FIEM Industries a multibagger, says Ashish Chugh

FIEM Industries is a multibagger, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, "FIEM Industries is one of the few auto ancillaries which have grown their topline by 30 percent compound annual growth rate (CAGR) and bottomline by 70 percent CAGR in the past three years. This is a company which manufactures automotive lighting products which includes headlamps, tail lamps, fog lamps and side indicators. This company caters mainly to the two-wheeler segment even though it supplies products for cars as well  as for commercial vehicles but major portion of the turnover comes from the two-wheeler segment."
He further added, "This company has got eight manufacturing plant and these are located in Karnataka, Tamil Nadu, Haryana and Rajasthan. All of these plant are fairly large size plant. The company last year started its Alwar plant which is built on 10 acre and this plant caters exclusively to Hondo Motorcycle."
"If you look at the financials of the company, FY12 sales were about Rs 530 crore which were up by 27 percent over FY11, profit after tax almost increased by 80 percent to Rs 21 crore and cash profit was about Rs 38 crore. In the first half sales have increased by 15 percent to about Rs 286 crore and profit after tax is up by about 10 percent to about Rs 11.5 crore and cash profit is about Rs 20 crore."
"This company is expanding aggressively in the LED business. LED business is where the future growth is going to come from. This company is manufacturing LED display panels which are used for various commercial applications and also LED lights for residential and commercial purposes and they are also focusing on manufacturing of LED solar lights. So the LED business is the one which is going to be the growth driver for the future."
"The key risk in this investment is that this company is focused primarily on the two-wheeler segment and more on Honda Motorcycle. So there is an overdependence on one customer but I am not sure whether this is a risk or a positive because Honda Motorcycle has just entered the Indian market, about few years back and they are in an aggressive growth stage, they have got aggressive growth plans. So in case there is a slowdown there then the company can get impacted."
"The promoters’ holding is high at about 70 percent and they have increased their holding by 5 percent in the last three years. If you look at the valuation of the company, the cash profit is about Rs 38 crore to 40 crore, the marketcap of the  company is about Rs 200 crore at the current price of Rs 170 which means cash PE of about 6."
"If you compare this company with the peer group, which is Lumax Industries, which is the nearest peer to FIEM Industries, you find a huge valuation gap between the two companies even though the operating margins of Lumax are lower than that of FIEM it commands a marketcap which is much higher and PE multiple of close to between 30-35 whereas FIEM trades at a PE multiple of about 9-10. So given the growth which has been coming for the past three years and which is expected in the future, I think there could be a PE expansion and also increase in profits of the company in the future." Disclosure: No positions in FIEM.