Jefferies calls Uno Minda a growth amplifier; initiates coverage with 'Buy'

While its 42x FY27E PE appears rich compared with the last five-year average of 43x, analysts believe the valuation is justified given its strong growth outlook, low margin volatility, and high ROE

Analysts at global brokerage firm Jefferies have turned bullish on Uno Minda and have initiated coverage on the auto components and equipment manufacturer with a ‘Buy’ rating, citing that the company is a growth amplifier and offers strong exposure to the Indian auto sector given its fast-growing, well-diversified and largely powertrain-agnostic portfolio, with around 90 per cent domestic sales.

 

Nitij Mangal, Sagar Sahu, and Kevin Verghese of Jefferies expect the company’s earnings per share (EPS) to grow at about 25 per cent annually, with an average return on equity (ROE) of 20 per cent over FY26–28. While the stock trades at 42 times its estimated FY27 earnings, which may appear expensive compared with its five-year average of 43 times, the analysts believe the valuation is justified due to the company’s strong growth prospects, stable margins, and high returns.

 

 

“Uno Minda is trading at 42x FY27E PE, which is similar to the last five-year average of 43x. We believe premium valuations are justified given Uno Minda’s strong growth outlook, fuelled by its well-diversified and largely powertrain-agnostic portfolio, along with low margin volatility and high ROE,” wrote the analysts in a research report.

 

The brokerage has initiated coverage on Uno Minda with a Buy rating and set a target price of ₹1,350 per share, valuing the stock at 42x FY28E PE. The assigned target price implies an upside of around 25 per cent from its previous close of ₹1,081 per share on the NSE.

Meanwhile, here are the key rationales behind Jefferies’ bullish call on Uno Minda:

Well-diversified auto parts supplier: The brokerage highlighted that the company has a well-diversified portfolio, with lighting and switches each contributing 23–25 per cent of revenues, castings including alloy wheels at 19 per cent, seating and acoustics at 4–7 per cent each, and other businesses (including sensors & ADAS, controllers, EV parts and CNG kits) at 22 per cent. It has balanced exposure between passenger vehicles (PVs) and two-wheelers (2Ws), with domestic sales accounting for around 90 per cent of revenues.

 

Industry growth optimism: Jefferies remains constructive on Indian auto demand amid tailwinds from underlying economic growth, recent GST cuts, easing liquidity, and upcoming government wage hikes. The analysts expect a healthy 9 per cent production CAGR for PVs and 2Ws over FY26–28E.

 

Growth amplifier: Jefferies said Uno Minda has delivered strong growth with 23–25 per cent revenue and EPS CAGR over FY16–26E, outpacing India’s PV and 2W production CAGR of 4–5 per cent. Prudent portfolio and capacity expansions for components such as lighting, alloy wheels, and airbags, which benefit from tailwinds such as premiumisation, aesthetics, safety, and import substitution, have boosted its content per vehicle. The company is also expanding into sunroofs and EV parts. The brokerage expects Uno Minda to deliver a 17 per cent revenue CAGR over FY26–28E.

 

Strong earnings growth and low margin volatility: According to the brokerage, the company has maintained its Ebitda margin within a tight 10.7–12.3 per cent range over FY17–9MFY26, despite the severe demand slowdown and Covid during FY20–21. Strong top-line growth should drive better economies of scale, although new businesses such as sunroofs and EVs, Jefferies said, could initially have lower margins.

 

“We assume Ebitda margin of 11.2–11.8 per cent over FY26–28E; we expect 20 per cent Ebitda and 25 per cent EPS CAGR over FY26–28E. Our EPS estimates are broadly in line with the Street,” said the brokerage in its report.

 

Healthy ROE and operating cash flow: Uno Minda generated a healthy 18 per cent average ROE over FY16–25, and analysts expect 19–21 per cent over FY26–28E. It reported good operating cash flow, averaging 71 per cent of Ebitda over FY16–25, although high growth capex resulted in negative FCFE.

 

“With rising OCF and assuming range-bound capex, we expect positive FCFE over FY26–28E and net-debt-to-Ebitda declining from 1.2x in FY25 to 0.4x by FY28E,” Jefferies said in its report.

 

The brokerage, however, cautioned that slower industry growth and delayed ramp-up of new capacities may act as key risks for the company.

  ================================= 

(Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)