i Develop Stocks Advisory

Minda clear winner.... How Minda Industries will be benefited…? India produces around 12 lac cars in a year. The no is set to rise to 50 lac cars in next 5 years. Small car segment is around 8 lac cars whereas mid and big size cars are around 4 lac cars. The Budget 08 has announced reduction of 4% excise from 16% to 12% in case of small car where the average price of the vehicle is 400000. All the car manufactures have across the board announced price cut by Rs 12000 to 16000 in order to pass on the budget benefit. This may not much help Minda Industries in big way except for the fact the small car manufacturers may use the price differentials again to use the Minda kits for duel fuel which will encourage in great fuel cost saving for even a small car. e.g The CNG kit of the small car may cost Rs 25000 for the OEM whereas the cost of the car has already been reduced by Rs 16000. OEM may introduce the duel fuel car in small cars with Rs 25000 add on cost which in real terms could mean rise of just Rs 9000 per car. The fuel savings is 75% in terms of petrol and 50% in terms of diesel per km if used on CNG. Therefore the chances of demand growth with CNG kits are fabulous which will give big boost to small cars with CNG. As far as midsized and big cars are concerned the excise is 24% and there is no change. The excise rate is 14% only if these cars have duel fuel. The average price of mid sized and big car is Rs 7 lacs since the majority of sell is the mid size segment starting with Rs 5.5 lac to 8 lacs. This is ex show room price and by reverse engg the excise cost works out to close to 125000 per vehicle and a 10% savings could mean Rs 52000 per vehicle. Thus by just having duel fuel car the cost can come down by Rs 52000 per vehicle. The cost of the kit is Rs 30000 to 32000 in case of these cars. Effectively by just going by CNG kit whether the customer actually use CNG or not the cost of the car will come down cracking by Rs 20000 per car. This is enough to spark across the board demand for mid and big cars. Even the tax savings of Rs 55000 from the salaried class could make ideal case for demand stimulating in this segment. In fact, we will be seeing a TAYATO car with CNG kit on shelf at Rs 11 and without kit a normal vehicle at Rs 11.25 lacs. Mind well MINDA will benefit in any case. The impact is very clear. As of date Minda is selling 30000 kits and with the revolution in the hybrid car the OEM will have to choice than to go for CNG kit. This entire demand of 30K kits from the actual users in the small size cars which will remain unaffected and will rise further on cheaper cars and rising fuel costs. The demand for kits is readily there for 4 lac cars in big size and mid size segment. Even 50% opt for the CNG kit the Minda’s top line will rise by Rs 600 crs. Since the car market is set to expand by 5 times the demand vertical will always exist for next whole decadeWe strongly re rate MINDA Industries as clearly outperform.