LUMAX AUTO TECHNOLOGIES LTD: SHIFTING ITS GEARS !!!

Scrip Code: 532796 / LUMAXTECH

CMP:  Rs. 288.40; Market Cap: Rs. 392.32 Cr; 52 Week High/Low: Rs. 322.75 / Rs. 90.90.

Total Shares: 1,35,57,327 shares; Promoters : 75,89,146 shares – 55.67 %; Total Public holding : 59,68,181 shares – 44.02 %; Book Value: Rs. 75.83; Face Value: Rs. 10.00; EPS: Rs. 24.84; Dividend: 15.00 %; P/E: 11.61 times; Ind. P/E: 14.94; EV/EBITDA: 5.83.

Total Debt: Rs. 38.79 Cr; Enterprise Value: Rs. 417.95 Cr.

LUMAX AUTO TECHNOLOGIES LIMITED: Lumax Auto Technologies Limited was founded in 1981 and is based in Pune, India. The company was formerly known as Dhanesh Auto Electricals Limited and changed its name to Lumax Auto Technologies Limited in 2006. It manufactures and sells automotive parts for two wheeler and three wheeler industry in India. Lumax Auto Technologies Ltd came with an IPO in December 2006 offering 30.12 lakh equity shares of Rs. 10 each for Rs. 75 per share raising Rs. 22.60 Cr. The object of offer for sale was to part finance the project’s cost of Rs. 50.2 crore and for other general corporate purposes. The company primarily offers two wheeler chassis; exhaust systems and mufflers, and silencers; petrol tanks; sheet metal and tubular welded products, such as handle bar assemblies, side stands, main stands, footrest assemblies, fork assemblies, and number plates; gear shift levers; parking brakes; adjustor motors; and PCBs, as well as auto lightings. It is also involved in the trading of automotive parts. Lumax Auto Technologies Ltd has 6 manufacturing facilities in India, which are strategically located in the automotive industrial belt in Maharashtra. It has also has a setup in Himachal Pradesh. Lumax Auto’s other manufacturing units are located at Bhosai, Chinchawad, Chakan, Pantnagar in Uttaranchal and Waluj in Maharashtra. Company’s subsidiaries include Lumax DK Auto Industries Limited. LDK, The Gear Shifter division (including research and development facilities) of LDK has been demerged from the LDK and transferred to LMAT w.e.f. October 01, 2013. Recently the company has sold some stake of LMAT to Mannoh Industrial Co, Ltd, Japan. In order to strengthen its foothold in the seat frame business, the Company has entered into a Joint Venture Agreement with Gill-Austem LLC as new JV Company - Lumax Gill-Austem Auto Technologies Private Limited (LGAT) was incorporated during the year. Another JV, Lumax Cornagiia Auto Tech (LCAT) is supplying Air Intake System (AIS) to leading automobile manufactures in India viz. TATA, FIAT, VOLKSWAGEN, SKODA & General Motors. Lumax Auto Technologies Limited is locally compared with Amtek Auto Ltd, Balkrishna Industries, Bharat Forge LTd, Munjal Auto Ind Ltd, Suprajit Engineering Ltd, Motherson Sumi Systems, Swaraj Engines Ltd, Richo Auto and globally compared with Bosch Ltd of USA, Cub Elecparts Inc of Taiwan, Depo Auto Parts Industrial Co. Ltd of Taiwan, Toyota Industries Corporation of Japan, ARB Corp Ltd of Australia, Stanley Elecctric Co of Japan, Sumitomo Electric Ind Ltd from Japan, Sangsin Brake Co. ltd of South Korea, Denso Co of Japan, Metair Investments Ltd Johannesburg, AD Plastik d.d of Africa, DaNang Rubber JSC of Middle East, Phuoc Hoa Rubber JSC , Saph,  Hyundai Wai Corp of Korea, Hi-lex Corp of Japan.

Investment Rationale:

