Q2FY20 Result Update

Lumax Ind. Ltd.

Topline dropped by 17% yoy to INR 429 cr in Q2FY20. The performance was impacted because of Vishal Srivastav
continued sharp downslide observed in automobile production for consecutive last three quarters. Research Analyst
Despite significantly negative operating leverage, company’s ability to clock highest ever EBITDA vishal.srivastav@edelweissfin.com
margins of 9.9% in Q2FY20 was encouraging. Recording high margin for second straight quarter in tough
demand scenario gives confidence in management guidance of 12-13% EBITDA margins during healthy
demand situation. Although working capital cycle became little stretched and short term debt increased
in order to fund additional requirement, management guided it was a temporary phenomenon as
company supported its vendors in tough market environment by making payment early than normal.
We believe with production trend expected to gradually improve sequentially as concern of high CMP INR: 1,248
inventory is now behind, company’s efforts towards cost rationalization & backward integration along
with increasing mix of LED post BS VI implementation will help to significantly scale up the margins going Rating: BUY
forward. Hence we continue to maintain BUY rating on the stock with the Target Price of INR 1500
Target Price INR: 1,500
Sharp cuts in production and slower growth in adoption in LEDs weighed down the topline in Q2FY20 Upside: 20%
Significant production cuts (i.e. 16% yoy) by all OEMs for consecutive third quarter during Q2FY20, because
of very high levels of inventory pile up as a result of sharp demand slowdown derailed the strong growth
momentum Lumax was going through 7-8 quarters till Q3FY19. Further as realisation benefits from LEDs
was marginal i.e. ~4% yoy sharper volume decline across Lumax’s customers led topline to drop by 17%
yoy during the quarter.

Despite sharp slowdown in top line, margins continue to impress for 2nd quarter in a row
Lumax observed highest ever EBITDA margin for last two consecutive quarters (i.e. 9.5%/9.9% in
Q1FY20/Q2FY20), despite sharp drop in industry production (i.e. -11%/-16% in Q1FY20/Q2FY20). This is
evident that management’s commitment towards backward integration is paying off. Although working Bloomberg: LUMX:IN
capital cycle stretched and short term debt increased, management guided it to be a temporary
phenomenon as company supported its smaller vendors in tough market environment by making payment 52-week
1,969 / 910
early than normal. We believe with production trend expected to improve sequentially as concern of high range (INR):
inventory is now behind, management’s efforts towards cost rationalization and back ward integration,
company is well poised to clock 12-13% EBITDA margin as guided by management in near term. Share in issue (cr): 1

M cap (INR cr): 1,164

Backward Integration, cost cutting & localization will help company scale up the margins from these
levels as well Avg. Daily Vol.
Margin improvement through increasing localisation and backward integration in last two quarters, 3700
BSE/NSE :(‘000):
provides confidence that investment of INR 75 cr towards setting up electronic facility for localising
component manufacturing, product design and development will lead to further margin improvement. Promoter
Management guidance of decreasing import content from 60% currently to 30% and scaling up EBITDA 75.00
Holding (%)
margins to 12-13% in next 2-3 years is encouraging. Further technology sharing agreement with Stanley
Corporation, Japan provides confidence over future new product technology pipeline in automotive
lightings.

Valuation
At CMP, the stock is trading at 13x/10x of FY20E/FY21E EPS estimates. We believe, as demand is expected
to gradual recover sequentially, company’s efforts towards increasing localisation and backward
integration will provide significant fillip to the overall performance in near term going ahead. Further with
LED transition to pickup as demand scenario recovers, Lumax will be best placed to reap the benefits. We
continue to maintain BUY rating for the stock with the Target Price of INR 1500.

