Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities of Minda Corporation Limited (MCL; part of the MCL group).

 

The rating reflects groups healthy business risk profile driven by its strong market position in the auto component industry, group’s diversified product offerings and its marquee customer base in domestic market. Minda Group is one of the largest player in India in security systems for two-wheelers and a leading player in the wire-harnessing segment for two-wheeler, three-wheeler and commercial vehicles.  Group is expected to continue to improve its market position supported by continuous innovation being undertaken for various product segments and its long-standing relationships with marque customers. Driven by healthy demand flow from domestic market and strong tie-up with customers, group has been growing at a rate much higher than industry growth rate (revenue growth was ~44% in FY23 vs 12-13% Industry growth in same fiscal). With continuous technological innovation and introduction of new products to its product profile, which is agnostic to the electric vehicle revolution, the group is expected to continue to diversify its offerings and grow at a healthy pace over the medium term.

 

Revenue of group grew by ~44% in FY23 to Rs.4300 cr. (Including first full year performance of Minda Instruments Limited (MIL)) from Rs.2976 cr. in FY22 (Only last quarter of MIL included) despite challenging macro-economic scenario & semiconductor chip shortage. The growth was driven by addition of new customers and products, premiumization across products, leading to increase in kit value and increasing business with existing and new customers along with strong growth in the automobile industry.  During 9MFY24 company has already achieved the revenue of Rs.3,436 cr. from Rs.3226 cr. in 9MFY23. Company grew at 7% Y-o-Y growth was partially offset by delay in SOP’s and subdued exports on the back of macroeconomic scenario. Revenue of full year is expected to be in the range of Rs. 4500-4600 cr.  

 

EBITDA margins of the company has improved from 9.99% in fiscal 2022 to more than 10.84% in FY23 the improvement in the margins is due to due to favorable product mix and also tight control on fixed cost and neutralized lag between commodity and other cost initiatives.  In 9MFY24 company has maintained the margins of 10.9% and is expected to achieve margins of 10.5-11% for the full year.

 

The ratings continue to reflect the group’s established market position in India’s automotive (auto) components industry, backed by a diversified product portfolio and healthy relationships with leading OEMs in two-, three-, and four-wheeler segments. The ratings also factor in its healthy financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and to slowdown in the auto sector.

Analytical Approach

For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of MCL, its subsidiaries and step-down subsidiaries—including Almighty International PTE (Singapore), PT Minda Automotive (Indonesia), Minda Vietnam Automotive Company Ltd, Minda Instruments Ltd, Spark Minda Green Mobility System Private Limited and Joint venture Minda VAST Access System Pvt Ltd (‘CRISIL A/Stable), Minda Infac Private Limited. All the entities, collectively referred to as the MCL group, have significant business and financial linkages and are controlled by MCL.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the auto component sector: The promoters have an experience of over 6 decades in the automotive component industry. During these years, group has continuously improved on its business profile by being close to its customers, majorly original equipment manufacturers (OEMs). Group has 32 facilities across the globe with majority of them located in India. It is because of this strong presence that group has been able to establish itself in the market over the years. Group is currently one of the largest player in India in security systems for two-wheelers and leading player in the wire-harnessing segment for two-wheeler, three-wheeler and commercial vehicles. Group is expected to continue to improve its position supported by continuous innovation being undertaken for various product segments. It is because of this established market position that group has been growing at a rate much higher than industry growth rate. Industry has grown at rate of 12-13% however Minda group has grown at ~44% in FY23.

 

• Diversified product and customer profile: Group has a well-diversified product profile and has healthy relationships with customers. The products cater to the two-wheeler, three-wheeler, commercial vehicle, four-wheeler, and replacement market segments, resulting in a diversified customer base. There is no single OEM who contribute more than 15% of the group’s revenue. Moreover, past association with global OEMs through overseas entities has resulted in revenue generation for certain components in the domestic market. Strong performance for different divisions with strong order book of more than Rs. 8900 crore as on Dec-2023 date providing healthy revenue visibility.

 

• Strong financial risk profile: Group has strong tangible net worth of 1429.60 cr. as on March 31, 2023. The net worth of the company is expected to improve further due to continuous accretion of reserves. Company has strong financial risk profile with low gearing of below 0.5 times in last 3 fiscals ending FY23 and with strong net worth and liquidity the financial risk profile of the company is expected to remain strong over the medium term. Minda group has a strong debt protection matrix with interest coverage of more than 11 times and NCAD of 0.72 times as on FY23 and is expected to be in the range over the medium term.

 

Weaknesses:

• Susceptibility to slowdown in the auto industry: Growth in business is contingent on sustained ramp-up in the auto segment. In the domestic market, the biggest customers are Bajaj Auto Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Mahindra and Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Ashok Leyland Limited and TVS Motor Company Limited; the bulk of overall revenue is derived from these clients. The auto industry in India, particularly the passenger car and commercial vehicle segments, is cyclical and has witnessed a slowdown in some years. However, diversified segmental presence protects the MCL group from a significant decline in any one segment.

 

• Vulnerability to volatility in raw material prices: The margin remains susceptible to volatility in raw material prices. Majority of groups raw materials consists of base metals i.e. copper, aluminium, zinc, and group also imports about sizeable portion of its raw materials, which exposes it to fluctuations in forex rates. Also, frequent changes in input prices make it difficult for auto component manufacturers to pass on any rise in cost immediately to OEMs.  etc.

Liquidity: Superior

Group is expected to generate healthy annual accruals in the range of Rs.400 crore to Rs 450 crore over the next 2 fiscals against annual repayments of Rs.50-70 crore. Bank limits were utilized at an average of 60% for the last 16 months ending Dec 2023. Company is maintaining healthy cash and bank balance of over Rs.600 crores as on Feb 2024 as the company has sold the investment made in Pricol Limited at a good profit margins which has led to the increase in the cash balance as on date. Group is expected to continue to maintain a healthy cash balance in the range of Rs 300-400 crore even in case of any acquisition in the near to medium term.

Outlook: Stable

CRISIL Ratings believes the MCL group's business risk profile is expected to continue to improve over the medium term driven by its established position in the auto components industry and healthy relationships with OEMs.

Rating Sensitivity Factors

Upward Factors

• Steady revenue growth on y-o-y basis driven by increased market share, and improved operating profitability to around 12-13% on a sustainable basis, leading to healthy cash generation.
• Prudent working capital management and sustained strong financial risk profile over medium term.

 

Downward Factors

• Substantial decline in scale of operations and decline in operating probability below 9% leading to lower than anticipated cash accrual generation.
• Large debt-funded capital expenditure, or acquisition or substantial increase in working capital cycle weakening the financial risk profile, especially liquidity.

About the Company

MCL, based in Noida, was incorporated as Minda Switch Auto Ltd in 1985 and got its current name later. It is the flagship company of the Spark Minda group.

 

The MCL group manufactures auto components for major OEMs in the two-wheeler, passenger vehicle, and commercial vehicle segments in the domestic and international markets. The group also supplies to the replacement market. Key products include locksets, door handles, wiring harnesses, instrumentation clusters, plastic interior systems and sensors in the domestic market and international market.

  

MCL is listed on the National Stock Exchange and Bombay Stock Exchange.

Key Financial Indicators: Consolidated*

As on/for the period ended March 31		FY23	2022
Operating income	Rs crore	4300	2976
Reported profit after tax (PAT)	Rs crore	285	192
PAT margin	%	6.62%	6.45%
Adjusted debt / adjusted networth	Times	0.39	0.34
Interest coverage	Times	11.02	9.29

*CRISIL Ratings adjusted figures.

Any other information: Not Applicable