Geojit Recommends Accumulate This Multibagger Mid Cap Stock For Robust Gains, Target Price Rs 634

Geojit in its recent report recommends "Accumulate" UNO Minda Ltd. (UML) stock for a target price of Rs 634 apiece. According to the brokerage's given target price, the stock with the given target price can give 16% positive returns in 12 months if the stock is purchased at the current market price.

UML is a diversified auto ancillary supplier, manufacturing products such as switches, horns & lights. UML holds a leadership position in the switch business with a market share of 67%. Q2FY23 revenue came in marginally below expectations, registering a growth of 36%YoY, outperforming the industry growth of 12% YoY.

Stock Outlook & Returns

The stock on Friday last traded at Rs 549.35 apiece on NSE, 1.81% down as compared to its previous close. Its 52-week high is Rs 1,257.40 and its 52-week low is Rs 494, respectively. It is a mid-cap Auto Ancillary sector stock having a market cap of Rs 31,453.92 crore. 

The stock in the past 1 week has fallen by 0.86%. Whereas in the past 1 month, it gave 3.34% positive returns. In 6 months, it gave 23.47% positive return. In the past 1 year, the stock has given 23.55% positive returns. In the past 3 & 5 years, it has given multibagger returns of 209.49% and 187.56%, respectively. 

Potential portfolio to drive future growth

Q2FY23 consolidated revenue grew by 36%YoY, outperforming the industry growth of 12%YoY. The top line was fueled by lighting, and other businesses like sensors alloy wheels & telematics segments, which grew by 43%, 62% YoY, respectively. For the quarter, the company has entered into a JV agreement with Buehler Motor to develop, manufacture & market, tractor motors for battery-driven electric 2/3 wheelers in India. This addition will complement the company EV existing portfolio , especially the motor controllers. Total capex of Rs.110 crore envisaged, will be funded through internal accruals. Notably, the casting business continues to grow with expanding capacities with increased demand and penetration of alloy wheels. As a result, the percentage of casting business revenue has increased from 15% to 21% sequentially. Despite the RM price increase, the margin remains stable due to 95% cost pass through to OEMs. 

Improvement in kit value per vehicle by 10-15%

UML's product diversification and increasing growth from new products gives it better visibility on revenue front. Enacting the auto norms and enhanced safety features will further lead an increase in Kit value per vehicle across auto segment. The potential kit value of the EV 2/3W will further increase with the addition of traction motors. The company reiterated that the potential EV kit value for 2/3W is Rs.61300. In which, product under production & supply is Rs.27300, New order received for Rs3000/- and product value under development is Rs.31,000/- respectively. The Company's recent announcement for JV with Tachi- S Tokyo, Japan for manufacturing recliner seat for PV (Passenger Vehicle) will expand product offering for EV passenger and PV as well. 

Strong foot at changing trends

UML has a robust capex plan of Rs700cr for FY23. The company is in the process of setting up three new plants as announced couple of months ago. One for blow mounding, and one in Gujarat for lighting, and another expansion in Bawal plant for 4W alloy manufacturing. Currently, total 4W capacity stands at 295K per month and another 90K under construction. For 2W, all four lines have been fully ramped up and achieved rated capacity production of 9 lakh wheels in Q2FY23. 

Valuations

The demand scenario in the 2W and cars is expected for a revival in H2FY23, supported by, normal monsoon and lower base. Despite near term margin pressure , UML's strong balance sheet and quick ramp up reflects higher revenue visibility on a medium to long-term basis. "The stock has always traded at a premium due to its diversified product portfolio and new product offerings according to changing trends. We rollover and value UML at 34x on FY25E EPS, and arrive at a target price of Rs.634, and recommend Accumulate rating," the brokerage has said. 

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.