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Sector Outlook: Positive
FIEM Industries Ltd. reported strong performance with a 28% YoY and 14.4% QoQ revenue growth, reaching Rs. 557 crores, surpassing the 2W industry’s 26% YoY growth due to a shift to LED lighting. However, gross margins dropped to 38.2% from 40.2% in Q4FY23, and EBITDA margin fell slightly to 13.4% due to lower gross margins but was partially offset by controlled expenses. PAT increased by 22% YoY and 14% QoQ to Rs. 46.3 crores. For FY24, FIEM’s revenue was Rs. 2,020 crores (up 10% YoY) and PAT was Rs. 160 crores (up 18.5% YoY). The company expanded its EV portfolio, serving 38 customers, including Ola and Hero Electric, with around 90 new projects in the pipeline. In Q4FY24, LED lighting contributed 54% of total lighting revenue. FIEM also secured an export order for 4W LED headlamps and made significant progress with domestic 4W OEMs, indicating strong growth potential in this segment.
Key Concall Highlights
Industry
- The 2W industry is growing strongly due to high consumer demand and improving rural demand. April 2024 has shown similar positive trends, and FIEM expects double-digit growth in the 2W industry for at least the next two years.
- The Hero-Harley JV for the new X440 and the TVS Norton model has boosted export market demand for FIEM.
- Product prices are set during order finalisation, with adjustments made only for changes in raw material costs.
Operations
- FIEM has entered the 4W export market and secured orders from a domestic OEM.
- Gogoro’s first model was not successful, but their new model will have FIEM manufacturing MCU, HM, and ECU. Gogoro has sold 5,000 units to date.
- FIEM is developing new technologies like laser technology, night vision, and ambient lighting.
- A European customer has received a 4W lighting prototype from FIEM, with orders expected in Q4FY25. In the domestic market, FIEM has orders from three customers, including a Rs. 10 crore LED lamp order from a domestic OEM for FY25, expected to grow next year. Three more customers have sent RFQs for 4W lighting.
- Raw material cost increases are delayed, keeping gross margins stable annually.
- Increased revenue from replacements is due to demand from older models.
- FIEM will supply components for several new models from Hero and Hero Harley, totaling six projects next quarter.
- FIEM is working on three RFQs for ambient lighting, with one expected to proceed within six months, potentially generating Rs. 500 to Rs. 1000 crores over 3-5 years. This technology was developed internally.
- Capacity utilisation was around 80% in Q4FY24, prompting expansion of the South India unit.
Financials
- FIEM plans to invest Rs. 250 to 300 crores over the next three years to expand capacities for existing lighting, 4W lighting, and the Gogoro project. No separate capex is needed for 4W as existing lines will be used. This investment is expected to generate a 3x asset turnover.
- FIEM aims for at least 12-15% organic revenue growth in FY25.
- Margins are expected to stay between 13-14%, with ongoing efforts to improve them.
- The share of LED lighting increased to 52% in FY24 from 49% in FY23, with expectations to rise to 75% in 2-3 years. Margins for conventional and LED lighting remain the same.
Valuation and Outlook
FIEM Industries Ltd. reported strong performance in Q4FY24, with a 28% YoY revenue increase, outpacing the 2W industry’s 26% growth. The company maintained leading margins at 13.4%, which are expected to continue despite new product additions. FIEM aims for a 14% revenue CAGR from FY2024-27E, driven by new products like motor control units and electronic control units. LED lighting is expected to reach 70-75% penetration in 2-3 years, supported by increased exports, new models, and 4W customers. FIEM’s entry into ambient lighting and the 39% YoY growth in the 2W EV industry further boost its prospects. With a target of 70-75% LED revenue share in three years, strong demand in the 2W industry, and a debt-free balance sheet, FIEM is poised for continued industry outperformance.
