Equirus Securities - Automotive Lighting Sector Initiation Note - 03.01.2018 PDF

Automotive Lighting Sector
Initiating Coverage
LED shift to drive strong Value growth as well as RoICs
Halogen
Xenon
LED
January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected])

Automotive Lighting Sector OVERWEIGHT
LED shift to drive strong Value growth as well as RoICs

© 2018 Equirus All rights reserved
India’s automotive lighting market (~Rs 57bn in FY17) is seeing the adoption of LED lights some new models were launched with energy-efficient DRLs; as per our interaction with
due to energy efficiency, safety and aesthetic reasons. Day Running Lights (DRLs), seen automotive lighting players, OEMs are planning to roll out a large number of models with
on a few vehicles three years back, are now a common feature on most of new models. this feature. Recently, HMSI launched its new 125 cc scooter GRAZIA with full LED
Tail and side lamps have seen more LED usage over the last few years; however, usage in headlamps, which should drive more OEMs to adopt the same in new launches.
headlamps, which form nearly 2/3rd of the automotive lighting market, is still low. But
LED lamps to fuel strong value growth, lower competition to aid RoIC: One of the
the transition is on. Lighting has become an integral styling component of cars, and thus
recently-launched car offered LED headlamp with DRLs in its top variant, while the base
the share of LEDs would improve sharply in the next few years. As LED lights are 2-10x
variant had a normal halogen lamp; the cost differential between the two was 10x. In
costlier than traditional lamps, we see strong value growth for lighting players, even
case of 2Ws as well, LED headlamps are 2-5x costlier than traditional lamps. While costs
after assuming LED price cuts with increase in volumes. We think FIEM and Lumax
should come down with increasing LED volumes, the pricing differential with traditional
Industries would be the two key beneficiaries of this shift, and initiate coverage on them
lamps would remain significant. We believe that the shift to LEDs will drive strong value
with a LONG rating and a Mar’19 TP of Rs 1,336 and Rs 2,486 respectively.
growth for automotive lighting companies. Also more number of players offer halogen
LED over halogen lamps - more energy efficient, higher life expectancy: Over the last lamps as this is a 25-year old technology; however, for LEDs, it would take years for
20-25 years, halogen lamps were the most prominent source of automotive lights. marginal players to enter the space, leading to increasing share of top players and RoIC
However, there is an evident shift to LED lights, which are (1) more energy efficient as improvement due to better margins.
they generate 80-110 lumens per watt vs. 11-20 lumens in case of halogen lamps, and (2)
FIEM Industries (FIEM) is 2nd largest player in Indian automotive lighting market
have nearly a 50,000-hour life vs. 3,000 hours for halogen lamps. Transition towards
derives ~90% of its sales from 2W, with HMSI being its largest customer. We believe
electric vehicles (EVs) will further drive LED adoption.
that FIEM will be a key beneficiary of LED usage in 2Ws, part of which is driven by AHO as
Safety, high aesthetic value to also drive LED shift: A key reason behind road accidents many 2W will come with DRLs/LED Headlamp. Its large exposure to HMSI will also help as
during night time is the headlamp glare of vehicles approaching from the opposite HMSI has taken a lead in LED Headlamps with GRAZIA and more of its models can come
direction. Advanced LED headlamps have the functionality of glare-free high beams. DRLs with the same feature. We initiate coverage with LONG rating and Mar’19 PT of Rs 1,336.
are also becoming a prominent feature in new cars. LED headlamps, tail lamps and DRLs
Lumax Industries (LUMX) is the market leader in automotive lighting market in India,
also enhance the vehicle’s aesthetic value. Therefore, more new cars are coming up with
with market share of ~23% on standalone basis and 35%, if we include share of its
LED lights, and top variants of Dzire and S-Cross have full LED headlamps.
Associate company SL Lumax. 68% of its Sales come from 4W with MSIL being its largest
AHO regulations effective on 2Ws from Apr’17 to propel LED usage: Automatic customer contributing 32% of its Sales. With ~60% share in MSIL’s headlamp, we believe
Headlamp On (AHO) has been made compulsory for 2Ws from Apr’17. To keep rollover that LUMX will be a key beneficiary of shift to LED as all the new models of MSIL recently
costs to AHO low, the headlamp switch on most 2W models was removed, enabling high in mid to premium segment have full LED headlamp offering on top variant. We expect
or low beam lights of the headlamp to be on at all times. However, energy efficiency was Sales/EBITDA/PAT to grow at 14%/21%/27% over FY18-20 and initiate with LONG rating &
poor as even low beam consumes a lot of power, in turn draining the battery. However, Mar’19 PT of Rs 2,486.
Comparable valuation EPS P/E BPS P/B RoE Div Yield

Mkt Cap Price Target
Company Reco. CMP Rs. Mn. Target Date FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
FIEM Industries LONG 1,022 13,450 1,336 31st Mar ‘19 36.0 36.4 51.4 28.4 28.1 19.9 322 3.1 14% 11% 15% 1% 1%
Lumax Industries LONG 2,100 19,630 2,486 31st Mar ‘19 59.1 76.0 95.6 35.6 27.6 22.0 338 5.5 19% 21% 23% 1% 1%
January 3, 2018 Analyst: [email protected](+91-9824441360) Page 1 of 9

Before reading this report, you must refer to the disclaimer on the last page.
Automotive Lighting Sector Note OVERWEIGHT
LED over halogen lamps - more energy-efficient, higher life expectancy Exhibit 2: Better LED performance, lower power consumption with technology evolution
Automotive lighting evolution from halogen to xenon, and now LED: Since the 90s,
halogen lamps were the key source of automotive lighting; however, over the last 10-15
years, global automotive lighting has changed significantly. Xenon lights came into the
picture from mid-2000s, and now energy-efficient LED lights are fast gaining traction. In
exhibit 01/02, sourced from presentations and Annual Reports of HELLA and KOITO - two
of the world’s largest automotive lighting players – we can see the evolution of
automotive lighting over the last 25 years. In the future, lighting would have enhanced
functionalities like vehicle detection and Adaptive Driving Beam (ADB).
Exhibit 1: Evolution of lighting over last 25 years and a glimpse of changes in future
Source: KOITO PPT, Equirus Securities
Exhibit 3: Comparison between different automotive technologies

Source: HELLA, Equirus Securities Parameters Halogen Lamps Xenon Lamps LED Lights
Basic operating Electrodes and xenon

Tungsten filament Diodes
elements gas
Average luminous 70‐100 lumen per 80‐110 lumen per

Energy efficiency to be a prominent driver behind shift to LEDs: With increasing 11‐20 lumen per watt
efficacy watt watt
electronic content in vehicles, energy efficiency is becoming an important factor and will
gain more prominence with the onset of Electric Vehicles (EVs). LEDs are 5x more Life span (hrs) ~3,000 ~20,000 ~50,000
efficient than halogen lamps and therefore should see penetration increase at a very fast
pace over the next five years. With its evolution, LED technology is becoming more
efficient as well (Exhibit 02). Exhibit 03 compares different lighting technologies on
parameters of energy efficacy and life expectancy.
January 3, 2018 Analyst: [email protected] (+91-9824441360) Page 2 of 6

Safety, aesthetics to also drive LED shift Advanced LED headlamps to have enhanced functionalities: LED headlamps can have
advanced safety functionality, which was not possible with halogen lamps. However,
DRLs gaining traction in new car launches, improve safety: AHO is still not mandatory these will not come in LED headlamps currently offered on new cars in India or on those
for 4Ws, but has been made compulsory for 2Ws from Apr’17. A more energy-efficient in the pipeline. Advanced LED headlamps allow freely configurable light distribution,
alternative to AHOs is DRLs, a fairly bright strip of light. The idea behind keeping through which functionalities like glare-free high beam and electronic bend lights in low-
headlights on at all times, even during daytime, makes spotting vehicles easier on roads. beam functions can be provided. Exhibit 05 provides a visual representation of some of
It is also helpful during tricky light settings such as dusk, dawn, and foggy or overcast these safety-enhancing functions. With increasing traffic on roads, these safety features
conditions. Many new cars launched in recent times such as MSIL Baleno and Dzire will eventually gain traction in the market. However, we believe advanced LED systems
(Exhibit 04) are coming with DRLs, projector lamps and LED tail lamps in Top Variants as are still five years away from adoption in India.
these enhance the vehicle’s aesthetic value.
Exhibit 5: Enhanced safety functionality associated with advanced LED systems
Exhibit 4: DRLs, projector lamps, LED tail lamps - distinguishing features in Baleno,
Dzire
Source: Company, Equirus Securities

Source: HELLA, Equirus Securities

AHO regulations effective on 2Ws from Apr’17 to fuel LED usage Exhibit 6: Honda Dio and TVS Apache with LED DRLs
AHO made mandatory on 2Ws to avert accidents: As per road accident data of 2015,
2Ws accounted for ~29% of road accidents in India. One way to minimize accidents is to
enhance visibility for the rider and for the vehicle approaching from the opposite
direction. To this end, the government made AHO mandatory on 2Ws from 1 Apr’17,
which requires a light in front of the vehicle to be on when the engine is running.
Most 2W models remove headlamp switch, but solution not energy efficient: To keep
rollover costs to AHO low, the headlamp switch on most 2W models has been removed,
enabling high or low beam lights of the headlamp to be on at all times. However, this is
poor energy-efficient option as even low beam consumes a lot of power, in turn draining
the battery as well. If headlamp is on for longer duration, it also generates lot of heat; to
address the same in some cases material of headlamp is also changed. LED Headlamps
have a built in heat sink to address the same.
Some 2Ws move to more energy-efficient DRLs, more to follow: Apart from being more
energy efficient, DRLs make an aesthetic statement for the model; consequently, some
2W models like Honda DIO and TVS Apache RTR 200 have LED DRLs in front. Because DRLs
provide a styling element to the model, competitive intensity should fuel growth ahead.
As per our interaction with some industry experts, most 2Ws should start offering DRLs in
the next 1-2 years and development of the same is going on.
Honda GRAZIA makes beginning, more to come up with full LED headlamps: Yamaha
FZ25 was the first 2W model in India to offer full LED headlamps, followed by Honda
which recently launched its full LED-headlamp 125cc scooter, GRAZIA. We expect more
competitors to follow suit given the premium look of vehicles with LED lights. We
understand that in 2018, one or two large-selling 2Ws models would be launched with
LED headlamps, catapulting the overall 2W lighting industry. Even lighting players
indicate that adoption will be faster in 2Ws as per their order pipeline.
Exhibits 6-7 show different models with LED DRLs and headlamps. LED usage in tail lamps
has already increased with a number of models like Honda Activa, Bajaj Pulsar, and TVS
Apache sporting it.

Exhibit 7: Honda GRAZIA with full LED Headlamps LED lamps to drive strong value growth, lower competition to aid RoIC
Technologically-advanced automotive lighting players to benefit from LED shift:

Currently, there are around 15 players (smaller players mostly catering to aftermarket) in
the automotive lighting industry as halogen technology is more than 25 years old and new
players would have entered after the initial phase of halogen adoption. However, with
the ongoing shift to LED technology, some players would take a long time to develop LED
knowhow. Therefore, the share of technologically-advanced players or those having
global technology tie-ups would increase. Exhibit 08 lists some larger players in the
lighting segment and their tie-ups with global players. Exhibit 09 depicts the share of
players in the Indian automotive lighting industry.
Exhibit 08: India’s key automotive lighting players and their technology tie-ups
Technology tie-
Company Remarks
up
Lumax Industries Stanley Japanese company; supplier to Suzuki, Japan
India Japan Lighting Koito Japanese company; supplier to Suzuki, Japan
Magnetti Marelli
Magnetti Marelli European Company
Motherson
Developed on its own; supplies to HMSI, Honda-
2Ws to see early adoption of EVs, to prefer energy-efficient LEDs: China has a large FIEM
Japan, Harley
lead acid based e-bike market as lower speed of such bikes is not a concern due to heavy Developed on its own; ~35% share in MSIL's tail
traffic conditions, which moderates the average speed of vehicles anyway. While we Minda Industries
lamp
expect buses and rickshaws to see a faster shift to EVs due to government thrust and Now a part of Minda Industries. Sources LED
favorable economics, 2Ws could be the third segment to move to EVs. A key factor to be Rinder India
technology via its development lab in Spain
considered in EV designs is lower power consumption, where LED based lamps would be Key supplier to Hero Motocorp, but can lose
the best suited. Unitech Machines
market share due to the LED shift

Exhibit 9: Market share of players in automotive lighting industry (FY17)* LED Headlamp pricing also varies with technology – projector lamps are costlier than
reflector: Most of the cars in India have reflector based lights, where light is emitted by
Others a bulb and then reflector housing reflects the light to a distance. However control on
Magnetti Marelli
India Japan 5% 7% Lumax Industries light beam in case of reflector lamp is not very good – so you experience glare. Projector
Lighting 23%
lamp is a superior technology, where light is projected rather than reflecting it. This type
12%
of housing calls for a different type of light bulb to accommodate the housing. Projector
SL Lumax headlights allow for more control of the light beams as they are emitted from the
12%
housing. In case of LEDs as well, headlamps can be made based on both the technologies,
Rinder most of the 2W headlamps will be based on reflector as its cheaper technology. In case of
7%
4Ws, projector lamps will have larger share, but it would be costlier. New Dzire has LED
projector headlamps in its top variant, whereas 2W Yamaha FZ’s headlamp was based on
Lumax Autotech reflector technology. Exhibit 10 shows projector and reflector lamps.
Minda Industries 4%
8%
Unitech Machines FIEM
11% 11% Exhibit 10: Difference between Reflector & Projector Headlamps

