ICICI Direct
Minda Corp (Buy)
Target: ₹105
CMP: ₹92.35
Minda Corporation (MCL) is the flagship company of the Spark Minda group and is a leading auto ancillary player supplying key auto components to domestic and global OEMs. Post its restructuring i.e. hive off of the European business, it has a well-diversified presence across segments such as 2-W, CV, PV and aftermarket. In terms of customer profile, the company counts all leading OEMs in India (Bajaj Auto, Ashok Leyland, TVS Motors, Suzuki Motors and M&M among others). MCL had a noticeable presence in the European market through its entity Minda KTSN, which was primarily involved in manufacturing of plastic body parts (interior) for PV segment with VW group as its anchor client. This division was struggling in the past and was a big drag on consolidated financials. With no recovery in sight, the company pulled the plug on this entity, thereby stopping its funding as well as letting it go for liquidation. We believe MCL has taken a hard call by letting off go the capital inefficient business that bodes well for minority shareholders over the long term.
Separately, MCL has recently engaged with Phi Capital as its strategic investor. Given the rich auto industry experience at Phi Capital, we believe MCL will benefit with clear strategic future growth plans going forward.
With a history of capital efficient operations, net debt free B/S (September 2020) and presence across new model launches like Mahindra Thar & Bajaj Chetak, we believe the risk-reward is favourable at MCL.