Only in the past week, Minda Industries Ltd’s shares have risen over 25 percent. The company of auto components reported its results in the June quarter late last week but they were predictably poor.
Nonetheless, it has announced healthy order wins and directed for a ramp-up of demand, which has
enthused investors.
In Q1, revenues dropped 71% and the company slipped into a loss due to the lockdown and low utilization of the manufacturing plants.
But the scenario is changing. Automobile manufacturers are in a rush to streamline their production and are filling-up inventories. This is helping automobile components suppliers. If the current trend continues Minda can reach pre-COVID-19 production levels next month, the management told analysts.
In addition, Minda is adding new products. New plants for two-wheeler alloy wheels and BS-VI environment norms related sensor products are expected to start commercial production next month.
Automobile manufacturers import a significant portion of their requirement for two-wheeler alloys and Minda should look to capture the market with its domestic factory. “Bajaj Auto and TVS Motors are initially two big customers for the alloy wheel business. It is doubtful that the initial capacity would meet maximum demand for import substitution, “Antique Stock Broking Ltd said in a statement.
The company meanwhile has won new orders for lighting products and four-wheel alloy wheels. Importantly analysts expect Minda to fare better than the industry, helped by new business lines and growing wallet share or content per vehicle.
“We expect Minda to continue outperforming industry growth led by a ramp-up in 2W alloy wheel segment; order wins in 4W alloy wheel segment; ramp-up of BS-6 sensor plant; and market share gain in LED lights led by technology from Delvis,” Nomura Research said in a note.
The automobile industry trends support optimism. Sales are steadily recovering and analysis of automobile registrations by analysts at Jefferies India Pvt. Ltd shows sequential improvement for the second week.
Even so, premium valuations leave little room for error. The stock trades at 31 times FY22 Nomura’s earnings estimates, only behind Bharat Forge Ltd. While many automobile companies, including Minda, see a structural recovery, the weak economy remains a concern. Consumer incomes are hit and replacements/upgrades, which constitute a large portion of automobile sales, are happening at a much slower pace.
