3 Backdoor Stocks

October 25 2021
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TABLE OF CONTENTS
Page
Introduction 3
Stock # 1
6
Amara Raja Batteries
Stock # 2
12
Fiem Industries Ltd
Stock # 3
23
Minda Corporation Ltd
Disclosures under SEBI (Research Analysts) Regulations 40
Disclaimer 42
3 Backdoor Stocks to Play the 15x EV Opportunity | 2

Stock 1
Amara Raja Batteries
ISRO-Backed EV Battery Player on the Fast Lane of Wealth

Creation
In January 2019, the Indian Space Research Organisation (ISRO) selected ten companies
for transfer of its Lithium-ion cell technology.
One of them was Amara Raja Batteries.
India’s premier space research organisation, ISRO, has supported the successful deployment
of indigenous lithium-ion batteries in various missions for a long time.
It believes the lithium-ion (Li-ion) cell technology is one of the most promising electro
chemical energy storage technologies. Due to its high voltage, high energy density, long
life cycle, and good storage characteristics, it finds application in many industries.
In fact, it already finds wide applications in electronic gadgets, tele-communication, and

industrial as well as aerospace applications.
Recent progress in Li-ion battery technology has made it the favourite power source for
electric and hybrid electric vehicles.
Why did ISRO select Amara Raja Batteries?
The company has been at the forefront of producing such batteries for several years now.
The agreement with ISRO for the lithium-ion cell technology transfer is without any royalty
payment.
Amara Raja Batteries is one of the country's biggest battery manufacturer and supplier. It’s
the largest supplier of industrial storage batteries in India.
As Amara Raja Batteries' website points out: Every second telecom tower in India runs on
Amaron batteries, as does every third car in Singapore.
Over 14 million Amaron batteries power Indian vehicles. Every minute, there are five Amaron
batteries being fitted in vehicles in India (excluding two-wheelers).
3 | Stock 1 - Amara Raja Batteries

Currently Amara Raja supplies auto batteries to Ashok Leyland, Ford India, Honda, Hyundai,
Mahindra & Mahindra, Maruti Suzuki, and Tata Motors. It also exports industrial and auto
batteries to countries in the Indian Ocean rim.
In January 2019, ISRO named 10 companies from a list of 141, to which it proposed to transfer
the technology to manufacture lithium-ion cells developed by the Vikram Sarabhai Space
Centre (VSSC), Thumba, as part of the government's effort to push electric mobility.
The 10 companies that got the tech licence from ISRO only 4 are listed entities:
• Amara Raja Batteries
• Bharat Electronics
• Tata Chemicals
• Thermax
However, among them, Amara Raja Batteries is the first one to set up the lithium battery
development hub.
Under the tech transfer, ISRO will help these companies set up lithium-ion cell manufacturing
units and train their staff.
Under the new policies taken up by the government, adoption of Li-ion batteries will grow
at a tremendous pace in the coming years.
Rising sales of EVs and huge investments in clean energy sources will boost the demand
for Li-ion batteries.
Amara Raja Batteries, the country’s second largest auto battery maker and owner of brand
Amaron, is at an inflection point in its business.
The company is transitioning from being a lead acid batteries (LAB) maker to a new
energy player. It’s diving into growth segments such as lithium ion batteries and solutions
for electric storage.
It’s also evaluating plans for a giga factory to produce batteries for EVs at scale.
By repositioning Amara Raja Batteries as an Energy and Mobility player, the group is
essentially future proofing the business.
Stock 1 - Amara Raja Batteries | 4

Amara Raja Batteries’ New Energy Portfolio
Source: Company data
The company has established a New Energy business unit for lithium cell and battery packs,
EV chargers, Energy Storage Systems, Advanced Home Energy Solutions, and related
products and services.
In a conference call, the management confirmed it has committed a US$1 bn investment

over next 5 years for a 10-12 GWh (gigawatt hours) lithium-ion battery facility.
This is under the Advanced Chemistry Cell (ACC), PLI (Production Linked Incentives) scheme
of the government.
But that’s not all.
Amara Raja Batteries is also betting big on startups that are innovating disruptive
technologies for EV batteries. Its 12% stake in battery innovator Log 9 Materials is a case in
point.
Log 9 Materials is a startup incubated at IIT Roorkee. It has developed rapid-charging

batteries for electric two- and three-wheelers.
It’s also developing an aluminium fuel-cell technology aimed at long-haul electric mobility
as an alternative to diesel generators. The company won the Top Innovator Award at the
ET Startup Awards 2021.

So, it’s not just the business transformation for a battery assembler to green energy
powerhouse that could propel Amara Raja Batteries into a new orbit of wealth creation.
By being in the right place at the right time, in the EV ecosystem, the company is an ideal
backdoor play in the massive EV gold rush.
With sufficient comfort in financials and valuations at current levels, the stock is one of
the best bets for investors seeking long-term gains from India’s massive EV megatrend.
Plus, there are few very long-term upsides…
Global Supplier of the Lead Acid Batteries

Having worked on and built expertise in the lead-acid battery space for more than three
decades, Amara Raja Batteries is at an opportune position to seek global expansion in this
segment of the business
The global market for lead acid batteries in FY20 was estimated in the range of US$ 38-42
bn, of which 66% was Automotive and 29% Industrial.
Amara Raja enjoys very strong positions in the Automotive (OE and Replacement) and
Industrial battery space (UPS and Telecom).
Even as India transitions to e-mobility, lead-acid battery demand could continue to grow
alongside the internal combustion vehicle. Moreover, the growing traction of hybrid vehicles
will further enhance volumes for lead-acid batteries.
After having gained a healthy global presence, Amara Raja Batteries plans to consider
inorganic opportunities to accelerate market share acquisition. The management has set a
target of topline growth of 15-17% over the next five years, driven by organic growth in the
domestic market and international expansion.

