Wider portfolio to drive EV growth for auto parts maker Minda Industries

Capacity expansion in alloy wheels will tap into premiumisation trend

The stock of auto component maker, Minda Industries (Minda) hit its 52-week high on Tuesday extending its gains over the past week to 17 per cent. The near-term trigger for the stock is the announcement of a joint venture (JV) which, coupled with expansion plans, is expected to expand its addressable market and improve revenue trajectory going ahead.

Post market hours on Friday, the company announced that it is forming a joint venture with Germany’s FRIWO to supply electric vehicle (EV) parts for the two and three wheeler segments. The German company makes battery management systems, onboard and offboard chargers, motor controllers and battery packs.

Minda, which will have a 50.1 per cent share in the JV, will transfer most of its electric two-wheeler business to the entity and FRIWO will do likewise merging India business into the JV. As part of the deal, Minda will invest Rs 71 crore in the JV and take a 5.7 per cent stake for 15 million euros in FRIWO AG.

Given the complementary product portfolios, the JV will effectively double the addressable kit value of the products/solutions which the company can supply to EV two-wheeler makers. The management believes that revenues in the domestic and exports from electric vehicles in two and three wheeler segments could increase to about Rs 2,000 crore over the next six years from under Rs 100 crore currently. As part of the deal, Minda will invest Rs 71 crore in the JV and take a 5.7 per cent stake in FRIWO AG.

While analysts at Nomura Research believe that Minda Industries will be a key beneficiary of early-mover advantage in the EV ecosystem, they also point out the risks on margins from higher competition, limited backward integration in batteries and in-house manufacturing of several components by automakers as volumes scale up.

Expansion of two- and four-wheeler alloy wheel capacity is another trigger. The expansion, according to Emkay Research, will help meet robust demand, led by expectations of an industry upcycle, premiumization and import substitution. The brokerage expects the revenues from this business to grow by 39 per cent over FY22-24. While most brokerages have a buy rating, investors should await for a better entry point into the stock which has risen 2.7 times over the past year and valuations are at over 40 times its FY24 earnings.