* Sales of some players extrapolated based on their FY15/16 sales, for Magneti Marelli we have
assumed half of FY17 sales from lighting; Other’s is approximation
2W lighting to see more consolidation; Unitech Machines to lose, others to gain: As

highlighted earlier, the shift to LED would be faster for 2Ws due to mandatory AHO.
Moreover, as some large-selling models are likely to offer LED headlamps, we expect
action from competitors as well. Key players in the 2W lighting market are FIEM, Unitech
Machines, Rinder and Lumax Industries. Lumax Industries through its technology tie-up
with Stanley, Rinder through its R&D lab in Spain, and FIEM through its own R&D
(exhibited in LED headlamp supplies for Yamaha FZ) are ahead in the shift to LED lamps.
However Unitech Machines, a key supplier to Hero Motocorp, is set to lose share to other
players due to its inability to catch up with changes brought in by LED technology. Our
channel interactions reveal that other lighting companies have started getting more Hero
models for lighting development.
Value growth to be higher for industry driven by LED lamps: LED lamps are 2-10x Automotive lighting industry to grow at 12% CAGR over FY17-21E: India’s automotive
costlier than traditional lamps; for instance, in case of the new Dzire, the LED projector lighting market stood at around Rs 56bn in FY17, with Lumax Group, through flagship
headlamp with DRL in the top variant is 10x costlier than the halogen lamp in the base entity Lumax Industries, Associate (21.28% stake) SL Lumax and group company Lumax
model. As per our interaction with a lighting company, a traditional headlamp for 2W Autotech, commanding a 38% share. With increasing automotive penetration of LED
costs Rs 400-500, and adding a DRL would cost Rs 150 more; consequently, the total front lamps, the industry will grow at a 12% CAGR over FY17-FY21E to Rs 89bn. We expect
lamp cost would go up by ~30%. LED headlamps for 2Ws cost 2-5x more than traditional companies like Lumax, FIEM, Minda Industries (with subsidiary Rinder India), and Indo
lamps. With increasing LED content in vehicles, which started from LED tail lamps, Japan Lighting to gain market share at the cost of Unitech Machines (key supplier to Hero
followed by DRLs (and not LED headlamps), the lighting content per vehicle will keep Motocorp) and others.
going up.
FIEM Industries Limited
Absolute : LONG
Relative : Overweight
Initiating Note Regular Coverage 25% ATR in 14 Months
Large exposure to strong Scooter OEMs & LED shift in automotive lighting to drive growth Auto
© 2017 Equirus All rights reserved
FIEM Industries (FIEM) is among Top 3 automotive lighting players in India, deriving
Rating Information
~90% of sales from 2Ws and having HMSI as its largest customer. We expect FIEM to be
Price (Rs) 1,022
a key beneficiary of increasing LED usage in 2Ws, partly due to mandatory AHO
Target Price (Rs) 1,336
(Automatic Headlamp On) requirements fueling demand for energy-efficient Day
Target Date 31st MAR'19
Running Lights (DRLs)/LED headlamps. We also see FIEM’s large exposure to HMSI as a
Target Set On 3rd JAN'18
Implied yrs of growth (DCF) 20 key positive; HMSI has taken the lead in LED headlamps with its scooter GRAZIA, and
Fair Value (DCF) 1,046 should launch more models with the same feature. Over FY07-FY17, FIEM posted a
Fair Value (DDM) 366 sales/EBITDA CAGR of 22%/21% led by the addition of new product lines apart from
Ind Benchmark BSEAUTO lighting. While a decline in non-automotive lights hit the company’s FY17 performance,
Model Portfolio Position NA we expect a recovery ahead. Initiate coverage with LONG and Mar’19 PT of Rs 1,336.
Consolidated Financials
Set to be a key beneficiary of automotive lighting shift to LEDs: FIEM is the largest Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Stock Information
Market Cap (Rs Mn) 13,450 player in 2W lighting with marquee clients like HMSI and TVS. AHO regulations will Sales 10,188 11,927 14,038 16,667
Free Float (%) 36.41 % force OEMs to come up with DRLs/LED Headlamps as keeping headlamp on at all EBITDA 1,178 1,341 1,658 1,968
52 Wk H/L (Rs) 1238.55/821.4 times is not an energy-efficient option, and reduces battery life. FIEM has developed Depreciation 393 449 501 564
Avg Daily Volume (1yr) 29,409 LED technologies in-house and was the first player to supply full LED headlamps for Interest Expense 233 230 193 162
Avg Daily Value (Rs Mn) 28 2Ws in India (to Yamaha FZ). Due to these reasons, we expect FIEM to significantly Other Income 47 61 45 30
Equity Cap (Rs Mn) 132 benefit from the shift to LED lighting. Reported PAT 615 479 676 852
Face Value (Rs) 10 Recurring PAT 473 479 676 852
Bloomberg Code FIEM IN Strong track record of adding new products: The contribution of automotive Total Equity 4,236 4,325 4,842 5,504
lighting products stood at ~77% of sales in FY11; however, despite a 12% sales CAGR Gross Debt 2,250 1,998 1,558 1,518
Ownership Recent 3M 12M
in automotive lighting sales, the contribution declined to 62% in FY17 as the company Cash 1,065 461 75 116
Promoters 63.6 % 0.0 % 0.0 %
added new products in its portfolio (plastic moulded products, others). FIEM also Rs Per Share FY17A FY18E FY19E FY20E
DII 7.8 % 0.4 % -1.2 %
ventured into the LED luminaires business, which however was hit due to high Earnings 36.0 36.4 51.4 64.8
FII 14.6 % -0.5 % -0.6 %
Public 14.0 % 0.1 % 1.8 % competitive intensity. Book Value 322 329 368 418
Dividends 8.0 8.0 10.0 12.0
Price % 1M 3M 12M Margin and return profile to rebound after a blip in FY17: Over FY12-FY17, FIEM’s
FCFF -116.0 12.4 25.9 28.8
Absolute 14.6 % 13.1 % -11.8 % EBITDA margin averaged around 12% with core RoIC average at 13%. During FY17
P/E (x) 28.4 28.1 19.9 15.8
Vs Industry 8.7 % 4.7 % -39.9 % though, RoIC was lower at 11% due to losses in LED luminaires segment and fund
P/B (x) 3.2 3.1 2.8 2.4
LUMAXIND 4.1 % 66.6 % 166.7 % raise through QIP which increased capital base. However, with strong growth
EV/EBITDA (x) 12.8 11.5 9.3 7.8
MINDAIND 0.2 % 48.4 % 294.3 % expected in the automotive segment, we expect RoIC to rebound to 13% by FY20.
ROE (%) 14 % 11 % 15 % 16 %
Standalone Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
Strong growth visibility to drive valuations, initiate with LONG: Shift towards LED Core ROIC (%) 12 % 9% 11 % 13 %
EPS (16A) 9.6 11.8 7.6 10.4

in automotive lighting provides strong revenue growth visibility. On top of that, EBITDA Margin (%) 12 % 11 % 12 % 12 %
EPS (17E) 8.6 12.0 8.0 9.6 FIEM’s large exposures to OEMs strong in scooter segment, puts it in even better Net Margin (%) 5% 4% 5% 5%
position to deliver strong growth. We value the company at 26x TTM & 21x 1 year
forward EPS deriving Mar’19 PT of Rs 1,336 and initiate with LONG.
January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 1 of 21

Fiem Industries Ltd. Absolute – LONG Relative – Overweight 25% ATR in 15 Months
Company Snapshot Sensitivity to Key Variables % Change % Impact on EPS

How we differ from Consensus EBITDA Margin 1% 14 %
- Equirus Consensus % Diff Comment - - -
FY17E 36.3 42.3 -14 % Not much of Consensus Coverage - - -
EPS
FY18E 51.3 54.6 -6 %
DCF Valuations & Assumptions
FY17E 11,916 12,092 -1 %
Sales Rf Beta Ke Term. Growth Debt/IC in Term. Yr
FY18E 14,026 14,178 -1 %
6.7 % 1.0 12.7 % 3.0 % 30.0 %
FY17E 480 557 -14 %
PAT
FY18E 675 718 -6 %
- FY18E FY19E FY20-22E FY23-27E FY28-32E
Key Investment arguments: Sales Growth 17 % 18 % 10 % 11 % 9%
NOPAT Margin 5% 6% 6% 6% 6%
 Set to be a key beneficiary of shift to LEDs
IC Turnover 1.80 2.04 2.22 2.22 2.22
 Strong track record of adding new products
RoIC 9.3 % 11.5 % 14.1 % 14.7 % 14.6 %
 Margin and return profile to rebound after a blip in FY17
Key Estimates: Years of strong growth 1 2 5 10 15

FY15 FY16 FY17 FY18E FY19E FY20E Valuation as on date (Rs) 283 385 590 702 796
Valuation as of Mar'19 328 447 684 814 923
Automotive Ligths 5,925 6,191 7,016 8,941 10,818 13,206
Rear View Mirrors 1,210 1,345 1,502 1,727 1,883 2,052 Based on DCF, assuming 20 years of 14% CAGR growth and 14% average ROIC, we derive
Plastic Moulded Parts 1,090 1,366 1,268 1,420 1,548 1,688 31st Mar’19 fair value of Rs 1,046.
LED Luminaires 183 1,345 689 226 311 426

Company Description:
Others 646 673 866 960 1,065 1,180
Gross Sales 9,055 10,927 11,341 13,274 15,625 18,553 FIEM Industries is one of the frontrunner in the automotive lighting segment. Along with
Ex Duty 808 1,049 1,167 1,359 1,598 1,898 automotive lighting, Fiem also produces rear view mirrors, plastic molded parts & sheet
metal parts in the automotive components space. It also has developed LED luminaries
Net Sales 8,247 9,878 10,174 11,916 14,027 16,655 for indoor and outdoor application and integrated passenger information systems for
railways and buses. It was one of the first movers to develop LED lights for two
Key Triggers wheelers.
 New model launches of HMSI with LED Headlamp

FIEM Industries LONG 1,022 13,450 1,336 31st MAR'19 36.0 36.4 51.4 28.4 28.1 19.9 321.9 3.1 14 % 11 % 15 % 0.8 % 0.8 %
Lumax Industries LONG 2,100 19,630 2,486 0 59.1 76.0 95.6 35.6 27.6 22.0 337.9 5.5 19 % 21 % 23 % 0.7 % 0.8 %
Minda Industries ADD 1,250 108,024 1,116 30th Dec'18 19.4 26.9 34.9 53.1 38.4 29.6 118.9 7.3 22 % 21 % 23 % 0.2 % 0.2 %

Investment rationale Supplier to premium bike maker, Harley Davidson, and Honda 2Ws: FIEM is the only
Indian company supplying lighting products to Harley Davidson, particularly for its
Set to be a key beneficiary of automotive lighting shift to LEDs Harley’s Street model. In 2012, FIEM commenced supplies of headlamps, RC lamps and
blinker lights to Honda Japan for its 670cc Integra-4 motorcycle, thus becoming a global
First to supply LED headlamps for 2Ws, technology developed in-house: FIEM has supplier to the company. All lights being supplied to Honda are developed by FIEM’s in-
India’s first NABL (National Accreditation for Testing and Calibration Laboratories) house design and development center. The company also supplies lighting for Honda’s
accredited lab for testing automotive lamps. It also has a wholly-owned subsidiary in plants located in Vietnam and Thailand. We believe that FIEM has proved its mettle in
Japan for the design of automotive lamps. While most other automotive lighting the automotive lighting space through its technology developed in-house.
companies have sourced LED technology through tie-ups with foreign partners, FIEM is
the only company to develop it in-house. FIEM also formed a JV with Horustech Lighting
of Italy in 2013 for high-end electronic and optical lamp designs. Through its in-house LED Exhibit 2: Lighting supplier to Honda’s 670cc Integra-4 Motorcycle
technology, FIEM was the first company to supply full LED-based headlamp for a 2W
model, Yamaha FZ.
Exhibit 1: Full LED headlamps in Yamaha FZ 25 supplied by FIEM
Source: Honda, Equirus Securities
HMSI introduces LED headlamp in GRAZIA; FIEM set to be supplier for other HMSI
models: HMSI has launched its new 125cc scooter GRAZIA with full LED headlamps, and is
the first to offer this feature in the segment. As LED headlights enhance the design element
Source: Yamaha, Equirus Securities of scooters, and given that HMSI has already launched one model with LED headlights, we
expect it to come up with this feature in Activa too. This would be an industry game-
Largest supplier to scooter OEMs HMSI, TVS: FIEM is the largest supplier of lighting changer and prompt other scooter players to follow suit. While Lumax Industries supplies
requirements of HMSI and TVS (two strongest players in fast growing scooter segment); headlamps for GRAZIA, FIEM is set to have larger share in HMSI’s other models as it is the
therefore, the company is well-placed to outperform industry volume growth. It is also largest supplier to HMSI.
amongst the largest supplier to Yamaha and Suzuki India, two other companies which
have good scooter market share and are expected to gain share in the 2W industry.

