Accumulate Lumax Industries; target of Rs 2040: CD Equisearch

CD Equisearch's research report on Lumax Industries

India’s apex industry body, SIAM, has forecasted a single digit growth for overall vehicle sales in FY20 owing to rise in commodity prices, below normal monsoon and elections. Passenger vehicle sales are projected to grow between 3-5 percent and commercial vehicle at 10-12 percent. The two wheeler and three wheeler segment is expected to grow between 5-7 percent and 7-9 percent respectively. With a robust outlook for LED automotive lighting, the company has undertaken a brownfield expansion project at its Gujarat facility to increase capacity for tapping future growth opportunities. With an additional investment of ~Rs 25 crs, LIL intends to increase its Sanand capacity for passenger vehicles by 100,000 vehicle sets to 400,000 vehicle sets per year and set up a SMT for a specific two wheeler model in the Sanand unit during the year. Overall, capex of about Rs 80 crs is earmarked for FY19 which also includes brownfield expansions in plants at Bengaluru and Dharehura, both of which are expected to be completed in FY20.

Outlook

Given the recent slowdown of the automobile industry affecting the sales and profitability of the company over the short term, we assign ‘accumulate’ rating on the stock with a revised target of Rs 2040 (previous target: Rs 2382) based on 20x FY20e earnings over a period of 9-12 months.