Buy Lumax Industries; target of Rs 2360: Cholamandalam Securities

Cholamandalam Securities' research report on Lumax Industries

In 2QFY19, Lumax Industries clocked robust revenue growth of 36.4% YoY to INR 5,178mn, led by 32%,36%and47%YoY growth in passenger vehicle, commercial vehicle and 2wheelers segment respectively. The share of LEDs currently stands at ~35% EBITDA came in at INR 405mn (+34.7% YoY) led by a shift towards LEDs in automotive lighting with EBITDA margin at 7.8% down by 40 bps sequentially on account of rising commodity prices and higher import content. Currently the import content for LEDs remains at ~65% and the management aims to reduce it to ~50% by FY20. The negative impact on the margins in the near term would be offset by higher realizations on LEDs (3x-10x compared to conventional lamps) as the usage of LEDs increase. The margins were also affected due to INR depreciation.PAT for the quarter was INR 209 mn. The bottom-line remained stable despite robust revenue growth owing to foreign exchange loss of INR 43mn.

Outlook

We arrive at a price target of INR 2,360 based on P/E of 18x FY20EPS and maintain a BUY rating on the stock.