Lumax Industries Ltd. (LIL)

Lumax Industries Ltd. (LIL)
Sector: Auto Ancillaries/Midcap
Initiating Coverage
Sensex
24960
11 December 2015
Nifty
7585
Target Price: INR 543
Price: INR 434
Background: Lumax Industries Ltd. (LIL) is one of India’s prominent players in the automotive lighting industry for four wheelers and two
BUY
wheeler applications, with an
overall market share of ~55% in the passenger vehicle segment. The Company has continued to expand its manufacturing presence in last few years and currently has
nine plants spread across Maharashtra, Haryana, Uttarakhand and Gujrat. In Feb 2012, LIL began production at its newly set-up facility at Bawal (Haryanaa) that would
cater to future model launches/refurbishments of its larget customer- Maruti (35% of sales).
. 52 Week Low/High
.
INR 280/554
Bloomberg code
LUMX IN
Reuters code
LUMA.BO
Issued Equity
(shares in mn)
Mkt. Cap in mn
Mkt. Cap in mn USD
9.35
INR 4187
$ 62.8
Avg. Daily Vol. (‘000)
Avg. Daily Vol. (mn)
33.76
INR 15.1/$0.23
Shareholding
Sep14
Jun15
Sep15
Promoters(%)
73.66
73.63
73.62
FII (%)
0.37
0.80
1.67
DII (%)
0.03
0.04
0.05
25.94
25.53
24.66
0.00
0.00
0.00
12M
Others (%)
Pledge (% of
promoter
holding)
Performance%
1M
3M
Lumax Inds.
4.22
11.4
20.7
Sensex
-3.5
-0.4
-10.0
Lumax to be a key beneficiary of demand revival in PV segment
Company operates in the niche segment of auto ancillary industry and features amongst India’s top
Auto lamp manufacturers having 55-60% market share in passenger vehicle segment. Close to 48% of
its revenue is from PV segment. Passenger cars and UVs volumes grew by 3.9% in FY15 and set to
witness a faster growth of 10.3% CAGR over FY15-FY18E on back of improvement in economic
activity, low inflation level and interest rates, increased affordability, improved penetration from rural and
Semi urban areas, and easing commodity prices. According to Confederation of Indian Industry (CII),
the Indian auto ancillary industry is set to become the third largest in the world by 2025. Indian auto
component makers are well poised to benefit from the globalization of the sector as exports potential
could be increased significantly in the days to come because of positive momentum in the economy and
‘Make in India’ initiative. The Indian auto sector is expected for a better ride going forward, helped by
government’s ‘Make in India’ initiative.
Positioned well to reap the benefit of LED migration
Lumax has been consistently evolving in its product innovation with its in-house design and
development capabilities by introducing new generation LED products, like LED stop lamps, LED head
lamps etc. Given its focus on innovation and its varied product range, the company has gained access
to new platforms of clients, thus enabling it to retain its market share. Lumax has long standing
relationship with Stanley Electric, the third largest player in global lighting segment. Stanley Electric
currently owns 37.5% of Lumax’s shares. With more global OEMs trying to venture into Indian market,
LED penetration by FY19 is expected to be around 30-40%. Lumax is in good position to leverage on
this opportunity aided by the technical expertise of Stanley.
Capacity in place to meet upcoming demand
Lumax has consistently expanded its capacity with overall 9 manufacturing units. Company has incurred
capex of INR 4.3bn between FY09-FY15. Current utilization rate is at 65%, which means company can
expand its production to cater to increasing demand. Plants are located in vicinity of OEMs. Sanand
plant in Gujarat, yet to make full pledged commercial production and can expand its utilization to meet
the upcoming demand.
Valuation: On the back of revival in overall auto demand, Lumax’s strong brand equity, consistent
cash flow generation, deleveraged balance sheet, we estimate Lumax’s revenue growth at a CAGR of
11.6% during FY15-18E period. Currently stock is trading at P/E of 19.0X of FY16E, 14.6X of FY17E
and 10.4X of FY18E respectively. We arrive at a target price of INR 543, valuing the company 13.0X
FY18E and assign BUY rating. Risks: Downturn in economy leading to lower auto volumes, client
concentration and volatility in commodity.
