Minda Industries to trade ex-bonus from July 7, 2022

What’s Buzzing:

Minda Industries (MIL) had fixed July 8, 2022 as the record date for bonus issue in the ratio of 1:1 i.e. one bonus equity share of Rs 2 each fully paid up for every existing equity share of Rs 2 each fully paid up. The ex-date for the stock spilt was July 7, 2022.

Context:

On the ex-date i.e. starting today (July 7, 2022), the stock price will adjust for bonus ratio and is trading at ~Rs 500/share i.e. half the closing price on July 6, 2022 (Rs 969/share).

Our Perspective:

A stock bonus issue is an investor friendly action. Fundamentally, MIL is India’s largest maker of automotive switches, horns, seats & PV alloy wheels and third largest automotive lighting player. MIL's topline is contributed by 4-W & 2-W in the ratio of 53%, 47%, respectively; further switches, lighting, castings, horns and seats comprised 30%, 21%, 16%, 8% and 11% of sales, respectively. MIL has a vast history of outperformance vs. user industries riding on growth in kit value, new client and product additions & inorganic acquisitions. It counts most major 2-W and PV OEMs as clients, including Hero MotoCorp, M&M, Tata Motors, Maruti Suzuki, Royal Enfield, TVS Motor & Bajaj Auto, among others. Apart from this, MIL has collaborated with FRIWO AG (a German based company) to acquire and develop indigenous capability for development of BMS & on-board chargers, which find its application in EV space. MIL intends to increase its kit value through EV specific products and focus on premiumisation play, going forward. We build 15.7% FY22-24E net sales CAGR riding on OEM ramp up, focus on premiumisation, expanded capacity, penchant to grow ahead of industry. With operating leverage gains in offing, PAT growth in the aforesaid period is placed at ~42% CAGR with consequent return ratios expected at >15%. On the financials front, b/s remains strong, with FY22 debt: equity at 0.2x. We expect gross debt to have peaked out with organic growth to be funded through internal accruals. It currently trades at ~ ~40x PE & ~20x EV/EBITDA on FY24E amid a presence in new age auto products like alloy wheels as well as air bags, which are increasing gaining traction domestically.