Emkay Global

Minda Industries (Buy)

Target: ₹840

CMP: ₹696.85

Minda Industries, founded in 1958, is the largest domestic supplier of switches, horns, alloy wheels, seating and blow-molding. Further, it is the second largest supplier of airbags, air filters, speakers and telematics, and the third largest provider in the lightings segment.

Minda is exposed to multiple growth drivers: 1) cyclical recovery in the 2W/4W segments; 2) market share gains, driven by import substitution in switches and alloy wheels; and 3) growing content per vehicle (CPV), led by premiumisation and new product forays such as sensors. Further, Minda is well-placed to benefit immensely from EV adoption over the long term, which should result in significantly higher ‘kit values’ compared to ICE vehicles. We model average annual FCF generation of ₹420 crore for FY21-24, and expect the company to turn net-cash-positive by FY24, from ₹530 crore of pro-forma net-debt post its recent QIP.

Our September 2022 target price of ₹840 is DCF-driven and implies forward P/E of 32x. Minda deserves to trade at premium valuations, given its exposure to the PV segment, long term upside from EV adoption and a sustainable upward re-set in return ratios.

Key risks include delay in auto sector or macro recovery, goverm,emt allowing cheaper imports, and adverse currency movements.