KRChoksey has issued a ‘Buy’ recommendation for UNO Minda Ltd., with a target price of Rs 1,232, suggesting an upside potential of 22.9% from the current market price of Rs 1,003. The recommendation follows UNO Minda’s strong Q2FY25 performance, including record revenue and an improved EBITDA margin. With robust growth across key segments and strategic investments in electric vehicle (EV) components, the company is well-positioned for continued expansion in India’s auto-ancillary market.

Q2FY25 Performance Overview

- Revenue Growth: UNO Minda achieved a record operating revenue of Rs 42,448 million in Q2FY25, reflecting a year-on-year increase of 17.2% and an 11.2% rise quarter-on-quarter. This performance aligns closely with KRChoksey’s estimates, outperforming by 1.5%.
Gross Margin: The company’s gross margin improved by 76 basis points YoY to 35.1%, although it was slightly down by 42 basis points compared to the previous quarter.

EBITDA and PAT: EBITDA rose 20.1% YoY to Rs 4,824 million, with a margin expansion to 11.4%. Meanwhile, profit after tax (PAT) grew 9% YoY, reaching Rs 2,452 million, largely in line with expectations.

Segmental Performance and Growth Drivers

- Switching Systems: Contributing 24.9% of revenue, the Switching Systems segment generated Rs 10,570 million in Q2FY25, marking a YoY increase of 13.3%. Growth was driven by strong demand in both two-wheeler and four-wheeler segments, despite challenges in exports to Europe.
Lighting Systems: Accounting for 22.9% of revenue, the Lighting segment reached Rs 9,700 million in Q2FY25, up 16.3% YoY. Growth in four-wheeler lighting and the launch of new long-tail lights supported this segment’s performance, alongside facility expansions in Indonesia.

Castings and Alloy Wheels: The Castings segment, which includes alloy wheels, reported a 11.8% YoY growth, reaching Rs 8,420 million. Expansion in production capacity, particularly for two-wheeler alloy wheels, has fueled this growth.

Acoustic and Seating Segments: While the Acoustic segment declined 11.4% YoY to Rs 1,860 million due to weak demand in Europe, the Seating segment showed modest growth of 5.5% QoQ, although it declined 1.0% YoY.

Operational Highlights and Strategic Initiatives

- New Facilities and Expansions: UNO Minda is establishing a new plant for four-wheeler alloy wheels in Kharkhoda with an initial capacity of 120,000 wheels per month, expected by Q2FY26. Other expansions include the Bawal plant for alloy wheels and a greenfield lighting facility in Pune, which is set to begin production in Q3FY25.
Joint Ventures and Partnerships: Key partnerships, such as with Hyundai Mobis for acoustic components and with TG Minda for airbags, continue to support UNO Minda’s growth. The recent agreement with Mobis aims to bolster the company's footprint in the automotive speaker market.

EV Segment: Revenues from EV two-wheeler OEMs surged by 59.4% YoY to Rs 2,280 million, driven by rising demand for components like hub motors and chargers. This segment’s growth is further supported by increased sales of on-board chargers and wireless chargers for electric three-wheelers and passenger vehicles.

Cost Management and Capital Expenditure

- CapEx and Debt: UNO Minda’s net debt rose to Rs 17,350 million as of September 2024, driven by investments in new plants and land acquisitions. The company has allocated a capital expenditure of Rs 13,000–14,000 million for FY25, focused on expanding capacities in high-demand segments like alloy wheels, lighting, and EV components.
Revenue Mix: Domestic sales have outpaced international sales, with overseas revenues now representing around 11% of the total, impacted by slower demand in Europe and the U.S. UNO Minda’s facility expansions in Indonesia aim to diversify international revenue sources.

Financial and Valuation Metrics

- Projected Growth: KRChoksey anticipates a revenue CAGR of 20.4% from FY24 to FY26, supported by strong demand for high-value products like LED lighting, ADAS, and EV components. EBITDA and adjusted PAT are projected to grow at CAGRs of 24.1% and 28.8%, respectively, over the same period.
Valuation Comparison: Currently trading at 54.2x and 40.6x KRChoksey’s FY25E and FY26E EPS estimates, respectively, UNO Minda’s valuation is deemed favorable. The research house maintains a 50.0x P/E multiple on the FY26E EPS estimate of Rs 24.7, resulting in a target price of Rs 1,232.

Investment Call: With its aggressive expansion strategy, UNO Minda is poised to capitalize on rising demand in the EV market and the broader auto-ancillary space. KRChoksey reiterates its ‘Buy’ rating, reflecting confidence in the company’s growth trajectory and resilience in a dynamic market.

Target Price and Investor Strategy

- Target Price: KRChoksey’s target price of Rs 1,232 reflects a 22.9% upside potential, driven by UNO Minda’s focus on premium automotive components, strategic expansions, and robust product demand in both domestic and international markets.
Investor Outlook: For investors seeking exposure to India’s evolving auto-ancillary sector, UNO Minda offers a compelling opportunity. Its investments in EV and hybrid components, alongside strategic partnerships, position the company as a significant player in the automotive supply chain.