Accumulate Lumax Industries; target of Rs 1675: Dolat Capital Market

Dolat Capital Market's research report on Lumax Industries

Lumax Industries (LIL) exhibited decent performance in 3Q. Revenue/EBITDA grew by 16/11% YoY respectively. EBITDA margin stood at 10.7% (-53bps YoY/+152 QoQ), impact of RM cost headwind was partially offset by cost control measures and better mix (increase in proportion of Head lamps). The company underperformed PV industry’s growth in 3Q due to adverse model mix (Doesn’t supply in MSIL’s model Brezza and Baleno), however supported from strong growth in 2W led by increasing SOB with TVS and HMSI. Revenue from PVs segment grew by 12% while 2W jumped 44% YoY. LED Contribution stood at 32% in 3QFY21 vs 35% in 2QFY21 due to adverse model mix, the management expects it will improve to 50-55% in the next 3-4 years. JVs performance has also improved sharply in 3Q led by strong volume growth trajectory of Hyundai and KIA motors. We expect JV profit continue to grow with good pace led by increasing market share of KIA. Given the leadership position in the PVs lighting business (~65% market share, Including JVs supply to Hyundai and Kia), strong relationships with OEMs (MSIL, HMSI & HML) LIL is a good bet to play on recovery in PV & 2W. Moreover, the Company’s efforts to rationalize cost, together with integration of in-house electronic facilities, and increasing mix of LED will help scale up the margin going forward.

Outlook

We continue to believe that the long term story for Lumax is intact, with an increasing mix of high value LED business, increasing focus of OEMs for content localization. We maintain Accumulate with a TP of Rs. 1,675 (based on 18x FY23E EPS).

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