Tag: auto parts manufacturers

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Minda Industries: A Bright Investment Opportunity?

Minda Industries or Uno Minda is an automobile component manufacturer with companies like BMW, KTM, Honda, Ford, Royal Enfield, Toyota, and many more in its client list. Essentially, the company has almost all major automobile manufacturers on its client list. Recently, the company had announced that it was investing Rs 500 crore to expand its four-wheeler lighting and alloy wheels business.

Mind you, Minda Industries should not be confused with its namesake Minda Corp or Spark Minda. Pretty much like the Ambanis and Reliance, there was a split in business between brothers Nirmal K Minda and Ashok Minda. Nirmal Minda took hold of Minda Industries and Ashok Minda held Minda Corp. Both the companies are indeed excelling in their own paths.

Minda Industries posted a net profit of 168% and 34% in the last two quarters respectively. Between 2013 and 2019, the company posted a profit growth in all years except one. What makes Minda Industries a bright investment opportunity? Let us find out. 

The Business

  • A motor vehicle has many fine tunings like noise control, ambient lighting, switches, wheel turning, alloys, sound systems, sensors, controllers, etc. Minda Industries manufactures and sells these to major automobile players for both 2/3 wheeler and 4 wheelers. Both segments contribute nearly equally to total revenue. 
  • The Company has 16 direct subsidiaries, 12 step-down subsidiaries, 8 joint ventures, and 2 associates as of 31 March 2020. To know more about them, click here. 
  • The company has a strong domestic as well as international presence. In FY2019-20, the international business contributed 19% to the revenue stream, the remaining 81% being a domestic business. 
  • Segment-wise share of business by production volume. This shows how much amount of output for produced for each segment:
    • Passenger Vehicles: 13%
    • Commercial Vehicles: 3%
    • Three-wheelers: 3%
    • Two-wheelers: 81%
  • The company has 5 major divisions. Switch, Lighting, Acoustics, Light Metal(LMT), and Others. The Switch division contributes the most to the revenue stream and operates five plants in India and two overseas plants in Indonesia and Vietnam. The products are manufactured out of different locations across India viz. Manesar, Pune, Hosur, Aurangabad, and Pantnagar, catering to many domestic as well as international two-wheeler and four-wheeler manufacturers.
  • The company constantly keeps acquiring new technology to stay upbeat in the market. Over the past 5 years, the company has added and/or acquired close to 13 subsidiaries, 5 joint ventures(JVs), and 4 step-down subsidiaries estimating close to Rs 880 crore. Some of these include Minda Kosei for alloy wheels for Passenger Vehicles(PV), Minda TG Rubber for brake, and fuel hoses, Roki Minda for air intake systems, carbon canisters, Spain-based Rinder Group for lighting systems.  
  • With more than 22,000 employees, Minda Industries has 62 manufacturing plants in India, Spain, Morocco, Mexico Colombia, Indonesia, Vietnam, Germany design centers in Taiwan, Japan & sales offices in North America, Europe, and other ASEAN countries.
  • People might delay accessorizing their vehicles or vehicle sales might go up during a festive season. Just like the rest of the automobile industry, Minda’s business remains cyclical. 

Finances

Vital Financials(Source: Company Annual Report)
  • The company hasn’t faced a net loss in a decade nearly. It has consistently grown its revenue and value of total assets.
  • For FY2019-20, the company had a Return on Equity(RoE) of 16.82%, which nearly halved in FY2020-21 to 8.5%. Return on Equity indicates the ability of a company to generate profits from what its shareholders invest in the company. A falling RoE indicates poor return or management of shareholder’s investment in the firm.
  • The Return on Capital Employed or RoCE for FY2019-20 was 18.8% which reduced to 11.2%. A RoCE of 11.2% means that the company got Rs 11.2 in return for every Rs 100 of Capital Employed or the amount invested by the company with the intention of making a profit.
  • Mutual Funds’ shareholding in the company has almost doubled since 2018 from 4.23% to 9.74%. While Public shareholding of the company has decreased by ~5% since 2018, Domestic Institutional Investors(DIIs) have jacked up shareholding by ~6% in the past 3 years. 
  • The share price of Minda Industries has grown by 2438.9%, this means that had you invested Rs 1 lakh in the company 10 years ago, they would have become close to ~24 lakhs. Over the past year, the share price has increased ~113%.
  • Minda’s debt or borrowings are increasing, but so are its revenue and cash flows from operations for the past 5 year. The company’s liquidity position is fairly strong, sufficient to cover its short term debt. 
  • The company has had a declining Inventory Turnover Ratio. It is a measure of the number of times inventory is sold or used in a given time period. A decline in the inventory turnover ratio highlights that the operations of the company have become more working capital intensive.