Energy-efficient DRLs to gain traction: From Apr’17, the government has made AHOs New products help top industry growth over last 10 years with 22% sales CAGR: FIEM
mandatory for 2Ws, which requires one of the front lights to be on at all times when the started operations with automotive lighting products but eventually added various
engine is running. Most 2W models have complied with this requirement by removing the products to its portfolio, enabling it to outperform industry growth. Rear view mirror,
headlamp switch altogether so that the headlamp is always on; however, this is not an which contributes ~13% of sales, was the second product in FIEM’s portfolio. The
energy-efficient option as it drains the battery. LED DRLs are more efficient, and have company later added plastic moulded products in FY10, which now contribute ~13% of
been adopted by some 2W models like Honda Dio and Activa 125 to comply with AHO. We sales. Exhibit 3 indicates how sales contribution of different products moved over FY11-
believe more 2W models will come with either DRL or LED headlamps as it is energy 17. While the lighting products segment grew at 12% CAGR over this period, its share in
efficient and enhances the vehicle’s style quotient. total sales declined from 77% to 62% on growth from other products.
FIEM to see strong value growth driven by LED headlamps, DRLs: As per our LED Luminaires – hit in FY17 amid low barriers: FIEM was an early entrant in the LED
interactions with a lighting player for one of its 2W models, while a traditional head lamp luminaires business, where it supplied LED lights for non-automotive applications, mainly
would cost ~Rs 400, a DRL would add Rs 150 more. Therefore, DRLs will increase for industrial and residential usage. While it sourced chips from third parties, it made
headlamp costs by 35-40%, and increase content per vehicle by 10-12%. LED headlamps in drivers in-house – unlike many other Indian companies. However, the LED luminaires
2Ws are 2-4x costlier than halogen lamps; hence in terms of content per vehicle, lighting industry grappled with low entry barriers given that anyone could source and assemble
cost will go up by ~60%+. Therefore, we expect FIEM to see strong value growth in its parts from China; this eventually led to price-based competition. FIEM was a large
lighting vertical which contributes ~66% of its sales. Management believes that by 2020, supplier to EESL, but their Sales collapsed after aggressive bidding by competitors.
almost 35% of 2Ws will shift to LED headlamps. BS-IV norms and a shift to electric 2Ws However, prices are gradually inching upwards as players who had bid at lower levels are
will further catalyze the shift to LEDs as it is more energy-efficient vs. traditional lamps. unable to honor their supply commitments. Prices at the bottom fell to Rs 38.5 per unit
vs. Rs 60 earlier; but improved to Rs 41 in last bidding. The company is also exploring
Strong track record of adding new products export opportunities in the segment.
Exhibit 3: Contribution of different product segments to sales Exhibit 4: Sales 16% CAGR over FY11-FY16 aided by new products, apart from
industry-leading growth in existing products
Automotive Lights Rear View Mirrors Plastic Moulded Parts LED Luminaries Others Automotive Lights Rear View Mirrors Plastic Moulded Parts LED Luminaries Others
100%
6% 7% 6% 8% 7% 6% 8% 12,000
90% 3% 8% 1% 5%
14% 13% 12% 12% 866
14% 11% 673
80% 13% 10,000 592
13% 13% 13% 1,249
70% 13% 1,268
13% 646
12% 8,000 131 1,366
60% 610 1,090 1,502
1,011 1,210 1,345
50% 368
6,000 955 1,011
40% 379
77% 442 866
72% 67% 765
67% 66%
30% 57% 62% 4,000 120 287
632 7,016
20% 5,925 6,191
5,249
2,000 4,179 4,415
10% 3,473
0%
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
FY11 FY12 FY13 FY14 FY15 FY16 FY17

IPIS supply to railways and buses – small segment but high growth possibilities: Exhibit 6: IPIS on trains
Integrated Passenger Information System (IPIS) is an electronic system which provides
real-time passenger information; IPIS is used by the Railways to show exact location of
the train, and by buses at stations/stops and also to show next stop details inside buses.
Currently, IPIS is used by some State Transport Undertakings (STUs), but more public
transport systems are expected to add this feature to enhance passenger convenience.
Some school buses also use this GPS-based feature to provide real-time location to
parents and give information on bus stops to students. FIEM is approved by the Ministry of
Railways – Research Design and Standard Organization (RDSO) and Association of State
Road Transport Undertakings. LED displays on buses showing source-destination and route
are also provided by the company. Currently, IPIS contributes only 1% of FIEM sales, but
has large growth potential.
Exhibit 5 & 6 illustrate how the system works for buses and trains.
Exhibit 5: IPIS on buses
In line with its historical evolution, FIEM has announced the following MoUs; if
materialized, these can provide incremental growth:
 MoU with Aisan Industry Co. Ltd., Japan, and Toyota Tsusho Corporation, Japan,
for establishing a JV in India to manufacture Fuel Pump Module and IC Connector
Assembly for 2Ws and 3Ws.
 MoU with Honda Locks Mfg. Co. Ltd., Japan, and Toyota Tsusho Corporation,
Japan, for a JV proposal in India for manufacturing key sets, door mirrors and
outside handles.
 MoU with TOYODENSO Co. Ltd., Japan, and Toyota Tsusho Corporation, Japan for
a JV proposal in India for manufacturing automotive switch assemblies.
 MoU with VKL Holding Co. SPC, Behrain, for a JV proposal to market & manufacture
LED lights in Behrain and other GCC (Gulf Corporation Council) member countries.

JV with Aisan Industry likely for fuel pump modules, IC connector assembly: FIEM first client for LED luminaires. However, going ahead, automotive light margins are likely to
announced technology collaboration with Asian Industry for manufacturing canisters used improve driven by a shift to LED, and bottoming out of the LED luminaires business which
in BS-IV compliant 2Ws; however, most 2W OEMs had already finalized suppliers by this is now set to break even next year. Exhibit 8 outlines our sales, EBITDA and margin
time. Realizing this, both companies recently signed a technology collaboration estimates over FY18-FY20E.
agreement for fuel pump module and IC connector assembly, which will be required for
BS-VI compliance by 2Ws. Therefore, we expect the JV to be formed soon. Exhibit 8: Sales/EBITDA to grow at 18%/21% CAGR, margins expansion ahead
Margin and return profile to rebound after a blip in FY17 Sales EBITDA EBITDA Margins - RHS
18,000 13.0%
Historically-high EBIDTA margins among lighting peers: FIEM’s gross margins have
16,000
historically been better than competition due to (a) tighter cost control and (b) presence 12.5%
in 2W lighting products, which have better margins than 4Ws due to large volumes. Also, 14,000
unlike some peers, FIEM does not have to make royalty payments in the absence of a 12,000 12.0%
technology partner; this also buoys EBITDA margins. FIEM and Unitech (a key supplier to 10,000
Hero Motocorp) have better margin profiles than other companies (Exhibit 7), essentially 11.5%
8,000
proving that 2W lighting suppliers clock higher margins. Even margins for Rinder India
(now a part of Minda Industries) are around 10%. 6,000 11.0%
4,000
10.5%
Exhibit 7: Lighting suppliers to 2W OEMs have better margins 2,000
0 10.0%
Fiem industries Lumax industries
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Unitech Machines Indo Japan lighting
14% Source: Company, Equirus Securities
12%
Return ratios to improve: FIEM historically had a strong return matrix with RoE
10%
averaging at 19% over FY12-FY16. However, LED luminaires business sales spiraled down
8%
from Rs 1.22bn in FY16 to Rs 487mn in FY17 (and likely at Rs 97mn in FY18E), where the
6% company had invested Rs 1.3bn. This along with fund raise through QIP route, which
4% enhanced capital base, led to a sharp decline in RoE and RoIC (Exhibit 9). However, we
2% expect return ratios to improve from FY19E driven by strong growth in lighting, which
will drive margin expansion as well, and a gradual recovery in the LED luminaires
0%
business.
-2%
-4%
FY12 FY13 FY14 FY15 FY16 FY17
Margin blip in FY16-FY17, but expansion likely ahead: Over FY16-FY17, FIEM’s EBITDA
margins contracted 132bps to 11.5%; over FY12-FY16, margins averaged around 12.3%.
The margin compression was driven by a sharp decline in the LED Luminaires business,
which reported marginal losses in FY17 and 1HFY18 due to problems with EESL, a key
Exhibit 9: RoE and RoICs to pick up on growth and margin improvement Exhibit 11: Break up of Key cost items
RoE RoIC Repairs, 1.3% Freight, 0.9% Selling &

25% Packing Mat.,
Distribution,
2.6% Power, 4.1%
Stores & 2.0%
20%
Spares, 1.7% Others, 3.9%
15%
Employee
10% Cost,
14.3%
5% Raw Material,
57.7%
0%
Working capital position to strengthen: Issues with EESL, the key customer for FIEM’s
LED luminaire vertical, resulted in short closure of some of the orders which led to
almost a doubling of absolute inventory over FY15-FY17, from Rs 514mn to Rs 1.02bn.
However, the company plans to gradually reduce inventory by selling the same through
other channels. FIEM had to book Rs 190mn one time losses last year in LED Luminaires
business due to return of certain supplies. Due to these issues in the LED luminaires
business, FIEM’s working capital days jumped from near-zero days in FY16 to 18 days in
FY17 and FY18. However, we expect a gradual improvement over FY20E.
Exhibit 10: Movement in working capital days
Inventory Debtors Payables

60
55
50
45
40
35
30
25
20
Source:Company, Equirus Securities

Forecast: Key assumptions & sensitivity Investment risk & concerns

We expect sales to grow at an 18% CAGR over FY18-FY20E, led by a shift to LEDs in the  Delay in adoption of LED-based lamps: We have assumed 11% value growth in FIEM’s
automotive segment; this will also drive value growth as 2W LED lamps are 2x-4x costlier automotive light segment over FY18-FY20E, as post launch of HMSI’s GRAZIA with full
than halogen lamps. Rear view mirrors and plastic moulded products are expected to LED headlamps, we believe more HMSI models can come up with this feature. Any
grow at 9-10%; while growth in these segments is linked to 2W industry growth, we delay in adoption of LED lamps (LED headlamp, DRL) will lead to a deviation from our
expect it to marginally outstrip industry growth as key customers include strong OEMs
estimates. However, competitive intensity in the sector will force other players to
like HMSI, TVS and Yamaha. In rear-view mirrors, exports to Yamaha (which have recently
come up with LED headlamp-based models as LED enhances a vehicle’s styling quotient
started) can be an upside risk to our estimates. The LED products segment, which
and is a differentiating feature for customers.
primarily comprises LED luminaires and IPIS, is expected to grow faster due to high
growth in IPIS and a revival in luminaire sales after a slump over the last two years.
 Slowdown in 2W growth: FIEM derives ~90% of its sales from the 2W segment, and
Exhibit 12: Key assumptions hence any slowdown in this space would lead to below-estimated growth. However,
FY15 FY16 FY17 FY18E FY19E FY20E FIEM has the largest exposure to HMSI and TVS (together ~69% of sales), which are
Automotive Ligths 5,925 6,191 7,016 8,941 10,818 13,206 the fastest-growing 2W OEMs. Also, both OEMs have the largest share in scooters,
yoy growth 4% 13% 27% 21% 22% which is again the fastest-growing 2W sub-segment; hence, we believe risks to our
Rear View Mirrors 1,210 1,345 1,502 1,727 1,883 2,052 growth estimates are limited.
yoy growth 11% 12% 15% 9% 9%
Plastic Moulded Parts 1,090 1,366 1,268 1,420 1,548 1,688  Entry into new non-auto segment like LED luminaires: We believe that
yoy growth 25% -7% 12% 9% 9% management entered the LED segment due to the huge opportunity size amid clearly
LED Luminaires 183 1,345 689 226 311 426 visible future penetration of the energy-efficient technology. However, management
yoy growth 634% -49% -67% 38% 37% had not anticipated low entry barriers in the form of cheap Chinese imports. Having
Others 646 673 866 960 1,065 1,180 learnt its lesson, management should stick to its core automotive business, leaving
yoy growth 4% 29% 11% 11% 11% aside plans to utilize its already-commissioned LED luminaires plant.
Gross Sales 9,055 10,927 11,341 13,274 15,625 18,553
Ex Duty 808 1,049 1,167 1,359 1,598 1,898
Net Sales 8,247 9,878 10,174 11,916 14,027 16,655
Exhibit 13: Sensitivity of earnings to EBITDA margins

% change in EBITDAM -1.0% -0.5% 0.0% 0.5% 1%
Change in EBITDA -8.5% -4.2% 0.0% +4.2% +8.5%
Change in PAT -14.2% -7.1% 0.0% +7.1% +14.2%
Source: Equirus Securities

Corporate governance Valuation

 Over FY11-FY17, FIEM’s average dividend payout stood at 26%, with a high of 39% in
FY17. Over the entire period, payout was never less than 20%, suggesting that the Strong growth visibility due to shift in automotive lighting from halogen to LED: As we
payout ratio will remain healthy going ahead as well. have highlighted in earlier sections, shift towards LED in automotive lighting provides
 As of Mar’17, FIEM had 12 directors on its board, comprising six Executive, and six strong revenue growth visibility even if 2W industry volume growth is single digit. On top
Non-Executive Independent Directors.
of that, FIEM’s large exposures to OEMs like HMSI, TVS, Yamaha and Suzuki, which are
 Statutory Auditor of the company is Y Sachdeva and Associates.
strong in scooter segment, puts it in even better position to deliver strong growth. HMSI
 FIEM has been prompt in releasing quarterly results and also elaborated them in
and TVS together contribute ~69% of Sales. HMSI’s GRAZIA launch with full LED
timely investor presentations.
headlamps provides more comfort that more 2W models from HMSI as well as other OEMs
 FIEM undertakes CSR activities under the dedicated trust ‘Fiem Foundation’. The
will come up with same feature due to competitive pressures. We expect
Foundation collaborated with the social welfare unit of the All India Institute of
Medical Sciences (AIIMS), as per AIIMS recommendations, the company provides Sales/EBITDA/PAT to grow at 18%/21%/33% CAGR over FY18-20E.
financial assistance to patients suffering from cancer and other ailments
Valuing at 26x Mar’19 EPS, deriving Mar’19 PT of Rs 1,336: We believe that FIEM can
Exhibit 14: Key Related Party Transactions trade at upper range of its historical trading multiples due to strong 33% EPS CAGR over
FY18-20E. Also, FIEM’s valuations are cheaper vs other companies in auto ancillaries
Transaction FY16 FY17
space as can be seen in Exhibit 14. We value the company at 26x TTM EPS of Mar’19 to
Purchase of Free-hold Land derive our Mar’19 PT of Rs 1,336, at which stock will trade at 21x 1 year forward.
Rahul Jain 0 120
Rent Paid Exhibit 15: Relative valuation of peers in ancillary space
FY19 FY20
Aanchal Jain 10 11
P/E EV/EBITDA P/B P/E EV/EBITDA P/B
Rahul Jain 4 5
FIEM 20x 9x 3x 16x 8x 2x
CSR Activities
Lumax Ind 22x 14x 5x 17x 12x 4x
Contribuiton to Fiem foundation 9 12 Minda Ind 30x 15x 6x 25x 13x 5x
Brand Royalty Minda Corp 24x 15x 5x 10x 13x 4x
Fiem Auto & Electrical Industries 5 5 Jamna Auto 23x 13x 6x 16x 11x 5x
Suprajit Eng 27x 17x 6x 19x 16x NA
Gabriel Ind 24x 14x 5x 9x 12x NA
Endurance Tech 38x 19x 8x 17x 15x 7x
Lumax Autotech 19x 10x 3x 4x 8x 2x
*Expect for Fiem, Lumax and Minda Ind all other numbers are Bloomberg consensus