Lead Acid Batteries Could Continue to Dominate Industrial Uses
Energy Storage Vertical a Gamechanger

India, unlike other developed economies, has not been able to standardise the types of
plugs, voltages, etc.
In keeping with this reality, Amara Raja Batteries has developed an entire charging portfolio
that will be able to deliver charging and swapping solutions as well as AC charging for
residential applications.
The company plans to offer a host of charging solutions as well as the battery management
system, seamlessly connecting the user to the charging stations, the distribution,
transmission and generation of renewable power (predominantly solar and wind).
Presence in energy storage business will allow the company to offer round charging
solutions for the electric vehicles. The company is evaluating the possibility of setting up a
Giga factory. Typically, a large Giga factory of about 8-10 GW could require an investment
of about US$ 1 bn over 5-10 years.

India’s Lithium Ion Battery Market to Grow 5x by 2030
Risk to Our Assumptions

Although Jaydev Galla and the management of Amara Raja Batteries have put forth a solid
business transformation plan for the electric vehicle foray, their involvement in regional
politics could have a bearing on the company’s growth.
The Galla family have strong political presence in the state of Andhra Pradesh. Managing
Director Jayadev Galla is the MP from Guntur representing TDP in the Lok Sabha, His
mother Galla Aruna Kumari was a minister in the N Chandrababu Naidu government.
In recent past, the family has been accused of land grabbing by the local government,
and also received pollution control notices. Political repercussion could strongly impact the
growth prospects of the business.
Financial Profile of Amara Raja Batteries

Amara Raja Batteries has grown its sales and profits at a compounded rate of around 13%
over the past decade. With minimal leverage on its books, the company has sustained
average return on capital of 31% during this period.
While growth in lead acid battery business could recover strongly, achieving the
management’s target of 15-17% CAGR in volumes over five years is largely dependent on
successful execution of its export strategy.
While its entry in the New Energy business is a step in the right direction, its success will be
dependent on the technology partnership with ISRO, cost competitiveness etc.

For lithium cell manufacturing, it is targeting 8-10 GW capacity to attain global competitiveness.
Considering that that US$ 1 bn capex in the New Energy business will be over 5-10 years,
Amara Raja Batteries can fund this capex through free cash flows of the core business,
while keeping its balance sheet lean.
At What Price Would the Stock be Attractive?

Amara Raja Batteries has traded at an average PE multiple of 24 times over last 5 years and
29 times over last 10 years. The stock is currently trading below its 5-year average multiple.
I have valued the stock at 20 times forward earnings.
Since the bet on the electric vehicle megatrend is a very long term one, as per my
estimates, the stock can be expected to compound at average annual rate of 14 to 15%
over the next decade.
This means, from the current levels, the stock can at least triple over the next decade.
Given the elevated valuations of the broader markets, I recommend taking a partial
exposure (50% exposure) to the stock at the current price of 690 or lower.
The best buy price (for full exposure) for the stock is Rs 600.
We will let subscribers as and when the stock offers an opportunity to take full exposure.
Action to Take
• Recommend buying Amara Raja Batteries (50% exposure) at current

price of Rs 690 or lower.
• Best buy price for 100% exposure is Rs 600
• Target price Rs 2,300 (from 10-year perspective)
A Gentle Reminder About Asset Allocation

In a scenario of ideal allocation of funds, I recommend holding at least 60% of one's total
equity portfolio in bluechip stocks.

Further, we believe that a single bluechip stock should ideally not form more than 5-6% of
the total portfolio.
However, please note that this allocation will vary from person to person. For something
that works best for you, we recommend you talk to your investment advisor.
Market Data
Price on 25 Oct 2021 (Rs) 690
52-week High/Low (Rs) 1,025 / 665
NSE Symbol AMARAJABAT

BSE Code 500008
No. of Shares (m) 170.8
Face value 1.0
FY21 DPS 11
Dividend Yld (FY21 at current prices) 1.6%
Market Cap (Rs m) 117,860
Price to earnings (25 Oct 2021, x) 16.6

Shareholding (Sept 2021)
Category (%)
Promoters 28.1
FPIs 20.8
Banks and MFs 34.8
Public 16.3
Total 100
Financials at a Glance
FY17 FY18 FY19 FY20 FY21
Net Sales Growth 15.1 14.0 12.1 0.7 4.5
Net Profit Growth (2.7) (1.5) 2.6 36.7 (2.1)
Net Profit Margin 9.0 7.8 7.1 9.7 9.0
Return on Equity 18.5 16.0 14.5 18.1 15.4
Return on Capital 29.2 25.4 23.1 23.9 22.0
Debt to Equity (x) 0.1 0.1 0.1 0.1 0.1

Stock 2
Fiem Industries Ltd
EVs Transition is a Gamechanger for this Smallcap Auto

Ancillary
Few years ago, a study was done in the auto segment trying to decipher what influences
vehicle buying decision in Indian markets.
The study had some very concrete results.
It turned out that one of every three Indians had turned down a vehicle he/she liked, for
another that on account of one factor.
Could you guess?
The answer is mileage.
To appeal to mileage conscious nation, the very famous Maruti Suzuki India came up with
a series of ‘Kitna deti hai’ promotions.
The auto sector may go through a wave of digital and electric vehicle disruption. But
mileage will continue to remain an obsession for a vehicle buyer.
And this is where lies a great opportunity for companies supplying LED based automotive
lighting products and solutions.
The Connection between Mileage and LED-based Auto Lights

In a conventional vehicles, the lights could be halogen or LED based.
In an ICE fuelled vehicle, the reasons for choosing LED could be better style and aesthetics.
For EVs, this is a functional need. That’s because LED car bulbs typically consume much
less energy.
And the energy saved on LED based vehicle lighting can add multiple miles to the journey
as compared to traditional lights.
No wonder then almost all EV models, existing and to be launched in future, are going with
LED based lights.
Stock 2 - Fiem Industries Ltd | 12