(INR Cr) Q2FY19 Q2FY20 % change Q1FY20 % change FY19 FY20E FY21E
Net Revenue 518 429 -17% 402 7% 1851 1709 2079
Revenue Growth(%) 12% -8% 22%
EBITDA 41 43 5% 38 11% 152 165 209
EBITDAM (%) 7.8% 9.9% 9.5% 8.2% 9.7% 10.1%
Adj. PAT 21 20 -4% 17 21% 103 76 94
Growth(%) 43.8% -25.7% 23.4%
Adj. Diluted EPS 110 81 101
Diluted P/E (x) 11.4 15.3 12.4
EV/EBITDA (x) 8.6 8.0 6.1
RoCE (%) 21.5% 18.3% 22.1%
Date: 20th November, 2019

Edelweiss Professional Investor Research 1

Lumax Ind. Ltd.
Q2FY20 Result Highlights

INR crore Q2FY19 Q2FY20 % change Q1FY20 % change H1FY19 H1FY20 % change
Net Sales 518 429 -17% 402 7% 1000 831 -17%
Material cost 348 268 -23% 248 8% 667 516 -23%
Gross profit 170 161 -5% 154 5% 333 315 -5%
Operating expenditure 477 386 -19% 364 6% 919 750 -18%
EBITDA 41 43 5% 38 11% 81 81 0%
Depreciation 14 16 15% 15 5% 27 31 15%
Other Income 1 1 9% 1 8% 1 2 54%
Interest 4 5 36% 5 8% 7 10 43%
Profit from associates 2 4 95% 3 15% 5 7 32%
Exceptional 0 0 n.m. 0 n.m 0 0 n.m.
Profit before tax 26 26 2% 23 17% 54 49 -8%
Tax 5 6 25% 6 4% 13 13 -2%
Reported Net profit 21 20 -4% 17 21% 41 37 -10%
As % of revenues
COGS 67.2% 62.4% - 61.7% - 66.7% 62.0% -
Operating expenses 92.2% 90.1% - 90.5% - 91.9% 90.3% -
EBITDA 7.8% 9.9% - 9.5% - 8.1% 9.7% -
Reported Net profit 11.0% 4.7% - 4.1% - 4.1% 4.4% -
Tax rate (% to PBT) 8.2% 24.1% - 27.0% - 23.8% 25.4% -

Edelweiss Professional Investor Research 2

 Lumax Ind. Ltd.
Q2FY20 Result Highlights

Key takeaways from the concall

Performance overview:
 Industry continued its downward trajectory despite of discounts given by the OEMs was as high as 15%-25% primarily
because of (a) weak demand situation & (b) Inventory correction.
 The top three customers of Lumax industries, namely MSIL, HMSI & Hero motor Corp have seen a decline in volumes which
was higher than the average industry decline.
 Lumax current penetration levels in total lighting requirement in its top 3 OEMs - MSIL is 45%, HMSI is 50% and Hero Moto
Corp is 35%.
 The ratio of LED to conventional lights in topline currently stands at 33:67. Although LED mix fuelled realisation growth by
4% yoy during the quarter, sharp 20% yoy decline in volume pulled down the topline.
 Management indicated margins improvement due to (a) cost cutting initiative & (b) insourcing of electronics business which
began in April 2019.
 Revenue from mould in Q2FY20 was INR 43cr.

 Swift & Activa contribute 55-60% of LED Revenue.

Operational guidance:
 The management highlighted the market share of the company in both 2W & 4W segments
PV – 69% Conventional vs 31% LED
2W – 55% Conventional vs 45% LED
 Lumax have started supplying to new launches such as MSIL S-Presso, Hero’s first BS VI motorcycle iSmart and TVS N Torque
 Management believes the new vehicle scrappage policy will be key to boost sales for the ailing auto industry.
 Management also stated that pre-buying before BS VI implementation has not come through yet, and industry expectation is
that this time pre-buying will be marginal and it will happen only in Q4FY20.
 Management believes with inventory position improved, production uptick may be witnessed in Q4FY20.
 The company has entered into agreement with Stanley Electric Co, Japan to set up new electronic facility in India for catering
component requirement for PCB’s manufacturing. Also company has tiedup with Stanley to introduce new technology
products going forward.

 Capex incurred in H1FY20 was INR 36 cr in H1FY20, which includes INR 13-14 cr incurred in PCB plant. Capex for FY20 is
expected to be INR 135cr, out of which INR 75cr was in new electronic facility for manufacturing PCB components.

 Tax rate for full year will be 27-28%. The company will not be going into the new tax regime due to substantial MAT credit
balance.