Valuation Summary
Y/E March ( INRmn)
Analyst:
Arun Kumar HS +91-44-30007363
ArunKumarhs@chola.murugappa.com
FY14
Revenue
EBITDA
PAT
EPS
EPS growth (%)
FCF / Share
PE
P/ BV
EV / EBITDA
EV / Sales
Dividend Yield (%)
ROCE (%)
ROE (%)
Net Debt / Equity
11,167
511
77
8.2
-43.33
27.6
52.7
2.3
11.5
0.4
0.81
3.83
4.49
0.3
1
FY15
11,426
593
166
17.7
115.26
-15.3
24.5
2.3
8.4
0.4
1.27
5.03
9.37
0.1
FY16E
12,500
735
214
22.8
28.80
74.3
19.0
2.1
5.4
0.3
1.63
6.30
11.41
-0.3
FY17E
13,835
893
278
29.7
30.21
57.3
14.6
1.9
3.6
0.2
2.12
7.89
13.71
-0.6
FY18E
15,744
1,098
391
41.8
40.71
69.6
10.4
1.7
2.0
0.1
2.99
9.78
17.46
-0.9
Investment Summary:
Lumax Industiries (LIL) enjoys healthy share of business with most of its customers and recent capacity
enhancement exercise provides headroom for future growth. Automotive lamp industry (organized players) has a
market size of INR 21bn. The company’s profit margins remained under pressure on account of lower operating
leverage. Return indicators are also suppressed in light of continual investments in new plants and augmenting
manufacturing capacity.
LIL is expected to benefit from the huge potential in auto industry and an expected turnaround in the passenger
vehicle (led by small car segment). Also, launch of new high end models by Maruti where LED based lamps are
finding their place, expected to benefit Lumax. We have estimated revenue CAGR of 11.6% over FY15-18E on the
back of increased traction in small car segment. Shift in Industry trends (vendor rationalization, local sourcing of input
by OEMs, India becoming export hub etc.), recovery in auto industry coupled with existing capacity built by LIL over
past few years, presence in Gujarat (upcoming auto hub) and tie up with leading OEMs place Lumax to benefit the
most under current industry dynamics.
Exhibit 1: PE Chart
70
60
52.5
50
39.2
40
25.9
30
20
12.6
10
0
-0.7
-10
Dec-05
Dec-06
Dec-07
P/E
Dec-08
Dec-09
Std Dev 1
Dec-10
Std Dev -1
Dec-11
Std Dev 2
Dec-12
Dec-13
Std Dev -2
Dec-14
Dec-15
Avg
Source: Bloomberg, CSEC Research
Risks:

Delay in recovery in the auto industry can hamper OEM auto volumes as the company derives a majority of
the revenues from OEMs.

Volatility in raw material prices can have an adverse impact on margins. Raw materials are at 65% of sales
and account for about 70% of total cost.

Availability of cheap products from China and Thailand to be threat.
2
Peer Valuation Key metrics
Exhibit 2: Peer comparison
PE
PBV
Div. Yield (%)
Ned
Debt/
Equity
ROE(%)
FY2016E
FY2017E
FY2016E
FY2017E
FY2016E
FY2017E
FY2016E
FY2016E
FY2017E
Lumax Ind
19.6
15.1
2.2
2.0
1.4
1.8
-0.3
11.4
13.7
Fiem Ind
12.7
9.9
2.8
2.3
2.1
3
0.6
23.0
25.0
Minda Ind
13.3
9.7
1.9
1.6
0.7
0.8
0.6
14.1
16.3
Phoenix
Lamps
11.8
9.6
19.0
21.0
Sales (INR Bn)
EBITDA Margin (%)
Lighting
business
to sales
Product/Detail
FY2016E
FY2017E
FY2016E
FY2017E
12.5
13.8
5.9
6.5
100%
Auto lamps, mainly into PV and 2 wheelers
Fiem Ind
10
12.1
12.4
12.8
72%
Auto lamps(90% of it from 2 wheelers), General lighting
Minda Ind
25
28.8
7.6
8.3
22%
Mainly into Switches (54%), Horns (12%) and auto
lamps(22%), also supplies to Maruti at manesar
Phoenix
Lamps
3.7
4.09
14.3
14.9
66%
Manufacture auto bulbs, holds large market share in all the
category of auto sectors, new management (Suprajit Eng.)
Lumax Ind
Source: Bloomberg, CSEC Research
Investment rationale:
Lumax to be a key beneficiary of demand revival in the passenger vehicle segment
Company is India’s top automotive lamp manufacturer having 55-60% market share in passenger vehicle segment
which contributes ~49% of its revenue. Ramp up in PV volumes to boost the demand as Lumax supplies to high
volume models of Maruti, Tata Motors and Honda Motors. The sales of these three players together constitute to 35%
of total car sales without considering UVs. While in UV segment Lumax caters M&M and Tata motors. Domestic sales
of cars and utility vehicles (UVs) grew 3.7% in FY2015, led by a slight improvement in consumer sentiment following
excise duty cuts in the 2014 budget and lower fuel costs which improved affordability, driving the demand. New
lauches also contributed to consumer demand. For April-October 2015, sales of Passenger Vehicles grew by 8.65%
YoY. Within the Passenger Vehicles, Passenger Cars grew by 11.75% YoY, utility vehicles and vans sales decreased
by 0.96% YoY and 2.37% YoY respectively.
