Minda Corporation Limited analyst Q&A

Thank you very much. Our first question comes from the line of Raghunandha n N. L. from Nuvama Research. Please go ahead.

Congrats, sir, for extremely strong numbers. Sir, my first question was on commercial vehicle space. It's an important segment for us, representing around 30% of revenue. Can you indicate your thoughts about the outlook here? Do you think the demand conditions have significantly improved and you see an up cycle in this space going forward?

Yes. Raghu, I think the commercial vehicles has done growth in the recent quarter as wel l as the first nine months. We expect the commercial vehicles also to continue growth in the next Q4 as well as in the first half of next year. The primary reasons we believe is due to the regulation changes that have been there, plus the infrastructure upgradation that is happening all across India and last not the least, of course, the trade that has been booming within India as well as for exports. So, India is, of course, on a growth with the GDP growing. We believe that these are the reasons where the commercial vehicle segment is expected to grow at least for the immediate future.

Noted, sir. Secondly, on the orders for switches and sunroof, a very large order of INR 1,000 crores for switches and sunroof INR 350 crores both are starting SOP or the manufacturing is starting for both in FY27. Firstly, when you say lifetime order for how many years does it represent? And would there be a ramp-up phase for this order that is, would it take two, three years to reach the peak? How does it work?

Yes, Raghu, I think what you answered is also your own questions. So yes, the switches business is expected to start in Q2 FY28. So next year, the plant is already under construction. The partners are already here. And now the localization and the other things are going on. So we expect one year from here and the production to start. And yes, the orders that you mentioned are lifetime. So they will take about two years to ramp up and then subsequently, it will move forward. Number two, when it comes to the sunroof, so that is also a lifetime business. It is expected to start SOP in Q1 which is next year and FY27. And the ramp-up is expected to happen over the next few quarters. So that is how we expect these businesses to ramp up.

And would it be fair to assume that lifetime order would mean four years.

Yes. Typically, it's four to five years, yes.

Understood, sir. And on the export side, how are you seeing the signs of improvement? Recently, there has been both talks of EU and U.S. agreements with India. So how do you see the future for FY27 and also your strong markets of Asia, if you can talk about all of them?

Yes. So for us, at least now we can see the exports coming back to normalcy in this quarter. You will acknowledge that over the last many quarters, about four to five quarters, the exports have been kind of subdued. But this quarter, we have seen coming back to normalcy where our exports to the Europe as well as to U.S. port are picking up, and it is across the divisions that we have. Now we welcome the trade agreements between U.K. and Europe as well as the tariff alignment that has happened between India and U.S. However, auto components is not clear yet, and we will get a clarity soon. But hopefully, it should be in the similar range and not much of a difference where we continue to engage with our customers. The order books that we have already won in the last quarters where we have shared before, they expect to come without any delay into start of production over the next few quarters.

And lastly to Ajay, sir. Sir, if you can indicate other expenses have seen a 7% Q - o-Q drop. Can you indicate the reason and whether this number is sustainable? Also, if you can talk about copper, there has been a big increase in copper price. Is there a lag for us in pass-through of that commodity impact to customers?

See, all indexed costs are having a reciprocal arrangement from our vendors plus from our customers' perspective. There should be a lag of a quarter or so while we do the true-up with our vendor and pass those on to the OEM. That arrangement has been there with the organization for several years now and the practice is working quite well. Yes, definitely, this year has been quite an aberration when it comes to commodity and not only for copper, it is equally applicable for aluminum and rest of the alloys as well because we are heavily dependent on aluminum, copper and rest of the index products too. Speaking about the other expenses, we have managed to reduce the other expenses. And largely, those are three counts. One is savings in energy costs due to renewable and a few other things. Second, we have managed to carry out certain activities to job work as well. That has also led to a reduction of our other expenses.

So fair to assume that you will be able to maintain the other expenses to revenue at this reduced level.

Yes.

Our next question comes from the line of Jyoti Singh from Arihant Capital Markets Limited.

Yes. Sir, my first question is while the shift to Information & Connected System is driving top line growth, but consolidated EBITDA margin have remained stagnant around 11.5%. Can you bridge the path to your target of 12.5%. Specifically, how much of this margin expansion is dependent on the localization of high-tech electronics versus the pure operating leverage?

