This auto ancillary unit turned Rs 1 lakh into Rs 26 lakh in a decade; should you buy it now?
This metaphoric rise comes on the back of inorganic growth through acquisitions along with several other JVs
Every two seconds a new two-wheeler is rolled out from a production line in India. That’s the manufacturing prowess, the world largest manufacturer of two-wheelers has. This strong capability has been possible because of a robust auto ancillary industry. The auto ancillary sector has not only made a strong case for ‘Make in India’ but has simultaneously created wealth for investors. Take the case of Gurugram-based auto component manufacturer Minda Industries, that turned an investment of Rs 1,00,000 made on April 11, 2011 to Rs 26,09,733 as of April 9, 2021. The stock has rallied 2,510% from Rs 21 to Rs 547 during the same period.
This metaphoric rise was on the back of inorganic growth through several acquisitions – Clarton Horns from Spain (2013), Rinder Group from Spain (2015), iSYS RTS from Germany (2018), Harita Seating from India (2019) along with several other JVs that have marked MIL’s operations in this period, delivering manifold expansion in revenues. Its net sales galloping at compounded annual growth rate (CAGR) of 21.40% from Rs 954 crores in March 2011 to Rs 5,465 crore as of March 2020. Whereas profit after tax (PAT) grew at a CAGR of 19.36% to Rs 174.74 crore in March 2020 from Rs 35.53 crore in March 2011.
Edelweiss is of the opinion that Minda Industries has been trading at a premium over the last 3-4 years as it is the best-diversified players in the industry. “The stock will maintain its strong valuation owing to pick up in volume growth for the industry, healthy revenue visibility, and benefits of operating leverage. Hence, we maintain ‘BUY’ rating with a target price of Rs 675,” said Vishal Srivastav, Research Analyst at Edelweiss.
Minda Industries has introduced new products for EVs (which included sensors, LED lighting, smart plugs, body control module etc.) that would help it continue its growth prospects as and when the EV becomes prevalent in the country.
“Recovery in rural demand, increasing need for personal transportation arrangement due to social distancing norms coupled with cost-cutting measures from management are likely to drive growth in coming quarters,” said Chola Securities in a report. The brokerage firm has rerated the stock with a price target of Rs 631 having an upside of 15%.
Likewise, ICICI Securities also has a buy rating on Minda Industries with a price target of Rs 625 a potential upside of 14%. The brokerage expects sales, EBITDA CAGR of 19%, 32% over FY21E-23E (aided by a low base, Harita merger).
The broking firm added that Minda Industries will benefit from vehicular premiumisation & see it continuing to outperform the industry via kit value increase & new product additions (EV offerings the latest example).
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