Share Price Analysis of Minda Industries

I will try to do Share price analysis of Minda Industries based on its last 10 year financial data. 

The data has been collected mainly from moneycontrol. 

I have used my stock analysis worksheet to check how Minda Industries has done in last 10 years. 

Based on these 10 years data, my stock analysis worksheet will try to estimate intrinsic value of this stock.

Currently Minda Industries is trading @ Rs.423 per share.

Idea is to do a check and find out whether I should pay this price to buy its stocks.

But this analysis will not only focus on the price factor. It will also include analysis of business fundamentals of Minda Industries.

So lets start doing the fact-check from Minda Industries balance sheet.

#1. Reserves

In las 10 years time horizon, Minda Industries “Reserves growth” trend has been as below:

  • 3Y Growth Rate: 31% p.a.
  • 5Y Growth Rate: 24% p.a.
  • 7Y Growth Rate: 19% p.a.
  • 10Y Growth Rate: 31% p.a.

[Note: In my stock analysis worksheet this trend will be visible in “BL Sheet”.] 

The growth rates has been very good. Why I say so?

My rule of thumb is, growth rate should be ten percentage points above the average inflation (in the same period).

Example:

Average inflation in last 10 years has been 7.67% p.a.

Expected Growth Rate: Inflation + 10%.

Minimum Expected Growth + Risk Premium (for Reserves). 

Expected reserves growth rate in last 10 years should be, 7.67% + 10% = 17.67%. 

#2. Equity Share Capital.

Equity Share Capital plus Reserves is called Net Worth

Generally people check growth rate of the overall net worth. 

But I like to check “equity share capital” and “reserves” separately. Why?

Because there are two separate parameters to evaluate the quality of “equity share capital” and “reserves”. 

  • Reserves Growth: the faster the better. 
  • Equity Share Capital: the slower the better. 

Negative growth of share capital (share buy-back by company) is considered even better.

For Minda Industries the share capital trend has been reasonable.

No negative sings are visible here. 

  • 3Y Growth Rate: 3.14% p.a.
  • 5Y Growth Rate: 1.87% p.a.
  • 7Y Growth Rate: 1.33% p.a.
  • 10Y Growth Rate: 5.18% p.a.

[Note: In my stock analysis worksheet this trend will be visible in “BL Sheet”.]

A flat line is considers good. 

#3. Fixed Assets

Asset of a company is one such parameter which contributes the most to companies growth. 

Please note that here we are talking about only “fixed and current assets” of the company. 

Why evaluation of asset trend is important?

Suppose a company wants to grow at a rate of 10% per annum. 

To achieve this target, there are only two ways:

  • Modernisation of existing facility. 
  • Expansion of existing facility. 

In case of modernisation, the existing facility of the company becomes more efficient. Hence its profit/profitability increases. 

In case of expansion, the existing facility of the company becomes bigger. This leads to more sales and hence its profit increases.

New facility may also be more efficient, which may also enhance the profitability of the company. 

So, a growing trend (of assets) in the past, gives a hint about the companies approach towards future growth.

Lets see how the fixed assets of Minda Industries has grown in the past 10 years:

  • 3Y Growth Rate: 6.64% p.a.
  • 5Y Growth Rate: 2.59% p.a.
  • 7Y Growth Rate: 4.30% p.a.
  • 10Y Growth Rate: 5.90% p.a.

[Note: In my stock analysis worksheet this trend will be visible in “BL Sheet”.]

How to rate the above growth rates? Simple, compare it with average inflation in the same period. 

Average inflation in last 10 years has been 7.67% p.a. But Minda industries was able to grow its fixed assets by only 5.9%.

This essentially does not qualify for a negative rating. Why?

Because we will have to see the following factors in companies profit and loss accounts to make a safe assumption:

  • Margins.
  • PAT.
  • EPS.

If the company has been able to grow its Margins, PAT, EPS at a rate faster than inflation, there is no problems even if the asset growth rate has been slow. 

In fact for the same fixed assets, if the company is producing more profits, it is a great value indicator.

#4. Net Sales.

This is one parameter which is perhaps one of the most tracked financial parameter of any company? Why?

Because unless there are sales, there will be no profit.

Everything else comes after “sales”. 

A good business will always gives due important to future sales growth. 

How to judge if the future sales of company will be good or not? Frankly speaking it is not easy. 

Even for the companies themselves, forecasting their own future sales (5-7 years) ahead in future is like impossible. Why? Who know the future…

So what small investors like us can do? Two things:

  • See the past trend.
  • Read latest news related to the company.

To see the past trend, I use my stock analysis worksheet. It gives me a fair idea of the past trends.

For Minda Industries, Net sales trend has been as below:

  • TTM: 5.08% p.a.
  • 3Y Growth Rate: 8.13% p.a.
  • 5Y Growth Rate: 10.88% p.a.
  • 7Y Growth Rate: 7.69% p.a.
  • 10Y Growth Rate: 15.11% p.a.

[Note: In my stock analysis worksheet this trend will be visible in “P&L Sheet”.]

How to rate the above growth rates? Simple, compare it with average inflation in the same period. 

Average inflation in last 10 years has been 7.67% p.a. Compared to this, Minda industries was able to grow its sales at a reasonable speed. 

#5. Expense Growth.

Expense on its own will not say much about the company. 

But when we compare historical expense growth with net sales growth rates, it starts to make sense. 