So Ms. Jyoti, we have already shared before that, first of all, where we come from is about high single digit about a couple of years ago. And in the last 8 to 12 quarters, we have come from about 10% to a sustainable and consistent delivery of 11.5%, which is what we had committed as well as shared with all our shareholders and all your colleagues. Similarly, I think this is also one of the highest ever EBITDA that we have posted at with 25% growth in the revenue and on the nine-month basis also, we have posted the highest ever EBITDA in terms of the value and percentage terms. What is going to drive growth going forward is on multiple aspects. Our first continued focus on operational excellence. Number two is we are investing and going to be focused on localization and backward integration as well. There are multiple initiatives that are happening that I can't share on the call, which are strategic in nature on how we can improve that, whether it is related to the electronics or some of the subsidies that the government has offered us. And we'll be investing in that, which will help us drive Minda Corporations growth, both from top line and bottom line. So, this is what I would like to share about how we have come across and where we are looking at growing from the EBITDA perspective.

Okay. Got it, sir. So sir, you have announced around INR 2,000 crores capex plan to triple revenue by 2030. So how will this massive investment translate into a 15% plus ROCE? And at what stage do we expect to see the peak of this capital intensity?

See, every year, we spend, give or take, INR 300 crores to INR 400 crores. So, if you are looking at up to FY 2030, by design, we will land up spending around INR 1,500 crores and given our other strategic priority, whether it is premiumizat ion, whether it's investment in new businesses, acquiring new clients, focusing on exports, launching new products, all those will also accelerate our capex from INR 1,500 crores to INR 2,000-odd crores. From a return on capital employed perspective, if you do an apple -to-apple comparison, we are already doing a margin of about 22% because why the functional numbers you are able to arrive at is due to the fact that interest is levied in Minda Corporation, whereas the revenue or th e profit of Flash is not consolidated. But if you do the apple -to-apple comparison, we do close to about 22% ROCE. And I think what we have promised the market to deliver by 2030 is improvement from 22% to 25%. And given our disciplined capital allocation and making sure that whatever investment we do, particularly from connected business, high revenue business and high-margin business, we are confident that we will be able to increase our ROCE from current 22% to 25%.

Okay. And sir, what is our current gross debt as of December 31, both long term and short term? And have we repaid any during this period? And what are the repayment plan going forward?

So our gross debt is about INR 1,100-odd crores and we have paid about INR 70- odd crores debt during the first nine-month period. I don't have the quarter -wise detail, but during the nine-month period, we paid about INR 70-odd crores. And as you know, promoter has infused around INR 104 crores through share warrant that amount was largely used towards the repayment of debt.

Okay. During FY26 or further?

During FY26.

Our next qu estion comes from the line of S ridhar Kalani from Antique Stock Broking.

My question is with regards to Flash Electronics where Mr. Sanjeev had mentioned a few months back on Minda Corporation's Investor Day that they were in very advanced stage with respect to the non -ferrorite synchronous motor. Just wanted to understand what is the status on th at product? Are we ready for mass production? Or do we have any commercial order from any of the OEMs?

Yes. So that motor is early design, developed by our technical center or Flash technical center in Poland. Yes, it takes a lot of time on the field trials as well. But yes, we have showcased this product to our couple of customers as well, and we are working with them closely. But yes, no order has been booked so far. But our large customers are moving forward for further evaluation, and then we can hopefully be able to conclude something in the next couple of months.

That's right, yes. We are also testing, yes. And then we have some customers as well and on the field.

So generally, sir, how much timeline does it take for the OEMs to test and validate the product and then for that product to come under our SOP?

So technically, in the automotive industry, whether it's a new product, you can say once the product is ready to offer to the customer, then depending on the product and in this case, you can say at least about six to eight months' time because the entire architecture and the vehicle performance is based on the motor. So yes, with the technically proven solution and all the simulations and the validation that have done the lab, it could take somewhere about six to nine months from after award to come into the mass production from the first sample to come into the order and then so on so forth.

Got it. And this is a proprietary product, which is under the label of Flash Electronics. Is the understanding correct, sir?

Yes.

Our next question comes from the line of Shubham Batra from AMBIT AMC.

Sure. My first question was Flash margins have been doing really well. What is the sustainable level of margin to assume going ahead? Secondly, what is the capacity utilization across business segments for us currently?

So the margins are again going to be in the same level that we have shown in the last two or three quarters, which is somewhere about 16% to 17%. And we expect this to be, of course, sustainable and consistently going forward. Of course, many of this or a lot of this will also depend on the export orders, which is also good for this quarter as well for Flash Electronics.