Exhibit 16: TTM P/E vs. 2 year forward EPS Growth Annexure 1: Company overview
EPS Growth
1800 50%
1600
30x FIEM, incorporated in 1989 by Mr. J.K Jain, is a frontrunner in the automotive lighting
1400 30% 25 segment. Along with automotive lighting (66% of topline), it is also present in rear view
x
1200
10%
20x mirrors (14% of revenue), plastic molded parts (12%) and sheet metal parts in the
1000 15x automotive component space. The company has ventured into LED luminaries for indoor
800 -10% 10x
600 and outdoor application, and integrated passenger information systems (IPIS) for railways
400 -30% and buses. It was one of the first movers to develop LED lights for 2Ws.
200
0 -50%
Exhibit 19: Automotive segment – category-wise sales break-up
Mar/06
Mar/07
Mar/08
Mar/09
Mar/10
Mar/11
Mar/12
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Sep/06
Sep/07
Sep/08
Sep/09
Sep/10
Sep/11
Sep/12
Sep/13
Sep/14
Sep/15
Sep/16
Sep/17
Sep/18
Others
Plastic Moulded 8%
12%
Exhibit 17: TTM P/B vs. 2 year forward RoE Rear view mirrors
14%
RoE
2000 60%
5x
1500 40% 4x
1000 20% 3x Auto Lamp
2x 66%
500 0%
1x Source: Company, Equirus Securities
0 -20%
Nov/06
Mar/06
Nov/08
Nov/10
Jul/07
Mar/08
Jul/09
Mar/10
Jul/11
Mar/12
Nov/12
Jul/13
Mar/14
Nov/14
Nov/18
Jul/15
Mar/16
Nov/16
Jul/17
Mar/18
Exhibit 20: Automotive segment - Product portfolio
Exhibit 18: TTM EV/EBITDA vs. 2 year forward EBITDA Growth

EBITDA Growth
30000 70%
60% 15x Head &Rear Lamp Sheet Metal Parts
25000
50%
20000 40% 12x
15000 30% 10x
10000 20%
10% 5x
5000 0% 3x
0 -10%
Plastic Molded part Rear view Mirror
Nov/10
Nov/12
Mar/14
Mar/16
Mar/06
Nov/06
Jul/07
Mar/08
Nov/08
Jul/09
Mar/10
Jul/11
Mar/12
Jul/13
Nov/14
Jul/15
Nov/16
Jul/17
Mar/18
Nov/18

2Ws contribute lion’s share of automotive sales: About 94% of the automotive Exhibit 23: HMSI constitutes 45% of automotive segment revenue
segment’s topline is contributed by 2Ws. FIEM provides the entire spectrum of 2W
lighting solutions, including various types of head lamps, tail lamps and winkers. HMSI
(45% of revenue) and TVS (24%) are FIEM’s key 2W clients. Yamaha, 4%
Royal Enfield, 4% Replacement, 9%
Suzuki, 4%
TVS, 24% Other customers,
Exhibit 21: Sales break up: Automotive segment – the revenue driver 10%
LED Segment,
5.50%
HMSI, 45%

Auto Segment,
94.50%
Well-entrenched relationships ensure revenue visibility: FIEM has had a strong client
Source:Company, Equirus Securities base of more than 50 OEMs, which contribute about 87% of automotive segment revenues
(95% of topline). The company has a strong relationship with the Honda group, with HMSI
contributing 45% of automotive business revenues. FIEM has a dedicated plant to supply
Exhibit 22: Contribution of 2Ws to automotive segment revenues
to HMSI’s plants. FIEM also exports lighting components to Honda Japan, and supplies to
Honda Thailand and Honda Vietnam through Honda trading. The company has also signed
4 Wheeler, 6% MoUs to enter into new products like key sets, door mirrors and outside handles in
collaboration with Honda Locks Mfg. Co., a group company of Honda Motors, Japan.
Strong relationship with a global auto player gives comfort on the business front.
Apart from this, FIEM is also looking to increase its wallet share from customers like
Suzuki and Royal Enfield. Replacement market (10% of revenues) also presents a large
untapped opportunity for FIEM.
2 Wheeler, 94%
Expansion in product portfolio, geographical reach aided by technical tie-ups and JVs:
In a bid to expand its product portfolio, enter untapped markets, and gain technological
Source:Company, Equirus Securities synergies, FIEM has signed MoUs with foreign partners for JVs/technological
collaboration. This strategy helps in securing OEM customers, as parent companies of
foreign OEMs have long-standing relations with their respective JV partners in the home
market. Such JVs also help in product development and R&D. Exhibit 23 provides details
of MoUs.

Exhibit 24: Details of MoU for JVs/Collaborations Exhibit 26: Railway stations where IPIS systems are installed/under installation
Collaborator Products & Geography Delhi Anand Vihar, Sarai Rohilla
Honda Lock Manufacturing and Toyota Key sets, door mirrors and outside Goa Sanvordem
Tsusho. handles
Aisan Industry Co. Ltd and Toyota Tsusho Canisters (carbon emission control Haryana Hisar, Bhiwani, Faridabad
Corporation, Japan devices), Fuel Pump, IC Connectors Bikaner, Lalgarh, Suratgarh, hanuman Garh, Sri Ganganagar,
Rajasthan
Toyota Denso Co. Ltd and Toyota Tsusho Chittorgarh
Automotive switch assemblies
Corporation, Japan Lucknow Jn, Varanasi, Phaphund, Mathura, Bareilly, Allahabad,
LED luminaires in Behrain and Gulf Uttar Pradesh Gonda, Badshahnagar, Mankapur, Khlilabad, Basti, Kasganj,
VKL Holding Co. SPC, Behrain
countries Farrukhnagar, Izzatnagar
50:50 JV for high class molds/tools Maharashtra Dhanu Road Station
Kyowa Co. Ltd for automotive and other
applications Gujarat Bhavnager, Veraval, Junagarh, Sabarmati
Vishakhapatnam Jn, Venkatgiri, Sri Kala Hasti, Mantralayam Road,
Andhra Pradesh
Parvathipuram, Vizianagram
Banking on technological upgrades in railways, state road transport undertakings:
FIEM, under the LED luminaires division, supplies integrated passenger information Madhya Pradesh Ujain, Indore, Ratlam, Dewas, Neemuch, Mandsaur
systems (IPIS or PIDS) to Railways and various State Transport Undertakings (STUs) to be
Bihar Chhapra, Patna
used on trains, railway stations and inside/outside buses. Also, few state road
transportation undertakings are considering the use of FIEM’s LED-based destination
Uttarakhand Haridwar, Kathgodam, Haldwani, Lalkuan
systems. FIEM has had a strong customer base for its IPIS systems (Exhibit 25).
Karnataka Ghatprabha
Exhibit 25: Financial profile
Chattisgarh Jagdalpur
Sales EBITDA PAT EBITDA Margin - RHS PAT Margin - RHS
12,000 14% Odisha Rayagada, Koraput, Jeypore
10,000 12% GPS based PIS system for

Delhi Bikaner Superfast Express
railway coaches
10%
8,000 Source: Company, Equirus Securities
8%
6,000
6%
4,000
4%
2,000 2%
0 0%
Exhibit 27: Brief history of company

Key management profile
Set up a facility for manufacturing canister (emission control system product) under
2017 BS-IV norm in Tapukara plant, JV with Kyowo Co. Ltd, Design Company in Thailand
Mr. J.K. Jain
Unit 9 Ahmedabad, started commercial production. NABL accredition received for Mr. J.K. Jain is FIEM’s Chairman and Managing Director and also its founder. Mr. Jain has
2016 photometry Laboratory
more than 40 years of experience in automotive lighting and signaling business. He has
played an instrumental role in devising the company’s strategy and led it through
2015 Started receiving tenders for EESL for LED bulbs and street lighting
various business expansions and diversifications.
Ms. Seema Jain
2013 Entered into 50:50 JV with Horustech Lighting, Italy for a design centre
Ms. Seema Jain, wife of Mr. J.K. Jain, is FIEM’s whole-time Director. Aged 63, she is
actively involved in the business and oversees the finance function. She comes from a
2012 Started manufacturing auto lamps and components for Honda Japan
business family that helped her learn early lessons in the business. She is an alumnus of
the University of Delhi and holds a Bachelors’ degree in Science.
Setup Mfg facility for plastic moulded parts, Tapukara, Setup a R&D centre approved
2011 by GOI Ms. Aanchal Jain
Ms. Jain is FIEM’s whole-time Director. Aged 35 years, she presides over the Human
2010 Started a new manufacturing unit in Rai, Sonepat (Unit 7) Resource management function and also manages the labor welfare and skill
development programs. She holds a MBA degree from Indiana Institute of Technology.
2007 Merged the JV Fiem Sung San with Fiem Industries and setup LED SMT plant Mr. Rahul Jain
Alumnus of the University of Bradford, Mr. Jain is the company’s whole-time director
2006 Fiem Sung San (India) Pvt. Ltd. A JV company was established and is involved in strategic affairs and corporate planning. He also is actively involved in
close interactions with customers for new project development and customer
2005-06 Manufacturing facilities commissioned in Hosur (Unit 5) and Nalagarh (Unit 6) satisfaction. Besides, he oversees the manufacturing operations of various units.
Mr. J.S.S Rao
Manufacturing facilities commissioned in Hosur (Unit 2&3) and Mysore (Unit 4) Mr J.S.S. Rao manages the overseas and South India operations of FIEM. He was appointed
2004-05
on the Board in 2005 and is also a whole-time Director. He has more than 30 years of
experience in the manufacturing, operation and business strategic functions in automotive
1998 Multifocal reflector Launched for the first time in India by FIEM
component and automotive lighting industry.
Mr. Kashi Ram Yadav
1996 Fiem Sung San (India) Pvt. Ltd. A JV company was established
Mr. Kashi Ram Yadav is FIAM’s whole-time Director. He has been associated with the
company since its inception and now has over 3 decades of experience in production and
1994 New Plant established at Kundli, Sonepat (Unit 1)
manufacturing of automotive lighting, rear view mirrors and other components. He is
responsible for the manufacturing operations in north-India based plants.
1993 Converted into Public Ltd. Company - Fiem Industries Ltd
Mr. O.P. Gupta

1992 Name Changed to Fiem Industries Pvt. Ltd. Mr. O.P. Gupta is FIEM’s Chief Financial Officer and has been associated with the
company since 2006. Mr. Gupta is a member of Institute of Chartered Accountant of
1989 Incorporated as Rahul Private Limited India, Institute of Cost Accountants and the Institute of Company Secretaries of India.

Exhibit 28: FIEM’s LED journey in the automotive segment
SUZUKI MOTORCYCLES,
TVS MOTOR
TVS MOTOR, ASPOCK
ASPOCK
LED Tail Lamp
LED Tail Lamp – MC LED Blinkers
LED Tail Lamp – Trucks ASPOCK LED RC Lamp
LED RC Lamp - Trucks
ASPOCK ZADI ASPOCK, TATA MOTOR,
2007 L&T
LED Endout marker 2005 LED Side Marker
LED Side Marker LED Front Position Lamp LED Tail Lamp - Trucks
2002 2008 LED RC Kamp – Trucks
LED – Cabin Lamp
2006
MAHINDRA-
2WHEELER,TVS MOTOR,
ASPOCK, JHON DEERE
LED Tail Lamp
LED Parking Lamp
LED Work Lamp
TVS MOTOR , TATA
2011 2009
2012 MOTOR
2010 LED Front Position Lamp
HARLEY DAVIDSON, FIEM-R&D PRODUCT LED Tail Lamp - Bike
DAIMLER, L&T, FOR TWO WHEELER, LED Tail Lamp – Trucks
MAHINDRA-2WHEELER, 2013 LED HL TATA MOTOR, MAHINDRA- LED RC Lamp - Trucks
SUZUKI MOTORCYCLES- DAIMLER 2WHEELER,TVS MOTOR LED CHMSL
SMC, MAHINDRA REVA LED Head Lamp LED Tail Lamp
LED Fog Lamp LED CHMSL LED RC Lamp
LED Tail Lamp LED Blinkers
LED Reading Lamp 2017
2014
LED Parking Lamp
2015 2016 HONDA MOTORCYCLE,
TVS MOTOR, FIEM-R&D YAMAHA, TVS MOTOR
PRODUCT, MAHINDRA
YAMAHA, TVS TVS MOTOR, DAIMLER, LED Head Lamp
REVA, YAMAHA LED Tail Lamp
MOTOR HARLEY DAVIDSON, SUZUKI
LED Head Lamp LED Drl
LED Head Lamp MOTORCYCLES LED Position Lamp
LED Tail Lamp
LED Indicators LED Tail Lamp, LED Blinkers, LED
LED Projector Lamp
LED RC Lamp Indicators, LED Roof Lamp, LED
Outline Marker, LED Side Marker,
LED License Lamp

