Dec 17, 2015 Lumax Industries Ltd. No. of shares (m) 9.35 Mkt cap (Rs crs/$m) 424/63.4 Current price (Rs/$) 453/6.8 Price target (Rs/$) 625/9.3 52 W H/L (Rs.) 554/280 Book Value (Rs/$) 213/3.2 P/BV (FY16e/17e) 2.0/1.8 P/E (FY16e/17e) 12.7/10.2 EPS growth (FY15/16e/17e) 143.5/101.2/25.4 ROE (FY15/16e/17e) 9.4/17.2/18.6 Beta 1.0 Daily volume (avg. monthly) 44872 BSE Code 517206 NSE Code Bloomberg Reuters LUMAXIND LUMX IN LUMA.BO Shareholding pattern* % Promoters 73.6 MFs / Banks / FIs 0.1 Foreign 2.0 Govt. Holding 0.0 Non-Promoter Corp. 7.8 Total Public 16.6 Total 100.0 As on Sep 30, 2015 Recommendation BUY Analyst SUMIT BAGARIA Phone: + 91 (33) 4488 0055 E- mail: sumit.bagaria@cdequi.com Company Brief Lumax Industries Ltd is a leading provider of high quality automobile lighting systems and solutions, which include stellar quality lamps and other related products and accessories for four wheelers, two wheelers, trucks, buses, earth-movers, tractors and a variety of diverse applications in India as well as worldwide. It has a more than three decades old technical and financial collaboration with Stanley of Japan (which holds 37.5% stake in the company), a world leader in vehicle lighting and illumination products for automobiles. Quarterly Highlights Lumax Industries reported sales of 304 crores during Q2FY16, which is an increase of 6.2% from Q2FY15 sales of 287 crores. The major portion of its revenue is accounted by sale of automotive lamps, which has shown a volume growth of 8%, while a small portion of revenue inched up due to increased sale of moulds, tools and dies. The Operating Margin has improved by 87 basis points to 6.55% as compared to 5.68% in Q2FY15, whereas the growth in EBITDA was 20.2% from the previous quarter. The improvement in margins can be justified by sharp fall in the raw material prices, increase in the productivity levels, cost savings from vigorous negotiations with the vendors and reduction in various overheads. Net Profit for the quarter is Rs 7.49 crores which is a growth of 38.7% from the same period of previous quarter; though we saw a little fall in the profit from the first quarter of the year. The half yearly results have also shown a good performance as compared to the previous year. The reported EPS for the half year stands at Rs 20.17 versus Rs 11.10 for the same period in FY15, a jump of 81.8%. The sales grew by 10.8% to 622.10 crs in H1FY16 as against Rs 561.62 crs in the same period a year ago. The profit before tax also rose to Rs 23.44 cr in H1FY16 from 9.40 crs. The stock currently trades at 12.7x FY16e EPS of Rs 35.60 and 10.2x FY17e EPS of Rs 44.63. Factoring in unexpected jump in margins in the first half of current fiscal, we have upped our full year earnings estimates by 56.8% (Rs 35.6 v/s Rs 22.70). Considering sturdy earnings growth-arising out of sharp meltdown in commodity prices and modest auto sector growth, we assign a buy rating on the stock with a target of Rs 625 ( previous target: Rs 416) based on 14x FY17e earnings, over a period of 9-12 months. Figures (Rs crs) FY13 FY14 FY15 FY16e FY17e Net revenues 1070.21 1116.70 1142.56 1256.82 1382.50 Other Income 4.69 6.74 5.56 5.27 5.27 EBITDA (other income included) 65.76 57.83 64.87 93.25 105.50 Net Profit after EO 13.63 6.79 16.54 33.29 41.73 EPS(Rs) 14.58 7.27 17.69 35.60 44.63 EPS growth (%) 5.7-50.2 143.5 101.2 25.4
