Anand Rathi Has A Buy Call On This Auto Ancillary Stock, Buy For 25% Gains

Broking firm Anand Rathi has a buy cal on the stock of Minda Industries and sees gains of nearly 25% on the stock.

Consistent order book

According to Anand Rathi, the consistent growth in its order book and robust demand for 2- and 4-wheelers led to Minda Industries' strong revenue. "The recent commissioning of assembly lines for alloy wheels on further orders augur well for its growth. Supply constraints are expected to normalise in ensuing quarters; accordingly we expect strong demand from 2- and 4-Ws. We upgrade our rating to Buy at a target price of Rs 1,106 (40x FY24e)," the brokerage has said.

Good deals of businesses won

Q4 FY22 revenues grew 8% y/y, 11% q/q, to Rs24.1bn, on strong demand in 4-W and 2-W sales despite semiconductor shortages curbing off-take. The company won orders of Rs4bn (~Rs7bn in 6M FY22). In switches, it received further orders along with export orders for Italian 2-W OEMs. Also, it would expand capacity for 4-W switches in Chennai for orders from Japanese and Korean OEMs. In lightings, it received a large order from domestic and international OEMs for LEDs and tail lamps. In castings, the added capacity for alloy wheels is expected to come in subsequent quarters. In seatings, it received orders from an Indian and a European OEM. In EVs, it continues to develop EV-specific products (battery-management systems, control modules, chargers, etc.); the average kit value is ~Rs18,500. On the expansion front, it is adding capacity at its Hanoi and Chennai plants for 2-W and 4-W switches on added orders at respectively Rs370m and Rs730m capex,. This, in our view, augurs well for its long-term growth. Accordingly, we expect 25% growth in FY23 and 20% in FY24.

Margin expansion in the next two years

The Q4 FY22 11.4% margin (10.7% in FY22) expanded 62bps sequentially despite high raw material prices. "We expect raw material prices to normalise in subsequent quarters and margins to expand on greater volumes of high-margin products. Hence, we expect margins of 11.1% in FY23 and 11.7% in FY24," the brokerage has said.

Valuation

"We expect a 22% revenue CAGR over FY22-24, and 47% in earnings, leading to Rs 27.6 EPS. We upgrade our rating to Buy at a revised target price of Rs1,106 (40x FY24e)," the brokerage has said.