3
For FY2015-FY2018E, we project sales of PVs to witness a faster growth of CAGR 9%. Over long term, domestic
sales of cars & utility vehicles (UVs) are expected to grow at a 12% CAGR over FY2015-FY2020E, after recording a
6% CAGR in the last 5 years. Lumax supplies to passenger cars in small car segment to models like Alto, Swift,
Dzire, Indica and Indigo. Close to 73% of Lumax volumes in PV segment are from small cars segment. Small cars
play vital role in auto Industry by driving the sales of passenger vehicles and constitute ~50% overall PV sales and
~85% of total car sales. With expected increase in first time buyers on the back of increased affordability, uptick in
small cars sales would drive Lumax volumes. Short term demand for overall PV segment will be driven by economic
recovery and low inflation levels, leading to a steady growth in disposable incomes. OEMs have also lined up a
number of models across segments which will increase consumer interest. The declining cost of ownership, driven by
lower fuel cost and interest rate cuts will lead to demand from first-time buyers for small cars. Long term demand
growth will be led by increase in car penetration in semi urban and rural areas, while current car penetration stands
about 18 cars per 1000 population; Demand will also be boosted by rapid urbanization, rising working population,
moderate crude prices, increased choices as more brands are flooded in markets and increase in the number of
households who afford the car.
Lumax derives about 31% of its revenues from 2W segment with HeroMotocorp and HMSI as its two key customers.
2W is one segment that showed growth over FY11-FY15 at CAGR 7.9%, when other segments contracted. However
sales registered a marginal growth of 1.5% YoY in April-October 2015. Lumax has lower market share in scooter
segment, but as LED penetration increases, technology edge Lumax holds would help gain market share in the
scooter segment. The outlook for the next two quarters looks challenging owing to monsoon deficit. Tapping the
business from upcoming models of HeroMotocorp and HMSI as well as penetrating deeper into market by adding
more OEMs, would augur well for the revenues growth. We expect the two-wheeler industry to grow at lower phase of
CAGR ~8.3% (vis-à-vis PVs) over FY2015-FY2018E, due to muted growth in first half of current fiscal owing to
monsoon deficit. However over next five years we expect volumes to grow at 10% CAGR on the back of recovery in
demand, rising market penetration level in rural areas on the back of rise in income levels.
Seventh pay commission (CPC) recommendations are scheduled to take effect from 1 Jan 2016, with nearly 4.8mn
central government employees and 5.5mn pensioners will be benefitted by the pay commission. Salaries and
allowances are expected to increase by around 23.5% with basic pay increase of 14% which is much lower than 35%
recommended in sixth CPC, pension hike of 24%, allowance hike of 63%. Central government's expenditure on
employees' salaries to rise by nearly 16% to INR 1160bn in the financial year FY2017 upon the implementation of the
commission's recommendations.
Also recommendation includes salary revision on July 1st every year. With
increased income in hands of consumers, increased purchasing power would boost the sales of domestic car
segment, thereby driving the Lumax revenues. However consumer spending would increase only over the course of
the period, as current economic situation would not augur well for discretionary spending.
4
Exhibit 3: Trend in India’s GDP
Exhibit 4: Car affordability
285
300
GDP, constant prices (% change)
262
238
250
9
8
6.6
7
6
7.5
7.2
6.9
7.5
7.6
7.7
7.8
7.7
200
150
5.1
5
115
100
64
4
31
50
3
2
37
22
12
0
1
2009-10E
0
2014-15È
Total Households (mn)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2019-20P
Addressable households (mn)
Total passenger vehicle population (mn)
Source: IMF, CSEC Research
Source: CRISIL, CSEC research
Exhibit 5: Passenger Vehicle-growth sales and GDP growth
80%
1000000
14%
866430
769541
821375
761537
800000
700000
600000
500000
28%
25%
20%
10%
804473
741734
32%
781476
869774
35%
738133
30%
799170
40%
739516
709755
50%
820944
60%
900000
67%
922645
70%
400000
7.5%
11%
9%
300000
10%
5%
0%
4%
-1%
-10%
5% 200000
100000
-11%
-20%
0
FY02
FY03
FY04
FY05
FY06
FY07
Passenger Vehicles (Units, RHS )
FY08
FY09
FY10
FY11
GDP Growth rate (%)
FY12
FY13
FY14
FY15
Lumax Auto Sales Growth rate (%)
Source: CRISIL, CSEC Research
Exhibit 6: High growth in PV followed by 6th pay commission in FY10 and FY11
70%
66%
60%
50%
40%
30%
28% 28%
21%
26%
30%
20%
12%
12%
10%
0%
-1%
11%
25%
5%
1%
0%
-10%
FY10
FY11
Passeneger Vehicles
Source: CRISIL, Company, CSEC Research
FY12
-6%
FY13
Maruti (Domestic)
* Growth in Lumax sales from auto lamps in value terms
5
8%
4%
-11%
-20%
FY09
4%
0%
1%
-11%
FY08
10%
4%
FY14
Lumax Auto sales*
#Growth in volumes
FY15
Strong clientele
Lumax is supplying its products to its marquee clients who dominate respective market segments. In addition to being
the first choice for new models being launched by key customers, Lumax has also been able to tie‐up with other
OEMs like Daimler, Nissan UK, Chrysler, Audi which are looking to expand their presence in India. This can be
attributed to the strong in‐house design and testing R&D capability, which has enabled Lumax to not only retain
existing customers, but also diversify its customer base. This coupled with Lumax's technical collaboration with global
automotive lighting leader Stanley Electric, has given it a strong technological footing, apart from enabling it to garner
business from the Japanese OEMs. Revenue from company’s top client (Maruti Suzuki) accounts for ~34% of the
overall revenue in FY15. On a pan India basis, the company has a market share of 55-60%. Business from new
model launches and anticipated uptick in volumes from top 5 clients (Maruti, M&M, Honda, HMSI & Tata Motors)
bodes well for the company.