In short, EVs disruption comes with a huge opportunity for auto LED makers.
And could be a game changer for Fiem Industries. You see, 2 wheelers are likely to be the
most promising segment for EV transition. The company derives almost 96% revenue from
this segment.
Fiem Industries was the first to introduce LED lights in 2-wheelers. Unlike other players that
have been sourcing the technology, the company is reliant on in-house R&D.
The company is one of the leading manufacturers of automotive lighting (headlamps, tail
lamps, and blinker lamps, fog lamps, warning triangles, interior lamps, and beacon lights),
signalling equipment and rear view mirrors in India.
While its products could be classified as EV agnostic, the EV transition and incremental
demand for auto LEDs has been a big inflection point for the business.
Here’s why…
The realisations in conventional or halogen auto lamps range from Rs 800 to Rs 1,500.
In case of LED, the realisations are more than double – Rs 2,000 to Rs 5,500 or even Rs
6,000 – depending on the design and configuration.
The business is 1.8 times to 2 times in LED-based electric vehicle as compared to an ICE
based vehicle, along with better yields and margins.
While higher realisations/yields on LEDs will benefit the company from a value perspective,
even volume wise, the opportunity is huge.
Sole Supplier to Ola Electric – A Game Changing Proposition

Fiem has been selected by Ola Electric as the sole supplier for headlamp, tail lamp, indicator,
rear fender assemblies (all LED based products) and mirror for its electric 2-wheelers.
Ola Electric is setting up a facility near Bangalore to churn out 10 million electric 2-wheelers
by 2022. This is more than half of annual ICE based 2-wheelers sales in India.
Such scale will catapult the company to be the world’s largest e-scooter maker. Fiem could
be a perfect proxy play to ride this opportunity. Fiem’s plant at Hosur is strategically located
to cater to Ola’s requirements.
The first phase in Ola Electric manufacturing facility itself is aimed to produce 2 million
vehicles, which is significant. The existing base is just 1.5 lakh electric 2-wheelers. The
revenues from this alliance are likely to figure from second half of FY22.
13 | Stock 2 - Fiem Industries Ltd

Ola Electric will have a learning curve in terms of technology, investments, and competition
to deal with. But Fiem, as its sole supplier, has latched on to a huge growth opportunity. It
could also offer company huge visibility in the global electric market in the long term.
Besides this big win, the company is already a supplier to Revolt, Okinawa, Hero Electric,
Electrotherm and Ampere. It’s the sole supplier to Electrotherm and Okinawa.
The management has suggested there are more customers in the EV segment in the
pipeline and expects EV-based opportunity to grow at a CAGR of 20%-25% year on year.
Overall, the management expects the share of LED in automotive lighting segment to grow
from 40% to up to 70% over next three to four years.
With higher yields, the shift in the product mix expands the opportunity for revenue and
profit growth for the company.
About the Company

Founded in 1989 by Mr JK Jain, a first generation entrepreneur, Fiem Industries is a leading
manufacturer of automotive lighting (headlamps, tail lamps, and blinker lamps, fog lamps,
warning triangles, interior lamps and beacon lights),signaling equipments and rear view
mirrors in India.
It was among the first to introduce LED lights in 2 vehicles. Besides, its products find use
in integrated passenger information systems for railways and buses with LED display (IPIS.
Here’s a snapshot of product profile:
Most of the company’s products are EV agnostic, i.e, they find usage in both internal
combustion engine (ICE) and electric vehicle.

In the plastic moulding parts, the company has over 450 injection moulding machines that
make parts ranging from 20 gms to 2.5 kgs. Plastic parts are integral part of auto lamps and
rear view mirrors, and needed in the final assembly for all products.
2 Wheelers account for 96% of company’s revenue. The rest comes from the 4 wheeler
segment.
Revenue Contribution in Automotive Segment (FY21)

4%
7%
Honda Motorcycle
7%
TVS Motors
35%
India Yamaha
8%
Suzuki Motorcycle
Others
13% Replacement
Eicher Royal Enfield

26%
In four wheeler space, its top clients are Tata Marcopolo, Force Motors, Honda Siel, Hyundai,
Daimler, Mahindra Reva etc.
Domestic OEMs contribute to 91.2% of revenue, while exports comprise 2.2%. The export
markets include Japan, Austria, UK, Germany, Thailand, Indonesia and Vietnam. The
domestic replacement market contributes to the remaining 7% share.
The company has three world class R&D/Design centres (in India, Italy and Japan) and
testing facility with inhouse capabilities in LED technology and manufacturing. It has also
entered strategic technological tie ups with global players for advance and cost efficient
products.
Its wholly owned subsidiaries include Fiem Inds Japan Co (Japan), Fiem Research and
Technology SRL (Italy). Further, it has two joint ventures (JVs) – Asian Fiem Automobiles
India and Fiem Kyowa (HK) Mould Company Ltd (Hong Kong).

The company has 9 manufacturing facilities for automotive lightning in states of Haryana,
Tamil Nadu, Himachal Pradesh, Rajasthan and Gujarat. The facilities are strategically
located to offer logistic efficiency and just in time deliveries.
About the Management

Mr JK Jain, Chairman and Managing Director, has over four decades of experience in
manufacturing of automotive lighting and signaling equipment. He is involved in advising
on business strategies and growth and expansion plans of the company.
Mr Rahul Jain, Whole time Director, is involved in strategic affairs and corporate planning,
apart from customer interaction and initiatives of new projects.
Reasons to Invest
• Strong Tailwinds for Auto LED business
Over the next three years, the management expects auto LEDs to contribute to
60% of revenue from 40% in a normal year. Such shift in the product mix will be
positive for company’s growth and profitability. That’s because the realisations in
conventional or halogen auto lamps range from Rs 800 to Rs 1500. In case of LED,
the realisations are more than double- ranging from Rs 2,000 to Rs 5,500 or Rs
6,000, depending on design and configuration.
A typical EV has a lot lesser moving parts than ICE based vehicle. But auto lights
is one area where design, aesthetics and fuel economy requirements will ensure
premiumisation of content. As such, EV transition will be positive for the product
mix. It is worth noting here that order from Ola is for LED based products. In fact, all
the lighting products for EV based vehicles are LED based.
• Strong Potential Upside from Existing Capacities
The capex this year is projected at Rs 350 m (150 m for new line and rest for
maintenance) that could be met from internal accruals. The company has already
done Rs 55 m in June 2021 quarter. Further, there is no capacity constraints at the
plant at present. From the current capacity, with a similar product mix, the company
can generate a turnover of Rs 17 bn. With increased share of LEDs, the revenue
could be higher, upto Rs 25 billion. Normally, LEDs based business account for 40%
of automotive lighting while 60% is non LED. In the next two to three years, the
management expects 60% of the business to be LED based.