Standalone Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 2,445 2,918 2,354 2,451 2,907 3,265 2,743 3,000 3,506 3,506 3,506 3,506 10,174 11,916 14,026 16,655
Raw Materials Consumed 1,475 1,641 1,296 1,348 1,909 1,999 1,618 1,770 2,069 2,069 2,069 2,069 5,760 7,296 8,275 9,826
Increase/Decrease in Stock -147 -52 -12 6 -172 -26 0 0 0 0 0 0 -204 -198 0 0
Purchase of Traded Goods 29 108 80 94 9 10 0 0 0 0 0 0 311 19 0 0
Employee Cost 360 398 343 355 405 482 389 426 498 498 498 498 1,456 1,703 1,992 2,365
Other Expenditure 414 463 383 409 448 425 422 462 526 526 526 526 1,677 1,758 2,104 2,498
EBITDA 313 360 263 239 308 375 313 342 414 414 414 414 1,174 1,338 1,655 1,965
Depreciation 94 97 100 102 107 111 113 116 119 123 127 131 392 448 500 563
EBIT 219 264 163 137 201 264 199 226 294 291 287 283 782 890 1,155 1,402
Interest 55 63 59 55 60 59 58 52 52 50 47 44 232 230 192 162
Other Income 1 5 20 21 18 13 16 15 13 11 10 10 47 61 45 30
PBT 166 205 124 103 159 218 157 188 255 252 250 249 597 721 1,007 1,270
Tax 51 64 33 -22 55 74 52 62 84 83 83 82 126 243 332 419
Recurring PAT 115 141 91 125 103 143 105 126 171 169 168 167 471 478 675 851
Extraordinary 0 0 0 -142 0 -2 0 0 0 0 0 0 -142 -2 0 0
Reported PAT 115 141 91 267 104 145 105 126 171 169 168 167 613 480 675 851
EPS (Rs) 9.61 11.77 7.57 10.44 8.65 11.98 8.00 9.56 12.97 12.85 12.75 12.69 35.78 36.31 51.26 64.65
Key Drivers
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue -15 % 19 % -19 % 4% 19 % 12 % -16 % 9% 17 % 0% 0% 0% - - - -
Raw Materials Consumed 5% 11 % -21 % 4% 42 % 5% -19 % 9% 17 % 0% 0% 0% - - - -
EBITDA -21 % 15 % -27 % -9 % 29 % 22 % -17 % 9% 21 % 0% 0% 0% - - - -
EBIT -29 % 20 % -38 % -16 % 46 % 32 % -25 % 13 % 30 % -1 % -1 % -1 % - - - -
Recurring PAT -41 % 22 % -36 % 38 % -17 % 39 % -26 % 19 % 36 % -1 % -1 % 0% - - - -
EPS -41 % 22 % -36 % 38 % -17 % 39 % -33 % 19 % 36 % -1 % -1 % 0% - - - -
Yearly Growth (%)
Revenue 20 % 24 % -9 % -15 % 19 % 12 % 17 % 22 % 21 % 7% 28 % 17 % 3% 17 % 18 % 19 %
EBITDA 27 % 23 % -21 % -40 % -2 % 4% 19 % 43 % 34 % 10 % 32 % 21 % -8 % 14 % 24 % 19 %
EBIT 30 % 24 % -35 % -56 % -8 % 0% 22 % 65 % 47 % 10 % 44 % 25 % -17 % 14 % 30 % 21 %
Recurring PAT 21 % 12 % -42 % -36 % -10 % 2% 16 % 1% 65 % 18 % 59 % 33 % -18 % 1% 41 % 26 %
EPS 21 % 12 % -42 % -36 % -10 % 2% 6% -8 % 50 % 7% 59 % 33 % -25 % 1% 41 % 26 %
Margin (%)
EBITDA 13 % 12 % 11 % 10 % 11 % 11 % 11 % 11 % 12 % 12 % 12 % 12 % 12 % 11 % 12 % 12 %
EBIT 9% 9% 7% 6% 7% 8% 7% 8% 8% 8% 8% 8% 8% 7% 8% 8%
PBT 7% 7% 5% 4% 5% 7% 6% 6% 7% 7% 7% 7% 6% 6% 7% 8%
PAT 5% 5% 4% 5% 4% 4% 4% 4% 5% 5% 5% 5% 5% 4% 5% 5%

P&L (Rs Mn) FY17A FY18E FY19E FY20E Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 10,188 11,927 14,038 16,667 Equity Capital 132 1,510 132 132 PBT 600 723 1,009 1,272
Op. Expenditure 9,010 10,586 12,380 14,698 Reserve 4,105 4,193 4,711 5,373 Depreciation 393 449 501 564
EBITDA 1,178 1,341 1,658 1,968 Networth 4,236 4,325 4,842 5,504 Others 34 0 0 0
Depreciation 393 449 501 564 Long Term Debt 2,250 1,998 1,558 1,518 Taxes Paid 126 244 333 420
EBIT 785 892 1,157 1,404 Def Tax Liability 452 481 481 481 Change in WC -523 -169 35 -25
Interest Expense 233 230 193 162 Minority Interest 0 0 0 0 Operating C/F 378 759 1,212 1,391
Other Income 47 61 45 30 Account Payables 1,502 1,523 1,780 2,115 Capex -1,159 -742 -1,000 -1,120
PBT 600 723 1,009 1,272 Other Curr Liabi 465 575 671 796 Change in Invest 0 -6 0 0
Tax 126 244 333 420 Total Liabilities & Equity 8,905 8,902 9,333 10,414 Others -790 0 0 0
PAT bef. MI & Assoc. 473 479 676 852 Net Fixed Assets 4,929 5,349 5,848 6,404 Investing C/F -1,949 -748 -1,000 -1,120
Minority Interest 0 0 0 0 Capital WIP 56 13 13 13 Change in Debt 875 -252 -440 -40
Profit from Assoc. 0 0 0 0 Others 373 295 295 295 Change in Equity 12 -264 0 0
Recurring PAT 473 479 676 852 Inventory 1,024 1,154 1,248 1,482 Others 870 -98 -158 -190
Extraordinaires -142 0 0 0 Account Receivables 1,198 1,421 1,610 1,815 Financing C/F 1,758 -615 -598 -230
Reported PAT 615 479 676 852 Other Current Assets 261 208 243 289 Net change in cash 187 -603 -386 41
FDEPS (Rs) 36.0 36.4 51.4 64.8 Cash 1,065 461 75 116 RoE (%) 14 % 11 % 15 % 16 %
DPS (Rs) 8.0 8.0 10.0 12.0 Total Assets 8,905 8,901 9,333 10,414 RoIC (%) 11 % 9% 12 % 13 %
CEPS (Rs) 72.4 70.6 89.5 107.6 Non-cash Working Capital 516 685 650 675 Core RoIC (%) 12 % 9% 11 % 13 %
FCFPS (Rs) -116.0 12.4 25.9 28.8 Cash Conv Cycle 18.5 21.0 16.9 14.8 Div Payout (%) 21 % 26 % 23 % 22 %
BVPS (Rs) 321.9 328.6 367.9 418.3 WC Turnover 19.7 17.4 21.6 24.7 P/E 28.4 28.1 19.9 15.8
EBITDAM (%) 12 % 11 % 12 % 12 % FA Turnover 2.0 2.2 2.4 2.6 P/B 3.2 3.1 2.8 2.4
PATM (%) 5% 4% 5% 5% Net D/E 0.3 0.4 0.3 0.3 P/FCFF -8.8 82.3 39.4 35.5
Tax Rate (%) 21 % 34 % 33 % 33 % Revenue/Capital Employed 2.8 2.9 2.5 2.4 EV/EBITDA 12.8 11.5 9.3 7.8
Sales Growth (%) 3% 17 % 18 % 19 % Capital Employed/Equity 1.7 1.6 1.6 1.6 EV/Sales 1.5 1.3 1.1 0.9
FDEPS Growth (%) -25 % 1% 41 % 26 % Dividend Yield (%) 0.8 % 0.8 % 1.0 % 1.2 %
TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE
EPS Growth EBITDA Growth RoE
1800 50% 30x 30000 70% 2000 60%
1600
25000 60% 15x 5x
1400 30% 25 50% 1500 40%
x 4x
1200
10%
20x 20000 40% 12x
1000 15000 30% 10x 1000 20% 3x
15x
800 -10% 10x 10000 20% 2x
600 10% 5x 500 0%
400 -30%
5000 0% 3x 1x
200 0 -10% 0 -20%
0 -50%
Nov/10
Nov/12
Mar/14
Mar/16
Mar/06
Nov/06
Jul/07
Mar/08
Nov/08
Jul/09
Mar/10
Jul/11
Mar/12
Jul/13
Nov/14
Jul/15
Nov/16
Jul/17
Mar/18
Nov/18
Nov/06
Mar/06
Nov/08
Nov/12
Jul/07
Mar/08
Jul/09
Mar/10
Nov/10
Jul/11
Mar/12
Jul/13
Mar/14
Nov/14
Nov/16
Jul/15
Mar/16
Jul/17
Mar/18
Nov/18
Mar/06
Mar/07
Mar/08
Mar/09
Mar/10
Mar/11
Mar/12
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Sep/06
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Sep/10
Sep/11
Sep/12
Sep/13
Sep/14
Sep/15
Sep/16
Sep/17
Sep/18

Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 7,205 8,255 9,882 10,188 Equity Capital 120 120 120 132 PBT 528 609 794 600
EBITDA 884 1,027 1,273 1,178 Networth 1,969 2,273 2,731 4,236 Others 163 87 73 34
Depreciation 218 307 331 393 Long Term Debt 1,191 1,171 1,400 2,250 Taxes Paid 155 184 220 126
EBIT 666 720 942 785 Def Tax Liability 287 296 384 452 Change in WC 14 2 243 -523
Interest Expense 145 120 158 233 Minority Interest 0 0 0 0 Operating C/F 768 821 1,220 378
Other Income 7 9 10 47 Account Payables 778 882 1,508 1,502 Capex -408 -588 -1,089 -1,159
PBT 528 609 794 600 Other Curr Liabi 327 391 565 465 Change in Invest 0 0 0 0
Tax 155 184 220 126 Total Liabilities & Equity 4,551 5,013 6,588 8,905 Others 1 2 7 -790
PAT bef. MI & Assoc. 373 425 573 473 Net Fixed Assets 3,130 3,345 4,159 4,929 Investing C/F -407 -586 -1,081 -1,949
Minority Interest 0 0 0 0 Capital WIP 0 46 116 56 Change in Debt -150 -6 226 875
Profit from Assoc. 0 0 0 0 Others 56 78 201 373 Change in Equity 0 0 0 12
Recurring PAT 373 425 573 473 Inventory 424 514 661 1,024 Others -207 -214 -353 870
Extraordinaires 0 0 0 -142 Account Receivables 768 868 1,186 1,198 Financing C/F -357 -220 -127 1,758
Reported PAT 373 425 573 615 Other Current Assets 153 128 218 261 Net change in cash 4 14 12 187
EPS (Rs) 31.1 35.5 47.9 36.0 Cash 20 34 45 1,065 RoE (%) 20 % 20 % 23 % 14 %
DPS (Rs) 6.0 7.0 8.0 8.0 Total Assets 4,551 5,013 6,588 8,905 RoIC (%) 14 % 14 % 17 % 11 %
CEPS (Rs) 49.4 61.2 75.6 72.4 Non-cash Working Capital 239 237 -6 516 Core RoIC (%) 14 % 14 % 16 % 12 %
FCFPS (Rs) 38.7 26.6 21.2 -116.0 Cash Conv Cycle 12.1 10.5 -0.2 18.5 Div Payout (%) 23 % 24 % 20 % 21 %
BVPS (Rs) 164.6 190.0 228.3 321.9 WC Turnover 30.1 34.9 -1,528.2 19.7 P/E 28.8 21.3 28.4 0.0
EBITDAM (%) 12 % 12 % 13 % 12 % FA Turnover 2.3 2.4 2.3 2.0 P/B 5.4 4.5 3.2 0.0
PATM (%) 5% 5% 6% 5% Net D/E 0.6 0.5 0.5 0.3 P/FCFF 26.4 38.4 48.3 -8.8
Sales growth (%) 19 % 15 % 20 % 3% Capital Employed/Equity 2.1 1.8 1.7 1.6 EV/Sales 1.8 1.5 1.7 0.0
FDEPS growth (%) 34 % 14 % 35 % -25 % Dividend Yield (%) 0.6 % 0.7 % 0.8 % 0.8 %

Lumax Industries Limited
Absolute : LONG
Relative : Overweight
Initiating Note Regular Coverage 15% ATR in 15 Months
Best placed to capture LED shift in Passenger Vehicles Auto
© 2014 EquirusAll rights reserved
Lumax Industries (LUMX) is the leader in India‟s automotive lighting industry, with ~23%
Rating Information
market share (35% along with associate company, SL Lumax). About 68% of its sales
Price (Rs) 2,100
come from 4Ws, with MSIL its largest customer (32% of sales in 1HFY18). Technology
Target Price (Rs) 2,486
tie-ups with Japanese company Stanley Electric (owns 37.5% stake in LUMX) helps it
Target Date 31st MAR'19
stay ahead of the curve on technological changes. With ~60% share in MSIL‟s headlamp
Target Set On 3rd JAN‟18
Implied yrs of growth (DCF) 20 supplies, we believe LUMX will be a key beneficiary of the shift to LEDs given that
Fair Value (DCF) 2,109 MSIL‟s new mid-to-premium segment models have full LED headlamp offerings (in top
Fair Value (DDM) 673 variant). We expect 15%/24%/27% sales/EBITDA/PAT CAGR over FY18-FY20, and
Ind Benchmark BSEAUTO initiate coverage on LUMX with LONG and a Mar‟19 TP of Rs 2,486 (26x FY19 EPS).
Model Portfolio Position NA
Set to be a key beneficiary of shift to LEDs: LUMX has a 23% share in the Indian Consolidated Financials
automotive lighting industry, with a larger share in PVs. About ~60% of MSIL‟s Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Stock Information
Market Cap (Rs Mn) 19,630 headlamp requirement is supplied by LUMX. Currently, ~15% of automotive lights Sales 12,998 14,086 16,086 18,524
Free Float (%) 26.47 % have shifted to LED, which can increase to 50% in the next four years, driving strong EBITDA 998 1,138 1,441 1,746
52 Wk H/L (Rs) 2250/752.45 value growth. LUMX has supplied headlamps to some of MSIL‟s new launches like Depreciation 404 482 549 594
Avg Daily Volume (1yr) 16,994 Dzire, S-Cross and the upcoming Swift. Interest Expense 114 70 89 51
Avg Daily Value (Rs Mn) 25 Other Income 57 47 49 54
Equity Cap (Rs Mn) 93
Focus on increasing market share in CVs, tractors & 2Ws: CVs and tractors have
Reported PAT 552 710 893 1,137
Face Value (Rs) 10 traditionally used old-generation lighting technology, supplied by a large number of
Recurring PAT 552 710 893 1,137
Bloomberg Code LUMX IN players; hence, this turned out to be a low-margin business. However, with even CVs Total Equity 3,159 3,583 4,263 5,130
shifting to new lighting technologies, LUMX intends to gain footprint this segment. Gross Debt 924 1,194 794 494
Ownership Recent 3M 12M
Market share in 2Ws is also likely to increase as Hero‟s major supplier Unitech Cash 14 22 1 270
Promoters 73.5 % 0.0 % 0.0 %
Machines is not able to catch up with technology changes and losing market share. Rs Per Share FY17A FY18E FY19E FY20E
DII 1.7 % 0.0 % 1.6 %
FII 0.7 % -1.5 % -1.5 % Return matrix to improve led by growth, margin expansion: We expect LUMX to Earnings 59.1 76.0 95.6 121.7
Public 24.1 % 1.6 % -0.1 % Book Value 338 384 456 549
clock 14% sales CAGR over FY18-FY20, but believe growth in EBITDA/PAT would be
Dividends 14.5 16.5 19.5 24.7
Price % 1M 3M 12M higher at 21%/27% as higher-margin LED lights drive margin expansion. This should
FCFF 50.8 19.3 44.5 65.1
Absolute 4.1 % 66.6 % 166.7 % also lead to RoIC improvement, from 14% in FY17 to 19% in FY20.
P/E (x) 35.6 27.6 22.0 17.3
Vs Industry -1.7 % 58.3 % 138.5 %
Large exposure to MSIL provides good growth visibility, initiate with LONG: MSIL P/B (x) 6.2 5.5 4.6 3.8
FIEMIND 14.6 % 13.1 % -11.8 %
contributed 32% of Sales in 1HFY18 and LUMX has 39% share in MSIL‟s total lighting EV/EBITDA (x) 21.2 18.5 14.4 11.5
MINDAIND 0.2 % 48.4 % 294.3 %
purchases due to ~60% share in Headlamps of MSIL models. We expect ROE (%) 19 % 21 % 23 % 24 %
Standalone Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
Sales/EBITDA/PAT to grow at 15%/24%/27% CAGR over FY18-20E. We believe that Core ROIC (%) 13 % 12 % 15 % 18 %
EPS (16A) 10.5 13.0 13.9 11.7

