY18 Q1FY17 % Chg Q4FY17 % Chg FY17 FY18E FY19E
Net revenues 5,817 4,889 19.0 7,614 (23.6) 29,620 24,723 28,152
EBITDA 443 488 (9.1) 338 31.3 1,981 2,417 2,909
Adjusted Profit 243 269 (9.9) 114 113.5 1,143 1,250 1,751
Adjusted Diluted EPS 1.2 1.3 (9.9) 0.5 113.5 5.5 6.0 8.4
Diluted P/E (x) 24.1 22.1 15.8
EV/EBITDA (x) 16.6 12.6 10.0
ROAE (%) 13.0 16.8 19.8
In
dia
Mid
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India Equity Research| Automobiles
September 15, 2017
Automobiles
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Q1FY18 conference call: Key highlights
Revenue performance
• Consolidated revenue at INR5.8bn, up 19% YoY, led by double digit growth across
business systems and ~9% growth in the tooling business.
• Tooling business revenues for the quarter were largely part of the KTSN business;
tooling business margins are in line with the regular business.
• Continues to see strong traction in new orders across businesses (safety & security,
driver information systems and interior systems). Booked orders worth INR7.8bn in
Q1FY18. Key orders:
o Die-casting business for exports to Europe for compressor housing (lifetime order
value of INR830mn).
o Lockset order from 2W OEM for a new model (lifetime order value of INR550mn).
o Speedometer order from global 2W OEM in India (lifetime order value of
INR1.7bn).
o Wiring harness order from domestic OEM for trucks and bus division (lifetime
order value of INR1.35bn).
o Instrument panel and cup holder orders for European OEM for new model (lifetime
order value of INR2.5bn).
Key growth drivers
• Legacy business: Focus is on new technologies like PEPS, electronic clusters, 2W
electronic locks and low-cost immobilisers.
• Non-legacy business: Demand from electronic products such as EFI/EMS systems, ABS
& CBS, EGT/EGRT sensors, soot sensors, connected cars etc.
• Focus remains on new customer additions, addressing new product segments (off-road
vehicles and electric vehicles). Upcoming crash test norms which mandate use of
airbags are likely to increase demand for steering roll connectors.
Standalone business
• New die-casting unit in Pune to commence operations from Q2FY18.
• Plans to increase capacity from 4,600MT currently to 9,600MT by FY19. The company
has invested INR1bn over FY16-18 and targets revenues of INR2bn by FY20.
• Key focus in die-casting is to target opportunity in turbocharger segments in export
markets.
• Other expenses continue to remain high in standalone business on account of higher
R&D spend.
Minda Furukawa
• Action plan for improvement in profitability underway. Minda Furukawa was marginally
profitable in Q1FY18 with PAT of ~INR10mn. EBITDA margins were ~5%.
• Has discontinued the loss making facility at Chennai (INR15.5mn impact).
Minda Corporation
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• From Q2FY18, Renault Kwid business would be discontinued. Revenue loss from
Renault for FY18 estimated at INR1.2bn, partly offset by incremental revenue of
INR500mn for new Swift.
• Capacity utilisation for the business would be ~70%.
Minda Stoneridge
• EGT/EGRT sensor will be in effect from April 1, 2020, post BS-VI norms. Current order
book is INR1.5bn out of a market size of INR6.5bn. Expects to bag more orders in the
segment in the next 2-3 quarters and achieve market leadership.
• For soot sensors, Bosch and Stoneridge are the largest players (INR9bn market
opportunity). These sensors will come into effect from 2023 and exports will start from
2021 for the European market.
Minda SAI
• Acquistion of EI Labs to add to the technological expertise in connected mobility and
IoT solutions space.
o As demand for electronic features improves, automobiles will also move towards
connected mobility.
o Technology will be integrated into existing product solutions (like connected
clusters) to enhance customer offerings.
o Acquired for an EV of ~INR70mn. FY17 revenue was INR25mn and expects similar
run rate in FY18. Expects to breakeven in FY18.
