Minda scrip surge turns promoter into a billionaire
300% gains in a year take market cap close to ~110 bn
The stock of the Gurgaon-headquartered automobile components maker Minda Industries delivered 300 per cent returns the past year. The surge has made promoter Nirmal K Minda a billionaire with shares worth ~78 billion ($1.22 billion). The promoters hold 70.95 per cent of Minda Industries’ shares. Minda is now the second billionaire in Indian automobile components industry after Motherson Sumi’s VC Sehgal. The Sehgal family’s 63.10 per cent stake in Motherson Sumi is valued at ~512 billion (based on Thursday’s closing price of the stock). Minda Industries, which caters to cars, two wheelers, tractors and commercial vehicles, is also the fourth most valued Indian automobile components maker with a market capitalisation of ~110 billion after Motherson (~811 billion), Bosch (~605 billion) and Wabco India (~140 billion).
Sixty-year-old Minda is a year younger that the business founded by his father Shadi Lal Minda in 1958. The single plant unit was catering to the aftermarket and it gradually found customers such as Hindustan Motors, Fiat, Ashok Leyland and Bajaj Auto. Its annual revenue was around ~0.7 million, recalls Minda, chairman and managing director.
Minda joined the business at the age of 17 in 1974. He started visiting automobile makers and the aftermarket and found that his products had technological gaps. “We had a plant in Delhi’s Kamla Nagar. It was small and operators also played the role of managers. Hindustan Motors had launched the Contessa and Fiat was active. We needed to improve,” Minda says.
In the late 1970s, the family started roping in technical professionals. The company was also getting ready to cater to the Hero Honda joint venture, formed in 1984. There was a push towards turning more professional. In the mid 1980s, Minda’s younger brother Ashok came on board. The company was by then specialising in automotive switches.
The turning point came when Maruti started rolling out the iconic Maruti 800 car in 1983. Minda Industries was one of the suppliers and it supplied various switches for the car. “There were some quality issues due to technological gaps,” Minda adds. He turned to Maruti for help in finding a Japanese partner. It received a positive response from Japan’s Tokai Rika, a component maker for Toyota, and there was a technical collaboration in 1992. Three years later, the two entities formed a joint venture.
RC Bhargava, now chairman at Maruti Suzuki, was then its managing director. Minda was recommended for a two-month shop-floor training in Japan. “Maruti was a catalyst and it nurtured many component makers,” says Minda.
The stint in Japan taught Minda the value of systems and processes in manufacturing. “My focus upon return was to make Minda a systemsdriven company. We worked on people development and training. Manuals were made,” he adds. The two brothers parted in 1996. Nirmal got the switch business and Ashok got the locks business. Today, Ashok runs Minda Corporation, a component maker with annual revenue of ~30 billion and a market cap of ~44 billion.
Nirmal’s business is comparatively bigger. Minda Industries has consolidated revenue of ~35 billion and a profit of ~1.73 billion. But along with Minda’s personal stake in some joint ventures, the group revenue last year was about ~56 billion. With its 52 manufacturing locations, Minda Industries counts every key automaker as its customer. After 1995, Minda went on to ink a series of joint ventures with companies from Japan and Taiwan and expanded his company’s product portfolio.
Minda says the relationship with buyers used to play a key role in growing the component business about two decades ago.
Switches now form the bulk of the company’s revenue followed by lamps and horns. Minda Industries is present in other components such as alloy wheels and seat belts. Maruti Suzuki is its largest customer and accounts for about 22 per cent of its revenue. Other major customers are HMSI, Toyota and Bajaj Auto. “Our reliance on a single customer is not high. Our product mix allows us to have vehicle makers across segments as our customers,” says Minda, whose company employs 15,000 people. Minda Industries wants to only operate in components where it is among the top three players. It is the largest player in automotive switches, the second in horns and the third in lighting. “You get squeezed when you are at fifth or sixth position,” Minda points out.
He says the company is racing towards ~100 billion revenue by 2020. In 2017-18, revenue from Minda Industries is expected to be ~45 billion and another ~25 billion from other group entities. The ebitda margin of Minda Industries has improved to 11.64 per cent in April-September 2017-18 from 10.28 per cent in the previous year and profit has surged 78 per cent to ~1.24 billion.
Minda Industries is also undertaking a consolidation exercise. It is purchasing the promoters’ stakes in different group companies at prices close to the book value. “A reasonable upside is being left for minority shareholders,” says an executive.
The exercise, expected to be completed by March, will help Minda Industries clock revenues of ~56 billion in 2018-19. Minda Industries earns less than one-fifth of its revenue from overseas operations. “We want to increase overseas revenue to one-third and that will come through acquisitions or joint ventures. We have not been very aggressive there,” Minda says.
The Indian automobile industry is undergoing a phase of regulatory challenges and electric vehicles have emerged as a disruptor. “None of our parts except the air cleaner are being disturbed by electric vehicles. Many regulations are advantageous. When BS VI emission norms kick in from 2020 we will have many opportunities to supply sensors for engines. Safety norms like air bags will increase demand for seat belt sensors. Reverse parking systems and increased use of telematics will increase our content per vehicle,” he adds.