Client mining to boost revenues
Company is expected to supply to models like S-Cross (Maruti), JAZZ (Honda), Aviator (HMSI), and Achiever,
Splendor (HeroMotocorp). SINGLE VENDOR SOURCING strategy being adopted by OEMs such as M&M and Tata
Motors can help LUMAX increase its market share as company stands at strong standpoint with its technical
expertise. Tapping businesses from new model launches would also augur well for growth. Client addition is expected
to grow as global players set to exploit one of the largest auto consumer market, also see India as export hub,
henceforth set to have their production base in India due to availability of cheap skilled labour, availability of steel,
aluminum and rubber and strong auto component industry.
Capacity in place to meet future demand
Lumax had incurred the capex of INR 4.3 bn between FY09-FY15 to expand capacity (both greenfield and
brownfield). Currently, Lumax plants are operating at a capacity utilization of ~65%; hence it is well placed to take the
advantage upcoming demand with no or minimal capital requirement. Although, currently company has no plan for
further expansion however, if the need arises for further capacity expansion, Lumax has adequate space at its
existing plants for brown field expansion. Its Bawal plant in Haryana, which is spread over 10 acres & is dedicated to
Maruti Suzuki, has 80% unutilized space. Lumax had started an additional unit at Biddadi to accommodate the
requirements of HMSI.
Company also has a plant at Sanand, Gujarat which has all infrastructure in place, would be able to cater for the
upcoming demand as the plant has not started its large scale production yet. Major OEMS have planned to set their
base in Gujarat and Lumax can exploit the opportunity by tying up with these OEMS and expand their market share.
6
Exhibit 7: Client wise revenue breakup
Exhibit 8: Capital expenditure YoY
1400
11%
1200
34%
13%
25%
1258
19%
20%
1000
1010
823
15%
800
8%
600
400
9%
12%
5%
200
11%
13%
557
579
459
298
10%
353
7%
5%
6%
5%
4%
3%
8%
HeroMotocorp
Tata motors
HMSI
Others
455
10%
0
Honda Cars
M&M
Replacemnet
0%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Capex
Capex as % of sales
Source: Company, CSEC Research
Source: Company, CSEC Research
Make in INDIA initiative to drive the demand
On September 2014, Indian Prime Minister Narendra Modi, launched “Make in India Campaign” to attract foreign
investment by promoting India as a manufacturing destination and export hub. Between September 2014 - June
2015, FDI inflows into India stood at USD 28.43bn up 23.2% YoY. In terms of FDI inflows, Automotive sector ranks
no. 5 accounting to 5% of the cumulative inflows between April 2000 – June 2015 (USD 71bn), hence we believe
Auto sector to be the key beneficiary of the Make in India campaign, already FDI inflows into the sector have started
showing traction up 75% YoY in FY15 to USD 15.79bn.
OEMs are increasingly seeking to gain efficiencies and scale by establishing a production base in the most efficient
place where they can minimize cost. MNCs are shifting their production bases from high-cost economies like the US
and Western Europe to low-cost countries like China and India. As per estimation, producing car in India is about 1520% cheaper than in US. Most of the OEMs plants are concentrated in NCR region in the north and Chennai in south,
due to presence of abundant raw material supply like rubber, steel and aluminum in these regions. With the strategy
of having plants in the vicinity of OEMS, Lumax has its plants concentrated in Harayana, Uttarkand, Maharashtra in
north and Bidadi in south. This would reduce the freight cost and enhance the efficiency of supply chain management
both to Lumax and its clients.