[ CD Equisearch Pvt Ltd Outlook & Recommendation Industry Outlook The Indian auto industry reported a 7.22% increase in overall vehicle sales in 2014-15, ending two years of sales fall, on the back of rising demand for passenger vehicles, two wheelers and medium and heavy commercial vehicles. Although dispatches in the two wheeler segment have barely grown (1.69%) in Apr-Nov 2015 period, but that of passenger (8.9%) and commercial vehicles (8.1%) have shown resilience. Sales would further accelerate thanks to moderation in interest rate, fall in ownership cost and improvement in economic activity and consumer sentiments. Source: SIAM Sources: Lumax; CD Equisearch The component sector clocked a turnover of US$ 39.7 billion, recording a CAGR of 8 per cent during the period of 2008-2013. The industry is expected to grow up to USD 115 billion by 2020, with increase in vehicle production. Of this, the domestic turnover is expected to touch USD 85 billion and exports USD 30 billion. The component industry is expected to become a significant contributor - 3.6%, to India s GDP, up from the current level of 2.2%. To achieve this potential, the industry requires additional skilled manpower of over 1 million and cumulative investment of over USD 35 billion. In the long term, the growth of this sector will depend partly on pace of indigenization levels across all segments. The prospects look bright as most companies are increasing the indigenous components, in an effort to reduce their currency losses and remain competitive. Also, the fact that auto manufacturers like Ford, Hyundai and Maruti are exporting cars, make the prospects look encouraging. Exports by the Indian auto component industry scaled from USD 5.1 billion in 2008-09 to USD 10.2 billion in 2013-14, at a compound annual growth rate of 15%. Capex Plans Lumax has no significant capex plans and it intends to invest 50 cr and 30-45 cr in FY16e and FY17e respectively. This capex will mainly be a routine capex and will be utilized for upgradation of plants and improvement in technology. Due to still wobbly growth of the auto sector we do not envisage a dramatic increase in its capacity utilization rate from its current rate of 65-70%. Future expansion With the technical collaboration with Stanley Electric Company of Japan, the company has a good pricing power and also a good rapport with Japanese automakers. While it currently caters to almost all existing models of Maruti Suzuki, Lumax has been roped in for its new model launches till FY 2017 as well. Lumax has also planned to increase its supply to upcoming models of Toyota, Honda (both cars and two wheelers), Hero and M&M. Higher utilization as a result of increasing vehicle demand, greater export revenue from supplies to Bentley, Jaguar Land Rover, Audi, New Holland and John Deere, and value additions through products such as LED lighting should help Lumax s margins expand further. 2 2
Product Wise Revenue (2015) Source:Lumax; CD Equisearch Lighting products have become an integral part of vehicle styling & design of lamp is being upgraded continuously to enhance the appeal of the vehicle. Further, OEMs now demand lower wattage & higher luminosity lamps to save energy which has made these products more technologically advanced. Lumax has successfully ventured into the LED lamp revealing a shift to the LED based technology which is also the future of automotive lighting industry. This technology will focus on working on HID and LED based lamps. Lumax plans the introduction of LED for License plate lamps, head lamps with LED projector and lamps with dual beam LED functions. Make in India Initiative The clarion call to Make in India by the Hon ble Prime Minister of India has spread a sense of positivity and the much needed enthusiasm in the Indian manufacturing base. Auto companies are exploring India as a hub for setting up manufacturing facilities to meet domestic and export demands. Indian auto component makers are well positioned 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 Make in India program includes major new initiatives designed to facilitate investment, foster innovation, protect intellectual property, and build best-in class manufacturing infrastructure. If the