LUMX can trade at upper range of its historical trading multiples due to strong 27% EBITDA Margin (%) 8% 8% 9% 9%
EPS (17E) 10.0 19.5 13.0 12.9 EPS CAGR over FY18-20E. We value the company at 26x TTM EPS of Mar‟19 to derive Net Margin (%) 4% 5% 6% 6%
our Mar‟19 PT of Rs 2,486, at which stock will trade at 20x 1 year forward.

Lumax Industries Ltd. Absolute – LONG Relative – Overweight 15% ATR in 15 Months
Company Snapshot Key Triggers

 Waiting period on new model launches
How we differ from Consensus
 Monthly production volumes
- Equirus Consensus % Diff Comment
FY17E 76.0 82.7 -8 % Not much of Consensus Coverage
EPS Sensitivity to Key Variables % Change % Impact on EPS
FY18E 95.6 107.5 -11 %
EBITDA Margin 1% 21 %
FY17E 14,086 14,630 -4 %
Sales - - -
FY18E 16,086 17,240 -7 %
- - -
FY17E 710 770 -8 %
PAT
FY18E 893 1,000 -11 % DCF Valuations & Assumptions
Key Investment arguments: Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.7 % 1.0 12.7 % 3.0 % 20.0 %
 Largest player in automotive lighting, to be a key beneficiary of shift to LEDs
 Focus on increasing market share in CVs. Tractors and 2Ws - FY18E FY19E FY20-22E FY23-27E FY28-32E
 Return matrix to improve led by growth and margin expansion
Sales Growth 8% 14 % 10 % 11 % 9%
 Large exposure to MSIL provides good growth visibility
NOPAT Margin 3% 4% 5% 5% 5%
IC Turnover 3.32 3.55 3.74 3.79 3.79
RoIC 11.8 % 15.5 % 19.9 % 21.0 % 20.8 %
Key Estimates:
Years of strong growth 1 2 5 10 15
Rs mn FY17 FY18E FY19E FY20E FY21E
Valuation as on date (Rs) 902 1,002 1,340 1,558 1,745
MSIL 4,549 4,779 5,572 6,558 7,647
Valuation as of Mar'19 1,046 1,162 1,554 1,807 2,024
M&M 1,430 1,546 1,704 1,914 2,151
HCIL 1,170 1,253 1,394 1,567 1,760 Based on DCF, assuming 20 years of 13% CAGR growth and 20% average ROIC, we derive
HMSI 1,170 1,432 1,701 1,983 2,313
31st Mar‟19 fair value of Rs 2,109.
HMCL 1,170 1,300 1,487 1,719 1,986

Company Description:
Others 3,509 3,777 4,228 4,783 5,411
Lumax Industries the market leader in the Indian automotive lighting industry with the
Total Sales 12,998 14,086 16,086 18,524 21,267 consolidated market share (including SL Lumax) of ~35%. It is one of the preferred
supplier to automotive OEMs across segments. Lumax has technology tie up with Stanley
Electric (Japan) and SL Corporation (Korea) in its associate company SL Lumax in the
automotive Lighting space.

Lumax Industries LONG 2,100 19,630 2,486 31st MAR'19 59.1 76.0 95.6 35.6 27.6 22.0 337.9 5.5 19 % 21 % 23 % 0.7 % 0.8 %
FIEM Inudstries LONG 1,022 13,450 1,336 - 36.0 36.4 51.4 28.4 28.1 19.9 321.9 3.1 14 % 11 % 15 % 0.8 % 0.8 %
Minda Industries ADD 1,250 108,024 1,116 30th Dec'18 19.4 26.9 34.9 53.1 38.4 29.6 118.9 7.3 22 % 21 % 23 % 0.2 % 0.2 %

Investment rationale Exhibit 2: Product-wise sales (1HFY18)
Set to be a key beneficiary of shift to LEDs
Largest player in automotive lighting, more share in high-value headlamps: LUMX has others, 11%
a ~23% market share in India‟s automotive lighting industry with MSIL being its largest Rear Lighting, 20%
customer, contributing ~32% (in 1HFY18) of standalone sales. In automotive lighting too,
it has a larger share in headlamps, which are costlier (traditional headlamps cost
Rs 1200-1300 vs. Rs 300-400 for tail lamps) and more complex. Headlamps are more
important from a safety perspective as the distance and quality of light guides to a safe
range of vehicle speed. As automotive lighting is shifting from halogen to LED, value
growth would be much higher for headlamps vis-à-vis tail lamps. Front lighting
contributes ~69% of LUMX sales and tail lamps 20% (Exhibit 02).
Front Lighting,
69%
Exhibit 1: Customer-wise sales mix (1HFY18)
Others, 20%
MSIL, 32%
About 60% share in MSIL’s headlamp sourcing, ~39% in total sourcing: LUMX supplies
Tata , 7%
headlamps for most MSIL models, which include the newly-launched Dzire and the
upcoming Swift. LUMX had however lost out on two astounding models of MSIL in last two
years – Brezza and Baleno. This was partly because initial projected volumes of these
models were not very high, and therefore the risk to revenue in case of losing the bid was
not much; however, the situation panned out to be totally different altogether.
Hero, 10%
Nevertheless, response for the new Dzire has been good and same is expected for new
M&M, 11%
Swift as well, which is likely to keep LUMX‟s growth momentum strong. In total light
HMSI, 11% sourcing for MSIL, LUMX has a ~39% share.
HCIL, 9%
Top variants of new MSIL launches have LED headlamps: LED headlamps with DRL have
become a differentiating feature of new models. Top variants, MSIL‟s new launches Dzire
and S-Cross have LED headlamps; the same would be true for the upcoming Swift as well.
These headlamps are ~8-10x costlier than base-variant headlamps, and therefore would
drive value growth for the company. Currently, LED headlamps constitute ~15% of these
model sales, but are likely to increase going ahead. It is quite likely that in upcoming
premium segment cars, LED headlamps would become a base or middle-variant feature.

Tie-up with Stanley provides cutting-edge lighting technologies: Stanley Electric Exhibit 3: Industry segment-wise sales break up for LUMX (1HFY18)
Company Ltd (Stanley), holding a 37.5% stake in LUMX, supplies automotive lighting
technology to the company and carries out major R&D work in Japan. In its FY17 Annual
Report, Stanley stated that to maximize the design potential of automobiles, demand for CV, 4%
headlamps using as little space as possible in increasing. For Honda‟s NSX model, Stanley 2W, 28%
installed a headlamp with the world‟s smallest vertical dimension of 75mm. Stanley also
supplied Adaptive Driving Beam (ADB) based headlamps for Mazda‟s CX-5 model; ADB is a
system which detects the presence and location of oncoming and preceding vehicles
through its image recognition cameras, and blocks light of headlamps to reduce glare.
Associate company SL Lumax sole supplier of lighting to Hyundai: SL Lumax is a JV PV, 68%
between Lumax and SL Corporation, Korea, for supplying lighting products to Hyundai.
LUMX owns a 21.28% stake in the JV. SL Lumax is the sole supplier of automotive lighting
products to Hyundai India, and it‟s unlikely that any new supplier will come up as Korean
automakers source mainly from Korean suppliers only. With Kia Motors coming to India, it
should become a potential customer for SL Lumax. During FY17, SL Lumax reported sales Source: Company, Equirus Securities
of Rs 9.6bn, ~73% of which comes from lighting products. LUMX had a ~11% market share
in the Indian automotive lighting industry during FY17; therefore, together with SL
Share in HMCL set to increase: Assuming average lighting content per 2W at around
Lumax, the consolidated entity commands a ~34% share.
Rs 1,200, HMCL‟s total lighting sourcing would be around Rs 9bn. Last year, LUMX
generated sales of ~Rs 1.2bn from HMCL, which is equivalent to a 13% share. While this is
Focus on increasing market share in CVs, tractors and 2Ws low as Unitech Machines is the largest supplier to HMCL, it is set to increase with the
shift to LED.
Share of business increasing in 2Ws, set to go up further amid changing industry

CVs traditionally used age-old lighting technologies. However, this is slowly changing
dynamics: AHO is likely to increase lighting content in 2Ws as LED-based DRLs would be a
and therefore LUMX is targeting market share gains: Commercial vehicle lighting was
more energy-efficient option than keeping low/high-beam headlamps on at all times. LED
not a lucrative space from profitability perspective as the technology was old and
headlamps adoption can also be faster in 2Ws, as recently HMSI launched its mid-
cheaper, therefore lower margins. However, upgrades in CV lighting are helping LUMX
segment Scooter GRAZIA with LED headlamps (supplied exclusively by LUMX); this should
gain share. In our recent visit to the plant of a domestic lighting player, we saw LED
also prompt competitors to launch new models with the same feature. LUMX is therefore
usage in tail lamps of a CV model; the same can be used in more models, leading to
trying to increase its share in the 2W segment.
increase in content per vehicle. In an upcoming tractor model, an OEM is set to use LED
The results of these efforts were seen in 1HFY18, when 2Ws lights contributed 28% of headlamps. We think from a safety perspective, it is important to regulate CV lights given
sales vs. 24% in FY17. The share of 2Ws business can increase further as HMCL‟s (Hero their harsh glares. If regulations are enforced, larger players are set to gain further
Motocorp) key supplier, Unitech Machines, would see market losses given that it does not share.
have technological capabilities in LEDs.

Exhibit 4: LUMX’s key customers in 4W and CVs Return matrix to improve led by growth and margin expansion
LED shift to shore up margins, more importantly profitability per vehicle: As

automotive LED lighting is a new technology with only a few players in the picture,
margins should be higher. More importantly, as LED lights are 4-10x costlier than
traditional halogen lamps, profit content per vehicle should improve for LUMX even at
the same margin level due to higher realizations. The company‟s EBITDA margins already
improved by 147bps over FY15-FY17 to 7.7% due to its cost-control initiatives, and we
expect a further improvement to 9.1% in FY20E, management is targeting double digit
margins. Exhibit 05 shows LUMX‟s historical margin improvement trend and our forecasts.
Exhibit 5: EBITDA margin trend - On an upward trajectory
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Sales to grow at 15% CAGR over FY18-FY20E, EBITDA at 24%: Driven by value growth
from LED automotive lights, LUMX is expected to outperform OEM growth, reporting 15%
sales CAGR over FY18-FY20E. There is a possibility of outperformance to this growth as
well, if LED adoption is faster. LUMX‟s share is likely to increase in HMCL, which should
also help it top industry growth. EBITDA should grow faster at 24% due to a better
product mix led margin improvement.

