Up 10% in June so far, auto component maker Minda Corporation is Axis Securities’ pick of the week; here’s why

Following an over 10 percent rise in the stock in June so far, domestic brokerage house Axis Securities has picked auto component maker Minda Corporation as its 'top pick of the week'. This is on the back of its reasonable valuations, strong EV (electric vehicle) order wins, and EBITDA margin improvement.

The brokerage has a ‘buy’ call on the stock with a target price of ₹502, implying a potential upside of 10 percent.

Minda Corporation is one of India's leading manufacturers of automotive components, including Electronic & Mechanical Security Systems, Die Casting, Key Solutions, Telematics, ITS & IoT, Wiring Harnesses, SRCs, Components, Instrument Clusters, Sensors, and Interior Plastics. 

These products cater to leading Passenger Vehicle, Commercial Vehicle, Motorcycle & Scooter, and Off-road Vehicle manufacturers. The $610 Mn Group, with a workforce of more than 16,000, has several JVs with leading companies from the USA, Japan, Italy, Uzbekistan, and China.

Stock Price Trend

The stock has surged over 56 percent in the last 1 year and almost 22 percent in 2024 YTD. The stock has jumped over 10 percent in June so far, extending gains after a 4.2 percent gain in May. However, it fell 2.3 percent and 0.7 percent in April and March. Meanwhile, it was positive for the first two months of the year, up 2 percent and 6.8 percent in February and January.

The scrip hit its record high of ₹474.55 in intra-day deals today. Post today's rise, the stock has rallied 71 percent from its 52-week low of ₹277.45, hit on July 4, 2023.

March quarter earnings

In the March quarter, Minda Corporation posted a 27 percent year-on-year (YoY) rise in its profit after tax to ₹71 crore as against ₹56 crore in the year-ago period. Meanwhile, its operating revenue increased 13 percent YoY to ₹1,215 crore in the fourth quarter as against ₹1,075 crore in the same period last year.

For the year ending March 2024, the company reported a PAT of ₹227 crore, up 4% from ₹219 crore in FY23. Operating revenue increased to ₹4,651 crore from ₹4,300 crore in FY23.

"Our resilient performance this year underlines our commitment to sustainable business practices and innovation. Achieving record revenue and robust growth reflects our focus on premiumisation and transformation," Minda Corp Chairman and Group CEO Ashok Minda said.

Investment Rationale

New order wins: During Q4FY24, the company secured lifetime orders worth ₹2,000 crore, with EVs constituting over 30 percent of the orders won. As of March 2024, the total new lifetime orders amount to ₹10,000 crore across various product segments, including vehicle access, driver information systems, die casting parts, electrical distribution systems, and new EV technologies, informed the brokerage.

EBITDA margin improvement: Axis expects EBITDA margins to improve from 11.1 percent in FY24 to around 12.7 percent by FY26E. This improvement will be driven by a richer product mix led by premium 2Ws (both ICE and EV), increased wallet share among 4W/CV OEMs, gradual recovery in exports, better operating efficiencies, streamlining of fixed costs, and component localization initiatives, it said.

EV: The potential EV kit value stood at ₹22k-27k in Q4FY24, with ₹8k-10k coming from new power electronic product lines commercially launched during FY24. In FY24, EVs constituted 5-6 percent of total revenues, noted the brokerage. The company has begun commercial production of smart keys in Vietnam, and it is strategically positioned to serve customers in the ASEAN region. In India, new facilities are under construction for manufacturing smart keys, die-casting parts, clusters, and sensors, it added.

Outlook and Valuation

Axis remains optimistic about the company's growth, driven by new order wins, increasing kit value per vehicle, and a focus on EVs. With a robust order book and management's confidence in outpacing industry growth, both organically and inorganically, Axis estimates a CAGR of 17 percent in revenue, 26 percent in EBITDA, and 38 percent in adjusted PAT over FY24-26E.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.