Minda Industries: Buy

Focus on the two- and three-wheeler segments and tractors, and presence in the alternative fuel solutions space are key drivers for the company.



Manufacturing varied electrical components and catering to a diversified group of automakers, Minda Industries, the flagship of the Minda group, is a good bet in the auto components space. The company produces electric switches for bikes, three-wheelers and off road vehicles, provides lighting solutions, fabricates auto-gas kits and makes automotive batteries. The group also makes horns through a separate company, Minda Acoustic, which is in the process of being amalgamated with Minda Industries.

At a time when the industry is battling a moderation in volumes, a focus on the faster growing two- and three-wheeler segments and tractors and presence in the alternative fuel solutions space, which has sizeable after-market sales, are positives for the company. The recent market turbulence has seen the company's share price hit its one-year low. At the current price of Rs. 179, the stock trades at about 8.5 times its trailing12- month earnings. While the shares can be bought now, considering the volatile markets and small cap status of the stock, only those with an appetite for risk and a perspective of one year or more should invest.

Strong potential

Manufacturing brakes, gearshifts, handlebars and panel switches, Minda Industries enjoys more than 70 per cent market share in supplies to the two and three wheeler segments in India. The company also makes handlebar grips and assembles handle bar systems for these vehicles and switches for off roaders. In these divisions, it boasts of a clientele that includes Bajaj Auto, Hero, TVS, Honda, Suzuki, Mahindra and TAFE.

Although the auto industry has witnessed a moderation in volumes in the first few months of 2011-12 due to high inflation, fuel prices and interest rates, the silver lining is that two-wheelers have so far been less impacted. For April-July 2011, two-wheeler volumes have grown by 16 per cent year on year. A favourable demographic profile, increasing rural penetration, replacement demand and a comparatively lower proportion of financed purchases will continue to drive volume growth in the two-wheeler industry. Moreover, the greater use of small commercial vehicles for last mile connectivity under the hub and spoke model and the under-developed nature of the public transport system also implies good prospects for three-wheeled goods and passenger carriers. The company's well-entrenched presence in these segments inspires confidence.

The group, through another private company, Mindarika, manufactures four-wheeler switches and is the largest in the country for the same. This relationship with passenger car and commercial vehicle makers has helped Minda Industries increase its content supplied per vehicle through its other business divisions. Minda Industries offers lighting products such as head and tail lamps, fog, indicator and high mounted stop lamps to cars, bikes and tractors. The company has recently set up its own design and R&D center for lamps. It also makes CNG/LPG kits for cars and three-wheelers, and automotive batteries.

Promising demand

The batteries division faces stiff competition from bigger organised players such as Exide and Amara Raja. However, given the rising prices of conventional fuels such as petrol and diesel and the increased alternative fuel offerings from manufacturers, what holds promise over the long-term, is the manufacture of CNG/LPG kits. The company is already a supplier of factory fitted kits to Maruti, Tata Motors and Toyota. These kits also fuel Bajaj Auto's three-wheelers. Taking into account the demand for conversion of existing petrol/diesel vehicles, it has recently extended this product offering directly to the consumer, through its authorised centres across Delhi, Haryana, Maharashtra and Gujarat, to begin with.

For the quarter ended June 2011, net sales grew by 26 per cent to Rs 240 crore and adjusted net profits, by 21 per cent to Rs 6.4 crore. Cost pressures eroded EBITDA margins to 9.4 per cent as against 13 per cent in the June 2010 quarter.



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