Hold Lumax Industries; target of Rs 523: SPA

SPA's reserach report on Lumax IndustriesLumax Industries Q2FY16 results came inline with estimates both on the topline and PBT level (PAT was higher than estimate due to lower than expected tax rate). The company had clocked in revenue growth of 6.2% to INR 3042 mn whereas PAT grew by 38.6% to INR 75 mn. EBITDA grew by 22.4% YoY to INR 199 mn whereas margins expanded by 87 bps YoY to 6.6%. Lumax's positive surprise in H1FY16 leads us to upgrade our earnings ~14% due to lower raw material cost scenario. We change our recommendation from Buy to Hold with revised target price of INR 523 (previous target- INR 457) based on 15x FY17E earnings.With growth in PV industry, Lumax Industries has shown improvement in operations. ~50% market share in domestic passenger car industry coupled with superior technological knowhow places Lumax Industries on a strong footing. Lumax, being a preferred choice of OEMs, is set to benefit from significant increase in production of cars (given the current low level of penetration of ~19 cars/1000 persons in India v/s ~126 in Brazil & 806 in USA and emergence of India as an export hub). In the near term, growth in passenger vehicle industry and recovery in 2-Wheeler industry coupled with decent order book of INR 5 bn for new models ensures revenue visibility followed by the opportunity from fresh OEM capacities coming up in Gujarat. Profit margin & return ratios are set to expand on the back of higher utilisation across plants, lower capex requirement going forward & decline in finance costs. Topline & bottomline is expected to grow at a CAGR of 13.9% & 40.4% between FY15-17E. Lumax's positive surprise in H1FY16 leads us to upgrade our earnings ~14% due to lower raw material cost scenario. We change our recommendation from Buy to Hold with revised target price of INR 523 (previous target- INR 457) based on 15x FY17E earnings. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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