Minda Industries has been a fantastic multibagger stock.The company has delivered strong operational performance during challenging times.
According to a press report in ET, investors who invested just about Rs 7.5 lakh in Minda Industries five years ago are Crorepati today.
Minda Industries is immune to the prevailing economic slowdown in the auto sector.
Brisk selloff in its shares recently, in line with other auto stocks, factored in some of the market apprehensions over growth momentum in next two-three quarters, said analysts, who still see scope for more upside in this stock as the ‘content per vehicle’ theme plays out in the wake of BS-VI transition next year.
Minda Industries has grown 1,244 per cent to Rs 336 from Rs 25 five years ago. In the same period, the BSE Auto index delivered flat returns. Had the scrip not declined 27 per cent in last one year, it would have delivered 1,700 per cent return for the five-year period.
Minda is among India’s top five players in the auto component space. In the four-wheeler segment, the company manufactures electronic & mechanical security systems, immobilisers, door handles, electronic body controllers, start systems, power closure systems, LED soft touch and camera modules, among others.
In the two-wheeler segment, it makes ignition switch-cum-steering lock, fuel tank cap, latches & cable, tool box, locks, immobiliser and magnetic modules, among others. Its sales have grown 3.7 times to Rs 5,908 crore in FY14-19 while profit has jumped 60 per cent from Rs 5.3 crore in FY14 to Rs 320 crore in FY19.
Minda Industries’ ability to outpace industry growth over last one decade provides comfort, said analysts. This is reflected in the scrip’s 3,060 per cent surge during this period.
The company has delivered strong operational performance during challenging times, said Cholamandalam Securities.
The brokerage believes BS-VI implementation from April 2020 will create strong demand for certain products such as engine-related sensors, advance filtration, seat belt reminders along with increasing premiumisation demand for LEDs and alloy wheels.
Minda is strongly positioned to benefit from these changes, as these products have higher margins and can drive up earnings growth, the brokerage said.
YES Securities said the implementation of new emission and safety norms that increase content per vehicle, import substitution potential of new products and cross-selling of products to existing OEMs may work in favour of Minda.
Slowdown lingers
One key risk to the company’s growth will come from an extended slowdown in domestic auto sales, says YES Securities.
In June quarter, the company reported a 23 per cent YoY drop in consolidated profit at Rs 53.48 crore on a 0.7 per cent rise in sales at Rs 1,439.75 crore. The company logged sales growth despite an average 11 per cent drop in sales for OEMs.
The Minda management is expecting the sales growth delta between OEMs and the company to continue. But since the industry is in on a slippery slope, the stock is under pressure.
“Despite improvement in overseas business and higher growth in alloy wheel segment, we expect margins to stay in the 12-12.5 per cent range because of weaker operating leverage,” says Narnolia Financial.
The management expects the demand environment to improve from September onwards.
But new plants and business consolidations will lead to higher depreciation cost. An increased debt will further deteriorate the overall profitability, it said.
While the company will benefit from a rich product portfolio in the long run, being a major OEM player, growth will largely depend on OEM growth in the short term, the brokerage said.
The company is expecting to merge four of its subsidiaries with itself by end of this financial year. The merger of Harita Seatings is expected to get completed by Q4 of FY20.
Anand Rathi has a target of Rs 388 on the stock, while Edelweiss sees it Rs 385, Cholamandalam at Rs 375 and Narnolia Rs 343. The stock closed at Rs 330 on Thursday.