OEMs’ drive to source from a few players has engineered a paradigm shift in the industry. Indian OEMs are actively
looking to reduce suppliers over the next 4-5 years. Recently M&M announced plans to reduce its supplier base by
10% each year over the next 5 years, bringing down the total number of suppliers from 650 to 450. The so-called one
sourcing strategy is being embraced by other OEMs. OEMs preferred choice would be Lumax, mainly because of
superior product quality, technical expertise and its vicinity to their plants.
Indian OEMS are committed to increase sourcing of local components to reduce cost burden. For instance, Maruti's
import content as a percentage of Sales declined from ~26% in FY11 to ~16% in FY14 and is likely to reach single
digits by FY17. Further, global automobile majors are establishing manufacturing operations in India with the twin
7
objective of increasing the domestic presence to exploit one of the biggest consumer market & making India an
export base for overseas markets. To offer superior quality products at competitive price, these MNCs are increasing
their domestic-sourcing & localization of auto parts, thereby generating demand for the auto ancillary industries.
Exhibit 10: FDI inflow April 2000 – June 2015 for different
Sectors
Exhibit 9: FDI inflow YoY
50
42
155
39
38
40
35
34
USD Billions
35
160
23
53
60
23
20
9
35
80
20
10
40
120
100
25
43.3
45
140
36
30
15
50
180
44
20
-10
12
40
20
0
3
5
USD Billions
45
47
-26
5
0
-20
30
24.1
25
20
17.6
17.5
15
13.5
13.3
Auto
Pharma
-40
10
5
FDI inflow
0
Growth(%)
Service
Infra
IT
Telecom
Sector
Source: DIPP, CSEC Research
Source: DIPP, CSEC Research
Technical collaboration with Global Giant to aid the business
Lumax collaborated with Stanley Electric (SE), the third largest player in global lighting segment in 1984. SE is
Japanese company producing automotive lightings among other lighting equipments, which owns 36 consolidated
subsidiaries. Company is renowned for producing world’s first LED high mount stop lamp. SE carries out its R&D at 5
research centers where new light sources are explored and designed. SE currently owns 37.5% of Lumax’s shares.
Lumax has been successful in in-house production of wide range of innovative products to marquee clients.
Exhibit 11: Innovative products developed inhouse
Product/Design
Year of production/Supply
Client
LED Head Lamps
2008
Bajaj
Plasma coating in Lamps
2008
Maruti Suzuki
gear as mechanism of rotation
2009
Force motors
LED Head Lamps
2011
Land rover, UK
Reflex reflector
2011
Renault Samsung, Korea
LED stop Lamps
2012
Audi
Revolving light for emergency vehicles with helical
Projector Lamps
Force Motors
Source: Company, CSEC Research
8
There have been a lot of advances in headlight technology since their origins as acetylene lamps back in the 1880’s.
While halogen bulbs are still the most popular and commonly used today, Xenon HIDs are increasingly growing in
popularity. Halogen lamps still continue to be the most widely used lamps for automotive lighting applications in India.
According to McKinsey’s estimates, by FY2020 LED technology is expected to constitute 37% of the total automotive
lighting market. The growth would be fuelled by features such as low power consumption, longer life and compact
size of LED lights. As LED lights have no filament or gas to heat for illumination, LED bulbs tend to run at very cool
temperatures, and require very little electricity. These properties also allow them to be placed within plastic cases or
lenses, which are much more durable than glass. Henceforth, the newest car models are more and more beginning to
implement LED headlight technology. LED has been widely used in many automotive dashboard backlighting, interior
lighting and brake lights.
Laser and LED technology to drive next generation of Auto lighting Industry:
Some manufacturers, such as Audi and BMW, are even starting to experiment with laser headlights. Lasers are
smaller, brighter and more energy efficient than LED headlamps While lasers have received a lot of recent attention,
no one is writing off LEDs, which have demonstrated their versatility despite prices that are an estimated three times
higher than xenon lights. LED penetration is going to enhance the realization by multi-fold. Lumax Industries is well
positioned to adapt to the changes as it has the necessary technical expertise aided by Stanley to manufacture
Xenon and LED lamps. The role of a lighting manufacturer has progressed from being merely a component supplier
to being associated with the manufactures right from the concept stage and working together as a team. For this to
happen, considerable investments have to be made in R&D and constant up gradation of manufacturing capabilities
is imperative. Company invested 893mn from FY10 to FY15 in R&D and investments are expected to increase given
the impact by LED in coming years. Recently Lumax achieved in house designing with minimal support from Stanley
on the HID headlamp.
