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Equity Research: Lumax Industries
Lumax Industries has been consistently evolving in its product innovation with its in-house design and development capabilities. Company enjoys about 50% market share in domestic automobile lighting business. It caters to a variety of customer needs through endto-end automotive lighting solutions for four-wheelers, two-wheelers applications, commercial vehicles, and tractors/Farm Equipment Segment (FES).
The Automotive industry remained slow in the first quarter of FY 2021-22 due to rising incidences of the Covid-19 Pandemic. In the second quarter, the semiconductor chip shortage impacted the industry’s demand for automobiles. The third quarter saw hyper-inflationary pressures influencing the growth in steel prices and raw material costs. The fourth quarter witnessed the Russia-Ukraine conflict, which impacted the global economy, slowed GDP, and raised prices. Despite all these factors, the economy is anticipated to witness a faster rebound in the second half of 2022.
Despite the industry’s instability and slump, Lumax Industries – as an entity – outperformed the industry. They successfully commenced an electronics facility at the Bawal plant and commercial production at new Sanand manufacturing plant. As a company, They are continually putting efforts and delivering premium products to customers, even amid a challenging external environment.
Diversified Product Range
With more than three & half decades of partnership with Stanley, Japan, the only global auto lighting company to manufacture LED worldwide, having presence in Japan, America, China, Asia Pacific and Europe
One of the few players with largest range of lighting solutions & Electronics
2 R&D centers & 2 Overseas Design centres to stay ahead of the curve in design trends
Stanley Electric Corporation (SECL) is one of the leading suppliers of automotive lighting solutions globally and it developed the first LED high mount stop lamp for the automotive sector. Strong technical support from its collaborator helps Lumax in evolving trends in the 5 Lumax Industries Ltd. lighting industry, such as LED. Lumax is also expanding its product line which include HVAC panels and electronic cables in collaboration with SECL. The product will be localized and manufactured at the newly set up electronic facility at Bawal, Haryana. With the introduction and emphasis of localization by OEMs, Lumax Industries is investing in the upgradation of its existing manufacturing facilities and also setting up Electronics manufacturing facilities. It will help in successful localization of technologically advanced products thus giving the customers immunity from supply chain risks with best quality products.
LED lamps have become a preferred choice over Halogen lamps over the past few years. Despite higher prices, Original Equipment Manufacturers (OEMs) have been shifting to LED lamps, as they are more efficient, and improve the style and appearance of vehicles. Manufacturing LEDs requires significant technical expertise, and the company gets strong support from Stanley. Better visibility, superior design, and higher energy efficiency have been key drivers for it. Sighting a structural demand shift in the industry, the company expects contribution to reach around 40% in FY24 and it would further improve to 45-50% over the long term. LEDs are prospective high-margin products for the company. The Electric Vehicle (EV) market in India is expected to register about 45% CAGR between the year 2020 and 2027. It is expected to hit 6.3 mn unit annual sales by 2027. The EV industry is projected to create huge direct and indirect job opportunities by 2030. The growth in EVs will help expand the automobile industry, and in a way, benefit players like Lumax due to transition to LEDs.
The e-mobility push, BS–VI norms compliance, rising input and insurance costs led to sharp increase in overall vehicle price. Auto industries spending is discretionary which makes it cyclical in nature. Overall sales are highly dependent on sales by OEMs. Therefore, any slowdown in Auto sales can dampen their revenue growth.
on few clients Major part of revenue comes from few OEMs. Company remains vulnerable to different risks associated with OEMs, such as: losing out a major customer, significant decrease in order volumes, decreased sales volume of the overly exposed vehicle models. This could impact operational and financial performance.
Strong long-term industry outlook has led to new players entering the market, resulting in intense competition. In case, the company doesn’t focus on its R&D and deliver at a reasonable price, then this could impact its revenue and profitability. Company faces competition with Minda Industries (PV and 2W), FIEM (2W), India Japan Lighting (PV) and Marelli Motherson Automotive Lighting India Private Limited (PV) among others.
The Company is constantly expanding the boundaries of its existing facilities and during the year under review, the Company has invested towards capacity expansion of its manufacturing facilities as follow:
- Capex for new Projects at plants 4,178.69 Lakhs
- Capex for new Projects at Bawal and Sanand 3,576.56 Lakhs and 6,908.78 Lakhs respectively
Further, an expenditure on Research and Development facilities of Chakan and Gurugram was done to the tune of 211.02 Lakhs.
In March 2022, the company stated that it had relocated the Manesar facility's activities to its electronics plant in Bawal, Haryana, for operational efficiency. Although the semiconductor shortage is a worry for the whole vehicle sector and may have an impact on output in H1FY23, the underlying demand environment remains healthy. We remain bullish on the company because of its market leadership in the lighting industry, long-term OEM agreements, growing share of the high-margin LED segment, localization strategy, and product innovation.Company is expanding its product line to include Heating, Ventilation and Air Conditioning (HVAC) panels in collaboration with SECL, which would aid in diversification of product portfolio over the medium term.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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