• Capacity utilisation for the business is ~ 70-80%.
Margin
• Consolidated margin at 7.6% fell 240bps YoY largely due to impact of higher R&D spend
(INR30mn), GST impact on aftermarket business (INR15mn) and currency fluctuation
(INR25mn).
• Ongoing cost saving initiatives to support margin and the company is targeting double
digit margin by March 2018.
Others
• MCL has a clear cut roadmap for Electric Vehicles (EV) opportunity across segments
(2Ws, PVs and CVs) and is engaged with all EV manufacturers in India. Currently in
process of developing products like chargers, motors etc.
• Consolidated gross debt of INR650mn; debt: equity is at comfortable level of ~0.8x.
Automobiles
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Financial snapshot (INR mn) Year to March Q1FY18 Q1FY17 % change Q4FY17 % change FY17 FY18E FY19E
Net revenues 5,817 4,889 19.0 7,614 (23.6) 29,620 24,723 28,152 Raw material 3,561 2,861 24.5 4,999 (28.8) 18,879 15,328 17,313
Staff costs 1,041 930 11.9 1,198 (13.2) 4,971 5,866 6,922
Other expenses 772 610 26.5 1,079 (28.4) 3,790 1,112 1,008
EBITDA 443 488 (9.1) 338 31.3 1,981 2,417 2,909
Depreciation 161 141 14.2 218 (26.0) 847 889 931
EBIT 282 347 (18.6) 120 136.0 1,134 1,527 1,978
Other income 25 28 (11.0) 126 (80.1) 463 360 396
Interest 76 59 28.6 92 (17.0) 409 397 353
Add: Exceptional items 16 18 (14.4) 27 (41.7) (182) - -
Profit before tax 290 328 (11.6) 128 127.2 1,005 1,490 2,020
Provision for taxes 60 73 (18.0) 34 77.6 331 410 546
Minority interest (97) (100.0) (287)
Associate profit share 74 30 146.7 - - 170 276
Reported net profit 230 255 (9.8) 191 20.6 961 1,250 1,751
Adjusted Profit 243 269 (9.9) 114 113.5 1,143 1,250 1,751
Diluted shares (mn) 209 209 209 209 209 209
Adjusted Diluted EPS 1.2 1.3 (9.9) 0.5 113.5 5.5 6.0 8.4
Diluted P/E (x) - - - 24.1 22.1 15.8
EV/EBITDA (x) - - - 16.6 12.6 10.0
ROAE (%) - - - 13.0 16.8 19.8
As % of net revenues
Raw material 61.2 58.5 65.7 63.7 62.0 61.5
Employee cost 17.9 19.0 15.7 16.8 23.7 24.6
Other expenses 13.3 12.5 14.2 12.8 4.5 3.6
EBITDA 7.6 10.0 4.4 6.7 9.8 10.3
Adjusted net profit 4.0 5.2 2.5 3.2 5.1 6.2
Reported net profit 4.2 5.5 1.5 3.9 5.1 6.2
Minda Corporation
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Company Description
MCL is the flagship company of the Ashok Minda Group. The company is structured into 3
key business segments: 1) Safety, security and restraint systems; 2) driver information &
telematics; and 3) interior systems accounting for 39%, 45% and 16% of revenue,
respectively.(9MFY16). The company has a well diversified client portfolio, with the largest
client contributing only ~10% to revenue, implying minimal concentration risk. In FY16, the
domestic market accounted for 79% revenue and Europe & South East Asia operations
contributed 16% and 5%, respectively.
