Bullish Trend Intact for Auto Components Major Uno Minda – Buy for a Target of Rs 755

Ajit Kushwaha

Uno Minda Limited, one of India’s leading automotive component manufacturers, seems to be back on the growth track after facing pandemic-induced headwinds.

The company’s robust Q2 performance, strong order pipeline, margin expansions plans and positive industry outlook makes it well-positioned to capitalize on India’s fast-growing automobile market.

Here’s a detailed analysis on why Uno Minda stock looks attractive at current levels from a medium to long-term perspective:

Share Price Outlook – Uptrend Resumes After Range Breakout

  • Uno Minda has given a horizontal price breakout above the key resistance of ₹640 levels after consolidating for many weeks within the ₹550-640 band
  • This signifies resumption of uptrend as per Dow Theory principles after sideways phase
  • The breakout was followed by retest of breakout zone which held, confirming it as a valid breakout
  • Stock has also moved above all key daily and weekly moving averages which is a positive sign

The stock is now trading around ₹665 after correcting from highs of ₹690. Use this dip to accumulate for a retest of lifetime highs around ₹750 in coming months.

Financial Performance Picks Up Pace

Credit: Uno Minda Press Release
  • Uno Minda posted strong Q2FY23 results with consolidated net sales rising 46% YoY to ₹2,877 crore
  • EBIDTA was up 55% at ₹318 crore with margins expanding 140 bps to 12.3% from 11.9%
  • Net profit zoomed 105% YoY to ₹225 crore
  • H1FY23 EPS stands at Rs 5.40 already exceeded FY22 EPS of Rs 1.92 indicating earnings trajectory is accelerating

Healthy Growth Visibility

The company has guided for 20%+ revenue growth in FY23 along with 150-200 bps rise in EBITDA margins to 13-13.5% levels. Some positive factors aiding growth:

1. Increasing Content per Vehicle

  • Uno Mind is benefiting from premiumization trend in Auto Industry
  • Features like Connected Mobility, ADAS, Infotainment etc require more electronic components per vehicle
  • This is driving content growth for players like Uno Minda

2. EV Opportunity Just Starting to Unfold

  • Uno Minda is developing various products for EVs like DC-DC converter, BMS, controllers etc
  • Has tied up with Tier 1 battery manufacturers in India to make battery management systems
  • EV revenue contribution is currently small at 2-3% but set to rapidly scale up in coming years

3. Strong Order Pipeline of ₹19,000 Crore

The company has a strong order book of over ₹19,000 crore to be executed over next 5 years. This gives healthy revenue visibility looking ahead.

Valuations Turning Attractive

  • Uno Minda is currently trading at P/E of 46x FY23E EPS of Rs 14.5 and 34x FY24E EPS of Rs 19.5
  • While valuations look slightly expensive compared to other auto ancillary stocks, the premium is justified given UMIL’s market leadership, strong growth outlook and higher RoE track record
  • Also, P/E valuations have moderated from peak multiples of nearly 70x reached in 2021
  • EV/EBIDTA has also cooled off from 30x+ levels to around 18x now making risk-reward favorable

Technically Speaking…

On the weekly charts, we can observe:

  • The stock has given a clear breakout above long term resistance trendline in place since 2018
  • After a throwback to breakout zone, the stock rebounded last week and has closed at highest level since May 2022
  • This price action validates the breakout and signals resumption of primary uptrend
  • Key technical indicators like RSI have generated buy signals on weekly charts pointing to strength building up

The stock is currently placed at a crucial support zone around ₹655-660 levels having the confluence of:

  • 50 Week EMA
  • 61.8% Fibonacci Retracement of the previous up move (₹433-694)

Any bounce from current levels can be used as buying opportunity for a retest of all-time highs around ₹750.

Concluding Thoughts

  • Uno Minda seems to be back in growth orbit after pandemic-induced slowdown as industry volumes recover
  • Margin improvement plans and strong order book provides healthy earnings growth visibility
  • Technically, the stock has generated a buying signal after breaking out from long term resistance zone
  • While valuations seem stretched, growth prospects justify premium multiples
  • Auto sector outlook turning positive amid scrappage policy, EV adoption provides structural tailwinds

Hence, Uno Minda stock can be accumulated at current levels for a price target of ₹727-755 over the next 3-6 months time frame. Maintain stop loss at ₹625 on closing basis.

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By Ajit Kushwaha Writer
Ajit Kushwaha is a stock market investor and business owner of a chips manufacturing company in Hazaribagh, Jharkhand. He holds a Bsc. from Vinobha Bhave University and leverages over 5 years of share market experience in managing investments and his snack food business.
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