Minda Industries is India’s largest manufacturer of automotive components like switches, horns, seats and alloy wheels. It is also the third-largest automotive lighting player in India. Even though the automotive industry is currently facing a slowdown, it is expected to surge in the next few years. Rising middle-class population coupled with the increasing adoption of EVs are key growth drivers.

The Q4FY22 results reflect the growth that the company was able to deliver in a challenging environment that was impacted by semiconductor shortages and rising commodity prices. It delivered on account of premiumisation of its products as well as increasing component share, particularly in EVs (electric vehicles).

The Centre is trying to stimulate investment in the automotive industry (both traditional and electric vehicles) by announcing production-linked incentives. The government announced a PLI scheme for the automobile and auto components industry, with a budgetary outlay of Rs 25,938 crore, to enhance manufacturing capabilities for advanced automotive products (AAPs). It has already attracted a proposed investment of Rs 72,850 crore against the target estimate of Rs 42,500 crore. Minda Industries has also received approval for some of its products under this scheme.

Quick Takes

• On a consolidated basis, the company registered its highest ever quarterly revenue of Rs 2,415 crore in Q4FY22 
• Consolidated EBITDA margins in Q4FY22 declined YoY to 11.4% from 13.6%
• Consolidated PAT for FY22 rose 71% YoY to Rs 356 crore
• Two wheeler segment components constituted higher sales at 55% as against 45% for four wheeler in Q4FY22
• Minda was granted approval under the Component Champion incentive scheme under PLI on March 22, 2022 for manufacture of EV components

Premiumisation drives the sale of products across segments in FY22

Revenue growth in FY22 was driven by premiumisation of products in each segment. New products like, the side-stand switch, added to the component content of each vehicle. In addition, there were continued order supplies for switches for the sunroof, cruise control, paddle switches, and vehicle stability switches. Minda Industries also won export orders from an Italian two-wheeler OEM (original equipment manufacturer) for switches in Q4FY22.

Consolidated revenue in FY22 stood at Rs 8,375.9 crore (up 30% YoY), which is the highest annual revenue in the history of the company. Net profit at Rs 355.3 crore (up 71%) was also the highest annual profit in the company’s history.

The lighting segment also saw a rise in orders of LED lamps from OEMs. It received a large order for tail centre position lamps from a key Indian OEM in Q4FY22. Sizeable order wins for LED lamps through FY22 aided revenue growth. The company is expanding capacity for the lighting segment with a new plant in Gujarat to cater to the growing demand. 

Minda Industries’ Q4FY22 performance was primarily led by the PV (passenger vehicle) segment while two-wheeler demand continued to be sluggish. Margins have remained under pressure due to elevated input prices.

In Q1FY22, revenue and profit fell sharply on a sequential basis. From Q2FY22 onwards, Minda Industries was able to deliver higher revenues and profits for every subsequent quarter. FY22 ended with consolidated revenue at Rs 2,438.3 crore in Q4FY22 and net profit at Rs 144.4 crore. Rising commodity prices hurt EBITDA for Q4FY22 which came in at Rs 276 crore, lower by 9.7% YoY.

In the acoustics segment which manufactures horns for all types of vehicles, growth was driven by the shift to electronic horns from electromechanical horns. In Q4FY22, the company received an order for speakers and audio systems from an India OEM. The acoustics segment revenues also recovered in Europe.

Castings segment revenues grow due to a rise in demand for alloy wheels, both for the two-wheelers and four-wheelers. Orders from Korean OEMs helped boost this segment’s revenues. The company also commissioned a new plant for four-wheelers with production capacity of 30,000 wheels per month out of a total capacity of 60,000 wheels per month, at MKA Bawal. The remaining capacity is expected to be commissioned by H1FY23.

From the total split between product segments, switches and lighting contribute to more than half of the revenues. Apart from these traditional segments, other segments were added over the years.

While seating was added to Minda’s offerings with the acquisition of Harita Seating Systems, castings was developed as an independent segment to replace imports of alloy wheels. It also received new orders for seating systems from a bus OEM and launched seating in the aftermarket channel in Q4FY22.

Minda Industries is seeing good traction in EV OEMs. It is focusing on deeper penetration among existing EV clients and has also received orders for battery chargers for EVs, which are jointly being developed in a joint venture with German company FRIWO. The joint venture agreement was signed in December 2021.

Around 85% of Minda Industries’ revenues comes from the Indian market and the rest from international markets. Also, 88% of revenue comes from sales to OEMs and the remainder from aftermarket or replacement sales. In FY22, the aftermarket channel saw a 25% YoY growth in revenues, helped by the opening up of the economy and the replacement of components for many vehicles that were idle for a long time.

Capex plans and PLI approval are triggers for the future

The management believes that the auto industry is on the cusp of a revival, with favourable government policies and new product launches planned by OEMs for the coming year.

In a conference call with investors on the Q4FY22 results, the management said that on the EV side, they had shortlisted some of the key EV OEMs as they do not wish to serve multiple customers. The management has decided not to increase their customer base, but deliver new products to the existing OEMs, with a focus on higher component value of EV products. While this strategy may work out in the short term, it is likely to be counterproductive in the long run, with loss of opportunity for relationships with new entrants in the EV space.

On the approval of the PLI scheme, the management view is that they are investing purely on merits as the scheme gives them an edge in terms of competitiveness for domestic and exports investment. Many of their products are eligible under the scheme including sensors, telematics and a range of other CNG and EV components. The policy mandates a capex of around Rs 250 Crores over five years. Minda Industries' planned capex is much more than these thresholds, so they will not make any specific investment only for the PLI. 

Minda Industries will incur a capex of Rs 300 crore in FY23, with about Rs 37 crore directed towards capacity expansion at MIVCL (Vietnam) for the lighting division which is expected to be commissioned by Q4FY23. Another Rs 73 crore will be directed towards 4W switch capacity at Mindarika facility to cater to incremental orders expected to be completed by Q4FY23. It has also earmarked Rs 260 crore for maintenance purposes. 

FY22 turned out well for many auto component players like Motherson Sumi Systems, Schaeffler India and Endurance Technologies. However, Minda Industries stands out for its number of components and widespread applications across vehicle types. 

The premiumisation of components and aggressive foray into the EV portfolio, as well as the potential for increasing component value per vehicle, is expected to sustain its OEM growth. A lot depends on the realisation of revenues from existing and planned capacity expansion in the next few quarters. One area of concern is the ability to continue gaining  orders in FY23 at the same rate as FY22. 

With signs of recovery in the automotive sector and the increasing penetration of EVs, Minda Industries is one stock that might attract investors' interest in the auto ancillary space. It is also worth keeping in mind the company’s current PE relative to its historical trend while assessing whether this stock is worth investing in.