Investment Theme
Minda Corporation(MCL) remains well placed to outperform industry growth riding
deepening penetration in existing OEMs, new client wins and enhanced growth in new
businesses like wiring harness, sensor and steering roll connectors. Moreover, JVs with with
global players Furukawa, Stoneridge and VAST, besides ensuring access to technology, also
entail potential to widen the product basket. Focus on margins and balance sheet to ensure
that market share gains translate into robust earnings and return ratios
Key Risks
Success of new models by OEMs
Revenue ramp up and market share gains across businesses are contingent on success of
new model launches by OEMs for which the company has won orders. Failure of models
may have a material impact on MCL's revenue and pricing
Delay in localisation efforts
Any significant delay in localisation efforts across businesses like Minda VAST and Minda
Furukawa(that have high import content) can impact the company's operating margin and
profitability
Volatility in commodity prices
Though MCL maintains inventory of raw materials and components for the operating cycle,
a sharp increase in commodity prices globally may adversely impact the company's
manufacturing cost and margin
Automobiles
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Financial Statements
Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E
Income from operations 24,455 29,620 24,723 28,152
Materials costs 14,986 18,879 15,328 17,313
Employee costs 4,165 4,971 5,866 6,922
Total SG&A expenses 3,071 3,790 1,112 1,008
Total operating expenses 22,222 27,640 22,307 25,243
EBITDA 2,234 1,981 2,417 2,909
Depreciation 745 847 889 931
EBIT 1,489 1,134 1,527 1,978
Add: Other income 172.94 462.7 360.00 396.00
Less: Interest Expense 334 409 397 353
Add: Exceptional items 137 (182) - -
Profit Before Tax 1,465 1,005 1,490 2,020
Less: Provision for Tax 366 331 410 546
Less: Minority Interest 30 (287) - -
Associate profit share 3 - 170 276
Reported Profit 1,073 961 1,250 1,751
Exceptional Items 137 (182) - -
Adjusted Profit 935 1,143 1,250 1,751
Shares o /s (mn) 209 209 209 209
Adjusted Basic EPS 4.5 5.5 6.0 8.4
Diluted shares o/s (mn) 209 209 209 209
Adjusted Diluted EPS 4.5 5.5 6.0 8.4
Adjusted Cash EPS 8.0 9.5 10.2 12.8
Dividend per share (DPS) 0.5 0.5 0.5 0.5
Dividend Payout Ratio(%) 11.2 9.2 8.4 6.0
Common size metrics
Year to March FY16 FY17 FY18E FY19E
Operating expenses 90.9 93.3 90.2 89.7
Materials costs 61.3 63.7 62.0 61.5
Staff costs 17.0 16.8 23.7 24.6
S G & A expenses 12.6 12.8 4.5 3.6
Depreciation 3.0 2.9 3.6 3.3
Interest Expense 1.4 1.4 1.6 1.3
EBITDA margins 9.1 6.7 9.8 10.3
Net Profit margins 3.8 3.9 5.1 6.2
Growth ratios (%)
Year to March FY16 FY17 FY18E FY19E
Revenues 24.1 21.1 (16.5) 13.9
EBITDA 20.4 (11.3) 22.0 20.4
PBT 32.2 (31.4) 48.3 35.6
Adjusted Profit 7.3 22.2 9.4 40.1
EPS 7.3 22.2 9.4 40.1
Key Assumptions
Year to March FY16 FY17 FY18E FY19E
Macro
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7
Inflation (Avg) 4.9 4.5 4.0 4.5
Repo rate (exit rate) 6.8 6.3 5.8 5.8
USD/INR (Avg) 65.0 67.5 66.0 66.0
Sector
Motorcycle - dom. vol. (% YoY) 3.0 4.0 5.0 6.0
Cars - domestic vol. (% YoY) 8.0 4.0 8.0 8.0
