Minda Corporation is one of the leading firms in two-wheeler (2W) locksets with a market share of ~36 per cent in FY21 and is trading at a discount to the auto component industry, Elara Capital said in a report.

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The brokerage firm initiates coverage on Minda Corporation with a target price of Rs 213 that translates into an upside of over 50 per cent from Rs 139 recorded on 25 October.

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Shares of Minda Corporation have been on buyers’ radar. The stock has rallied more than 55 per cent so far in the year 2021, and over 100 per cent in the last 1 year compared to 30 per cent, and 50 per cent upside seen in the Nifty50 in the same period.

Minda Corporation has developed patented smart key solutions for electric vehicle (EV)-2W original equipment manufacture (OEM), with a kit value of Rs 2,500-4,000 (significantly higher than traditional lockset at Rs 400-600).

“It has received orders from EV startups and incumbent OEMs, proving superior technology prowess. We expect a safety and security revenue CAGR of ~17% over FY21-24E, ahead of industry volume CAGR of 13%, with increased kit value on premiumization and gaining share of the business (SOB) from TVS Motor and Honda Motorcycle & Scooter India,” the report said.

Growth Drivers

The brokerage firm is of the view that the die-casting business would benefit from increasing light-weighting trends and market share gains, owing to China plus One model adopted by OEM and Tier-1 suppliers.

MDA would benefit from order wins for turbocharger parts from global tier-1 firms like BorgWarner. “We expect a die-casting revenue CAGR of ~21% over FY21-24E,” it said.

Migration Beneficiary

The cyclical recovery is likely to drive the wiring harness business. The wiring harness space is likely to benefit from the cyclical recovery of the 2W, Passenger Vehicle (PV), and Commercial Vehicle (CV) industry, which is likely to post a volume CAGR of 12%, 18% & 30% over FY21-24E.

“We expect the information and connected systems division to post a 19% revenue CAGR over FY21-24E,” added the note.

Long Runway: Foray in EV components

The Production Linked Incentive (PLI) scheme entrant MDA has bagged orders from major EV 2W OEM for DC-DC converters, battery chargers, telematics and vehicle control units (VCU) and has EV components under development.

Higher potential kit value of Rs 16.000-18,000 for EV components (vs Rs 4,000 for ICE), localisation theme and first-mover advantage auger well for MDA.

Valuation

Elara Capital initiates coverage on Minda Corporation with a Buy rating and a target price of Rs 213 based on 20x September 2023E P/E, which is at a 15% discount to the auto component industry and 10% premium to its own historical average.

“We expect a revenue CAGR of 20% over FY21-24E (ahead of 2W industry volume CAGR of 12%), and an EBITDA CAGR of 33% over the same period. The risk-reward seems favorable as our scenario analysis. Increasing content per vehicle as the industry transitions to EV is likely to be a key catalyst of further rerating,” added the note.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)