Forecast: Key assumptions & sensitivity

Exhibit 6: Sales/EBITDA to grow at 15%/24% CAGR over FY18-FY20E
Sales EBITDA We expect LUMX to report 15% sales CAGR over FY18-FY20E driven by an average 5-6%
20,000 18,524 value CAGR due to a shift towards LED lamps. We expect LUMX to gain share in HMCL‟s
18,000 light sourcing and therefore, despite lower volume growth assumptions in HMCL‟s own
16,086
16,000 sales volumes, we believe HMCL‟s contribution in LUMX‟s sales would hold up at 9-10%.
14,086 We expect MSIL‟s contribution in LUMX sales to remain around 35-36%, despite some
14,000 12,552 12,998
11,426 decline in 1HFY18. Margins are expected to improve by ~100bps over FY18-FY20E driven
12,000 10,702 11,167
9,852 by operating leverage and higher contribution of better-margin LED lamps.
10,000
8,000 Exhibit 8: Customer-wise sales forecast
6,000 Rs mn FY17 FY18E FY19E FY20E FY21E
4,000 MSIL 4,549 4,779 5,572 6,558 7,647
1,138 1,383 1,694
2,000 458 611 594 886 998
545 M&M 1,430 1,546 1,704 1,914 2,151
0
HCIL 1,170 1,253 1,394 1,567 1,760
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
HMSI 1,170 1,432 1,701 1,983 2,313
HMCL 1,170 1,300 1,487 1,719 1,986
Others 3,509 3,777 4,228 4,783 5,411
Exhibit 7: RoIC to improve driven by growth and margin expansion Total 12,998 14,086 16,086 18,524 21,267
20%
18% Exhibit 9: Sensitivity of earnings to EBITDA margins
16% % change in EBITDAM -1.0% -0.5% 0.0% +0.5% +1.0%
14% Change in EBITDA -11.6% -5.8% 0.0% +5.8% +11.6%
12% Change in PAT -20.8% -10.4% 0.0% +10.4% +20.8%
10% Source: Equirus Securities
8%
6%
4%
2%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E

Investment risk & concerns Corporate governance

 Supply risk in new models of MSIL or other OEMs: Despite having a ~60% share in  Over the past five years (FY13-FY17), LUMX‟s dividend payout ratio has been in the
MSIL‟s headlamp sourcing, LUMX lost in two of its recent successes, Baleno and Brezza. range of 36%, which is quite good compared to other auto ancillaries.
A similar thing in future models could be a risk to our forecast. However, a key reason  As of Mar‟17, LUMX had 12 directors on its Board, comprising four Executive, two
behind LUMX losing out on Baleno and Brezza opportunities was low RFQ volumes of (including chairman) Non-Executive and six Independent Directors.
these models; hence, while the risk to loss was not anticipated to be very high, the  BSR & Associates LLP is LUMX‟s auditor.
situation panned out to be totally different altogether. Another reason was a  LUMX has been prompt in hosting conference calls post quarterly results and
desperate attempt by competitors to bid at low prices to gain share. However, going releasing detailed presentations along with the same.
ahead, competitive intensity is likely to wane as profitability is hit. With LUMX getting  LUMX undertakes its CSR activities under the aegis of Lumax Foundation, the group‟s
new Dzire and Swift contracts, the supply risk is mitigated to some extent. CSR arm.
 Following are details of major related party transactions with group companies
 Slower-than-expected LED penetration: A large part of our thesis on LUMX is based
on a shift to LED-driven value growth; therefore, any delays on this front will be a Exhibit 10: Details of Related Party Transaction
risk to our estimates. However, competitive pressure should expedite adoption to Rs mn FY16 FY17
LEDs, as LED headlamps, DRLs or tail lamps act as a differentiating feature, Sale of raw materials and components including semi-finished goods
enhancing the vehicle‟s aesthetic appeal.
Lumax Auto Technologies Ltd. 72 47
 Lower-than-expected margin expansion: We expect ~100bps EBITDA margin Lumax DK Auto Industries Ltd. 15 10
expansion over FY18-FY20E, in the absence of which EPS growth would be much Lumax Ancillary Ltd. 28 37
lower. However, LED-based lamps would have lower competition and hence higher
Total 115 94
margins. Management has also sharpened its focus on margin improvement through
higher automation and cost control. Sale of finished goods
Lumax DK Auto Industries Ltd. 7 22
Total 546 447
Purchase of Raw Materials, Components and Moulds
Lumax DK Auto Industries Ltd. 994 951
Lumax Ancillary Ltd. 453 538
Bharat Enterprises 162 189
Total 1,931 2,135

Valuation Exhibit 12: TTM P/E vs. 2 year forward EPS Growth
EPS Growth
Large exposure to MSIL and shift to LED in automotive lighting provides good growth
3500 50% 30x
visibility: MSIL contributed 32% of Sales in 1HFY18 and LUMX has 39% share in MSIL‟s total 3000 40%
25x
lighting purchases due to ~60% share in Headlamps of MSIL models. Headlamps contribute 2500 30%
20% 20x
69% of LUMX sales where prices are significantly higher than halogen lamps as compared 2000
10% 15x
to increase in case of tail lamps as from safety perspective headlamp is more critical and 1500
0%
1000 10x
requires control on distance and glare. Due to these reasons we see good revenue growth -10%
500 -20%
visibility for LUMX over next 3 years. Fewer players in LED lighting vs traditional halogen 0 -30%
lamps augur well for RoIC as well. We expect Sales/EBITDA/PAT to grow at 15%/24%/27%
Mar/06
Mar/07
Mar/08
Mar/09
Mar/10
Mar/11
Mar/12
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Sep/06
Sep/07
Sep/08
Sep/09
Sep/10
Sep/11
Sep/12
Sep/13
Sep/14
Sep/15
Sep/16
Sep/17
Sep/18
-500 -40%
CAGR over FY18-20E.
Valuing at 26x Mar’19 EPS, deriving Mar’19 PT of Rs 2,486: We believe that LUMX can
trade at upper range of its historical trading multiples due to strong 27% EPS CAGR over
Exhibit 13: TTM P/B vs. 2 year forward RoE
FY18-20E. LUMX‟s valuations are cheaper vs other companies in auto ancillaries space as
can be seen in Exhibit 11. We value the company at 26x TTM EPS of Mar‟19 to derive our RoE
3000 60%
Mar‟19 PT of Rs 2,486, at which stock will trade at 20x 1 year forward. 2500 5x
40% 4x
2000
Exhibit 11: Relative valuation of peers in ancillary space 1500 20% 3x
FY19 FY20 1000 2x
0%
P/E EV/EBITDA P/B P/E EV/EBITDA P/B 500 1x
Lumax Ind 22x 14x 5x 17x 12x 4x 0 -20%
Nov/06
Mar/06
Nov/08
Nov/10
Nov/16
Jul/07
Mar/08
Jul/09
Mar/10
Jul/11
Mar/12
Nov/12
Jul/13
Mar/14
Nov/14
Jul/15
Mar/16
Jul/17
Mar/18
Nov/18
FIEM 20x 9x 3x 16x 8x 2x
Minda Ind 30x 15x 6x 25x 13x 5x
Minda Corp 24x 15x 5x 10x 13x 4x
Jamna Auto 23x 13x 6x 16x 11x 5x Exhibit 14: TTM EV/EBITDA vs. 2 year forward EBITDA Growth
Suprajit Eng 27x 17x 6x 19x 16x NA EBITDA Growth
Gabriel Ind 24x 14x 5x 9x 12x NA 35000 80%
15x
30000 60%
Endurance 38x 19x 8x 17x 15x 7x
25000 40% 12x
Lumax Autotech 19x 10x 3x 4x 8x 2x 20000
20% 10x
15000
Source:Company, Equirus Securities 0%
10000 5x
*Expect for Fiem, Lumax and Minda Ind all other numbers are Bloomberg consensus 5000 -20%
3x
0 -40%
Nov/14
Nov/16
Mar/06
Nov/06
Jul/07
Mar/08
Nov/08
Jul/09
Mar/10
Nov/10
Jul/11
Mar/12
Nov/12
Jul/13
Mar/14
Jul/15
Mar/16
Jul/17
Mar/18
Nov/18

Annexure 1: Company overview Exhibit 16: Break-up of key cost items

LUMX, a part of the DK Jain Group, is the market leader in India‟s automotive lighting
business with a consolidated market share (including SL Lumax) of ~35%. LUMX has a Raw Material,
technology tie-up with Stanley Electric, Japan, which also owns a 37.5% stake in the 64.9%
company, and SL Corporation (Korea) through its associate company SL Lumax in the
automotive lighting space. Larger part of its Sales comes from Passenger vehicles, which
contribute ~68% of Sales followed by 2Ws (28% of revenue) and CVs (4% revenue Employee Cost,
12.4%
contribution). SL Lumax (where Lumax Industries own 21.28% stake) is the sole supplier
of automotive lighting products to Hyundai India. Power and fuel,
3.4%
Exhibit 15: Trend in profitability in margins Others, 2.3%
Repairs & Maint.,
2.0%
Packing, 1.8%
EBITDA PAT EBITDA Margins - RHS PAT Margins - RHS Travelling, 1.0%
Royalty, 1.4% Management fee,
1,200 9% Freight, 1.7%
1.4%
8%
1,000
7% Source: Company, Equirus Securities
800 6%
5% Exhibit 17: Contribution of LEDs to topline
600
4%
Conventional LED
400 3%
100%
2%
200 95%
1% 90%
0 0% 85%
80%
100%
75%
98%
95%
70%
Margin improvement in last two fiscals driven by product mix, cost-control initiatives: 65%
EBITDA margins for LUMX have improved from 5% in FY12 to a healthy 8% in FY17. Margin 60%
expansion was largely seen in the last two fiscals due to product mix improvement and
55%
cost control. LED penetration in tail lamps had been increasing over the last few years,
50%
which is likely to have buoyed margins. Exhibit 16 shows a break-up of key cost
FY15 FY16 FY17
components; management fee of 1.4% includes 0.75% support fee to the group and the
remaining to Stanley Electric. Stanley also gets royalty, which was at 1.4% of sales during
FY17.

Exhibit 18: Sales growth at 6% CAGR over FY12-17 Exhibit 20: Brief history of company
2017 Further expansion at Sanand, Gujarat unit

14,000
12,000
2016 Opening of Design Centre in Taiwan
10,000
8,000 The Company received the Total Productive Maintenance (TPM) award from Japan
2015 Institute of Plant Maintenance (JIPM)
6,000
4,000 2010 Setup Mfg. Unit in Haridwar, Uttarakhand
2,000 Further equity participation from Stanley. Mfg units set-up in Pantnagar, UK and
2007-08 expansion of Dharuhera and Chakan units. Set-up R&D centre in Gurugram, Haryana
0
2005 Setup Mfg unit in Chakan, Maharashtra
2003 Demerger Lumax Industries

EBITDA, PAT growth outpaces growth in net sales: During FY12-FY17, LUMX‟s topline
grew at modest 6% CAGR, while growth in EBITDA/PAT was higher at 17%/~29% CAGR.
1998 Setup Mfg unit in Dharuhera, Haryana
This can be attributed to measures taken by the company to improve processes and
control costs. The process improvement also led to improvement in quality of products
Signed JV agreement with SL Corporation, Korea. Setup SL Lumax. Further equity
and reduction in defects, which earlier formed the significant part of cost. A reduction in 1997 participation from Stanley Japan
the rejection rate has also been validated from the channel checks done at the OEM
levels. Equity participation from Stanley Japan, Mfg unit established in Aurangabad,
1994 Maharashtra
Exhibit 19: D/E ratio declines even with modest CAPEX levels 1985 Company went public and Setup manufacturing unit in Gurugram, Haryana
CAPEX D/E - RHS

1984 Technical agreement signed with Stanley Japan, lighting equimnent
1,000 100%
900 90%
Lumax Industries Pvt. Ltd. Was setup after taking over the business from partnership
800 80% 1981 firm Globe Auto Industries
700 70%
600 60% Setup manufacturing units in Faridabad, Haryana and Pune, Maharashtra
1977-79
500 50%
400 40%
1956-66 Setup a dedicated unit for automotive lighting equipment in Delhi
300 30%
200 20%
100 10% 1945 Founded a partnership firm „Globe Auto Industries‟ as a trading concern
0 0%
FY13 FY14 FY15 FY16 FY17 1HFY18 Source: Company, Equirus Securities

Key management profile
Mr. Dhanesh Kumar Jain Mr. Eiichi Hirooka

Mr. D.K. Jain, the Chairman of LUMX, has over 50 years of experience in the automotive Mr. Hirooka is the Sr. Executive Director and the Nominee Director of M/s Stanley Electric
industry. He has held various industry positions in past, including the President of ACMA Co. Japan. He has over 33 years of experience in automobile lighting sales in USA, and
and President of Supplier‟s Association for Toyota Kirloskar. He is the Alumnus of Harvard has been associated with Lumax Industries since 2011. He holds a MBA in Finance.
Business School where he completed a President Management program. He holds a MBA
degree from Delhi University. Mr. Koji Swada
Mr. Swada is the Executive Director and the Nominee Director of M/s Stanley Electric Co.
Mr. Deepak Jain Japan. Aged 54, he is a graduate from the Osaka Institute of Technology, and has over 31
Mr. Deepak Jain is LUMX‟s Managing Director. Aged 43, he has over 21 years of years of experience in Quality Control and Lamp Assembly. He has been working with
experience in the automotive industry. He currently is the chairman of northern region of LUMX since 2008.
ACMA and also the vice president of Toyata Kirloskar Supplier‟s Association. Mr. Jain is a
Business Graduate from the Illinois Institute of technology and has also undergone Mr. Shruti Kant Rustagi
training in Stanley Co. USA and Stanley Electric Co. Japan.
Mr. Rustagi is LUMX‟s Chief Financial Officer. A CA by profession, Mr. Rustagi has an
experience of more than 22 years and is associated with LUMX since 2006. He is a
Mr. Anmol Jain Bachelor of Commerce from Delhi University.
Mr. Anmol Jain, the company‟s Joint Managing Director, is associated with LUMX from
2000 and has over 17 years of experience with the group. He is the alumnus of Michigan
State University, USA, where he did his Bachelors in Business administration with a dual
major in Finance and Supply Chain Management.