What Lies Ahead

Recently, the company had announced that it was investing Rs 500 crore to expand its four-wheeler lighting and alloy wheels business. The company has had a good history when it comes to rewarding its shareholders, be it healthy dividend payouts or good value returns. Apart from this, the company has a good project execution rate. Its debt position is in sync with its revenue growth and profitability. To know more about the company, you can check out their Annual Report 2020, over here.

The auto-sector had just managed to recover when India was hit with the Second-wave of COVID-19. What followed is a series of night-curfews, weekend curfews and partial lockdown like situation across many states. Auto sales are likely to go down and the company’s position might be impacted again? Do you think the company offers a good return in the current financial year? Let us know in the comments section in the marketfeed App

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Editorial

Craftsman Automation IPO: All You Need to Know

Craftsman Automation has launched its three-day initial public offering (IPO) today- March 15, 2021. This is the first IPO to be launched by an auto components manufacturer in the past 3 years. Let us take a closer look into the company and its IPO.

Company Profile – Craftsman Automation

Craftsman Automation Limited is an engineering company based in Coimbatore. It was incorporated in 1986 and is primarily engaged in the design, development, and manufacturing of automotive components. The company is well-known for the machining of cylinder blocks and cylinder heads in commercial vehicles and tractors. A cylinder block is the basic framework of a vehicle’s engine that plays an important role in maintaining stability and controlling temperature. The company offers a wide range of such components to automobile manufacturers in India and abroad. 

The company’s products and services segments are divided into three verticals:

  1. Automotive- Powertrain and others: This includes engine parts such as cylinder heads, cylinder blocks, transmission parts, turbocharges, etc. These components are used in the production of commercial vehicles, special utility vehicles, and tractors. This segment contributes nearly 17.3% to the overall revenue of the company.
  2. Automotive- Aluminium products: This segment includes key products such as cylinder blocks, as well as crankcases for two-wheelers, passenger vehicles, and commercial vehicles. This division contributes 47.5% to the company’s overall revenue.
  3. Industrial and Engineering: The main products in this segment include high-end precision products (castings) and storage solutions. It caters to the pharma, fast-moving consumer goods (FMCG), and e-commerce industry. This segment contributes 35.2% to the total revenue. 

Craftsman Automation owns and operates 12 state-of-the-art manufacturing facilities across 7 cities in India. These units are strategically located near major automobile manufacturing hubs. The company has established itself as a leading provider of essential components to large automakers. Some of their prominent clients include Mahindra & Mahindra, Tata Motors, Escorts, Ashok Leyland, Daimler India, JCB India, and TVS Motors. 90% of their revenue comes from the domestic market and the remaining 10% from exports.

About the IPO

In February 2021, Craftsman Automation received approval from SEBI to float an initial public offering (IPO). The public issue will open on March 15, 2021, and close on March 17, 2021. The total issue size of the IPO is Rs 823.70 crore. This comprises a fresh issue of equity shares aggregating up to Rs 150 crore. It also includes an offer for sale (OFS) of 45.21 lakh equity shares (aggregating up to Rs 673.70 crore) by promoters and existing shareholders. The price band for the IPO has been fixed at Rs 1,488-1,490 per share.

Individual investors can bid for a minimum of 10 equity shares (1 lot), which will amount to Rs 14,900. The maximum number of shares that can be applied by a retail investor is 130 equity shares (or 13 lots). Thus, the maximum amount one can invest in the IPO is Rs 1,93,700. But take care not to apply for more than 1 lot, as your capital may get blocked for no reason if the IPO is oversubscribed.