Financial overview
Sales and volume to grow aided by PV and 2W demand
Lumax revenue grew at CAGR 12% between FY10-FY15. While FY14 and FY15 saw sluggish growth of 4% and 2%
YoY respectively. Sales remained muted in last three FYs on the back of weakness in passenger vehicle volumes.
Maruti Suzuki which contributes 35% of its sales has remained flat in terms of its volume in last four years with CAGR
of 0.7% between FY11-FY15. We expect Lumax’s net sales to register a CAGR of 11.6% over FY15-FY18E led by
12% CAGR growth in passenger vehicle segment, 9.8% CAGR growth in 2W segment and 11.4% CAGR in CVs on
the back of recovery in demand for passenger vehicles and two wheelers, client addition and new launches.
Margins expected to improve going ahead
In FY2015 EBITDA grew by 16.1% YoY to INR 593mn and PAT grew by 115% to INR 116mn. EBITDA and PAT are
expected to grow at CAGR of 22.8% and 33.2%, respectively, during FY15-FY18E. Lumax passes through benefit of
lower raw material prices and pain of increase in raw material prices to its customers as indicated by the
management, which is reflected in its EBITDA margin being stable around mean of 5.2% over FY2011 to FY2015.
Margin expansion would be driven by improving economies of scale and operating efficiencies. Company also has inhouse power house that uses furnace oil, has kept its power and fuel expenses to 4% of total expenditure. EBITDA
margin is estimated to show marginal improvement of 69bps in FY16E, 57bps in FY17E and 52bps in FY18E, led by
9
lower commodity prices, strong Volume growth and product mix. PAT margin at 1.4% (FY15) is expected to increase
to 1.71%, 2.01% and 2.48% in FY16E, FY17E and FY18E respectively as no further capex plans would lead to higher
other income and lower depreciation expenses, while lower debt on BS and further repayment of debt would lead to
lower interest expense.
Track record of generating strong Operating cash flows
Company has generated operating cash flow of 590mn in FY15 and total of 2732mn over period of FY12-FY15. Profit
before tax for same period is 474mn. Huge difference between CFO and PBT is mainly due to non cash expenses
like interest and depreciation owing to huge capital expenditure. Company made capital expenditure of 2.5bn over
FY12-FY15.
Cash flow to capex ratio has been 1.6x at FY12, 0.7x at FY13, 0.6x at FY14 and 1.65x at FY15, which indicates
company’s strength to fund its capex from internally generated funds. Company has used generated cash flows to
repay debt of 759mn between FY12-FY15 and Net Debt to equity ratio which stood at 0.5x in FY12 has reduced to
0.1x in FY15. Since company has no capex plans in future, future cash flow will be used to pay off the debt
completely and by FY17E, company is expected to be debt free. Free cash flows after debt payoff, would be invested
in short term investments increasing other operating income as well.
Exhibit 12: Raw material as % of sales
Exhibit 13: PE versus ROE
76%
74%
72%
70%
68%
73%
72%
71%
18
69%
Price/ Earnings (FY17E)
74%
65%
66%
64%
63%
62%
60%
Lumax
16
Minda
14
12
FIEM
10
8
Phoenix
6
4
58%
2
56%
0
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016E FY2017E
10%
Raw materials as % of sales
15%
20%
ROE (FY17E)
Source: Company, CSEC Research
Source: Company, CSEC Research
10
25%
30%
Exhibit 15: EBITDA & PAT Margin
Exhibit 14: Net sales and growth
18,000
16%
14%
13,835
14,000
INR Millions
12,000
11,167
9.40%
10.68%
1.7%
8%
11,426
10,000
2.0%
9%
13.80%12%
12,500
2.5%
10%
15,744
16,000
10%
7%
8%
6%
6%
5%
1.5%
7.0%
0.7%
6.5%
8,000
6,000
2,000
511
4%
4%
2.32%
4,000
735
593
1,098
893
2%
0%
FY15
FY16E
FY17E
4.6%
3%
2%
0
FY14
5.9%
5.2%
1%
FY18E
0%
FY14
Sales (INR mn)
EBITDA (INR mn)
Sales Growth
Source: Company, CSEC Research
FY15
FY16E
Exhibit 17: Dividend per share and dividend yield
30
14
17.46
2.9%
12
25
3.0%
10
Percentage
3.5%
13.71
8
9.37
15
4
9.78
3.83
FY14
5.03
FY15
1.5%
1.2%
0.8%
1.0%
2
7.89
5
6.30
0.5%
3.5
5.5
7.1
9.2
13.0
FY14
FY15
FY16E
FY17E
FY18E
0
FY16E
FY17E
0.0%
FY18E
DPS (INR)
RoCE (%)
2.0%
1.6%
6
4.49
2.5%
2.1%
11.41
20
0
FY18E
PAT Margin
Source: Company, CSEC Research
Exhibit 16: ROCE and ROE
10
FY17E
EBITDA Margin
RoE (%)
Source: Company, CSEC Research
Source: Company, CSEC Research
11
Dividend Yield
Company Profile:
Lumax Industries Ltd (Lumax), incorporated in 1945 was set up in Delhi by S.C. Jain as a trading company under the
name Globe Auto Industries. In 1956, Lumax setup manufacturing units for automotive lighting equipment and other
components. Company changed its name to Lumax Industries in 1981 and went public in 1984. Also in 1984, Lumax
embarked on collaboration with Stanley Electric Co. Ltd., Japan and converted itself from private limited to public
limited company. In 2003, it de-merged from its mirror & filters division and focused on producing automotive lighting
products.