Standalone Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 3,028 3,042 3,005 3,851 3,404 3,796 3,381 3,504 3,888 4,336 3,861 4,002 12,998 14,086 16,086 18,524
Raw Materials Consumed 1,929 1,888 1,902 2,672 2,231 2,458 2,224 2,302 2,554 2,849 2,536 2,629 8,441 9,216 10,569 12,170
Employee Costs 381 402 405 413 434 452 412 428 474 503 456 472 1,610 1,726 1,905 2,144
Other Expenses 485 497 443 509 493 584 456 473 525 585 521 540 1,948 2,006 2,172 2,464
User Defined Common Expense 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
User Defined Common Expense 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EBITDA 233 256 254 257 247 302 287 301 334 399 347 360 998 1,138 1,441 1,746
Depreciation 102 104 103 101 112 116 123 131 133 136 139 142 404 482 549 594
EBIT 131 152 151 156 135 186 165 170 202 263 209 219 594 656 892 1,153
Interest 30 29 27 22 13 12 19 27 27 22 22 18 114 70 89 51
Other Income 13 16 15 22 18 46 10 11 11 11 16 11 62 85 49 54
PBT 114 139 139 155 140 220 156 154 186 252 202 212 542 670 852 1,156
Tax 16 18 8 45 47 38 34 34 45 60 48 51 90 153 204 289
Recurring PAT 98 121 130 110 93 182 122 120 141 191 154 161 452 517 647 867
Extraordinary 3 3 0 3 3 3 0 0 0 0 0 0 0 6 0 0
Reported PAT 95 119 130 107 90 179 122 120 141 191 154 161 452 511 647 867
EPS (Rs) 10.51 12.99 13.94 11.74 9.96 19.47 13.02 12.89 15.13 20.48 16.42 17.23 48.33 55.38 69.31 92.82
Key Drivers
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue -6 % 0% -1 % 28 % -12 % 12 % -11 % 4% 11 % 12 % -11 % 4% - - - -
Raw Materials Consumed -10 % -2 % 1% 40 % -16 % 10 % -10 % 4% 11 % 12 % -11 % 4% - - - -
EBITDA 9% 10 % -1 % 1% -4 % 22 % -5 % 5% 11 % 19 % -13 % 4% - - - -
EBIT 11 % 15 % -1 % 3% -13 % 38 % -11 % 3% 18 % 31 % -21 % 5% - - - -
Recurring PAT -5 % 24 % 7% -16 % -15 % 95 % -33 % -1 % 17 % 35 % -20 % 5% - - - -
EPS -5 % 24 % 7% -16 % -15 % 95 % -33 % -1 % 17 % 35 % -20 % 5% - - - -
Yearly Growth (%)
Revenue 0% 0% -3 % 19 % 12 % 25 % 13 % -9 % 14 % 14 % 14 % 14 % 4% 8% 14 % 15 %
EBITDA 0% 28 % 24 % 20 % 6% 18 % 13 % 17 % 35 % 32 % 21 % 20 % 13 % 14 % 27 % 21 %
EBIT 0% 45 % 38 % 32 % 3% 22 % 9% 9% 49 % 42 % 27 % 28 % 17 % 10 % 36 % 29 %
Recurring PAT 0% 63 % 59 % 6% -5 % 50 % -7 % 10 % 52 % 5% 26 % 34 % 21 % 14 % 25 % 34 %
EPS 0% 63 % 59 % 6% -5 % 50 % -7 % 10 % 52 % 5% 26 % 34 % 21 % 15 % 25 % 34 %
Margin (%)
EBITDA 8% 8% 8% 7% 7% 8% 9% 9% 9% 9% 9% 9% 8% 8% 9% 9%
EBIT 4% 5% 5% 4% 4% 5% 5% 5% 5% 6% 5% 5% 5% 5% 6% 6%
PBT 4% 5% 5% 4% 4% 6% 5% 4% 5% 6% 5% 5% 4% 5% 5% 6%
PAT 3% 4% 4% 3% 3% 5% 4% 3% 4% 4% 4% 4% 3% 4% 4% 5%

P&L (Rs Mn) FY17A FY18E FY19E FY20E Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 12,998 14,086 16,086 18,524 Equity Capital 93 93 93 93 PBT 537 632 852 1,156
EBITDA 998 1,138 1,441 1,746 Networth 3,159 3,583 4,263 5,130 Others -136 0 0 0
Depreciation 404 482 549 594 Long Term Debt 924 1,194 794 494 Taxes Paid -118 169 204 289
EBIT 594 656 892 1,153 Def Tax Liability 611 259 259 259 Change in WC 78 32 147 179
Interest Expense 114 70 89 51 Minority Interest 0 0 0 0 Operating C/F 1,001 977 1,343 1,639
Other Income 57 47 49 54 Account Payables 3,443 3,761 4,295 4,945 Capex -627 -848 -996 -1,070
PBT 537 632 852 1,156 Other Curr Liabi 1,018 1,170 1,337 1,539 Change in Invest -1 0 0 0
Tax 90 169 204 289 Total Liabilities & Equity 9,154 9,967 10,947 12,367 Others 7 0 0 0
PAT bef. MI & Assoc. 447 464 647 867 Net Fixed Assets 3,874 4,492 4,693 4,900 Investing C/F -621 -848 -996 -1,070
Minority Interest 0 0 0 0 Capital WIP 525 400 400 400 Change in Debt -286 270 -400 -300
Profit from Assoc. 105 246 246 270 Others 1,284 1,157 1,402 1,672 Change in Equity 0 -105 0 0
Recurring PAT 552 710 893 1,137 Inventory 1,160 1,504 1,717 1,977 Others -116 -286 32 0
Extraordinaires 0 0 0 0 Account Receivables 1,909 2,126 2,428 2,796 Financing C/F -402 -121 -368 -300
Reported PAT 552 710 893 1,137 Other Current Assets 389 268 306 352 Net change in cash -22 8 -21 270
FDEPS (Rs) 59.1 76.0 95.6 121.7 Cash 14 22 1 270 RoE (%) 19 % 21 % 23 % 24 %
DPS (Rs) 14.5 16.5 19.5 24.7 Total Assets 9,154 9,967 10,947 12,367 RoIC (%) 14 % 16 % 19 % 21 %
CEPS (Rs) 102.3 127.5 154.3 185.3 Non-cash Working Capital -1,002 -1,034 -1,181 -1,359 Core RoIC (%) 13 % 12 % 15 % 18 %
FCFPS (Rs) 50.8 19.3 44.5 65.1 Cash Conv Cycle -28.1 -26.8 -26.8 -26.8 Div Payout (%) 30 % 25 % 24 % 24 %
BVPS (Rs) 337.9 383.6 456.4 549.2 WC Turnover -13.0 -13.6 -13.6 -13.6 P/E 35.6 27.6 22.0 17.3
EBITDAM (%) 8% 8% 9% 9% FA Turnover 3.0 2.9 3.2 3.5 P/B 6.2 5.5 4.6 3.8
PATM (%) 4% 5% 6% 6% Net D/E 0.3 0.3 0.2 0.0 P/FCFF 41.3 108.6 47.2 32.3
Sales Growth (%) 4% 8% 14 % 15 % Capital Employed/Equity 2.2 1.9 1.6 1.4 EV/Sales 1.6 1.5 1.3 1.1
FDEPS Growth (%) 6% 29 % 26 % 27 % Dividend Yield (%) 0.7 % 0.8 % 0.9 % 1.2 %
TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE
EPS Growth EBITDA Growth RoE
3500 50% 30x 35000 80% 3000 60%
3000 40% 15x 5x
25x
30000 60% 2500
2500 30%
25000
40% 4x
20% 20x 40% 12x 2000
2000 20000
1500
10% 15x 20% 10x 1500 20% 3x
0% 15000 2x
1000 10x 10000 0% 1000
-10% 5x 0%
500 -20% 5000 -20% 500 1x
3x
0 -30% 0 -40% 0 -20%
Mar/06
Mar/07
Mar/08
Mar/09
Mar/10
Mar/11
Mar/12
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Sep/06
Sep/07
Sep/08
Sep/09
Sep/10
Sep/11
Sep/12
Sep/13
Sep/14
Sep/15
Sep/16
Sep/17
Sep/18
-500 -40%
Nov/14
Nov/16
Mar/06
Nov/06
Jul/07
Mar/08
Nov/08
Jul/09
Mar/10
Nov/10
Jul/11
Mar/12
Nov/12
Jul/13
Mar/14
Jul/15
Mar/16
Jul/17
Mar/18
Nov/18
Nov/06
Mar/06
Jul/07
Mar/08
Nov/08
Nov/10
Jul/09
Mar/10
Jul/11
Mar/12
Nov/12
Jul/13
Mar/14
Nov/14
Nov/16
Jul/15
Mar/16
Jul/17
Mar/18
Nov/18
Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 11,167 11,426 12,552 12,998 Equity Capital 93 93 93 93 PBT 72 144 411 537
EBITDA 545 594 886 998 Networth 1,733 1,803 2,684 3,159 Others 96 98 -30 -136
Depreciation 366 362 379 404 Long Term Debt 1,579 1,595 1,273 924 Taxes Paid -39 -23 -81 -118
EBIT 179 232 507 594 Def Tax Liability 523 495 511 611 Change in WC 37 -36 -28 78
Interest Expense 174 144 134 114 Minority Interest 0 0 0 0 Operating C/F 610 590 813 1,001
Other Income 67 56 39 57 Account Payables 2,862 2,961 3,097 3,443 Capex -290 -455 -381 -627
PBT 72 144 411 537 Other Curr Liabi 595 782 1,021 1,018 Change in Invest 1 133 7 -1
Tax -39 -23 42 90 Total Liabilities & Equity 7,291 7,637 8,586 9,154 Others -61 -30 7 7
PAT bef. MI & Assoc. 111 167 369 447 Net Fixed Assets 3,848 3,958 4,080 3,874 Investing C/F -350 -352 -366 -621
Minority Interest 0 0 0 0 Capital WIP 340 262 170 525 Change in Debt -184 451 -259 -286
Profit from Assoc. 0 0 151 105 Others 331 290 1,013 1,284 Change in Equity 0 0 0 0
Recurring PAT 111 167 520 552 Inventory 772 1,099 1,046 1,160 Others -278 -198 -336 -116
Extraordinaires 0 0 0 0 Account Receivables 1,311 1,442 1,812 1,909 Financing C/F -461 253 -595 -402
Reported PAT 111 167 520 552 Other Current Assets 529 394 430 389 Net change in cash -201 492 -148 -22
EPS (Rs) 11.9 17.8 55.7 59.1 Cash 160 191 35 14 RoE (%) 6% 9% 23 % 19 %
DPS (Rs) 3.5 5.5 12.0 14.5 Total Assets 7,291 7,637 8,586 9,154 RoIC (%) 10 % 9% 15 % 14 %
CEPS (Rs) 51.1 56.5 96.2 102.3 Non-cash Working Capital -845 -808 -830 -1,002 Core RoIC (%) 7% 7% 12 % 13 %
FCFPS (Rs) 56.6 43.4 60.7 50.8 Cash Conv Cycle -27.6 -25.8 -24.1 -28.1 Div Payout (%) 35 % 37 % 26 % 30 %
BVPS (Rs) 185.4 192.9 287.1 337.9 WC Turnover -13.2 -14.1 -15.1 -13.0 P/E 117.8 37.7 35.6 0.0
EBITDAM (%) 5% 5% 7% 8% FA Turnover 2.7 2.7 3.0 3.0 P/B 10.9 7.3 6.2 0.0
PATM (%) 1% 1% 4% 4% Net D/E 0.8 0.8 0.5 0.3 P/FCFF 37.1 48.4 34.6 41.3
Tax Rate (%) -54 % -16 % 10 % 17 % Revenue/Capital Employed 2.9 2.9 2.8 2.8 EV/EBITDA 37.1 24.7 21.8 0.0
Sales growth (%) 4% 2% 10 % 4% Capital Employed/Equity 2.2 2.2 1.7 1.5 EV/Sales 1.8 1.3 1.5 0.0
FDEPS growth (%) -18 % 50 % 212 % 6% Dividend Yield (%) 0.2 % 0.3 % 0.6 % 0.7 %

Equirus Securities
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Relative Rating Tel. No: +91 – (0)22 – 4332 0600
• OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon Fax No: +91- (0)22 – 4332 0601
• BENCHMARK: likely to perform in line with the benchmark
• UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon
Investment Horizon Corporate Office:
Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a 3rd floor, House No. 9,
calendar quarter.
Lite vs. Regular Coverage vs. Spot Coverage Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,
We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we S.G. Highway Ahmedabad-380054
would have access to the company and we would maintain detailed financial model for Regular coverage companies.
We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact Gujarat
the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for Tel. No: +91 (0)79 - 6190 9550
one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot
coverage is meant to stimulate discussion rather than provide a research opinion. Fax No: +91 (0)79 – 6190 9560

© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not
be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited
Analyst Certification
I, Ashutosh Tiwari, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also
certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
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As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for
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Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a
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Equirus Securities - Automotive Lighting Sector Initiation Note - 03.01.2018 PDF

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Automotive Lighting Sector

LED shift to drive strong Value growth as well as RoICs

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected])

LED shift to drive strong Value growth as well as RoICs

Comparable valuation EPS P/E BPS P/B RoE Div Yield

January 3, 2018 Analyst: [email protected](+91-9824441360) Page 1 of 9

Source: KOITO PPT, Equirus Securities

Exhibit 3: Comparison between different automotive technologies

Basic operating Electrodes and xenon

Average luminous 70‐100 lumen per 80‐110 lumen per

January 3, 2018 Analyst: [email protected] (+91-9824441360) Page 2 of 6

Source: Company, Equirus Securities

January 3, 2018 Analyst: [email protected] (+91-9824441360) Page 3 of 6

January 3, 2018 Analyst: [email protected] (+91-9824441360) Page 4 of 6

Technologically-advanced automotive lighting players to benefit from LED shift:

January 3, 2018 Analyst: [email protected] (+91-9824441360) Page 5 of 6

Source: Company, Equirus Securities

2W lighting to see more consolidation; Unitech Machines to lose, others to gain: As

EPS (16A) 9.6 11.8 7.6 10.4

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 1 of 21

Company Snapshot Sensitivity to Key Variables % Change % Impact on EPS

Key Estimates: Years of strong growth 1 2 5 10 15

LED Luminaires 183 1,345 689 226 311 426

Comparable valuation EPS P/E BPS P/B RoE Div Yield

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 2 of 17

Exhibit 1: Full LED headlamps in Yamaha FZ 25 supplied by FIEM

Source: Honda, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 3 of 17

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 4 of 17

Exhibit 5: IPIS on buses

Source: Company, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 5 of 17

RoE RoIC Repairs, 1.3% Freight, 0.9% Selling &

Exhibit 10: Movement in working capital days

Inventory Debtors Payables

Source:Company, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 7 of 17

Forecast: Key assumptions & sensitivity Investment risk & concerns

Exhibit 13: Sensitivity of earnings to EBITDA margins

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 8 of 17

Corporate governance Valuation

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 9 of 17

Exhibit 20: Automotive segment - Product portfolio

Exhibit 18: TTM EV/EBITDA vs. 2 year forward EBITDA Growth

Source: Company, Equirus Securities

Source:Company, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 10 of 17

Source:Company, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 11 of 17

Collaborator Products & Geography Delhi Anand Vihar, Sarai Rohilla

10,000 12% GPS based PIS system for

Exhibit 27: Brief history of company

Mr. O.P. Gupta

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 13 of 17

Exhibit 28: FIEM’s LED journey in the automotive segment

Source: Company, Equirus Securities

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 14 of 17

Standalone Quarterly Earnings Forecast and Key Drivers

January 3, 2018 Analyst: Ashutosh Tiwari (+91-8128694112/[email protected]) Page 15 of 17