The company has enough land to expand capacity by 25% from current base. That
said, the company could go for capex depending on how EV opportunity shapes
up. The company has healthy cash reserves and most of capex need is likely to be
met from internal accruals.
• New Projects under Development
The company has over 30 projects under development with different customers.
These are likely to add to the over the next 4 to 5 years. The management expects
revenue opportunity from these at Rs 2.5 bn. Over next three years, the company
expects to enter 4 wheeler (cars) segment as well.
The other opportunities include IPIS, an electronic information system for real time
passenger information. It finds applications in railways, metros, state transport
systems in domestic and overseas markets.
• Robust Balance Sheet and Financials Despite Catering to Cyclical Segment
The company is zero net debt with negative working capital cycle. Despite catering
to a cyclical industry, its margin profile has been stable at 11.3% over last 10 years,
with minimum margins at 10.6%. Barring the pandemic year, the return on capital
employed too was above 16% for FY18-FY20. The company has consistently
generated positive cash flow from operations and cumulative free cash flows over
last ten years. The net cash on the balance sheet is enough to meet capex needs
without having to borrow. What more, the company has been consistently paying
dividends. The average payout in last five years is at 30% (45% in FY21).
Projections and Valuations

In our projections, we have factored in a shift in the product mix, with increased biased
towards LED based auto-lights. FY21 was a year hit by the pandemic.
As per our projections, the revenue CAGR for FY20-FY24 stands at 9%. Over next two
to three years, we expect the operating profit margins at 12.5% (from 11.4% in FY20). We
expect the company to remain net cash positive, and maintain positive operating cash
flows and dividend payout. The return on equity and return on capital employed (adjusted
for tax) is expected at 17% and 18% respectively at the end of FY24.

Risks to Our Projections
While Fiem Industries is well placed to benefit from incremental demand of LED based
autolights, it is not immune to challenges and risks inherent to auto and auto ancillary
industry.
These include increase in commodity prices (which may take some time lag to be passed
on), slowdown in auto industry, and supply disruptions such as prolonged chip and the
semiconductor shortage.
Further, while the company caters to over 50 OEMs, there is client concentration risk in the
portfolio. Its key clients in the two wheeler segments include Honda, TVS, Yamaha, Suzuki,
Eicher, Royal Enfield, Harley Davidson, Mahindra, Okinawa etc. Honda, TVS and Yamaha
account for ~74% of the revenue.
Honda and TVS both command a strong market share in 2 wheelers. For Honda, Fiem's
market share is ~40% in headlamps, ~80% in tail lamps, ~85% in blinker lamps and 100%
in rear view mirrors. For TVS, the market share is ~71% for headlamps, ~77% for tail lamps,
~80% for blinker lamps and ~47% for Rear view mirrors.
With new clients coming in, especially in the EV space (with sole supplier status at present),
we expect this risk to mitigate.
It is worth mentioning here that around 50% of the automotive lighting market is captured
by 3 major players (~Lumax industries (~24%), Minda industries (~14%) and Fiem Industries
(~13%). Of the three, from both fundamentals and valuations perspective, Fiem seems to be
the best bet.
Coming to Valuations…
The stock has historically traded at a median PE (price to earnings) multiple of 18 times.
Considering the scope of better yields and increased growth opportunity from clients
additions in EV segment, we believe a target multiple of 16 times is fair for the company.
We also take comfort from the strong liquidity, stable margins and negative working capital
cycle for the company.
We have arrived at a target price of Rs 1,570 from FY24 perspective.
This implies a point to point upside of 39% and CAGR of 14% (excluding dividend yield) in
the stock.

We recommend subscribers to consider buying the stock. The maximum buy price stands
at Rs 1180.
Action to Take
• Consider buying the stock of Fiem Industries at Rs 1,180 or lower.
• In case of a rise in stock price, one can consider taking partial

exposure (Buy 50%) at Rs 1,220 or lower.
An Important Note: Fiem Industries Ltd is a smallcap stock. According to us, in a scenario
of ideal allocation of funds, small cap stocks could be considered to comprise of not
more than 10% of one's total equity portfolio. Further, we believe that a single small cap
stock should ideally not form more than 2-3% of the total portfolio. However, please note
that this allocation will vary from person to person. For something that works best for
you, we recommend you talk to your investment advisor.
Potential Upside to Our Estimates

It is worth mentioning here that the historical financials do not capture the opportunity from
Ola Electric which could be a milestone in the future growth curve. We have been quite
conservative in our projections with regards to upside from this aspect, as this is still a very
fresh development.
We will execute progress with regards to EV transition and could consider revising revise
estimates based on milestones achieved.

