Five important points that show electric vehicles are hitting their stride in India

Last week, it was announced that the government is planning to localize certain components for manufacturing electric vehicles in India.

This means that some parts will now need to be domestically manufactured.

This is the latest development in an already bullish environment, which suggests that products like power and control wiring harnesses, connectors, miniature circuit breakers, electric safety devices, lighting, and body panels will now have to be domestically manufactured.

In its recent discussions, the ministry of heavy industries suggested reducing the number of components under the manufacturing programme from 18 to 12.

Experts have raised some concerns saying while mobile device manufacturers are allowed to import PCBs, why should EV makers be forced to procure them domestically?

Regardless of all these details, there is a high degree of optimism around EVs at the moment.

This is when you would expect EV and EV-related stocks to shine.

The EV megatrend is supposed to be a certainty due to its structure, dependability, and resilience.

Before we move on to the five key points showing India’s progress on the EV front, let’s look at seven stocks that could benefit from the recent announcement of more local components in EV manufacturing.

#1 Minda Corporation

Minda Corporation is one of the leading automotive component manufacturing companies in India with a pan-India presence and international footprint.

It's among the market leaders and commands a strong market share of around 40% in the 2-wheeler lock sets, and wiring harness for 2-wheelers, 3-wheelers, tractors, and CVs.

The company recognises the mobility shift and continues to focus on the development of various products for EVs. Its EV product portfolio includes DC-DC converter, battery chargers, connected clusters, HV wiring harness, EV telematics, etc.

In the electric vehicle space, Minda’s customers include Ampere, Ather Energy, Ola Electric, Hero Electric, Revolt, Vinfast, Sun Mobility Triumph, etc.

Minda's revenue contribution from the 2-3-wheeler space comes in at 47%.

The company aims at improving the EV kit value per vehicle to ₹22,000-27,000 from the current ₹4,000-4,500 in ICE vehicles. This is on the back of an increase in content per vehicle and new launches by the Minda group.

The company's total orderbook at the end of FY24 stands at ₹100 bn of which 30% of the orders are from the EV space.

In 2024 so far, Minda Corporation share price is up around 27%.

With over 90% of its product portfolio being EV agnostic, the company stands to benefit as we move towards India’s ambitious and fully electrified dream.

#2 Samvardhana Motherson

Samvardhana Motherson is a prominent Indian multinational company in the automotive components industry.

Established in 1986 and headquartered in Noida, the company has grown from its roots to become a major player with a strong presence across multiple countries, particularly in emerging markets.

Samvardhana’s core business lies in manufacturing a wide range of automotive parts, including essential components like wiring harnesses, plastic components, and rearview mirrors.

Their product portfolio extends beyond these to encompass other vehicle components as well.

Coming to its financial performance, the auto components maker posted an 80.8% jump in its total net profit to ₹30.2 billion (bn) in FY24 compared to ₹17 bn in FY23. The surge in profit was driven by higher sales volume.

Earlier this year in May, the company announced a fund raising plan of up to ₹50 bn.

Despite a challenging FY24 riddled with regional risks like the Red Sea crisis, energy woes in Europe, andsupply chain disruptions, Samvardhana Motherson emerged resilient.

Robust demand for medium and heavy-duty trucks in developed markets, along with continued growth in the premium light vehicle segment, provided stability.

Recognising the potential in emerging economies, Samvardhana Motherson has invested a significant portion of its FY24 capex in these regions, across both auto and non-auto businesses. This focus will continue in FY25.

In 2024 so far, share price of Samvardhana Motherson has shot up by 82%.

#3 Fiem Industries

Fiem Industries is engaged in manufacturing auto components like automotive lighting.

The company enjoys a significant market share for supply of automotive lighting & signalling equipment and rearview mirrors to two-wheeler and four-wheeler OEMs. It's among first companies in India to introduce LED lights in two wheelers.

Fiem Industries derives roughly 96.7% of its revenues from the 2-wheeler category. Within 2-wheelers, motorcycles account for 70% of sales while scooters contribute 30%.

The company has added 28 EV OEM's to its customer list and consists of significant players such as Ola, Hero Electric, TVS Motors, Yamaha, and others.

In the recent earnings call, the company said that electric 2-wheeler is a big opportunity and is growing exponentially.

Fiem has the first mover advantage and is working with all major EV OEM's in India.

Between 2019-2023, the company's net sales and profits have grown at a CAGR of 8.4% and 21.6%, respectively.

The 5-year average return on capital employed (RoCE) andreturn on equity (RoE)stands at 18.9% and 14.4%, respectively.

The company has always maintained a strong balance sheet with no debt on its books.

Going forward, Fiem seems to be on a promising growth trajectory. With the robust expected expansion in the two-wheeler market and the diversification of its product range, the company is well-positioned to replicate its past track record.

In 2024 so far, the company’s stock price has shot up by 30%.

#4 Lumax Industries

Lumax Industries is the market leader in automotive lighting and illumination systems for four-wheeler and two-wheeler applications in India.

The company services almost 90% of OEMs in India, across 4 Wheelers (4W), 2 wheelers (2W) and commercial vehicles and farm equipment space (CVs and FES).

Its key clients include Maruti Suzuki, Mahindra, Honda, Hyundai, Tata, Hero Motocorp, HMSI, MG Motors, TVS and others.

