Tag: Auto

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Editorial

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

Categories
Editorial

Auto Sales Up in July; Sector shows sign of recovery.

share market today
  • India is the 5th largest auto market in the world with market size estimated to be $118 Billion. Domestic automobiles production increased at 2.36 per cent CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20 with the two-wheeler segment domination the sales.
  • The Indian Automobile along with Auto-Components industry slumped during the lockdown between March 2020 and June 2020. According to Society of Indian Automobile Manufacturers(SIAM), The total production of Passenger Vehicles, Three Wheelers, Two Wheelers and Quadricycle in the month of June 2020 was 1,094,363 as against 2,253,407 in June 2019 facing degrowth of (-)51.4%. Overall the industry has faced a 75.5% degrowth between Q1FY20 and Q1 FY21.
Passenger Vehicles
  • However, the story seems different for July, Passenger Vehicle sales were up 69% in July 2020 as compared to June 2020 falling short of just (-)1% as compared to July 2019 sales indicating a return to normalcy in the near future.
  • Maruti Suzuki logged an 88% growth in sales as compared to June 2020 along with making a 1.3% YoY Growth. Maruti sales were led by entry-segment Alto, WagonR and sPresso.
  • Tata Motors flew past Maruti-Suzuki in terms of sales growth. Tata Motors sold 15k units, 43 per cent up from 10,485 units sold in July 2019. Despite not-so-great Q1 results on 31st July Friday, Tata Motors shared zoomed at 6.5% after the market opened on 3rd August, Monday.
  • MG motor a comparatively new player in the market showed a rise of 40% in sales YoY selling 2,105 units in July 20 as compared to 1,508 in July 19
July 2020 Car Sales – Snapshot - Auto Punditz
Passenger Vehicle Sales
The Farm Equipment Sector and rise in Agriculture
  • Mahindra’s domestic vehicle sales of 11,025 units were 34.5 per cent down on last year’s numbers. However, it’s Farm Equipment Sector (FES) reported a 27% growth in the sales of tractors to 25,402 units which are by far the highest July sales according to company reports.
  • Escorts Ltd on Saturday reported a 9.5 per cent increase in tractor sales at 5,322 units in July. The manufacturer has also made a 21.1% YoY growth in terms of sale.
  • VST Tillers has reported total sales of 8226 power tillers and 2616 tractors during the period April-July 2020, as compared to 7904 power tillers and 2404 tractors amounting to 6% growth during the period April-July 2019.
  • The reason behind this is the rise in the rural market and an increase in agriculture as an occupation due to lockdown in most urban and metro areas causing a loss of occupation in cities.
OEMs
July 2020
July 2019
% change
Mahindra & Mahindra
24,463
19,174
28
Escorts4,9534,50510
VST Tillers10,84210,3086
Two Wheelers
  • Hero MotorCorp managed to sell over 514,509 units indicating a 14.4% growth Month-over-Month in sales (June-July 2020)
  • Suzuki Motorcycle India Pvt. Ltd. had a 37% appreciation in sales to 31,421 units in July 2020. Exports stood at 2,991 units in the month gone by.
  • Eicher Motors Owned Royal Enfield showed a 6% increase in sales Month-On-Month basis ending July. Royal Enfield claimed that its Interceptor 650 was the highest-selling motorcycle in the U.K. over the past 12 months, with the Himalayan coming in at fourth.
  • TVS Motor Company registered a sales growth of 27% in July 2020 with 252,744 units as against 198,387 units in June 2020. TVS Motor Company registered sales of 252,744 units in July 2020 as against 279,465 units registered in the month of July 2019.
Commercial Vehicle Sale
  • Ashok Leyland‘s sales might have declined 56% per cent YoY but have managed to double sales on a monthly basis with 4775 models in July 2020 as compared to 10,926 models in June 2020
  • In the Commercial Vehicles segment, Mahindra and Mahindra sold 13,103 vehicles in July 2020, as against 15,969 vehicles in July 2019.
Mahindra Tractor, Farm Equipment sales grow 10% - Car sales down 57%
Mahindra and Mahindra Total Sales Figures (Source:RushLane)
  • The commercial vehicle segment is impacted the most due to travel restrictions being imposed all across the country and limited passes being issued to transporters. Moreover, with reduced sales, the transporters are having to pay for road taxes, permits and other secondary charges.

The COVID-19 reduced the profits for transportation business while forcing many to shut shop. Although, transportation was of utmost importance in transporting essentials it couldn’t push demand for automobiles whatsoever.

Despite the reduction in Oil prices, the government increased tax on Oil which did no good to the automotive industry. With respect to commercial passenger vehicles, enforced social distancing norms has caused a reduction in the use of public transport/buses.

As the world recovers, you can expect a steady growth in automobile demand in in Light Commercial Vehicle(LCV) Category more than Heavy Commercial Vehicle (HCV) Category. Two wheeler sales and Passenger Vehicle segment should resume and can be expected correlate with the reduction in impact of COVID-19 and the implementation of Make-In-India along with the Atmanirbhar Bharat moment.

Categories
Market News

Maruti Suzuki post first quarterly loss since listing

Maruti Suzuki India has reported a standalone net loss of Rs 249.4 crore for the quarter ended June 30 (Q1). The company had posted a net profit or Rs 1435.5 crore for the corresponding quarter last year.

The automaker is posting its first quarterly loss since listing in 2003. The results still beat Street estimates as heavy losses were expected due to the nationwide lockdown.

Maruti Suzuki IndiaQ1 FY21Q4 FY20Q1 FY20QoQ%YoY%
Total Income5424.819079.120556.2-71.57%-73.61%
Total expenditure5770.517503.618645.3-67.03%-69.05%
Net Profit/Loss-249.41291.71435.5––
values in crore rupees

Maruti Suzuki India has been the undisputed king of passenger automobiles in India for many years. For the calendar year 2019, the automaker held a 51% share in new car sales.

The auto major blamed the disruption caused by the COVID-19 pandemic for the huge drop in volumes. Some key takeaways from the corporate filing were : 

  • Sales volume stood at 76,599 units in for the quarter, compared to 3,85,025 units in the previous quarter.
  • Net sales value stood at Rs 3,677 crore in the quarter, compared to Rs 17185.7 crore in the previous quarter.
  • Lower operating expenses and higher fair value gains on invested surplus cash
  • Zero production and sales in April, started in a small way in May
  • Production in the whole quarter was equivalent to 2 weeks of regular working
  • Sales in the domestic market stood at 67,027 units, while exports were at 9,572 units. 

The auto sector has been in a constant decline for the past few quarters, and COVID-19 seems to have broken it altogether. Maruti Suzuki India being the largest company in the segment, surely has the resources to overcome the slowdown. Being one of the first companies to actively restart sales and marketing will also help the manufacturer push its sales numbers. The Indian automotive industry is predicted to take 3-4 years to return to its peak levels, and Maruti Suzuki India looks better positioned than most to reach that level.

Shares of Maruti Suzuki(NSE:MARUTI) closed at Rs 6,192 down 1.45%, after results were published in market hours. You can read the complete BSE filing here.