Minda Industries Shares Fall The Most In A Month On Q3 Profit Miss, Pricey Valuation

Shares of Minda Industries Ltd. fell the most in a month after the company’s third-quarter profit missed estimates and brokerages flagged premium valuation.

While Kotak Institutional Equities and Nomura said the quarter was “decent” and “in line”, the company’s premiumisation and order wins for electric two-wheeler were already factored into the stock price. The brokerages also downgraded the auto parts maker.

Q3 FY22 Highlights (Consolidated, QoQ)

• Revenue up 3% to Rs 2,181 crore, compared with the Bloomberg consensus estimate of Rs 2,155 crore.

• Profit up 7% to Rs 101 crore, against the Rs 116-crore forecast.

• Ebitda up 3% to Rs 235 crore.

• Announced dividend of 50 paise per share.

The company said it has been “actively engaged with top new-age” electric two-wheeler original equipment makers and has secured orders of more than Rs 400 crore. It expects sales to peak in FY25 as it ramps up production with increasing adoption.

According to Chairman and Managing Director Nirmal K Minda, the company is “well-positioned” as it has weathered a quarter marred by “challenging times, supply-side constraints and rising input prices”. “There are signs of a sharp revival of the industry, with demand picking up and external boosts in the form of favourable government policies as highlighted in the recent budget.”

Shares of Minda Industries fell as much as 9.1%, the most since Jan. 7, in morning trade on Tuesday. The scrip ended day's trade 7.8% lower compared with a 0.3% rise in Nifty 50.

Of the 22 analysts tracking the company, 11 recommend a ‘buy’, eight suggest a ‘hold’ and three have a ‘sell’ call, according to Bloomberg data. The average of 12-month price targets implies a 0.4% upside.

Here’s what brokerages made of Minda’s Q3 FY22 results:

• Downgrades from ‘buy’ to ‘add’, but raises fair value to Rs 1,160 from Rs 1,130—implying a potential upside of 4.3%.

• Valuations are rich, the stock has ran up close to 40% over the past three months.

• Ebitda came in 8% above our estimate led by a better-than-expected revenue print. Revenue beat was led by strong growth across lighting and alloy wheel segments.

• Minda Industries will continue its outperformance owing to its diversified engine-agnostic portfolio, strong relationships with OEMs resulting in market share gains and order wins for two-wheeler EV-specific products.

• Downgrades from ‘buy’ to ‘neutral’, but raises target price from Rs 1,045 to Rs 1,235—implying a potential upside of 11.1%.

• Minda will be a key beneficiary of original equipment production recovery on improving chip shortages, premiumisation trends across categories, strong alloy wheel/sensor/air bag demand and new product addition in EV two-wheelers, driving 24% revenue CAGR in FY22-24.

• However, there could be a risk to regular two-wheeler margins if the industry volumes continue to decline.

• Given the production disruption and sharp commodity cost inflation, we cut Ebitda and EPS projections.

• Raises target multiple to 40x to factor in potential upside of 3-5% each from recent air-bag regulation, incentives under PLI and higher addressable opportunity in e-two-wheeler, for which there is less clarity on time-lines at this point.

• The stock currently trades at 36x FY24F EPS, which is in the fair value zone of 35-40x. We prefer Sona Comstar in the sector.

• Maintains ‘buy’ with a target price of Rs 1,250—implying a potential upside of 16.7%.

• Operating performance was in line with estimates as it continued to outperform the industry.

• The supply-chain constraints have started easing and we expect profits to rebound on a sequential basis as utilisations improve. Minda has cemented its position in the EV supply chain with a joint venture agreement with FRIWO, Germany—a manufacturer of power supply units and e-drive solutions.

• Order wins in the switches, alloy wheels and lighting segments also remain robust, which should aid growth over the next two years.

• Maintains ‘buy’, raises target price to Rs 1,250 from Rs 1,001—implying a potential upside of 12%.

• Delivered a decent operating performance in Q3 FY22 with Ebitda margin coming in at 10.8% vs our estimates of 11.2%, impacted by higher commodity prices.

• Expects strong rebound in automobile production post semiconductor shortage easing out to act as a key driver for the company in the first half of FY23.

• Moreover, higher content per vehicle, value addition on the back of premiumisation, foray into high-margin segments would be the key triggers for Minda’s earnings and valuation rerating. Its recent EPS accretive-strategic acquisitions of stake from promoter family at book value would aid further rerating of the company.

• The company will continue to win more new orders in auto and EV segment over the coming years on the back of launch of new products.

• We believe that constant value addition, content addition coupled with higher kit value on the back of premiumisation would drive 8-10% outperformance over next five years, before it becomes sizable to stabilise at around industry growth.

• This would drive its re-rating story and stock would continue to enjoy premium valuation, therefore we increase our P/E multiple from 35x to 37.5x.