Outlook:
 The management does not expect the industry scenario to improve over the third quarter of FY20 but remains hopeful of a
revival in the last quarter as the pre buying for BS VI vehicles kicks in and the state of the economy improves.
 The management has guided a 10% degrowth in topline for FY20.
 Lumax Industries target EBITDA margin is 12-13% in next 2-3 years and targets to maintain ROCE in the range of 25-30%

Edelweiss Professional Investor Research 3

 Lumax Ind. Ltd.
Q2FY20 Result Highlights

Previous Result Outlook

Q1FY20 Outlook
At CMP, the stock is trading at 11x/9x of FY20E/FY21E EPS estimates. We foresee H2FY20 may bring some revival for automobile
industry driven by ease in liquidity and interest rates, good monsoons, festive season along prebuying before BS VI
implementation, which will turn the tide in favour of Lumax. Further on medium to long term basis we foresee Lumax to be major
beneficiary of LED transition in the automobile industry, hence we continue to maintain BUY rating with the stock with the revised
target price of INR 1804..

Q4FY19 Outlook
We expect extended demand slowdown in automobile sales in H1FY20 will strain growth levels for the company in FY20; however
management’s expectation of margin improvement because of backward integration even in challenging environment is
comforting. Further introduction of BSVI norms will further drive growth for LED lighting because of its lower energy consumption
in the later half of FY20 as we get closer to BS VI implementation, while we may see LED penetration to pick up steam in FY21 and
reach close of 50% penetration levels. Having market leadership in lighting business Lumax will continue to enjoy strong growth
potential in medium to long term as the industry keeps moving towards value addition in automotive lighting space. Hence we
continue to maintain BUY rating on the stock, however as far as near term in concerned, we believe demand slowdown will
continue to impact performance for next couple of quarters, hence we have downward revised our Target Price to INR 2018 from
INR 2515 earlier.

Q1FY20 Q4FY19

Edelweiss Professional Investor Research 4

Lumax Ind. Ltd.
Financials

Income statement (INR cr)

Year to March FY17 FY18 FY19 FY20E FY21E
Income from operations 1,271 1,649 1,851 1,709 2,079
Direct costs 862 1,140 1,272 1,128 1,372
Employee costs 160 189 218 236 283
Other expenses 308 375 427 416 498
Total operating expenses 1,170 1,515 1,700 1,544 1,870
EBITDA 101 135 152 165 209
Depreciation and amortisation 41 48 60 68 75
EBIT 60 87 92 97 134
Interest expenses 11 8 16 15 19
Other income 7 5 12 9 6
Profit before tax 55 84 88 91 121
Provision for tax 10 26 30 25 40
Core profit 45 58 57 65 81
Extraordinary items (0) (0) 36 0 0
Minority Interest 0 0 0 0 0
Share from associates 11 13 9 11 13
Adjusted net profit 55 71 103 76 94
Equity shares outstanding (mn) 1 1 1 1 1
EPS (INR) basic 58.8 76.3 109.7 81.5 100.5
Diluted shares (Cr) 0.9 0.9 0.9 0.9 0.9
EPS (INR) fully diluted 58.8 76.3 109.7 81.5 100.5
Dividend per share 0.0 20.0 28.8 21.4 26.4
Dividend payout (%) 0.0 26.3 26.3 26.3 26.3

Common size metrics- as % of net

(INR cr)
revenues
Year to March FY17 FY18 FY19 FY20E FY21E
Operating expenses 92.1 91.8 91.8 90.3 89.9
Depreciation 3.3 2.9 3.3 4.0 3.6
Interest expenditure 0.9 0.5 0.8 0.9 0.9
EBITDA margins 7.9 8.2 8.2 9.7 10.1
Net profit margins 4.3 4.3 5.5 4.5 4.5

Growth metrics (%)

Year to March FY17 FY18 FY19 FY20E FY21E
Revenues 1.3 29.8 12.3 (7.7) 21.6
EBITDA 14.0 33.3 13.0 8.7 26.7
PBT 34.1 52.8 4.2 3.3 33.9
Net profit 6.0 29.7 43.8 (25.7) 23.4
EPS 6.0 29.7 43.8 (25.7) 23.4

Edelweiss Professional Investor Research 5

Lumax Ind. Ltd.
Financials

Balance sheet (INR cr)