UV - domestic vol. (% YoY) 6.3 35.0 20.0 15.0
MHCV - domestic vol (% YoY) 30.0 1.0 8.0 8.0
Company
Standalone (% YoY) 9 10 10 12
Consolidated (% YoY) 24 21 (17) 14
Tax rate (%) 27.5 27.9 27.5 27.0
Dividend payout (%) 11.2 9.2 8.4 6.0
Depreciation (% of rev.) 3.0 2.9 3.6 3.3
Net borrowings (INR mn) 4,590 5,548 5,048 5,048
Capex (INR mn) (3,190) (948) (700) (700)
Debtor days 56 58 66 54
Inventory days 67 71 86 69
Payable days 106 106 139 117
Cash conversion cycle 18 23 13 7
Interest Exp (% of Debt) 7.4 8.1 7.5 7.0
Minda Corporation
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Cash flow metrics
Year to March FY16 FY17 FY18E FY19E
Operating cash flow 2,258 1,146 3,107 2,213
Investing cash flow (1,597) (2,119) (1,340) (1,304)
Financing cash flow (290) 418 (1,002) (458)
Net cash Flow 371 (556) 765 451
Capex (3,190) (948) (700) (700)
Dividend paid (105) (105) (105) (105)
Profitability and efficiency ratios
Year to March FY16 FY17 FY18E FY19E
ROAE (%) 17.2 13.0 16.8 19.8
ROACE (%) 16.4 13.7 14.8 17.1
Inventory Days 67 71 86 69
Debtors Days 56 58 66 54
Payable Days 106 106 139 117
Cash Conversion Cycle 18 23 13 7
Current Ratio 1.6 1.5 1.8 2.0
Gross Debt/EBITDA 2.1 2.8 2.1 1.7
Gross Debt/Equity 0.8 0.9 0.7 0.5
Adjusted Debt/Equity 0.8 0.9 0.7 0.5
Net Debt/Equity 0.6 0.7 0.3 0.1
Interest Coverage Ratio 4.5 2.8 3.8 5.6
Operating ratios
Year to March FY16 FY17 FY18E FY19E
Total Asset Turnover 2.4 2.5 1.9 2.0
Fixed Asset Turnover 3.8 4.0 3.3 3.8
Equity Turnover 4.7 4.9 3.5 3.3
Valuation parameters
Year to March FY16 FY17 FY18E FY19E
Adj. Diluted EPS (INR) 4.5 5.5 6.0 8.4
Y-o-Y growth (%) 7.3 22.2 9.4 40.1
Adjusted Cash EPS (INR) 8.0 9.5 10.2 12.8
Diluted P/E (x) 29.5 24.1 22.1 15.8
P/B (x) 4.9 4.2 3.6 3.0
EV / Sales (x) 1.3 1.1 1.2 1.0
EV / EBITDA (x) 14.3 16.6 12.6 10.0
Dividend Yield (%) 0.4 0.4 0.4 0.4
Balance sheet (INR mn)
As on 31st March FY16 FY17 FY18E FY19E
Share capital 608 608 608 608
Reserves & Surplus 5,066 5,899 7,045 8,691
Shareholders' funds 5,674 6,507 7,653 9,299
Minority Interest 637 350 350 350
Short term borrowings 3,174 3,485 2,985 2,985
Long term borrowings 1,416 2,064 2,064 2,064
Total Borrowings 4,590 5,548 5,048 5,048
Def. Tax Liability (net) 113 107 107 107
Sources of funds 11,013 12,513 13,158 14,804
Gross Block 13,522 14,471 15,171 15,871
Net Block 7,187 7,632 7,442 7,211
Capital work in progress 131 823 823 823
Total Fixed Assets 7,318 8,455 8,265 8,034
Cash and Equivalents 934 672 2,438 3,888
Inventories 3,210 4,136 3,066 3,491
Sundry Debtors 4,353 4,999 3,903 4,444
Loans & Advances 1,892 1,894 1,580 1,799
Current Assets (ex cash) 9,455 11,029 8,549 9,734
Trade payable 6,087 7,019 5,470 6,228
Other Current Liab 607 624 624 624
Total Current Liab 6,694 7,643 6,094 6,853
Net Curr Assets-ex cash 2,761 3,386 2,455 2,882
Uses of funds 11,013 12,513 13,158 14,804
BVPS (INR) 27.1 31.1 36.6 44.4
Free cash flow (INR mn)
Year to March FY16 FY17 FY18E FY19E
Reported Profit 935 961 1,250 1,751
Add: Depreciation 745 847 889 931
Interest (Net of Tax) 242 295 288 258
Others 398 (1,582) 1,611 (1,155)
Less: Changes in WC 63 (625) 931 (427)
Operating cash flow 2,258 1,146 3,107 2,213
Less: Capex 3,190 948 700 700
