If you stop anyone on the street and ask them to name their favourite auto brands, you’ll hear the names roll off their tongue. But ask them about the good folks who supply the components that go insides their favourite vehicles and you’ll probably get a blank stare. So in today’s Finshots, we talk about one such obscure company — Minda Industries.
The Story
Minda Industries isn’t a name that you hear quite often. But this company has had a mind-boggling run in 2021. Its share prices have been up by a whopping 150% and it has chanced upon a market opportunity like no other — all thanks to a few extraordinary developments in the automotive industry. But before we talk about this stuff, we need some background.
What does Minda Industries do?
Well, here’s how you could broadly divide the auto sector. You have the Original Equipment Manufacturers (OEMs) — Tata Motors and Maruti Suzuki for instance. And you have auto ancillary companies like Minda Industries. The OEMs put together the vehicle and stamp their logo on top of it. The auto ancillary companies supply the components that go inside the vehicles. It’s a symbiotic relationship with each party being dependent on the other.
And that means their fortunes are also intertwined. A good year for automakers will also likely be a good year for the ancillary companies. But when things go wrong, as it did in 2020 — when a pandemic forced automakers to shut shop, auto ancillary companies also had to go on a hiatus. But it soon became apparent that this hiatus wouldn’t last for long. Because while automakers were reeling from the after-effects of the pandemic, auto ancillary companies found another revenue stream — the pre-owned vehicles market.
With people desperately trying to avoid public transport, there was a clamour for new vehicles. And since new vehicles weren’t rolling off the assembly line, there was renewed demand for second-hand vehicles. And if you’ve ever purchased a second-hand vehicle you know that you almost always need to replace something. An old dingy part that simply doesn’t work like it used to or a swanky new headrest because the old one doesn’t quite suit your taste. And if you ever go looking for these parts, you’ll see Minda’s hand in action.
Maybe not in the literal sense. But they’ll probably be producing something you need.
It could be the push button in your car, the loud horn upfront, the comfy seats, the sexy looking alloy wheels or even those full beam lights. Minda makes all of this and more. In fact, they are the third-largest automotive lighting company in India. And it doesn’t seem as if they’re stopping anytime soon.
As supply chain concerns slowly ease up, new cars will once again start rolling off the assembly line. Minda could see its fortunes shape up quite well as this happens. Then there’s this whole phenomenon around the premiumisation of cars. You’re seeing better and more sophisticated interiors, tighter safety norms and generally more components inside each vehicle. And with each passing year, Minda has the opportunity to increase its share of “content per vehicle.”
What does that mean?
Well. let’s say a car manufacturer needs 10 components to put together a vehicle. And let’s suppose it sources all of these components from auto ancillary companies. If Minda can work on its product portfolio and supply 5 components instead of 3, then it means they’re increasing their share of content in every vehicle. In fact, in the past few years, Minda’s share has gone from up from 8% to about 15% of the vehicle’s cost and they’re becoming a more integral part of the auto supply chain.
And the company is also using the same playbook to capitalise on what it believes is the future — the impending shift towards electric vehicles. Especially in the 2-wheeler space. It’s setting up a joint venture with a Germany-based company FRIWO AG and building out capacity as we speak. For instance, its new EV-specific basket will have incremental content worth Rs 47,000 that could tally up to about 40% of a 2-wheeler’s cost.
And if everything works out, it could be a nice windfall for Minda. So yeah, the company is riding a purple patch like no other and hopefully, this story gives you some sense of why this may be happening.
Until then…
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