Craftsman Automation will utilise the net proceeds from the IPO for two main purposes. The main priority is to make repayment or pre-payment of its existing debts. As per reports, around 80% of the IPO proceeds will be used for repaying debts. The remaining amount will be used for general corporate purposes. The company’s promoters, lead by Srinivasan Ravi, currently hold a 63.4% stake. The total promoter holding in Craftsman Automation will reduce to 59.76% post the successful completion of the IPO.

Financial Overview

.31 Dec 2020(FY 21)31 March 2020 (FY20)31 March 2019 (FY19)31 March 2018 (FY18)
Total Assets2,246.292,303.132,325.391,999.4
Total Income1,029.91,501.051,831.61,522.86
Profit After Tax50.641.0797.3631.5
(Values in Rs crore)

From the table, it is clear that Craftsman Automation’s financial performance has not been consistent over the years. The company’s revenue grew at a CAGR of ~20% between 2017 and 2019. After this period, it faced a decline in both domestic and international demand across all three product verticals (due to a slowdown in the automobile industry). The Industrial & Engineering division is the only segment that has shown positive growth in the last three years. The fall in revenue was also due to the high capital expenditure it incurred for setting up production plants. On the other hand, it shows how they have focused on scaling up production activities.

The company’s profit has shown a strong rebound at Rs 50.6 crore for the 9 months ended December 2020, despite a heavy fall in revenue. This was primarily because their interest costs (for loans) had fallen due to the moratorium introduced by the government amidst the Covid-19 pandemic. 

Another factor to consider is the overall debt burden of the company. Between 2016 and 2020, Craftsman Automation’s long-term debt has grown at a CAGR of around 20%. This is quite alarming indeed. Its total debt as of December 31, 2021, stood at Rs 890.11 crore. As mentioned before, the company will use a major part of its IPO proceeds to reduce this debt. 

Graph showing the company’s long-term debt figures from 2017-2020 (Values in Rs crore)

Risk Factors

  • There has been a significant decline in automobile sales due to the ongoing Covid-19 pandemic. The company is uncertain whether its sales will recover even after the impact of the Covid-19 pandemic is over.
  • Craftsman Automation has not been able to meet debt obligations through its debt financing arrangements. Also, some of the company’s assets have been mortgaged as securities with lenders. In case they are unable to pay off debts, it may adversely affect their business operations, financial results, and cash flows.
  • As mentioned before, the company has prominent clients from the automobile industry. There could be instances wherein the firm loses key customers, which could lead to a decline in production and sales. This could affect its overall business operations and financial results.
  • The company operates in a highly competitive business environment. Its market share and profits could decline if they are unable to respond to competition and pricing pressures. This could ultimately affect their operations and financial results. [Craftsman Automations’ peers in the auto-components industry include Bharat Forge, Endurance Technologies, Mahindra CIE Automotive, and Sundaram Fasteners]  
  • Craftsman Automation is also involved in certain legal proceedings amounting to Rs 21.24 crore.
  • The company does not have long-term contracts or exclusive arrangements with its suppliers. Its operations could be severely affected by supply chain disruptions, which has been a major issue for many firms amidst the Covid-19 pandemic.

IPO Details in a Nutshell

IPO DateMarch 15, 2021 – March 17, 2021
Issue TypeBook Built Issue IPO
Face ValueRs 5 per equity share
IPO PriceRs 1,488 to Rs 1,490 per equity share
Lot Size10 shares
Issue SizeRs 823.70 crore
Fresh Issue (goes to the company)10,06,711 equity shares of Rs 5 each (aggregating up to Rs 150 crore)
Offer for Sale (goes to promoters)45,21,450 equity shares of Rs 5 each (aggregating up to Rs 673.70 crore)
Allotment DateMarch 22, 2021
Listing DateMarch 25, 2021
Listing AtBSE, NSE

Axis Capital and IIFL Securities have been appointed as the book-running lead managers to the public issue. Craftsman Automation had filed draft papers for its IPO in December 2020. You can read it here.

Conclusion

Craftsman Automation had filed draft papers for an IPO with SEBI way back in June 2018. It had even received the regulator’s approval for the same. However, the company could not launch the public issue as market conditions were not favourable during that period. Now, the question arises whether investors would show interest in this company amidst a slowdown in the automobile sector. Moreover, there are red flags such as declining revenues and large debts. Do consider the risks associated with this company and come to your own conclusion.