Free Cash Flow (932) 197 2,407 1,513
Automobiles
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Additional Data
Directors Data Mr Ashok Minda Chairman & Group CEO Mr Sudhir Kashyap Executive Director & CEO
Mr Rakesh Chopra Independent Director Mr Avinash P Gandhi Independent Director
Mr Ashok Kumar Jha Independent Director Mr Laxman Ramnarayan Director & Group President finance
Ms Pratima Ram Independent Director
Auditors – M/s B S R & Associates LLP
*as per last available data
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
27 Mar 2017 ASHOK KUMAR MINDA (HUF) Sell 20066900.00
27 Mar 2017 MR. ASHOK MINDA Buy 20066900.00
28 Sep 2016 MR. ASHOK MINDA Buy 1966000.00
28 Sep 2016 MINDA S.M. TECHNOCAST PVT. LTD. Buy 2950000.00
28 Sep 2016 MINDA CAPITAL LIMITED Buy 5300000.00
*as per last available data
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
26 Sep 2016 Ashok Minda Buy 1966000 100.20
26 Sep 2016 Minda Capital Ltd Buy 5300000 100.20
26 Sep 2016 Minda S M Technocast Pvt Ltd Buy 2950000 100.20
26 Sep 2016 Kotak India Growth Fund Ii Sell 9584870 100.27
26 Sep 2016 Kotak India Pvt Equity Fund Sell 2418745 100.25
*as per last available data
Holding – Top10 Perc. Holding Perc. Holding
Minda ashok 31.33 Minda sarika 15.95
Minda capital limite 7.6 Minda aakash 7.59
Kotak mahindra 6.7 Bhagwat sewa trust 5.18
Tech aid engineering 4 Blest marketing & ad 2.18
R n s tyres pvt ltd 2.18 Rns tyres private li 2.18
*as per last available data
Minda Corporation
9 Edelweiss Securities Limited
`
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: [email protected]
Aditya Narain
Head of Research
Coverage group(s) of stocks by primary analyst(s): Automobiles
Ashok Leyland, Amara Raja Batteries, Bajaj Auto, Ceat Ltd, Eicher Motors, Exide Industries, Hero MotoCorp, Minda Corporation, Mahindra & Mahindra Ltd, Maruti Suzuki India Ltd, Motherson Sumi Systems, Suprajit Engineering, Tata Motors Ltd
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 161 67 11 240 * 1stocks under review
Market Cap (INR) 156 62 11
> 50bn Between 10bn and 50 bn < 10bn
Date Company Title Price (INR) Recos
Buy Hold Reduce Total
Recent Research
4-Sep-17 Automobiles Strong show across the board; Routine Update
31-Aug-17 Maruti Suzuki
Business as usual; Visit Note
7,700 Buy
31-Aug-17 Eicher Motors
Growth: Realigning focus; Visit Note
31,451 Buy
Rating Interpretation
Buy appreciate more than 15% over a 12-month period
Hold appreciate up to 15% over a 12-month period
Reduce depreciate more than 5% over a 12-month period
Rating Expected to
One year price chart
80
92
104
116
128
140
Sep
-16
Oct
-16
No
v-1
6
De
c-1
6
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
(IN
R)
Minda Corporation
Automobiles
10 Edelweiss Securities Limited
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Minda Corporation
11 Edelweiss Securities Limited
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A graph of daily closing prices of the securities is also available at www.nseindia.com
Analyst Certification:
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Automobiles
12 Edelweiss Securities Limited
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