PV recovery, EV potential likely to drive Minda Industries' growth

An engine agnostic portfolio also reduces the EV transition risk

The Minda Industries stock has been on an upward trajectory since the start of May, gaining 22 per cent amid expectations of robust growth led by higher content per vehicle, recovery in passenger vehicle sales, and an expanding engine agnostic product portfolio. 

Acquisitions, such as the one it recently announced of an auto light manufacturer in Uzbekistan, though small but could add to incremental benefits over the long term. Nomura’s Siddhartha Bera and Kapil Singh say: “We expect this acquisition to aid the company earnings per share by 2 per cent in FY23F; however, there may be longer-term strategic benefits depending on multiple cross-selling exports opportunities from the India business.”  

The key near-term trigger could be the revival of demand in the domestic auto segment, which accounts for 83 per cent of revenue. Despite a muted June quarter, analysts believe the outlook for passenger vehicles (PV) remains strong and there have not been major booking cancellations during lockdowns. Supplies to PV makers account for the largest chunk of Minda Industries’ (including joint ventures) revenue. 

While two-wheeler sales will take some more time to revive, given that the rural segment was impacted during the second wave, a favourable monsoon, good rabi harvest, and measures to boost the rural economy are positive from the demand point of view. 

But the key trigger is the potential for growth in the electric vehicle (EV) space for the firm. The Department of Heavy Industries recently announced changes to the FAME II policy which are expected to further lower the prices of electric scooters and motorcycles in India. 

While the kit value of existing products — which can be fitted to electric two-wheelers is Rs 7,300 — the management highlighted the value potential at Rs 33,000, a 4.5x increase given the multiple products under production.

Further, with three-fourths of its revenue from products, such as switches, lightings, and horns, which are powertrain agnostic, there is little risk from the transition to the electric vehicle ecosystem going ahead. 

Its sensors and controllers will benefit given the higher content of these in electric vehicles. Analysts at Ambit Capital say: “Within the auto ancillary space, the company would be best-placed to capitalise on future trends of EVs/emission norms, premiumisation, safety, and regulatory changes.” 

Given the contribution from multiple triggers, analysts expect the company to post revenue growth of over 25 per cent over the next few years comfortably, outpacing the industry’s growth (passenger vehicles and two-wheelers) in the 14-19 per cent range.  

While there is potential for growth, the stock’s sharp rally factors in some growth. Investors can consider the stock on dips for their long-term portfolio.