initiative unfolds, then it is most likely it will prove to be a major game changer for the auto component sector as it accounts for over 30% of the entire manufacturing sector in India. Financials and Valuations The income from operations of the company grew by 2.3% in year 2014-15 to Rs 1142.56 crs as against Rs 1116.70 in the previous year. The half yearly results have shown a growth of 10.8% in sales compared to the previous year. On the profitability side, the profit after tax stands at 16.58 crs in FY15 as compared to 7.70 crs in FY14. Backed by its strong pricing power due to its technical collaboration with Stanley, Japan, we expect Lumax s revenue to grow at an average rate of 10% over the next two years. Sources: Lumax; CD Equisearch Going forward we expect the operating margins to hover around 7% for FY16 & FY17, while the net profit margins are expected to improve to 2.6% in FY16 and 3.0% in FY17. This improvement would be due to strong volume growth leading to benefits of operating leverage and soft commodity prices. To boost its technical R&D prowess, the company made an investment over Rs 50 crores in the modernization of its existing manufacturing facilities last fiscal. 3 3
Backed by the modest growth in the two-wheeler and passenger vehicle segments and remarkable expansion in the automotive lamps, the company is expected to realize EBITDA growth of 43.8% in FY16. The company has no significant capex plans and the investment will only be utilized in product development and plant maintenance. The company is expected to fully retire its long term debt by FY17 as there is no capex utilized in setting of new plant or increasing its capacity utilization. The return ratios like ROCE & ROE are expected to be around 16-19% and around 17-19% respectively (see chart below) in the current and the next financial year. The company maintains the current ratio of 0.6 and debt equity ratio of around 0.7. The company maintains a negative cash conversion cycle due to its longer payment cycle. The profit before tax is expected to more than double in FY16 as there is considerable increase in the profits in the current half year. The profit before tax is expected to increase to Rs 41.61 crores in FY16 from 14.28 crores in FY15. As compared to the peers, Lumax reported good numbers in the recent quarter results. While strong peer like Fiem Industries Ltd reported a growth of 17% in profits in this quarter, Lumax reported 39% in the same period. Lumax margins have been quite low as compared to Fiem. (a brief comparison between the peers of the industry has been shown in the exhibit on the next page). Sources: Lumax; CD Equisearch The EPS grew by 143.5% in FY15 to Rs 17.69 from a low EPS of Rs 7.27 and we expect it to grow by 101.2% this year due to a substantial increase in the profits. The stock currently trades at 12.7x FY16e EPS of Rs 35.60 and 10.2x FY17e EPS of Rs 44.63. Factoring in unexpected jump in margins in the first half of current fiscal we have upped our full year earnings estimates by 56.8% (Rs 35.6 v/s Rs 22.70). Considering sturdy earnings growth- arising out of sharp meltdown in commodity prices and modest auto sector growth, we assign a buy rating on the stock with a target of Rs 625 ( previous target: Rs 416) based on 14x FY17e earnings, over a period of 9-12 months (for more info refer to our previous report dated March 10, 2015). 4 4