Good business = (Fast Sales Growth – Slow Expense Growth) = More Profit

For Minda Industries, expense trend has been as below:

DescriptionNet SalesExpense
3Y Growth Rate8.13%7.92%
5Y Growth Rate10.88%10.02%
7Y Growth Rate7.69%7.28%
10Y Growth Rate15.11%15.55%

[Note: In my stock analysis worksheet this trend will be visible in “P&L Sheet”.]

The above table is very interesting. It says a lot about the business fundamentals of Minda Industries:

In last 3 – 7 years time horizon, the company sales has grown faster than its expenses. This is a good indicator.

In last 10 years time horizon, the company expense has grown faster than its expenses. But the difference was not so high.

Such a trend (sales growing faster than expense) is a very unique characteristic of a fundamentally strong company.

#6. Net Profit (PAT)

After sales, PAT is the most sought after stock metric of all. 

Growing PAT indicates a good business fundamentals. But it is better to see PAT along with Net Sales. 

If PAT is growing faster than sales, it means companies profitability is increasing and vice versa. 

For Minda Industries, PAT trend has been as below:

  • TTM: 2.70% p.a.
  • 3Y Growth Rate: 19.61% p.a.
  • 5Y Growth Rate: 38.01% p.a.
  • 7Y Growth Rate: 22.18% p.a.
  • 10Y Growth Rate: 24.48% p.a.

[Note: In my stock analysis worksheet this trend will be visible in “P&L Sheet”.]

It is clear that, PAT of Minda Industries has been growing at a much faster rate compared to net sales. 

#7. Dividend

Regular dividend disbursement by companies makes it very likeable. 

Not every company can afford to distribute dividends consistently.

Consistent dividend payout is a sign that the company:

  • Cares about its shareholders. 
  • It is sure of its future cash in-flows.

Both these parameters makes a company dear to its investors. 

For Minda Industries, dividend history has been as below:

  • TTM: 2.70% p.a.
  • 3Y Growth Rate: 19.61% p.a.
  • 5Y Growth Rate: 38.01% p.a.
  • 7Y Growth Rate: 22.18% p.a.
  • 10Y Growth Rate: 24.48% p.a.

#8. Number of shares issued.

I like to keep a track of number of shares issued in the market by a company. Why?

If the number of shares issued increases, it will decrease the per share ratios (EPS, P/E, P/B etc).

This adversely effects the companies valuation in long term. 

Minda industries has issued Bonus Shares in Jul’18. 

Due to this, the numbers of shares outstanding in market has jumped from 870 lakhs shares in Mar’18 to 2,622 lakhs shares in Jul’18. 

As number of shares rose due to bonus issue, hence equity capital (reported in balance sheet (see #1 above), does not reflect this huge surge. 

But the negative effect of this bonus shares issue will surely be felt on companies valuation ratios.

Share Price Analysis of Minda Industries - ShareCapitalGrowth1
High shares liquidation done between Mar’16 and Aug’18

#9. Earning Per Share (EPS)

Like Reserves, Sales and PAT, EPS is another very important stock metric. 

There are less stock metric like EPS, which has such direct influence on companies stock pricing. 

When EPS grows, its stocks market price will also grow and vice versa. 

Lets see the EPS trend of Minda Industries in last 10 years:

Share Price Analysis of Minda Industries - EPS
EPS Trend

In terms of EPS trend, the performance of Minda Industries in last 10 years has been a mixed-bad. 

For period between Mar’09 to Mar’11, EPS grew. Between Mar’11 and Mar’14, EPS declined. 

Between Mar’14 and Mar’16 it rose dramatically. Then the fall again. 

In last quarter, the EPS is again showing an uptrend (even after bonus shares issue). This is a good sign. 

But when we see Minda Industries EPS in the 10 year time horizon, growth is negative. This is not good for long term investors. 

Such investors would pay premium for consistency. But would ignore inconsistent spikes (even if high, like between Mar’14 and Mar’16). 

#10. Overall rating of Minda Industries.

I use my stock analysis worksheet to establish the overall rating for stocks.

This worksheet considers all aspect of stock to arrive at a final conclusion.

What is the ultimate question in stock investing?

  • The stock is good or bad?

How to arrive at this conclusion?

My stock analysis worksheet does this very nicely for me.

Based on the following parameters, it generates an overall grade for its stock.

If the generated grade is above 85%, the stock is considered good.

For Minda Industries, the overall gradings are as below:

  • Market Price: Overvalued.
  • Future growth: Excellent.
  • Management’s Efficiency: Good.
  • Profitability: Very Low.
  • Financial health: Average.
  • Bankruptcy threat: Nil.
  • Overall grade: 67.8% (ideal: 85%+).

Estimated intrinsic value of Minda Industries is as below:

Share price analysis of Minda Industries - Intrinsic value
Extract From Stock Analysis Worksheet

[Check: Stock Analysis Report – Minda Industries.pdf]

It must be noted that, investors must give importance to the price valuation of stock.

A stock which is priced right (undervalued), and also has a score of 85%+ is ideal.

2 Comments

  1. Thanks for the detailed analysis. All of these parameters relate to the profitability. It would be helpful if you could walk through a couple of parameters that affects the future growth, management efficiency, financial health, bankruptcy threat.

    What would you rate Minda industries on the Dividend factor?

    Based on the overall analysis, Minda is not of investment quality as it is overvalued.

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