Exhibit 18: Market share trend over the Years
Lamp Manufacturers #
FY-2006
FY-2007
FY-2008
FY-2009
FY-2010
FY2011
FY-2012
FY-2013
FY-2014
FY-2015
Lumax Industries
66.9%
59.8%
56.3%
53.9%
54.0%
46.9%
51.7%
53.5%
52.9%
53.4%
0.7%
5.7%
5.0%
4.5%
4.5%
Neolite ZKW Lighting*
Fiem Industries
Autolite India
Minda Industries
21.2%
19.3%
19.3%
25.7%
27.6%
28.8%
21.2%
22.6%
24.0%
24.0%
0.0%
8.9%
10.3%
8.5%
8.8%
6.5%
6.1%
5.3%
5.0%
5.0%
11.9%
12.1%
14.1%
12.0%
9.6%
17.1%
13.6%
11.7%
11.1%
10.6%
1.8%
2.0%
2.5%
2.5%
Hella India Lighting*
# Sales from Auto-Lamps business taken
*Unlisted Players- based on available information
Source: Bloomberg, Company, CSEC Research
Exhibit 19: Geography revenue break-up
Exhibit 20: Segment revenue break-up
3%
13.0%
7.2%
48.8%
31.1%
97%
Domestic
Source: Company, CSEC Research
Exports
Passenger vehicles
Two wheelers
Source: Company, CSEC Research
12
Commercial vehicles
Replacement
Exhibit 21 : Chronology of events
1945
1979
1984
1985
1994
2003
2005
2007
2011
2012
2014
2015
• S.C. Jain, Chairman, establishes a trading concern.
• Manufacturing units became functional at Faridabad-Haryana and Pune-Maharashtra.
• Conversion from Private ltd. company to public limited company. Technical assistance agreement with a Japan
based company Stanley electric for lighting equipment.
• Dedicated manufacturing unit for Maruti-Suzuki at Gurgaon - Haryana.
• Financial participation of collaborator with a Japanese firm Stanley Japan . Manufacturing unit at AurangabadMaharashtra .
• ISO/TS 16949 : 2002 Certification for GURGAON and Dharuhera plants by DNV, USA .
• Manufacturing unit became functional at Chakan (Near Pune)
• Set up state of art new plants at Pantnagar-Uttarkand, Singur-West Bengal and Haridwar-Uttranchal.Extension of
Dharuhera and Chakan II Plant.
• Setup new Plants in Bawal, Sanand and Bidadi.
• Production started at Bawal; Complete in house design of interior and exterior small lamps for 4W
• Completed 25 years of listing on Bombay stock exchange
• Pantnagar plant awarded JIPM-TPM excellence award in category – “A”.
Source: Company
13
Exhibit 22: Management profile
Key Management Personnel
Mr. Deepak Jain – Managing director
Mr. Deepak Jain has been managing
director of Lumax industries since a
ugust 6, 2013 and has been its senior
executive Director since Feb 1, 2001. Mr.
Jain holds B.B.A from ILLINOIS institute
of technology, USA with specialization in
operations
Management
and
international business.
Mr. Anmol Jain – Joint Managing
Director
Mr. Anmol Jain serves as Joint Managing
Director of Lumax Industries. Mr. Jain
has been managing director of Lumax
Auto technologies since Aug 7 2013. He
has been executive director of Lumax
Auto technologies since Aug 7 2013. He
holds BBA from Michigan state
university, U.S.A
Source: Company
Exibit 23: Manufacturing facilities
Source: Company
14
Mr. Shruti Kant Rustagi – CFO
Mr. Shruti Kant Rustagi serves as Chief
Financial officer of Lumax Industries. He
is a B.com(H) and fellow member of
Institute of chartered accountants of
India (ICAI) having 22 years of rich
experience in the field of Accounts and
finance.
