Lumax Industries Ltd
(BSE Code: 517206) (CMP: Rs.2035.30) (FV: Rs.10) (TGT: Rs.2450+)
Incorporated in 1945, New Delhi based Lumax Industries Ltd (LIL) manufactures and supplies auto components. It has 9 manufacturing plants that primarily manufacture automotive lighting equipment as well as other related products and accessories. Its products find application in four and two wheelers, trucks, buses, earth-movers, tractors, etc. It supplies to various original equipment manufacturers (OEMs) including Maruti Suzuki India (MSI), Honda Motorcycle & Scooter India (HMSI), Hero MotoCorp, Mahindra & Mahindra (M&M), Tata Motors, Honda Cars, etc. It has also served Hyundai through its associate company SL Lumax (21.28% stake) in the automotive lighting space. It has over 3 decades of strong partnership with Stanley Electric Company Ltd.
LIL derives 68% of its revenue from passenger vehicles (PVs) and MSI’s various models of Notchbacks/Hatchbacks/SUVs that contributed ~32% of the total lightening revenue in FY18. We expect domestic PV sales to grow at 12.87% CAGR over FY16-26.
The demand for LED lamps in upper variants of Mid, Compact and SPV segments of PVs is rising. Moreover, increasing safety norms in the two-wheeler segment that require AHO (Automatic Headlamp On) features to install on all new vehicles also boosts the demand for LED lamps, which provides better revenue visibility to LIL going forward. Realization in LED lamps is higher compared to non-LED lamps due to addition of new technology in the lightening system. The share of LED lamps has improved from 8% in FY17 to 35% in Q1FY19 and the management expects this ratio to improve further going forward.
LIL has strategically located its plant near major OEMs for faster supply of lighting equipment. Recently, it commissioned a 3,00,000 car sets a year facility in Gujarat, from where it currently serves MSI and will serve Tata Motors and HMSI in future. The management also guided for capacity addition and other routine maintenance capex of Rs.80 crore in FY19 in some of the parts.
Strong relationship with major Auto OEMs, increasing sales of PVs, two-wheelers and commercial vehicles (CVs) and improving revenue mix from Halogen lamps to LED lamps augur well for LIL. Moreover, the management plans to localize the manufacture of LED lamps, which are currently imported. The management expects this move to improve margins up to 10% by FY20.
Technical Outlook: The stock looks very good on the daily chart for medium-term investment. It has made a higher high and higher low formation while forming a downward channel pattern on the daily chart. A close above Rs.2175 will push the stock higher. The stock trades below all important moving averages like the 200 DMA level placed at Rs.2130 on the daily chart.
Start accumulating at this level of Rs.2035.30 and on dips to Rs.1945 for medium-to-long term investment and a possible price target of Rs.2450+ in the next 12 months.