As on 31st March FY17 FY18 FY19 FY20E FY21E
Equity share capital 9 9 9 9 9
Reserves & surplus 300 353 426 482 551
Shareholders funds 309 362 435 491 560
Secured loans 23 60 38 0 0
Unsecured loans 69 44 102 0 0
Borrowings 92 104 140 170 130
Sources of funds 402 466 575 661 690
Gross block 812 1,015 1,179 1,299 1,429
Depreciation 393 482 629 697 772
Net block 419 532 549 601 656
Capital work in progress 20 34 50 15 20
Total fixed assets 439 566 599 616 676
Investments 79 88 81 81 81
Inventories 116 169 204 198 252
Sundry debtors 191 318 221 218 282
Cash and equivalents 1 2 2 9 11
Loans and advances 40 73 37 68 83
Total current assets 348 562 465 493 629
Sundry creditors and others 439 707 560 520 686
Provisions 8 11 12 12 12
Total CL & provisions 446 718 573 532 698
Net current assets (99) (156) (108) (39) (70)
Net Deferred tax (6) (14) (17) (17) (17)
Misc expenditure (11) (18) 20 20 20
Uses of funds 402 466 575 661 690
Book value per share (INR) 331 387 465 525 599

Cash flow statement

Year to March FY17 FY18 FY19 FY20E FY21E
Net profit 55 71 103 76 94
Add: Depreciation 41 48 60 68 75
Add: Deferred tax (13) 7 3 0 0
Gross cash flow 83 127 166 144 169
Less: Changes in W. C. (16) (58) 48 62 (33)
Operating cash flow 100 185 119 82 202
Less: Capex 55 175 94 85 135
Free cash flow 44 10 25 (3) 67

Edelweiss Professional Investor Research 6

Lumax Ind. Ltd.
Financials

Ratios
Year to March FY17 FY18 FY19 FY20E FY21E
ROAE (%) 19.0 21.2 25.7 16.5 17.9
ROACE (%) 18.1 23.6 21.5 18.3 22.1
Debtors (days) 55 70 44 47 50
Current ratio 0.8 0.8 0.8 0.9 0.9
Debt/Equity 0.3 0.3 0.3 0.3 0.2
Inventory (days) 33 37 40 42 44
Payable (days) 98 130 82 80 95
Cash conversion cycle (days) (10) (22) 2 9 (1)
Debt/EBITDA 0.9 0.8 0.9 1.0 0.6
Adjusted debt/Equity 0.3 0.3 0.3 0.3 0.2

Valuation parameters
Year to March FY17 FY18 FY19 FY20E FY21E
Diluted EPS (INR) 58.8 76.3 109.7 81.5 100.5
Y-o-Y growth (%) 6.0 29.7 43.8 (25.7) 23.4
CEPS (INR) 103.1 127.5 174.1 154.3 180.7
Diluted P/E (x) 21.2 16.3 11.4 15.3 12.4
Price/BV(x) 3.8 3.2 2.7 2.4 2.1
EV/Sales (x) 1.0 0.8 0.7 0.8 0.6
EV/EBITDA (x) 12.4 9.4 8.6 8.0 6.1
Diluted shares O/S 0.9 0.9 0.9 0.9 0.9
Basic EPS 58.8 76.3 109.7 81.5 100.5
Basic PE (x) 21.2 16.3 11.4 15.3 12.4
Dividend yield (%) 0.0 1.6 2.3 1.7 2.1

Edelweiss Professional Investor Research 7

Lumax Ind. Ltd.

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

Vinay Khattar
VINAY
Digitally signed by VINAY KHATTAR
DN: c=IN, o=Personal, postalCode=400072,
st=Maharashtra,

Head Research 2.5.4.20=87db74ffb17a70c89e8519a4d13e40e93c4bcab

KHATTAR
a1a64d00f3c841d2fee3fa678,
serialNumber=cd5737057831c416d2a5f7064cb6931838
87e7ff342c50bd877e00c00e2e82a1, cn=VINAY KHATTAR
vinay.khattar@edelweissfin.com Date: 2019.11.20 12:30:03 +05'30'

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

840
740

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(Indexed)

440
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Lumax Sensex

Edelweiss Professional Investor Research 8

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