Industry overview
Lighting Industry
The automotive lighting market is Niche market with products designed according to specification provided by OEMs,
where aesthetic value of product to vehicle is of prime importance. Indian Automotive lighting market size is ~INR
22bn with Lumax holding 53.4% market share. Industry witnessed growth CAGR of 12.2% over FY2010-FY2015 and
we expect CAGR of 13% over next five years on the back of increase in the number of global players in Indian
Automotive industry and higher LED penetration.
The growing emphasis on vehicle safety and government regulations regarding automotive lighting systems, are
contributing to the market growth. The lighting industry in India comprises mainly of lamp and bulb manufacturers.
Industry is still evolving and new products have been introduced like High mount stop lamps, Fog lamps, Multi focal
rear lamps etc.. Automotive lighting is catered by Lumax Industries, Neolite Industries, Fiem Industries, Autolite
(India), Minda Industries and phoenix lamps. Even though industry is concentrated, players don’t command pricing
power. Market size of organized lamp manufacturers stands at INR 22bn. Major automotive bulb manufacturers
includes Philips, Siemens, Osram and Phoenix
Source: Company, CSEC Research
15
Porter’s five forces:
Source: CSEC Research
16
Financials
Income Statement (Abstract)
Per Share Ratios
INR(million)
Particulars
FY15
FY16E
FY17E
FY18E
Net Revenue
11,426
12,500
13,835
15,744
2.32
9.40
10.68
13.80
10,833
11,869
12,942
14,646
Growth (%)
Operating Expenditure
EBIDTA
593
735
893
1,098
16.10
23.93
21.47
22.95
362
392
406
459
51
38
61
95
140
126
151
175
0
0
0
0
-23
54
119
168
Tax rate (%)
-16.11
20.22
30.00
30.00
Reported PAT
166
214
278
391
Adjusted PAT
166
214
278
391
115.26
28.83
30.21
40.71
Growth (%)
Depreciation
Other Income
Interest
Exceptional Items
Tax Paid
Growth (%)
Particulars
FY18E
Adjusted EPS (INR)
17.7
22.8
29.7
41.8
Cash EPS
56.4
64.8
73.1
91.0
BV/Share (INR)
192.9
207.4
226.3
253.0
FCF/Share(INR)
-15.3
74.3
57.3
69.6
5.5
7.1
9.2
13.0
FY15
FY16E
FY17E
FY18E
Particulars
Dividend Payout (%)
31.02
31.00
31.00
31.00
EBIDTA Margin (%)
5.20
5.90
6.50
7.0
PBT Margin (%)
1.24
2.14
2.87
3.55
RoCE (%)
5.03
6.30
7.89
9.78
RoE (%)
9.37
11.41
13.71
17.46
Current Ratio
0.63
0.93
1.01
1.09
Debt Equity ratio
0.21
0.60
0.55
0.49
37
35
32
30
Inventory Days
Particulars
FY15
FY16E
FY17E
FY18E
Share Capital
93.5
93.5
93.5
93.5
Reserves & Surplus
1,710
1,846
2,023
2,272
Networth
1,803
1,939
2,116
2,366
Current Liabilities
Non-Current
Liabilities
4,962
5,472
5,979
6,750
872
1,650
1,658
Total Liabilities
7636
9062
Net Fixed Assets
Other Non-Current
Assets
Cash & marketable
securities
4,221
Debtor days
49
50
50
50
Creditor days
100
100
100
100
Interest Cover Ratio
2.0
3.0
3.6
4.2
DuPont Analysis
FY15
FY16E
FY17E
FY18E
Net Profit Margin (%)
1.50
1.70
2.00
2.50
1,670
Asset Turnover
6.46
6.68
6.82
7.03
9753
10785
Leverage factor
3.90
4.22
4.45
4.41
4,079
3,950
3,805
RoE (%)
9.37
11.41
13.71
17.46
56
60
60
60
190
1,712
2,353
3,181
106
125
138
157
FY15
FY16E
FY17E
FY18E
24.5
19.0
14.6
10.4
P/BV
2.3
2.1
1.9
1.7
EV/Sales
0.4
0.3
0.2
0.1
EV/EBITDA
8.4
5.4
3.6
2.0
1.27
1.63
2.12
2.99
7,636
9,062
9,753
Particulars
Valuation Ratios
Particulars
P/E
10,785
Cash Flow statement (Abstract)
INR(million)
Particulars
Cash flow from
operations
Cash flow from
investing
Cash flow from
financing
FY15
FY16E
FY17E
FY18E
267
999
915
1,091
-391
-211
-215
-220
154
735
-60
-43
Free cash flow
-143
695
535
651
30
1,522
640
828
Net change in cash
FY17E
Key Ratios
INR(million)
Total Assets
FY16E
DPS (INR)
Balance Sheet (Abstract)
Other Current Assets
FY15
Div Yield (%)
17
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