On the second capacity utilization, their capacity utilization is quite high. But the facility where they can add on new machines and create capacity. So that's not a concern in terms of space. When it comes to the other EV motor and the other ICE products related, so they have capacity to the tune of, let's say, about 20%. And plus for the electric vehicle motors and the motor controllers and integrated drive unit, there the plant that they had inaugurated about a year ago is already full, and we have now started investing in the new plant, which will be ready in about three to four months' time.

Sir, I also wanted capacity utilization on our Minda business, the die casting.

I see. Yes, Minda Corporation overall capacity at the group level is you can say somewhere about 84% to 85%.

Our next question comes from the line of Devesh Kayal from Monarch AIF.

Sir can you share R&D spends in other expenses? What was the amount of R&D spend in other expenses?

So R&D expenses were somewhere about 4% of our top line, which is including opex and capex.

It is not included in other expenses because obviously, the whole expenditure can be bifurcated into opex, other personnel expenses, people related expenses. So people related expenses will feature in employee costs and other expenses will according get clubbed across each of those separate things. For by and large, as I mentioned, we spend about 4% of our revenue in R&D.

Understood. And for the nine months, also it would be around 4%?

Yes, yes, close to 4%.

And sir, if I see the other segment, so if I exclude the aftermarket revenue from that other segment, so the remaining basically the EV products and all, so that seems like a very low number for this quarter. So is that understanding right?

Yes. Again, this includes firstly, our multiple products, which is the small starter motor division, the EV product lines, then the interior plastics division, there are other products which are under start -up phase. So yes, there are products which are getting into SOP. There are products which have recently got into SOP. So the ramp-up does happen. But overall, the quarter product mix is depending on the larger vertical sector.

And that segment includes aftermarket revenues also in the others?

Yes. Yes.

Our next question comes from the line of Vijay from Nuvama.

A couple of questions I have. First is on Flash Electronics. So there is a very good margin expansion on the Flash Electronics over the last six to nine months. I just wanted to understand what is driving this margin expansion? How much is coming from the synergies and what else are the main factors for that?

Yes. So as you know, Flash Electronics houses multiple products, which is EV as well as on the ICE-related powertrain product line. And the third vertical is on the gear business. So there are three primary product lines. Of course, margin expansion is coming from the EV product portfolio as well as on the gear businesses, which are exports. These are the reasons, again, a favorable product mix on how the expansion of the margin is happening. But yes, growth is coming across all three product lines and across domestic as well as exports.

And do we expect to maintain this 18% EBITDA margin going forward for Flash Electronics?

So I just shared before, it's a sustainable number could be again about 16% to 17% here and there. But of course, our interest is how we can expand them further, which is our efforts that we are putting in place.

Secondly, sir, just on the rare earth magnet issue, that is behind us, right? Or we are still seeing some impact from there?

That is behind us. The overall industry, I think, has figured out multiple ways, so have we. And plus now with the new budget and the overall magnet corridor that is being created, a lot of efforts have been done and a lot of opportunities open up for the industry as a whole. And secondly, technically on technology-wise also, we have created motors which are magnetless and rare earth free and for this freight magnet also, which are not coming from China or from other countries as well. So yes, technology-wise also, we have developed products across segments, which can cater to these products also.

Sir, looking forward into the fourth quarter and FY27, are you seeing any raw material headwinds? And how do you plan to tackle that especially on the copper, aluminum and other metal side.

I was reading some of the financial statements of some of th e large resource companies in India. Many have hedged their position and many have not hedged. And you would have already seen some companies that hedged silver at some $39 in Q2. If those companies are not able to predict how the commodity cycle will behave, it's very, very difficult. But thankfully, whether it is Flash, whether it is Minda Corporation, all our group companies are following a very strategic approach, which is passing on the cost. We don't enjoy the upside, neither we lose our thing becaus e of the price going down. So therefore, we are properly hedged, and we are not in the business of making money out of commodity uptrend or downgrade. We are here to really excellent manufacturing capability and deliver quality services to our clients.

There is no time lag between the raw material price increase and pass on to the customer or is there a delay?

I think, I just answered the question to the previous question. We typically do this indexed cost pass on Q-o-Q. So we do true up every quarter.

Our next question comes from the line of Dhananjay Mishra from Sunidhi Securities.