Risks and Concerns Automobile Industry The automobile industry has been in doldrums for the past years. The fortunes of the company are directly dependent on the automobile manufacturers (OEMs) growth and business plans. The OEM market is very competitive and component manufacturers have to compromise on margins to bag bulk orders. Moreover, delivery schedules and quality standards have to be adhered to very strictly. The macroeconomic conditions also have a huge impact on the automobile industry and its operations. Financial Risk The Company is exposed to financial risk from changes in interest rates, foreign exchange rates and commodity prices. The only way to evade these risks is to strengthen their R&D capabilities, deepen their OEM engagement, and establish close customer relationships with continuous self reliant technology and their young and dynamic workforce that will also give them a competitive edge. Since a significant portion of revenue of the auto component business comes from major clients like Maruti (35%), M&M (13%), Honda Cars (5%), Hero (10%), Honda two-wheeler (8%) any adverse impact from these clients can hurt its revenue. Cross Sectional Analysis Company Equity* CMP mcap Sales* Profit* OPM (%) NPM (%) Int cov. ROE (%) DER Mcap/sales P/BV P/E Lumax Ind 9.4 453 424 1203 25 6.1 2.1 3.0 13.1 0.4 0.4 2.1 16.9 FIEM Ind 12.0 746 892 875 46 12.4 5.2 6.3 19.7 0.6 1.0 3.6 19.5 *figures in crores, **Consolidated, all figures on ttm basis Although the companies presented in the exhibit above belong to the auto ancillary industry space yet they are not fully comparable due to variation in products manufacture. 5 5
Financials Quarterly Results Figures in Rs crs Q2FY16 Q2FY15 % chg H1FY16 H1FY15 % chg Revenue From Operations 304.21 286.58 6.2 622.10 561.62 10.8 Other Income 1.52 1.57-3.3 2.37 2.48-4.2 Total Income 305.73 288.15 6.1 624.47 564.10 10.7 Total Expenditure 284.28 270.30 5.2 575.53 528.62 8.9 EBITDA (other income incl.) 21.45 17.85 20.2 48.94 35.47 38.0 Interest 3.42 3.36 1.9 6.81 6.90-1.3 Depreciation 9.42 9.68-2.7 18.69 19.18-2.5 PBT 8.61 4.81 79.0 23.44 9.40 149.4 Tax 1.12-0.59-288.6 4.59-0.98-569.6 PAT 7.49 5.40 38.7 18.86 10.38 81.8 Extraordinary Item - - - - - - Adjusted Net Profit 7.49 5.40 38.7 18.86 10.38 81.8 EPS 8.02 5.78 38.7 20.17 11.10 81.8 Income Statement Figures in Rs crs FY13 FY14 FY15 FY16e FY17e Revenue From Operations 1070.21 1116.70 1142.56 1256.82 1382.50 Growth (%) 8.6 4.3 2.3 10.0 10.0 Other Income 4.69 6.74 5.56 5.27 5.27 Total Income 1074.90 1123.44 1148.12 1262.09 1387.77 Total Expenditure 1009.14 1065.62 1083.25 1168.84 1282.27 EBITDA (other income included) 65.76 57.83 64.87 93.25 105.50 Interest 18.57 17.41 14.43 14.60 12.09 Depreciation 31.63 36.62 36.16 37.04 39.57 PBT 15.56 3.79 14.28 41.61 53.84 Tax 1.98-3.91-2.30 8.32 12.11 PAT 13.58 7.70 16.58 33.29 41.73 Extraordinary Item -0.04 0.91 0.04 - - Adjusted Net Profit 13.63 6.79 16.54 33.29 41.73 EPS (Rs) 14.58 7.27 17.69 35.60 44.63 Equity Capital 9.35 9.35 9.35 9.35 9.35 6 6
Balance Sheet Figures in Rs crs FY13 FY14 FY15 FY16e FY17e Sources of Funds Share Capital 9.35 9.35 9.35 9.35 9.35 Reserves 160.09 163.93 170.96 197.47 232.41 Total Shareholders Funds 169.44 173.28 180.31 206.82 241.76 Long Term Debt 101.02 74.46 37.62 4.05 - Total Liabilities 270.46 247.74 217.92 210.87 241.76 Application of Funds Gross Block 648.70 660.68 712.71 768.94 813.94 Less: Accumulated Depreciation 243.12 275.84 316.86 353.90 393.48 Net Block 405.58 384.84 395.84 415.03 420.46 Capital Work in Progress 18.96 34.04 26.23 20.00 15.00 Investments 4.65 4.56 4.61 4.61 4.61 Current Assets, Loans & Advances Inventory 107.97 77.21 109.90 104.40 112.75 Trade Receivables 109.85 131.07 144.21 158.63 174.50 Cash and Bank 28.25 15.98 19.01 19.86 21.86 Other Assets 37.38 52.87 39.44 52.00 54.00 Total CA & LA 283.46 277.14 312.56 334.89 363.11 Current Liabilities 402.83 421.64 486.87 523.30 516.05 Provisions-Short term 7.74 7.42 9.37 9.93 9.93 Total Current Liabilities 410.57 429.06 496.24 533.23 525.99 Net Current Assets -127.11-151.92-183.68-198.34-162.88 Net Deferred Tax -23.37-19.88-15.23-19.81-19.81 Net long term assets -8.25-3.89-9.85-10.62-15.62 Total Assets 270.46 247.74 217.92 210.87 241.76 7 7