Lumax Auto Technologies Ltd is a part of the DK Jain Group of companies which has carved its strong position in automotive parts and is the market leader in Design, Testing and Manufacturing of Parking Brakes & Gear Shift with a strong presence in both passenger cars as well as in the commercial vehicle segments. In order to fully exploit the opportunity in exports market and to give speed to its Gear Shift lever business, Lumax Auto Technologies incorporated its 100 % wholly owned subsidiary, Lumax Mannoh Allied Technologies Limited (LMAT) on July 22, 2013. Lumax is the leader in automotive lighting systems and has a technical and financial collaboration with Stanley Electric Co (Stanley) of Japan. Lumax, primarily, was in the business of automotive lighting systems which now accounts only 30 % of its standalone revenues and 19 % of consolidated revenues. The company is market leader in Designing, Testing and Manufacturing of Parking Brakes & Gear Shift levers in India since past 10 years with an overall domestic market share of more than 60 % with a strong presence in both passenger cars & commercial vehicle segments. Also the company is a major supplier of chasis, exhaust systems and petrol tanks for two wheelers. Further, Lumax Auto has now diversified into non-automotive segments such as infrastructural lighting. The company has ten modern manufacturing plants in India. Lumax Auto has large and reputed customers which include Bajaj Auto, Honda Motorcycle & Scooters India (HMSI), Piaggio, Lumax Industries, Maruti Suzuki, Tata Motors, Eicher Motors, Force Motors, and Fiat etc. in the commuter segment. Company’s five plants are located in Pune, two plants in Aurangabad, in Maharashtra, one in Manesar Gurgaon, in Haryana, one plant in Ambala in Himachal Pradesh and one in Narsapura, Karnataka. All these facilities are strategically located in the automotive industrial belt. The manufacturing facility at Narsapur, Hubli, Karnataka has commenced supplying plastic moulded parts to Honda Motorcycle & Scooters India (HMSI) last year which helped them to post flat growth in FY14 despite weak automotive sales during the year. With HMSI growing rapidly and capturing significant market share the growth of Lumax is likely to remain intact in the coming years. Lumax has various tie-ups like for its exhaust systems the company has a tie‐up with Cornaglia group of Italy which is a major supplier to Fiat. For its parking brakes and gear shift levers business, LATL through its subsidiary Lumax DK Auto Industries has formed a JV with M/s Mannoh Industrial Co Ltd, Japan to manufacture complete gear shift lever systems for Manual, AMT & CVT transmissions in India. These tie‐ups ensure best of the technologies for LATL’s products. The domestic automobile industry has increased at a CAGR of 10.6 % from 2003-2008. The vast domestic market is attracting more number of foreign automobile manufacturers such as Ford, General Motors, Honda and Toyota as they look for alternative markets to counter the sluggish growth in US market and to counter the overcapacity in other global markets. Global manufacturers such as Suzuki and Hyundai have adopted India as their global production base for small cars. The Indian auto component industry has been growing at a CAGR 16 % p.a. for past seven years and is expected to have 3 % share in global market by 2015-16. Exports of auto components grew at the rate of 30 % during the last five years. As per estimates provided by Automobile Components Manufacturers Association of India (ACMA), auto component exports are expected to reach US$ 20-22 billion by 2015-16. The entry of foreign vehicle manufacturers in India & with the growing cost pressures in the global automotive market gives India a huge exports potential. India has low penetration of car per 1000 person; India has 7-8 cars per 1000 person and India will have a growing middle class from 5 Cr to 55 Cr by 2025 and so the prospects of the Auto Industry in India looks good and eventually with better infrastructure development which are planned out to be around $50,000 Cr in the next 5-6 years will also be the key growth drivers for the auto component industry in India.

Outlook and Valuation:

Lumax Auto Technologies (LATL) is a supplier of key components to the two wheeler and the passenger car industries. It has created its strong position in automotive parts like Sheet Metal parts, Fabricated Assemblies, Tubular Parts for two wheeler and three wheeler industry. Its key customers include Bajaj Auto, Piaggio, Honda Motorcycles and Scooters, Maruti Suzuki, Toyota and Tata Motors. Strong tie-ups with these OEMs will entail large business opportunities in the next few years. For Lumax Auto Technologies its Head lamp contributes 15 % to its standalone revenues; Tail Lamp contributes 3.69 % to its standalone revenues; Frame Chassis contributes 9.95 % to its standalone revenues; Adjustor Motor contributes 6.15 % to its standalone revenues; Gear Shift Assembly/Parking Brake/Nob contributes 32.65 % to its standalone revenues; Air Intake Systems (AIS) contributes 3.32 % to its standalone revenue. The company had shown poor growth in FY14 due to slowdown in Automotive Industry.  But it is expected that there could be a strong revival in automotive industry on the back of overall macro-economic recovery, cut in fuel prices and peak out in interest rates. The auto industry showed decent performance in YTD FY15 and expect it will continue in coming years on the back of revival in economy. Lumax Auto Technologies can have a top line increase by 13 % in FY15e and 15 % in FY16e on the back of strong volume growth driven by new launches and favourable economic conditions. With strong volume growth expectations in automotive industry the next couple of years, it can have a robust margin expansion. On performance side its Total sales for the H1FY15 rose by 13.18 % to Rs. 420 Cr from Rs. 370 Cr in H1FY14. During H1FY15, the consolidated net profit jumped to Rs. 32 Cr against Rs. 14.5 Cr in the corresponding quarter of previous year, an increase of 121 %. EBITDA for the H1FY15 was Rs. 34.54 Cr as against Rs. 27.8 Cr in H1FY14, growth of 24.24 %. EPS of the company stood at Rs. 23.49 a share during the period, registering at 120.8 % increase over previous year period. However, during H1FY15, there was an exceptional item of Rs. 21.36 Cr in Q1FY15 as profit on sale of shares in Lumax Mannoh Allied Technologies Limited (LMAT) to Mannoh Industrial Co, Ltd, Japan in terms of Joint Venture and Share Purchase and Shareholders' agreement. With comfortable D/E of 0.2x and robust RoCE of 17 %+, the stock has to catch up in terms of valuations of its auto ancillary peers which have seen strong rally in the recent past. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. 

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	766.30	762.80	861.90	991.20
NET PROFIT (₹ Cr)	41.11	30.20	34.80	48.00
EPS (₹)	30.10	22.20	25.50	35.20
PE (x)	9.30	12.60	10.90	7.90
P/BV (x)	1.80	1.70	1.50	1.30
EV/EBITDA (x)	4.00	4.20	5.90	4.30
ROE (%)	19.40	13.40	13.80	16.40
ROCE (%)	23.90	16.80	17.40	20.80

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