Market Data
Price On Reco. Date (Rs) 1131.05
CMP - BSE / NSE (Rs) 1131.05
52-week High/Low (Rs) 1342/470

NSE Symbol FIEMIND
BSE Code 532768
No. Of Shares 13
Face value 10
FY21 DPS 16
Dividend Yld (FY21 at current prices) 1.4%
Free Float 33.4%
Market Cap (Rs m) 14,884

Category (%)
Promoter Stake 66.6%
Institutional Stake 10.10%
Others 23.34%
Total 100

(Rs m) FY19 FY20 FY21 FY22E FY23E FY24E
Sales 14,490 13,800 12,212 14,043 16,852 19,380
Sales growth (%) 16.9% -4.8% -11.5% 15.0% 20.0% 15.0%
Operating Profit 1,570 1,569 1,338 1,685 2,022 2,422

Operating profit
10.8% 11.4% 11.0% 12.0% 12.0% 12.5%
margin (%)
Net profit 556 746 467 783 1,012 1,288
Net profit margin (%) 3.8% 5.4% 3.8% 5.6% 6.0% 6.6%
Balance Sheet
Current assets 3,370 2,847 3,268 3,925 4,960 6,118
Fixed assets 5,643 5,906 5,473 5,230 5,200 5,228
Investments 254 212 210 300 500 700

Other non current
361 239 271 285 300 316
assets
Total Assets 9,628 9,205 9,222 9,739 10,960 12,363
Current liabilities 3,340 2,694 2,652 2,768 3,319 3,815
Net worth 4,771 5,253 5,694 6,214 6,883 7,735
Loan funds 930 581 219 100 100 100
Other liabilities 587 677 657 657 657 712
Total liabilities 9,628 9,205 9,222 9,739 10,960 12,363

Valuation
(Rs m) FY19 FY20 FY21 FY22E FY23E FY23E
Revenue (Rs m) 14,490 13,800 12,212 14,043 16,852 19,380
PAT (Rs m) 556 746 467 783 1,012 1,288
EPS (Rs) 42.3 56.7 35.5 59.5 76.9 97.8
Price to earnings (x) 26.7 20.0 31.9 19.0 14.7 11.6
Price to sales (x) 1.0 1.1 1.2 1.1 0.9 0.8
Price to book value (x) 3.1 2.8 2.6 2.4 2.2 1.9

Stock 3
Minda Corporation Ltd
A Solid Investment in the EV Transition and Futuristic Auto

Technologies
By now, you are familiar with the EV trends impacting the auto industry.
This is a once in a century revolution.
But here is what you need to know.
This revolution is not an event at any one point in time. It’s not just about batteries taking
over the internal combustion engine. It’s not just a switch from petrol and diesel powered
vehicles to battery charged ones.
Bigger disruptive forces are coming along with electrification.
The future car or bike will look a lot different from the past. And the difference will not be
in the fuel technology alone.
The future belongs to smart cars. These cars will be much more electronics, autonomous,
connected, and instrumented.
Remember when mobile phones disrupted landlines?
It was not just about calling from anywhere, or while talking on the go.
Phone became an integral consumer device. Music, entertainment, information, work, travel,
eating habits, shopping – it completely changed our lives. The mobile phone revolution
was beyond what anyone could have imagined. Old business models were reinvented.
New were created.
The auto segment is going through a similar revolution.
The EV revolution is coming along with an IoT revolution. It will piggyback on technologies
such as sensors, vehicle control, cloud computing, embedded software, data processing,
and analytics.
23 | Stock 3 - Minda Corporation Ltd

Think about it.
The future cars will be connected and digital. From vehicle ownership to shared cars, safety,
connectivity, location tracking vehicle condition, infotainment… the electric vehicle in future
be very different from the ones we drive today.
Batteries are just a part of the revolution. The cars of the future will be an engineering
marvel.
The revolution won’t end at electrification. In fact, it will be just the beginning.
It’s critical to keep this in mind when you’re thinking of investing in EV stocks.
I’m still focused on the EV value chain and not auto stocks. That’s because these firms has
are juggling too many balls in the air right now.
Also it’s a very expensive time to be an auto manufacturer. The value of their legacy portfolio
of vehicles is being destroyed This business bring in well over 95% of their revenues.
But certain players in EV ecosystem are different.
They have no legacy liabilities. They have an exponential growth opportunity ahead of
them. Most importantly, the downside of investing in them is minimal.
One of these lesser known plays distinguishes itself in the EV supply ecosystem. With
specific focus on green mobility, Minda Corporation Ltd it has adopted technology and
digitization at the core.
Let’s understand the business better to know how it is riding the disruptive trends in auto
sector.
About the Company

Minda Corporation Ltd is the flagship company of Spark Minda (part of erstwhile Minda
Group), and a leading auto component supplier since 1958. With 33 plants and offices,
close to OEMs, the company caters to both domestic and global.
India is the key market and accounts for around 86% revenue, followed by Europe and US
with around 9% and the balance 5% business coming from markets in Southeast Asia.
In terms of end markets, two and three wheelers accounts for the largest pie of the business
with a 52% revenue. This is followed by CV (commercial vehicles) at 21% and PV (passenger
vehicles) at 11%. Aftermarket accounts for 16% of total revenue.
Stock 3 - Minda Corporation Ltd | 24

It distinguishes itself in the EV supply ecosystem due to its specific focus on green mobility,
with technology and digitisation at the core.
It focuses on advanced engineering through embedded software systems, telematics,

connectivity, wiring harness design and focus on light weighting, power electronics and
vehicle access (smart keys).
Its engineering capabilities focus on electronics hardware, embedded software,

mechatronics engineering, and product validation. The Spark Minda Technical Center has
been a flagship investment in this direction.
Already 95% of its product portfolio is EV agnostic. The products it offers are likely to be
higher in content and more premium in the electrified version.
A Glance at the Product Portfolio
Electric Vehicle Information and Plastics and Light

Mechatronics
Components Connected Systems Weighting
Motor Controller Seat Actuator Connected Cluster Die Casting Products
Sensors (Temperature,
DC to DC Convertor Glovebox Actuator
Position etc)
Keyless entry
Battery Charge Wiring Harness
systems
Telematics NFC/Bluetooth
Vehicle Control unit