Ahead of the IPO, the company was able to raise Rs 247.11 crore from 21 anchor investors. HSBC Global Investment Funds, Tata Mutual Fund (MF), Aditya Birla Sunlife MF, The Nomura Trust are some of the prominent anchor investors of the firm. 

In the current scenario, almost every IPO is providing some lucky investors with great listing gains. Before applying for Craftsman Automation’s IPO, I will personally wait to see if the portion reserved for institutional investors gets oversubscribed. 

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section.

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Editorial

Auto Ancillaries Industry in India: An Analysis

After months of production slowdown and decline in demand amidst the Covid-19 pandemic, the automobile industry in India is now witnessing a strong recovery. This is very evident from the December sales data of automobile manufacturers that were released last week. Almost all companies posted a healthy increase in their sales. 

As we know, the process that goes into the manufacturing of vehicles is very complex. The cars and two-wheelers that are sold in the market today include very sophisticated electronic or digital features. Thousands of components or parts need to be sourced from different manufacturers, which are spread all around the world. Thus, automakers are heavily dependent on the firms that produce essential auto ancillary components. Let us take a look at some of the main listed companies that fall under the automotive components industry.

Motherson Sumi Systems

Motherson Sumi Systems Ltd (MSSL) is a joint venture between Noida-based Samvardhana Motherson International Ltd and Sumitomo Wiring Systems Ltd of Japan. It is engaged in the manufacturing and sales of components to the automotive original equipment manufacturers (OEMs) in India and also internationally. MSSL is one of the world’s largest manufacturers of electrical wiring harnesses for commercial vehicles and rearview mirrors for passenger cars. It is also a leading supplier of plastic modules and components in Europe and India. 

The company has established a very strong customer base in Germany, the USA, France, Mexico, China, and many more. Some of the prominent clients of MSSL include the Daimler Group (Mercedes-Benz), Audi, Volkswagen, BMW, Renault, Ford, and Maruti Suzuki. Thus, we can see that Motherson Sumi has created synergies with some of the greatest automobile manufacturers in the world.

In the previous financial year (FY20), MSSL initiated a dedicated 5-year plan that focuses on obtaining a total revenue of $36 billion (~Rs 2.62 lakh crore) by 2024-2025. The company also stated that 40% of its consolidated profits at the end of 5 years would be provided as dividends. Motherson Sumi plans to fund its growth by utilising its reserve of profits and also raising debts.

Financial Performance

Over the past 5 years, the company has registered a consistent increase in revenue and profit. Its consolidated revenue for FY 2019-2020 stood at Rs 63,925 crore. Over the past 5 years, MSSL’s revenue has grown at an annual rate of 12.74%, whereas the industry average revenue stood at 6.96%. The company has been able to establish a market share of 34%. During the second quarter of FY21, MSSL reported a 2.7% YoY increase in consolidated net profit at Rs 388 crore. The company stated that it was seeing a huge surge in the demand for auto components all across the globe.

Since the beginning of FY21, the share price of Motherson Sumi Systems has risen by 190%.

Sundaram Clayton

Sundaram Clayton Ltd (SCL) is part of one of the largest conglomerates based in India- the TVS Group. SCL was founded in 1962 in collaboration with UK-based Clayton Dewandre Holdings plc. The company manufactures and markets machined and sub-assembled aluminium castings for the automotive industry. SCL’s product range includes flywheel housing, gear housing, clutch housing, filter heads, and much more. It provides these components for the heavy and medium commercial vehicle, passenger car, and two-wheeler markets. The company’s customer base includes prominent automakers such as Hyundai, Volvo, and Honda.

In 2019, SCL inaugurated its first overseas production facility in the United States by investing Rs 630 crore. Through this facility, the company plans to serve its customers in North America, which is its biggest export market. During the same year, the company inaugurated its new foundry at Oragadam, near Chennai. This major capacity expansion aims to meet the rapidly growing demand for its products from the automotive industry and will primarily serve Hyundai Motor India Limited.

Financial Performance

Over the past 5 years, SCL’s revenue has grown at a yearly rate of 11.73%, as compared to the industry average of 6.96%. The company has been able to establish a market share of 10.79%. Till FY 2019, the company had been registering a consistent increase in its overall revenue. However, there was a small decline in revenue during the previous financial year (FY20)- which was reported at Rs 19,914 crore.

