Lumax Industries Ltd. - LED business to brighten prospects

9th November 2017 By Edelweiss

Lumax Industries Ltd. (LIL) is a market leader in domestic automotive lighting industry, with market share close to around 30-35% on standalone basis. However Lumax group (i.e. SL Lumax, lighting business of Lumax Auto Technologies Ltd and Lumax Industries Ltd) has ~50-55% combined market share in domestic lighting business. Over the years LIL has presence across leading OEMs like Maruti Suzuki, Honda Cars, HMSI, Hero Moto Corp, Tata Motors, M&M, Toyota, etc. on the back of its consistency in the product quality. During past 4-5 fiscals company has focused on cost reduction and process improvement that has helped it to improve profitability significantly.

We initiate coverage with ‘BUY’ and a target price of INR 2560 valuing the company at 18x FY20E EPS of INR 142.2

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Key Highlights
  • Process improvement initiatives have led LIL’s PAT to grow at a CAGR of ~34% during FY12-FY17 period, despite growth in topline was much lower (i.e. ~6% CAGR) during the same period.
  • Rise in LED business from 8% in FY17 to around 40% in FY20E, will lead to significant growth in both topline and profitability. We estimate growth in topline to be ~15-16% CAGR during FY17-FY20E, while rise in PAT is expected to be around 34% CAGR during the same period.
  • Bagging new orders of popular models from market leaders like MSIL and HMSI in LED space in recent past infuses significant confidence in the growth prospect of the company going ahead in near to medium term period.
Pros
  • Market leadership in automotive lighting space, having strong presence across vehicle categories and OEMs
  • Focus on cost reduction and process improvement led LIL to improve profit at much faster pace than topline growth
  • Automobile industry is witnessing gradual shift in demand from conventional halogen and xenon lightings to LED lightings
  • Further new orders of popular models in LED space from market leaders MSIL and HMSI has significantly enhanced LED’s share in LIL’s overall revenue in FY18. These developments also infuses positivity in company’s overall growth prospects in revenue and profitability terms in near to medium term period.
  • Rise in LED business in overall revenue pie coupled with continued process improvement drive will lead to significant improvement in topline and profitability
Cons
  • Market leadership in automotive lighting space, having strong presence across vehicle categories and OEMs
  • Focus on cost reduction and process improvement led LIL to improve profit at much faster pace than topline growth
  • Automobile industry is witnessing gradual shift in demand from conventional halogen and xenon lightings to LED lightings
  • Further new orders of popular models in LED space from market leaders MSIL and HMSI has significantly enhanced LED’s share in LIL’s overall revenue in FY18. These developments also infuses positivity in company’s overall growth prospects in revenue and profitability terms in near to medium term period.
  • Rise in LED business in overall revenue pie coupled with continued process improvement drive will lead to significant improvement in topline and profitability

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