Congratulations on the strong numbers. Sir, we have mentioned about kit value in 2-wheeler segment, including Flash Electronics. So likewise, what could be the expected kit value for the 4-wheeler and EV segment once all our products go on the same?

So that's a good question, but it depends. If I look at a complete kit value with Flash Electronics and what we can offer only from the engine side, it is primarily on the power electronics front. And now we are working for the 4-wheeler motor that we have developed. So you can typically put somewhere about INR 50,000 to INR 60,000. However, if I club products and make it a system solution into 6-in-1 or 7-in-1, that could even go up to INR 90,000 or INR 1 lakh. So it really depends as a complete kit value, but customers may select to take all as a combination, they may select to take one component out of this, they may select integration. So a lot of possibilities are there when it comes to this product offering in the 4-wheeler space.

Okay. And you mentioned for the new orders which is into Smart TV segment, that will start in Q2 FY28, right?

A part of it will start in Q2 of next fiscal year and will start in Q2 of FY27.

Switch is already under commissioning. The plant is already expected to be ready by Q4 FY27, which is about one year from here. And the SOP is expected to start in Q1 or Q2 in FY28. And then the ramp-up further will happen in, let's say, about a year from there.

And once we start getting other orders from other OEMs in the sunroof segment, what could be the potential annual contribution from this segment, let's say, in FY28, FY29?

That's a very broad question. But as you know, the sunroof market in India is expanding and growing very fast. Now of course, there are a couple of companies as well who are working at this segment, but sunroof is expected to penetrate faster. There are also various technologies that are coming in. So our target is how we can go to at least 10% to 15% of market share by FY 2030 or FY2031. That is our intention at first.

Our next question comes from the line of Munindra Upadhyay from Elara Securities India Private Limited.

Actually, I have a couple of questions on a bit long -term trend first. So on the ADAS and sensors business, what kind of demand outlook or localization potential do you see for the, say, next three to four years down the line? And what are our plans to like capitalize on that product?

Yes. So I think the safety is, I think, very important globally and more importantly in India. It is also personally very close to my heart on how we can contribute as an organization to this. Coming about to the ADAS systems in the new 4-wheelers that are coming in, there are very much equipped until L1 level of ADAS systems coming from the Indian or even global OEMs. Number two is these systems are currently provided by the large global Tier 1s as it is a system solution offering. Our focus here across the ADAS as a product is to enter from the component side and not the system when it comes to the passenger vehicle or others. So that's number one focus. Number two, when it comes to the other segments such as 2 - wheelers and all, we have already developed products which are already getting tested at customer end, wh ich is a complete system solution offering for fr ont collision, rare blind spot. So these are some of the systems that we have already developed for this market. And then looking at the connected components from the ADAS, this is where we would like to work, and we're looking for a couple of opportunities in that respect. So ADAS is something that we are going to be taking going forward from the component side primarily.

Okay. That was helpful, sir. And my second question was on the export front. So how do we see the demand like panning out? Is the situation improving there? Or like any comment on the recent FTAs, like do we expect to pick up in demand due to this? Any commentary or outlook would be good on this, sir?

Yes. So Mr. Upadhyay, the first time in, I think, six to eight quarters, particularly from Minda Corporation, the export orders have come to normalcy. And thanks to the clarity that is bought by various EU agreements as well as the tariff clarity, etc. However, going in the Q4 and the next year, we expect our new SOPs to come , new orders coming to start of production as well as the existing business ramp-up to happen. So it is expected to grow. I cannot really comment how much and how fast, but it is just the first quarter and too early to comment. So we'll have to see on a Q-o-Q basis, at least for the next two quarters.

And in addition to what Aakash just said, our long-term vision remains quite strong for exports. We expect to take our expo rt business from current about INR 500- odd crores to INR 1,500 crores by 2030. That vision remains static.

Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the managem ent for closing comments.

So thank you very much. And I would like to really thank Elara for organizing this call and thank everyone for joining the call. We remain highly confident in our growth trajectory, both in the near term and long ter m, driven by strategic investments and unwavering commitments to advancing our products and technologies. We are committed to creating value for all our stakeholders and shareholders. We are investing deeply in our capabilities in terms of people, capacit ies, capabilities, technologies and competencies across fields. I hope we have been able to respond to most of the queries. For further information, we request you, please do get in touch with our IR team. Thank you, and have a great day.

Thank you. On behalf of Elara Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.