Sundaram Clayton’s share price has seen a surge of 75% since the beginning of the financial year 2020-2021. 

Endurance Technologies Ltd

Endurance Technologies Ltd is a leading manufacturer and supplier of automotive components for OEMs in the automotive industries of Europe and India. It was founded in 1985 and is based in Aurangabad. The company primarily offers die castings, which are used to create complex parts for vehicles. It also manufactures components for engines, gearboxes, and transmission parts. Other products include suspension products, including hydraulic, mono, shock absorbers, steel wheel hubs, head axles, cross members, and steering housings. The company offers its products for use in two, three, and four-wheelers, as well as scooters and quadricycles. One of my favourite companies in this list, they supply to Bajaj Auto, Hero MotoCorp, Royal Enfield and Honda in India. European clients include Volkswagen and even Porshe.

Financial Performance

The company’s consolidated revenue during FY20 stood at Rs 6,965 crore. There had been a fall in both revenue and profit as compared to the previous financial years. Over the last 5 years, its revenue has grown at a yearly rate of 7.07%, whereas the industry was at 6.96%. Endurance Technologies has been able to establish a market share of 3.77%

Since April 2020, the shares of Endurance Technologies has increased by 137%.

Bosch Ltd

Bosch Ltd manufactures and trades in automotive products in India, as well as internationally. The company was founded in 1951 and is headquartered in Bengaluru. It is a subsidiary of Robert Bosch GmbH, a German multinational engineering and technology company. Interestingly, the Bosch Group operates in India through a total of 13 companies.

Bosch offers powertrain solutions (including gasoline and diesel injection products) and electrified drives with battery and fuel cell technologies in the electric vehicle, passenger car, and commercial vehicle market segments. It also provides automotive aftermarket services such as auto diagnosis and repairs. Bosch is well known for its power tools and measuring technologies. They also offer professional audio and communications solutions for the automotive industry.

Recently, Bosch Ltd claimed that it has secured orders worth €2.5 billion for its vehicle computers since 2019. The company also announced plans to start full-scale production of distributed power stations based on solid oxide fuel cell (SOFC) technology in 2024. It has continued investment in its restructuring & reskilling strategies and also for other transformational projects. 

Financial Performance

The company’s consolidated revenue for FY20 stood at Rs 10.45 crore. As compared to the previous financial years, the company had posted a significant decline in its revenue and profit. Over the past 5 years, Bosch Ltd’s revenue has grown at an annual rate of -3.74%, whereas the industry average is 6.96%. During the same period, the company’s market share decreased from 8.27% to 5.66%. It reported a consolidated net loss of Rs 64.57 crore for the quarter ended September (Q2 FY21). 

Since the beginning of FY21, the share price of Bosch Limited has increased by over 50%.

Conclusion

We have only mentioned four top companies that fall under the category of auto component or parts manufacturers. Other prominent listed firms in this category include Minda Industries, Varroc Engineering, Sundaram Fasteners, Schaeffler India, and Wabco India. Bharat Forge Ltd, which is part of the Pune-based Kalyani Group, is also one of the largest exporters of automotive components from India. These companies have partnered with some of the biggest automakers around the world. The different components that you see on your cars or two-wheelers today would have been made by these firms. 

According to a study conducted by the India Brand Equity Foundation (IBEF), the automotive components industry registered a CAGR of 6%, reaching $49.3 billion in FY20. Exports grew at a CAGR of 7.6% during 2016-2020, to reach $14.5 billion during the same financial year. It was found that this industry accounted for 2.3% of India’s Gross Domestic Product (GDP) by 2020. According to the Automobile Component Manufacturers Association (ACMA), automobile component export from India is expected to reach $80 billion by 2026. Thus, we can see that this industry is vital not just for automobile manufacturers but also for the overall economic development of our country. 

We can see that these companies are investing heavily in their research and development (R&D) activities. They are constantly introducing new components in the market to meet the rising demand of the automakers. Most companies are now making a shift towards the production of electric and hybrid cars. This would lead to greater demand and more opportunities for auto-component manufacturers. Let us look forward to seeing how these firms plan to expand their production and sales in the years to come.