Battery
management
system
Most of these products and technologies are developed in-house by company’s advanced
engineering team.
The company has an Advanced Engineering Centre of Electronics & Mechatronics in Pune
(SMIT) and multiple specialized R&D Centre across India.
Its key customers include Ola Electric, Ashok Leyland, Bajaj Auto, Hero Moto Corp, Honda

Motorcycle and Scooter India, Hyundai, Mahindra & Mahindra, Maruti Suzuki, Polarity,
Revolt, Suzuki Motorcycle, TVS Motor, Tata Motors, , Yamaha Motor, Audi, BMW, Ford, GM,
Force Motors, TAFE, Sonalika, Delphi, Johnson Controls, Honeywell, Bosch, Subros, among
others.
The company has five key business verticals - Mechatronics, Information and Connected
System, Interiors & Plastics, Aftermarket, and Electronic Manufacturing Excellence.
• Mechatronics Product Portfolio
The company will benefit from increasing share of electronics and mechatronics
across vehicle categories.
The patents portfolio in mechatronics till FY21 stands at 166 with 93 for conventional
lock sets and further 21 for smart key solutions (company is a global leader in this)
apart from other patents.
Within the die casting sub-segment under mechatronics, the division is geared up
to diversify its business into other area like aerospace, rail, defence, and marine.

• Information and Connected System Portfolio
Within this segment, wiring harness is a beneficiary of transition from BSIV to BS

VI. It will benefit from increased electrification and electronification in vehicles. The
company is also focusing on localisation of components within the segment.
• Interior Plastic Division
The company expects exponential growth opportunities with requirements to

reduce the vehicle weight, especially with electrification. The segment has seen
addition of new products and customers.
• Aftermarket
The products for aftermarket include filters, clutch plates, bearings, wiper blades,
brake shoes, and cables. It looks at segments including two and three wheelers, PV,
tractors, CV, and off-road vehicles.
The company has an all-India network of 450 business partners, and has access to
over 10,000 retail network in the country.

• Electronic Manufacturing Excellence
This vertical consist of products related to electric vehicles, connected systems,

antenna, and surface mounting technology i.e. PCBA etc.
All the new products which the company will develop or will do joint ventures (JV),
Technical Licensing or agreement (TLA) with high electronic content will fall under
this vertical.
This will include electric vehicles and connected systems as well. It’s also bringing
spectrum of solutions for next generation connected mobility and IoT (Internet of
things) space, with progression from parts to systems supplier.
Reasons to Invest
• A Strong Beneficiary of EV Transition
The EV revolution is going to take the auto industry by storm. But there is a particular
segment which is all ripe for disruption of the utmost degree – Electric 2-wheelers
and 3-wheelers.
Already, 80% of the electric vehicles sold belong in these segments. In terms of
total cost (upfront vehicle cost and operational cost), it’s almost at parity with ICE
(internal combustion engine) vehicles, with our without subsidies.
52% of company’s revenues come from two and three wheelers.
To ride the EV opportunity, the company has set up an in-house R&D facility and has
struck technical collaborations with global partners to bring quality, scalable, and
cost effective EV solutions.

The company’s products that cater to the EV opportunity include DC/DC convertors,
battery chargers, motor controllers, vehicle control units, etc.
Minda Corp has created the TGU (Telematics Gateway Unit) for EV two-wheelers
that converts a vehicle into a smart vehicle.
The technology allows it to embed telematics into a battery pack or a Vehicle control
unit (VCU), a speedometer or a standalone TGU. This can be applied to the entire
two wheeler EV space which could be over two million units per annum in a few
years.
Apart from revenue from software subscriptions and data, this unit laces the company
high on the electronics and software value chain. This will ensure additional revenue
and higher profits.
Importantly, it will help the company to be a SAAS (software as a service) vendor in

the connectivity services marketplace.
The capex plan for FY21 is at Rs 1.3 bn with focus on electric mobility. The company’s
clients in EV space include Ampere (Greaves Cotton), Ola Electric, Hero, Revolt,
TVS, Viryaa mobility 5.0, Ashok Leyland, BGauss, among others.
• Margin of Safety and Growth Opportunity in the Legacy Product Portfolio
Along with the electric vehicle focus, the company participates in trends influencing
auto segments such as connectivity and shared mobility, vehicle and passenger
safety, light weighting of vehicles, vehicle electronification and human machine
interface.
95% of Minda Corporation’s legacy products are EV agnostic. Further, it enjoys a

presence in most components and areas that are likely to be significantly positively
impacted in the EV transition.
For instance, both ICE and EV based vehicles going forward will likely have higher
share of electronics.
With an EV agnostic business along with focus on products, solutions, and partnerships
to capitalise on the rise on EVs, we expect the kit value (premiumisation), customer
base, and content per vehicle to up (with BS VI norms) for Minda Corporation.

Note: Grey boxes suggest work in progress, green boxed suggest ready products and solutions
In the non EV segment too, there are tailwinds to the business amid transition from
BS IV to BS VI (increased use of wiring harness).
• Healthy Lifetime Order Book

In FY21, the company won lifetime orders worth Rs 67 bn, of which Rs 42 bn were
from replacement business.
Overall orders won during the June 2021 quarter stand at Rs 13 bn, with new orders
higher than replacement orders (lifetime orders, of which replacement orders
comprise Rs 5 bn).
Of these orders won, close to 80% are in the two wheeler and three wheeler
segments.
The lifetime orders won the EV segment stood at Rs 2.4 bn. EV remains a key focus
area for the company, and it continues to build significant order book in EV space in
the current (September 2021) quarter.
• Presence in Futuristic Technologies through Strong Technical Alliances and R&D
Through strong technical alliances with domestic and global leaders and inhouse
R&D, the company has established strong position in products and solutions that
are likely to find increased usage in the vehicles in the coming years.
Especially with EV transition, company’s products such as electric motor, battery

chargers and management systems, wiring harnesses, controllers etc are likely to
witness strong demand.
The company plans to spend about 2% of its revenue on R&D with engineers
focusing on electronification in the EV space and new products in electrification.

