Minda Corporation: In a sweet spot to capitalize on EV disruptions?

India’s electric two-wheeler (2W) market is on the cusp of a massive expansion. Factors such as cost-effective ownership and lower dependence on public charging infrastructure will result in greater adoption over the next few years.

According to ICRA, electric 2Ws may account for 8%-10% of the new vehicle sales by 2025. Their contribution is less than a per cent, at present.

Interestingly, disrupters are expected to give incumbents a run for their money. And many of them aren’t listed companies. In such a scenario, how should you play the EV theme? Well, you may want to evaluate auto ancillary companies supplying to them.

Take an example of Minda Corporation.

The company operates in five business verticals—mechatronics, information & connected systems, plastics & interiors, electronic manufacturing excellence, and, the aftermarket. In FY21, domestic business contributed 86% to its consolidated revenue, while the rest came from exports.

Over the past few years, the company has restructured its operations significantly. It has simplified the structure by merging some of its wholly owned subsidiaries. Moreover, it has also stopped throwing money after low-margin-and-loss-making businesses. The management has time and again reiterated its commitment to prudent capital allocation.

As part of its restructuring drive, Minda Corporation has decided to focus only on:

  1. Vehicle access systems
  2. Connected mobility
  3. Light weighting of vehicles
  4. Increasing electronic content per vehicle

Minda Corporation is making itself future-ready. It’s noteworthy that 95% of the company’s portfolio is immune to EV disruptions. In fact, the company is hopeful that as EV adoption improves, it will be able to enhance the content per vehicle.

Product range of Minda Corporation in the 2W space

Nurturing partnerships to foster growth…

To attain higher growth in its focus areas, the company has been concentrating on new advanced technological products. They include smart keys, digital clusters, center consoles, antenna solutions, DC-DC converters and battery chargers, amongst others.

It recently picked up a 26% stake in EVQPOINT—a charging solution start-up. According the management of Minda Corporation, this deal will help the company strengthen its manufacturing capabilities in EV Supply Equipment (EVSE) and battery chargers.

Minda Corporation has a Joint-Venture (JV) with INFAC of South Korea to cater to LF antenna market. This JV is likely to help Minda Corporation increase its passenger vehicle revenue and address future growth areas such as autonomous vehicles and connected mobility, amongst others.

The company has also inked a Technology License Agreement (TLA) with Ride Vision of Israel for AI-based unique collision avoidance technology for India’s 2W market. It has already completed 10,000 kilometers of testing and validation for the adaptation of the local environment.

According to Minda Corporation, Ride Vision is the only company in the world that offers camera-based two-wheeler collision avoidance systems. And Minda is the only company in India to offer this technology.

Similarly, JVs with Furukawa, Silica, Stoneridge and VAST may help Minda Corporation capitalize on the future growth opportunities in its identified areas.

Capacity utilization holds the key now…

In Q1FY22, the company won new orders of Rs 1,281 crore of which 18.5% were from EV players. The list of Minda Corporation’s recently added EV customers is quite impressive—Ampere, Ola Electric, Polarity and Revolt, to name a few.

The low capacity utilization was a big drag on the company’s margins in Q1FY22. According to the management, the strong second-wave impacted utilization levels. Mechatronics, Aftermarket and Others divisions reported 60% utilization in Q1FY22 while Information & Connected Systems witnessed sub-50% utilization in the quarter gone by.

The company has managed to pass on the raw material cost escalations to its customers in the past. Otherwise, the rising commodity prices could have further dampened the company’s margin profile.

The management believes the margin performance will improve substantially once the overall capacity utilization reaches the 70%-75% mark.  In Q4FY21, the company’s capacity utilization was ~85%.

Minda Corporation is a net debt-free company.

In summary

Many auto ancillary companies are available at attractive valuations. But before you buy any of them thinking they’re cheap, make sure you aren’t investing in a company that predominantly caters to component needs of ICE vehicles.

Ancillary companies which are more aligned with EV and other technological disruptions, such as Minda Corporation, may become more relevant in the times to come. The moot question is how many of them will be able to translate this immense opportunity into unprecedented bottom line growth.

You may also like to read: The Secret of picking attractive stocks when markets are at all-time highs

 

Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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