Eicher Motors Ltd. – Demand weakness persists

Sector Outlook – Positive

In the third quarter of FY24, Lumax Industries Ltd. (LIL) performed better than expected, with revenue reaching Rs. 640 crores, up 9% from the previous year. This growth was driven by the recovery in the two-wheeler segment and sustained demand from the passenger vehicle segment, especially SUVs. 

However, the EBITDA margin contracted to 9.22% due to the commissioning of a new plant in Pune and higher staff costs. Despite this, the company remains optimistic about revenue growth, particularly from the new Chakan plant and increased revenue share from key customers like Maruti Suzuki, Mahindra & Mahindra, and Tata Motors. 

LIL is also focusing on increasing its LED revenue share, which has grown from 25% to 35% over the last five years, with plans to further increase it to 50%.

Concall Highlights

• The interim budget allocated Rs. 3,500 crore for promoting the EV industry, boosting hopes for its growth.
• The two-wheeler segment is growing steadily, driven by rural demand, but commercial vehicles are struggling.
• Challenges in the tractor segment persist due to delayed monsoons.
• There is optimism for the passenger vehicle and two-wheeler sectors, with a strong outlook and increasing EV adoption.
• LED lighting contributed 36% of total revenue, while conventional lighting made up 64%.
• Front lighting accounted for 66% of total revenue, rear lighting 25%, and other products 9%.
• The passenger vehicle segment contributed 67% to total revenues, two-wheelers 27%, and commercial vehicles 6%.
• The Chakan plant in Maharashtra began producing automotive lighting in November 2023, focusing on new business from M&M and Tata Motors.
• Revenue growth in Q3FY24 was limited (Rs. 20 crores) due to fewer working days, but Q4FY24 is expected to improve, targeting a monthly revenue of Rs. 30 crores.
• Phase-1 of the plant is expected to reach 70-75% utilisation by the end of Q4FY24, with Phase-2 expansion starting soon for full commercialization by FY26.
• The current order book is worth Rs. 2,200 crores, with 64% from new business and EVs accounting for 34% of this.
• LED lighting orders make up 85%, with around 70% expected to start production in FY25, leading to significant revenue growth from FY26.
• FY24 revenue guidance expects 15% growth (Rs. 2,600 crores) with margins exceeding 9.3-9.5%.
• FY25E is poised for stronger double-digit growth, estimated at ~20%, with margins expected to reach at least 10%.
• After Phase-1 and Phase-2 expansions at the Chakan plant, peak revenues are projected to reach Rs. 900 crores.
• The expansion will increase capacity by 30%, leading to a 50% boost in revenue, with Phase-2 starting operations in Q3FY25.
• Lumax secured orders for Maruti’s first EV model, expected by year-end, and is in talks for a potential second model in FY26.
• Financially, capex for FY24 is expected to reach around Rs. 280 crores, with an ETR of 31% and net debt of Rs. 560 crores for the first nine months of FY24.

Valuation and Outlook

In the third quarter of FY24, Lumax Industries Ltd. showed impressive growth with a 9% increase in revenue compared to the previous year. This growth was mainly driven by higher sales in the 2W segment and steady demand in the PV segment, especially for SUVs. Looking forward, the company expects this positive trend to continue, supported by increased 2W sales, a rise in electric vehicle (EV) adoption, advancements in driving technology, and changing trends in automotive lighting design. 

The management anticipates significant industry expansion after the second half of FY25, despite possible capacity constraints. Operational efficiencies and better raw material consumption led to improved gross margins, with further enhancements expected as new plants become operational. Lumax is focusing on cost reduction measures like part localization and in-house manufacturing to boost margins. 

Phase 1 of the new plant is expected to be 70-75% utilized by Q4FY24, paving the way for Phase 2 expansion by Q3FY25. The company is also working on reclaiming lost market share and expanding its client base, especially in the EV segment. Lumax’s strong relationships with OEMs, coupled with its strategies for margin improvement and client diversification, are expected to drive significant revenue growth from FY25 onwards.