• Trends Impacting India and Company’s Offerings in FY21
*Under development Source: Company data

ITS: Intelligent Transportation System
MFECU/BCM: Multi-Function Electronic Control Unit/Body Control Unit
BMS: Battery Management System
VCU: Vehicle Control Unit
The company has six partnerships – VAST, INFAC, RIDEVISION, Furukawa Electric,
Stoneridge, SILCA
Stoneridge, where Minda Corp has 51% partnership, is in the manufacturing of instrument
clusters and sensors. The products are offered in terms of advanced electronics and
technology .

VAST – 50% partnership between VAST USA and Minda Corporation. It focuses on
manufacturing 4 wheeler assistance systems in the premium range. It supplies security
/ access control products for the motor vehicle industry and is one of the global market
leaders in such products.
Silca focuses on keys for vehicle access systems and machining systems.
In Furukawa Electric, Minda Corp has 25% stake. Here, the company manufactures wiring
harness for four-wheeler Japanese OEMs.
In June 2021, the company has entered JV with INFAC under e-Mobility engineering vertical.
With this, the company will address rising demand of shark fin antennas in passenger
vehicle segment in India, leveraging proven technology of INFAC.
It will allow the company to penetrate into LF (low frequency) Antenna Market – Door
Handles, Boot, Start/Stop.
Its customers include Maruti Suzuki, Hyundai and Kia Motors. With IoT finding its way in the
cars, the partnership is likely to have strong growth potential.
In September 2021, Spark Minda Green Mobility Systems (SMGMS) Private Limited- the
wholly owned subsidiary of the company, has signed technology license agreement with
EVQPOINT (a startup).

EVQPOINT provides smart electric vehicle charging products designed and developed
domestically, to cater to e-mobility market.
Another of its strategic partnerships includes technology license agreement with Israel
based 2-wheeler company – Ridevision (that focuses on Advanced Driver Assistance
Systems /ADAS).
This will bring range of Artificial Intelligence-enabled Collision Avoidance Technology

(CAT™) products for the Indian two-wheeler market that can make roads safer in India.
In India, Minda Corp is the only company to offer this technology. It is expected to come
in the high-end bikes or more so cruisers which are pan-India compared to the commuter
segment.
Further, during the June 2021 quarter, the company has filed six new patents, including
one in cyber security.
As vehicles become autonomous and mobility is shared and car fleets such as Ola, Uber
rule the roads, vehicles are relying more and more on software systems. They need to be
protected against malware or potential hacks.
In the last 5 years, the company has filed 170 patents.
With strong cash reserve on the balance sheet, the company is focused on developing
future-ready product line, technologies, and solutions.
It is because of this innovative approach that the company outperformed the industry (7%
growth in revenue versus a 13% decline for auto industry in FY21) in a pandemic ridden year.
New products comprised 24% to the revenue in FY21.
About the Management

Ashok Minda, Chairman and group CEO has over 37 years of rich experience in the
automotive component industry. Under his leadership and vision, Spark Minda has grown
into a multifarious and multi-product automotive component organization with presence
across the globe.He has a successful track record of partnering with leading global auto
component companies of US, Germany, Japan and France and he has been instrumental in
initiating Greenfield projects in Indonesia and Vietnam.
Aakash Minda, Executive Director - Group Finance & Strategy and CEO, Plastics & Interior,
holds a Bachelor degree from Cox School of Business, France and Executive MBA from
Indian School of Business. He has over 7 years of experience in the automotive space.

Future Growth Projections and Valuations
In a pandemic ridden year FY21, Minda Corp witnessed 7% growth compared to 13% de-
growth in overall automotive component industry.
This is on account of a diversified product and customers and having a presence in different
sections of the auto sector, be it 2 wheelers, 3 wheelers or 4 wheelers. .
The continuous technological innovation and introduction of new products, agnostic to the
electric vehicle revolution, bodes well for the firm.
With a conservative approach, we expect the company grow revenue at 9% CAGR over
FY21-FY24. The management expects operating profit margins at 12%, with return on capital
over 20% in the long term.
In our estimates, we expect margins at 12% and return on capital at 17% by the end of FY24.
Strategic investors Phi Capital have taken stake in the company. We also take comfort from
healthy liquidity available with the group and no major debt funded capex expected.
The company has received positive rating from CRISIL for its long term bank facilities. The
group is net debt free at the end of March 2021.
The cash and bank balance is at Rs 5 bn at the end of FY21. The working capital cycle at 46
days in FY21 is comfortable. The management has stated intent to use cash on technology
and not just focus on increasing topline.
With these estimates, we expect net profit growth for FY20 (normalised base as FY21 was
adversely impacted amid pandemic) FY24E at 18%.
Risks to Our Projections

While Minda Corp seems well placed to benefit from the trends and disruptions in the
auto segment, it is not immune to challenges and risks inherent to auto and auto ancillary
industry.
These include increase in commodity prices (which may take some time lag to be passed
on), slowdown in auto industry, and supply disruptions such as prolonged chip and the
semiconductor shortage.

Coming to Valuations…
Over last five years, the stock has traded at an average P/E (price to earnings) of 18 to 19
times. Using a target P/E of 18, we have arrived at a target price of Rs 200 from FY24
perspective.
This suggests a point to point upside of x% and a CAGR of 56% and a CAGR of 20% from
the current stock price.
We recommend Buying the stock view with maximum buy price of Rs 145.
In case there is a surge in stock price beyond this level, one can consider taking partial
exposure up to Rs 160.
Action to Take
• Buy the stock of Minda Corporation Ltd at Rs 145 or lower.

