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Lumax Industries Q3 – In-line numbers, a proxy play on LEDs

February 24, 2020 / 01:52 PM IST

Highlights
-  Top line saw a double-digit decline
- Cost reduction and localisation yielding results
- Increasing LED adoption is a game changer for Lumax
- LEDs have higher value and margins- Stock trades at reasonable valuation; buy with an eye on the long term

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Amid the slowdown in the auto industry, Lumax Industries (Lumax) (CMP: Rs 1,332, Mcap: Rs 1,254 crore), an end-to-end lighting solution provider for automobiles, posted an in-line set of numbers in Q3 FY20. It saw more than double-digit percent year-on-year (YoY) decline in revenues, but what impressed us is the expansion in its operating profitability. The growth was led by cost control initiatives, in-sourcing of electronics and soft raw material (RM) prices.

Though the weakness continues, the outlook for the long term remains positive on the back of expectations of demand recovery from a low base, the company’s focus on margin improvement through cost reduction and localisation of imported products, increasing adoption of LED-based products and increase in content per vehicle post BS VI implementation. This coupled with an attractive valuation (11.3 times FY21 projected earnings) make Lumax a strong candidate for a long-term equity portfolio.