Founded in 1981, Lumax Auto Technologies Ltd (LATL) is a prominent member of the Lumax-DK Jain Group. Collaborating with eight international partners, LATL specializes in manufacturing advanced automotive products. The company has demonstrated success in the past through a strategic approach, involving joint ventures with established global players, localizing components to cut costs, and delivering high-quality products that meet international standards to domestic OEMs. On the other hand, LATL has been providing its strong OEM connects to partners along with manufacturing capabilities. This has been the ‘success mantra’ for LATL. In our view, the eight international partners represent hidden gems, providing strong support to LATL with their robust technical capabilities. Some of these partners have proven to be valuable assets, evident in their impressive past performance and business wins. Additionally, the five emerging subsidiaries are poised for significant growth. We initiate coverage with a BUY recommendation on Lumax Auto Technologies Ltd, setting a target price of Rs 481 per share (16x FY26e EPS ~Rs 30).
Key growth drivers ahead are:
1) IAC India – the acquisition strengthened LATL’s plastics business, existing clients along with expected new business from anchor clients to support growth, joint sourcing & scale to improve margins,
2) Lumax Mannoh – gradual shifting to high margin automatic gear shifters & further export opportunities from the JV partner bodes well,
3) Lumax Cornaglia – anchor client TaMo outperforming, along with other clients, coupled with localization, & the introduction of Plastic fuel product to drive business,
4) Standalone – increasing contribution of high margin aftermarket, LED and the anticipated rebound in Bajaj’s export rebound to push growth ahead,
5) Emerging subsidiaries – With a robust order book featuring promising products like Sensors, Telematics, Antennas, among others., the emerging subsidiaries are poised for higher growth in the upcoming years starting FY25. They currently hold strong orders amounting to Rs 3.2bn+, and the potential market size is estimated to be around Rs 93bn.
The next partnership is anticipated to focus on pure-play EV components, in our view. Financials set to fly higher with expected Adj. EPS growth of ~27% CAGR FY23-FY26e driven by high margin IAC India & Automatic gear shifters, a rising contribution from emerging subsidiaries, reinforced by the Aftermarket, a rebound in key clients’ business momentum, and a reduction in finance costs due to debt repayment.
Trading at an eye-catching valuations
LATL is currently trading at an attractive valuation of approximately ~12x the estimated FY26 EPS of Rs 30.1 and an EV/Sales of ~0.6x for the same period. Over the last five years, the company has typically traded at ~14x 1-year forward EPS. Considering a marginal premium, assigned 16x multiple to FY26e EPS, the fair value is assessed at Rs 481 per share. This suggests an upside potential of around 32% from the last trading price.
The justified premium ~15% is attributed to several factors:
Anticipated growth in emerging JVs driven by a strong order book and potential in the Indian market,
Prospects for more new product introductions and JV opportunities, particularly in EV components,
Increasing penetration of automatic gear shifters and LED technology,
Ambitious plans to double the Aftermarket business, and
Key clients outperforming with the potential for further momentum.
Our belief is strong that LATL is a robust re-rating candidate, supported by its collaboration with eight well-established global partners, a track record of well-executed past financial performance, plans for debt reduction, and a reputation for clean management. BUY!