The company is jointly owned by Stanley Electric Company and DK Jain Group. One must note that Stanley Electric Company, Japan is the world leader in vehicle lighting and illumination products for automobiles. SECL is also the only global auto lighting company to manufacture LED worldwide.

Despite catering to a cyclical industry, the company has grown its revenues in last 15 years, barring in FY20 when Covid struck.

The balance sheet of the company has also been robust.

And the best part? The stock commands a healthy dividend payout of more than 30% for last three years.

In 2024 so far, the stock price has gone up by 16%.

#5 Lumax Auto Tech

Lumax Autois one of the largest players in the automobile component segment in India, with a presence across OEMs and aftermarkets.

The company started manufacturing two-wheeler lighting and thereafter carved a niche for itself in automotive products like integrated plastic modules, 2W chassis, 2/3-wheeler lighting, gear shifters etc.

Over the years, the company has gained market share with existing customers, indicating quality and reliable products. It has also added new customers in domestic as well as overseas markets.

Lumax Auto is adapting to the evolving landscape by incorporating EV products into its offerings.

This strategic move is expected to drive margin expansion as the company's order book reflects a growing share of EV products, particularly those with higher margins such as integrated plastic modules.

Between 2019-2023, the sales and net profit have registered a 5-year CAGR of 10.7% and 14.1%, respectively. The returns have been strong, with the RoCE and RoE averaging at 17.7% and 14.4%, respectively.

With a robust order book dominated by higher-margin products and a strong focus on enhancing content per vehicle, Lumax Auto anticipates robust double-digit growth in the financial year 2025.

In 2024 so far, Lumax Auto Tech share price has rallied 48%.

#6 Pricol

Pricol is engaged in the business of manufacturing and selling of instrument clusters and other allied automobile components to OEMs and replacement markets.

The company was formed by amalgamation of Pricol Limited and Pricol Pune Limited in FY17. This was done as it suffered huge losses in its acquired subsidiaries in Brazil.

Its product portfolio comprises of driver information and connected vehicle and actuation, control and fluid management systems.

The driver information and connected vehicle and actuation includes products like sensors, connected vehicle solutions, battery management systems (BMS), instrument clusters, and telematics.

The actuation, control and fluid management systems produce fuel pump module, disc brakes, oil pumps, variable displacement oil pumps, water pumps, electrical coolant pumps, wiping systems, cabin tilting systems, electrical oil pumps, e-purge valves, and fuel feed pumps.

The company has 9 manufacturing plants in India and international offices in 4 destinations.

Coming to the financial performance of the company from 2020 to 2024, Pricol has experienced significant growth. Sales have increased at a 5-year compounded annual growth rate (CAGR) of 5%, and net profits have risen by 23%.

The return on equity (RoE)and return on capital employed (RoCE) have averaged at 8.9% and 13.8%, respectively, over the 5-year period.

Pricol has gained market share in the two/three-wheeler space and plans to improve further based on recent Letters of Intent received from Honda Scooters India.

Capacity utilisation for the year stood at 85%, and the company has planned capex of roughly ₹2-2.2 bn for organic facility upgradation in Pune and Coimbatore.

The company's management aims to achieve ₹32 bn in organic sales by FY26, supplemented by approximately ₹4 bn from inorganic acquisitions, targeting an overall growth rate of 21% over the years.

To reach this ambitious goal, Pricol has been expanding its product lines and acquiring new customers.

In 2024 so far, Pricol share price has gained 30%.

#7 Uno Minda

Uno Minda, previously known as Minda Industries, is the flagship company of the N.K. Minda Group. It's one of the most diversified auto component manufacturers in India.

The company's market leadership is noteworthy. It's the largest switch player in India and the second largest globally in the horn segment. It's also the third largest auto lighting player in India.

Even as the company's product portfolio remains majorly powertrain agnostic, it has steadily diversified to cater to the EV industry.

Over the years, Uno Minda has focussed on maintaining healthy financials, characterised by strong debt coverage indicators.

Despite sizeable investments undertaken for organic and inorganic growth, as well as group consolidation, the company's debt to equity ratio stands below 1x.

Going forward, the company is expected to continue to maintain its leadership position in key product segments.

In 2024 so far, Uno Minda share price has rallied 52%.

In Conclusion

Over the past few years, we at Equitymaster have shared with you the EV trends impacting industries.

This is a once in a century revolution.

This revolution is not an event at any one point in time. It's not just about batteries taking over the internal combustion engine.

It's not just a switch from petrol and diesel powered vehicles to battery charged ones.

Bigger disruptive forces are coming along with electrification.

The future car or bike will look a lot different from the past. And the difference will not be in the fuel technology alone.

Here are few points that justify India’s fast-growing EV market –

• India overtaking China to become the largest three-wheeler EV market.
• Union Budget 2024 announcing custom duty exemption on lithium and cobalt for EV sector’s growth.
• The National Stock Exchange (NSE) introducing a separate index catering to EVs – Nifty EV & New Age Automotive Index.
• Global giants planning massive investments - Vietnamese electric vehicle maker VinFast is planning a mega project in Hyderabad - this expansion will boost India's EV ecosystem.
• India’s largest market leader in the EV space – Tata group company Tata Motors – achieving 1.5 lakh EV sales in India. (YoY growth of 48% in FY2024)

These five points tell me one thing — EVs are working in a way that was previously questionable.

It may have taken longer than everyone wanted, but there are trillions of dollars sloshing around this ecosystem.

Great things take time to build. It’s so cool to see the industry starting to hit its stride.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com