• In case the stock price surges above Rs 145, one can consider taking
partial exposure (Buy 50%) at Rs 160 or lower.
An Important Note: Minda Corporation is a smallcap stock. According to us, in a scenario

of ideal allocation of funds, small cap stocks could be considered to comprise of not
more than 10% of one's total equity portfolio. Further, we believe that a single small cap
stock should ideally not form more than 2-3% of the total portfolio. However, please note
that this allocation will vary from person to person. For something that works best for
you, we recommend you talk to your investment advisor.
Potential Upside to Our Estimates

Please note that we have been fairly conservative in our assumptions, projections and on
the valuation front. As the company is focusing aggressively on futuristic technologies, the
potential is not limited to the target price, which we consider as an initial milestone at this
juncture.
With premiumisation, strong positioning in EVs ecosystem and futuristic technologies, the
stock may command better multiples than what we have projected.

We will be developments in the industry and execution and will consider revising our
estimates depending on the execution.
Market Data
Price on reco. Date (Rs) 128
52-week High/Low (Rs) 148/65
BSE Code 538962
NSE Code MINDACORP

No. of shares (m) 239
Free float (%) 35.3
Market cap (Rs m) 30,566
Face value (Rs) 2.0
FY21 DPS (Rs) 0.65
Dividend Yield (%, FY 21 at current price) 0.5%
FY21 DPS (Rs) 0.65
Dividend Yield (%, FY 18 at current price) 0.5%

Category (%)
Promoters 64.7
FPI 5.6
Alternate Investment Funds 5.0
Institutions 7.9
Others 16.8
Total 100

(Rs m) FY 19 FY 20 FY21 FY22E FY23E FY24E
Sales 30,920 22,226 23,679 29,587 32,842 36,454
YoY change (%)* 19.2% -28.1% 6.5% 25.0% 11.0% 11.0%

Operating profit
(Excluding other 2,924 2,454 2,170 2,947 3,941 4,374
income)
Operating profit
9.5% 11.0% 9.2% 10.0% 12.0% 12.0%
margin (%)
Group Normalised Net
profit (excl exceptional 1,516 1,356 935 1,573 2,314 2,632
items)
Net profit margin (% of
4.9% 6.1% 3.9% 5.3% 7.0% 7.2%
total income)
Balance Sheet
Current assets 14,493 15,258 14,862 16,207 17,651 19,470
Fixed assets 7,525 5,985 6,305 6,435 7,137 7,696
Other assets 2,544 2,042 2,131 2,126 2,146 2,149
Total Assets 24,562 23,285 23,298 24,768 26,934 29,315
Current liabilities (less

6,888 8,551 7,217 8,287 8,938 9,661
Short term debt)
Net worth 11,898 9,750 11,466 12,567 14,187 16,030
Loan funds 5,329 4,274 4,003 3,300 3,190 3,010
Other liabilities 447 710 612 614 619 615
Total liabilities 24,562 23,285 23,298 24,768 26,934 29,315

(Rs m) FY 19 FY 20 FY21 FY22E FY23E FY24E
Revenue (Rs m) 30,920 22,226 23,679 29,587 32,842 36,454
Normalised (excl
exceptional items) PAT 1,516 1,356 935 1,573 2,314 2,632
(Rs m)
EPS(Rs) 6.3 5.7 3.9 6.6 9.7 11.0
Price to earnings (x) 20.2 22.5 32.7 19.4 13.2 11.6
Price to sales (x) 1.0 1.4 1.3 1.0 0.9 0.8
Price to book value (x) 2.6 3.1 2.7 2.4 2.2 1.9

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3 Backdoor Stocks to Play the 15x EV Opportunity | 2

ISRO-Backed EV Battery Player on the Fast Lane of Wealth

One of them was Amara Raja Batteries.

In fact, it already finds wide applications in electronic gadgets, tele-communication, and

Why did ISRO select Amara Raja Batteries?

3 | Stock 1 - Amara Raja Batteries

• Amara Raja Batteries

Stock 1 - Amara Raja Batteries | 4

Source: Company data

In a conference call, the management confirmed it has committed a US$1 bn investment

But that’s not all.

Log 9 Materials is a startup incubated at IIT Roorkee. It has developed rapid-charging

5 | Stock 1 - Amara Raja Batteries

Plus, there are few very long-term upsides…

Global Supplier of the Lead Acid Batteries

Stock 1 - Amara Raja Batteries | 6

Source: Company data

Energy Storage Vertical a Gamechanger

7 | Stock 1 - Amara Raja Batteries

Source: Company data

Risk to Our Assumptions

Financial Profile of Amara Raja Batteries

Stock 1 - Amara Raja Batteries | 8

At What Price Would the Stock be Attractive?

• Recommend buying Amara Raja Batteries (50% exposure) at current

A Gentle Reminder About Asset Allocation

9 | Stock 1 - Amara Raja Batteries

NSE Symbol AMARAJABAT

Face value 1.0

Dividend Yld (FY21 at current prices) 1.6%

Market Cap (Rs m) 117,860

Price to earnings (25 Oct 2021, x) 16.6

Stock 1 - Amara Raja Batteries | 10

Banks and MFs 34.8

Net Profit Growth (2.7) (1.5) 2.6 36.7 (2.1)

Net Profit Margin 9.0 7.8 7.1 9.7 9.0

Return on Equity 18.5 16.0 14.5 18.1 15.4

Return on Capital 29.2 25.4 23.1 23.9 22.0

Debt to Equity (x) 0.1 0.1 0.1 0.1 0.1

11 | Stock 1 - Amara Raja Batteries

EVs Transition is a Gamechanger for this Smallcap Auto

The study had some very concrete results.

Could you guess?

The answer is mileage.

The Connection between Mileage and LED-based Auto Lights

Stock 2 - Fiem Industries Ltd | 12

Sole Supplier to Ola Electric – A Game Changing Proposition

13 | Stock 2 - Fiem Industries Ltd

About the Company

Here’s a snapshot of product profile:

Stock 2 - Fiem Industries Ltd | 14

Revenue Contribution in Automotive Segment (FY21)

Eicher Royal Enfield

15 | Stock 2 - Fiem Industries Ltd

About the Management

• Strong Potential Upside from Existing Capacities