LED Lighting Focus And EV Orders Expected To Strengthen Future Prospects

Key Takeaways

• Strategic shift towards LED lighting expected to boost revenue due to higher kit value and market demand.
  
• Localization of PCB production aims to lower costs and improve margins amidst growing automotive and electric vehicle order pipeline.
  
• Rising inventory levels, slower consumer demand, and decreasing EBITDA margins threaten Lumax Industries' revenue growth and profitability.

Catalysts

Manufactures and sells automotive components for in India.

• Lumax Industries is focusing on increasing LED lighting's share in its total revenue, with 86% of its order book dedicated to LED lighting, highlighting a strategic shift. This transition is expected to boost revenue as LED lighting generally has a higher kit value than conventional lighting.
  
• The company has secured its place under the PLI scheme for whitegoods and automotive components, which should enhance its operational efficiency and set the stage for increased margins and earnings in the future.
  
• The order book of ₹2,600 crores, with a significant portion allocated to electric vehicles and passenger vehicles, indicates a healthy pipeline, poised to drive future revenue growth once these orders are fulfilled.
  
• With new model launches such as Mahindra's BE 6 and XEV 9, Maruti Suzuki's Swift Dzire, and Tata Motors’ Tiago and Tigor refresh, the company is poised for revenue growth, as these models are expected to contribute significantly in the upcoming years.
  
• Efforts to localize PCB production to mitigate the impact of antidumping duties are underway, which is expected to reduce raw material costs and improve net margins once fully implemented by FY '26.

Lumax Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lumax Industries's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 5.1% in 3 years time.
• Analysts expect earnings to reach ₹2.4 billion (and earnings per share of ₹254.8) by about March 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, up from 15.7x today. This future PE is lower than the current PE for the IN Auto Components industry at 27.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.44%, as per the Simply Wall St company report.

Lumax Industries Future Earnings Per Share Growth

Risks

• Rising inventory levels and a slowdown in consumer demand towards the latter part of the year pose risks to revenue growth, despite strong year-on-year performance.
  
• Declining EBITDA margins, from 8.6% to 8.2%, due to antidumping duties, raw material price increases, and USD-INR FX changes, could impact profitability.
  
• The commercial vehicle segment experienced a slowdown, impacting revenue although it is a small portion of overall sales.
  
• Challenges in maintaining tooling profit margins, which have decreased significantly, could affect profitability if not managed.
  
• The impact of antidumping duties and FX changes on raw material costs, and the associated lag in cost compensation from OEMs, raises concerns for short-term net margins.

Valuation

• The analysts have a consensus price target of ₹3316.0 for Lumax Industries based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹47.2 billion, earnings will come to ₹2.4 billion, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 15.4%.
• Given the current share price of ₹2213.4, the analyst price target of ₹3316.0 is 33.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.