Well diversified, poised for healthy growth ahead…
About the stock: Lumax Auto Technologies (LAT), is a leading auto ancillary player with diversified portfolio serving both OEMs and aftermarket.
• FY24 product mix – integrated plastic modules: 47%, Gear Shifter: 12%, After-market: 14%, Fabrication: 8%, Lighting: 5%.
• FY24 OEM share of sales- M&M: 26%, Bajaj Auto: 15%, HMSI: 5%, MSIL:8%
Investment Rationale:
• Prominent PV ancillary, levers for industry leading growth: Passenger Vehicle (PV) domain contributed the highest ~48% of sales at LAT in FY24. It has significant growth potential due to India’s low car penetration of ~30 per 1000 people, compared to China at ~200, US and Europe at ~500+ levels. LAT’s prominent presence in PV space is resultant of its recent acquisition of 75% stake in IAC. It has also helped LAT expand its business with OEMs like M&M, which is expected to outperform the PV space domestically consequent to its pending order book & impressive consumer response to new model launches with LAT having presence across top selling models of M&M like XUV 700, XUV 3XO, among others.
• Healthy 2-W exposure and ramp up in other JVs to support growth: Domestic 2-W space is expected to outperform other vehicle categories and grow double digit in near term amid rural demand pick up & impending export recovery. With ~24% sales coming from this segment and Bajaj Auto as its anchor client, we expect LAT to benefit from 2-W volume recovery. Furthermore, LAT expects its other JVs for products such as onbroad antennas, telematic products, sensors, etc. to substantially grow over next 2-3 years. With growth levers in place, we have modelled in a topline growth of 17% CAGR over FY24-27E. It is supported by current order book of ~₹ 1,000 crore with EV contribution pegged at ~40%.
• Greenfuel Energy Acquisition to be value accretive: Recently LAT has acquired 60% stake in Greenfuel Energy, a key supplier of high fuel delivery and storage systems for CNG and hydrogen vehicles. The company has paid ~₹ 133 crore for the stake purchase thereby valuing the entity at ~6x EV/EBITDA & ~10x PE on FY24 basis, with healthy 17-19% EBITDA margin profile as well as payback period of 4-5 years. With Greenfuel presence with Maruti & Tata Motors and amid these OEM’s thrust on increasing share of CNG vehicles, we expect this acquisition to be accretive for LAT.
• Lean b/s and healthy return ratios matrix, to derive re-rating: LAT has lean B/S with gross debt of ~₹ 700 crore and net debt of ~₹ 350 crore with Net Debt: Equity of ~0.4x (FY24). It also has a capital efficient business model with ~17% RoE profile which is expected to improve 20%+ levels going forward (FY27), which we believe should drive re-rating of the stock.
Rating and Target Price
• With healthy growth prospects, margins & return ratios improvement, coupled with inexpensive valuations, we assign BUY rating on Lumax Auto Technologies, valuing it at ₹ 750 i.e. 22x PE on FY26-27E avg. EPS.
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