Key Financial Ratios FY13 FY14 FY15 FY16e FY17e Growth Ratios (%) Revenue 8.6 4.3 2.3 10.0 10.0 EBITDA 33.0-13.5 13.9 43.8 13.1 Net Profit 5.7-50.2 143.5 101.2 25.4 EPS 5.7-50.2 143.5 101.2 25.4 Margins (%) Operating Profit Margin 5.7 4.6 5.2 7.0 7.3 Gross profit Margin 4.4 3.5 4.4 6.3 6.8 Net Profit Margin 1.3 0.6 1.4 2.6 3.0 Return (%) ROCE* 10.0 6.0 8.5 16.3 19.0 RONW 8.3 4.0 9.4 17.2 18.6 Valuations Market Cap/ Sales 0.3 0.2 0.3 0.3 0.3 EV/EBITDA 7.2 7.3 7.0 5.3 4.7 P/E 24.0 40.0 19.0 12.7 10.2 P/BV 1.9 1.6 1.7 2.0 1.8 Other Ratios Interest Coverage 1.8 1.2 2.0 3.9 5.5 Debt Equity 1.0 0.9 0.9 0.7 0.4 Current Ratio 0.7 0.6 0.6 0.6 0.7 Turnover Ratios Fixed Asset Turnover 2.8 2.8 2.9 3.1 3.3 Total Asset Turnover 3.9 4.3 4.9 5.9 6.1 Debtors Turnover 9.0 9.3 8.3 8.3 8.3 Inventory Turnover 10.2 11.5 11.6 10.9 11.8 Creditor Turnover 3.6 3.7 3.7 3.9 4.0 Working Capital Turnover -26.5-18.5-17.5-20.5-23.0 WC Ratios Debtor Days 40.3 39.4 44.0 44.0 44.0 Inventory Days 35.8 31.7 31.5 33.5 30.9 Creditor Days 102.3 98.4 98.1 94.8 90.7 Cash Conversion Cycle -26.1-27.3-22.6-17.4-15.8 *Pre-tax 8 8
Financial Summary US dollar denominated million $ FY13 FY14 FY15 FY16e FY17e Equity capital 1.7 1.6 1.5 1.4 1.4 Shareholders funds 31.2 28.8 28.8 30.9 36.2 Total debt 32.3 26.3 25.5 21.2 15.5 Net fixed assets (incl CWIP) 78.1 69.7 67.4 65.1 65.1 Investments 0.9 0.8 0.7 0.7 0.7 Net current assets -23.4-25.3-29.3-29.7-24.4 Total assets 49.7 41.2 34.8 31.5 36.2 Revenues 196.5 184.6 186.9 188.0 206.8 EBITDA 12.1 9.4 10.6 13.9 15.8 EBDT 8.7 6.5 8.2 11.8 14.0 PBT 2.9 0.5 2.3 6.2 8.1 PAT 2.5 1.1 2.7 5.0 6.2 EPS($) 0.3 0.1 0.3 0.5 0.7 Book value ($) 3.3 3.1 3.1 3.3 3.9 *income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates 9 9
Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as CD Equi ) is a Member registered with National Stock Exchange of India Limited, Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited (Formerly known as MCX Stock Exchange Limited). CD Equi is also registered as Depository Participant with CDSL and AMFI registered Mutual Fund Advisor. The associates of CD Equi are engaged in activities relating to NBFC-ND - Financing and Investment, Commodity Broking, Real Estate, etc. CD Equi has applied for registration under SEBI (Research Analysts) Regulations, 2014. Further, CD Equi hereby declares that No disciplinary action has been taken against CD Equi by any of the regulatory authorities. CD Equi/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material conflict of interest in the subject company(s). CD Equi/its associates/research analysts have not received any compensation from the subject company(s) during the past twelve months. CD Equi/its research analysts has not served as an officer, director or employee of company covered by analysts and has not been engaged in market making activity of the company covered by analysts. This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an investment. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. CD Equi or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or other reasons that prevent us from doing so. This document is being supplied to you solely for your information and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Neither, CD Equi nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. CD Equisearch Private Limited (CIN: U67120WB1995PTC071521) Registered Office: 37, Shakespeare Sarani, 1 st Floor, Kolkata 700 017; Phone: +91(33) 4488 0000; Fax: +91(33) 2289 2557; Corporate Office: 10, Vasawani Mansion, 2 nd Floor, Dinshaw Wachha Road, Churchgate, Mumbai 400 020; Phone: +91(22) 2283 0652/0653; Fax: +91(22) 2283, 2276 Website: www.cdequi.com; Email: research@cdequi.com buy: >20% accumulate: >10% to 20% hold: -10% to 10% reduce: -20% to <-10% sell: <-20% 10 10