Lumax Industries Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Strong quarter, margin-led beat: Revenue grew 33% YoY to ₹579 crores, while EBITDA margin expanded 120 bps YoY to 9.8%, driven by operating leverage and the new Bawal electronics facility.
• Backward integration is the margin engine: The ₹100–105 crore Bawal electronics plant contributed ~120 bps of margin expansion by reducing material consumption, with further capacity and benefit planned for FY24.
• Order book signals a mix shift: The ₹1,150 crore order book is nearly 50% LED, promising a material shift in the LED-to-conventional mix over the next 2–3 years from the current 34% LED share.
• Capex cycle is front-loaded for growth: FY24 capex will jump to ₹225–250 crores, dominated by the new Chakan plant, which targets peak revenue of ₹600 crores by FY25 and is anchored by the XUV700 second-source win.
• What to watch next quarter: The pace of margin expansion toward the double-digit exit rate, any new client wins from ongoing conversations, and the start of construction-linked revenue visibility at Chakan.

Revenue Growth & Segment Performance

• Broad-based automotive recovery: Q3 revenue growth of 33% YoY was supported by strong retail sales across segments, with PV up 22%, CV up 16%, 3W up 59%, and 2W up 10% YoY.
• 9M revenue decomposition: Of the ~₹488 crore revenue growth in 9M FY23, ₹351 crore came from volume and ₹137 crore from realization, with roughly 100 bps of the realization gain attributed to raw material inflation pass-through still under negotiation with customers.
• 2-wheeler softness persists: The 2-wheeler segment softened as rural markets have yet to recover from the rise in cost of ownership, though management believes easing inflation and stabilizing supply chains will help.
• Capacity utilization tight: Utilization reached 85–90%, supporting the case for the Chakan expansion.
• Gross block growth outran revenue: Gross block increased significantly but top-line growth lagged because the Bawal electronics investment is still ramping and because a high-volume Maruti Suzuki model shift from Manesar to Gujarat forced duplication of lamp capacity without incremental revenue.

Deepak Jain: "There is right now a commentary, which I agree what you are saying, going on in the industry that we have reached or saturated the peaks, which is 2 crore. We don't see that. We feel that this will basically come up, given that if the urban or the rural markets rather start supporting the 2-wheeler transition, I think that should come."

Margin Trajectory & Profitability Drivers

• Q3 margin walk: EBITDA margin improved 120 bps YoY to 9.8%, and 260 bps YoY in 9M to 9.9%, aided by operating leverage and the Bawal electronics backward integration.
• Bawal electronics contribution quantified: The ~₹100–105 crore investment contributed close to 120 bps of margin expansion, reflected in gross margin via lower material consumption, with further capacity expansion planned in FY24.
• Double-digit exit targeted: Management expects to deliver double-digit EBITDA in Q4 FY23, with a medium-term path to ~12% in the next 12–24 months and an eventual endeavour toward 13% or upwards.
• Margin levers ahead: Further expansion is expected from operational efficiencies, fixed-cost rationalization on incremental revenue, and additional backward integration of electronics as PLI schemes enable more local component manufacturing.
• Forex drag: A ₹4 crore forex loss was incurred in the 9-month period.

Anmol Jain: "I think I've always maintained the guidance that our endeavour is to close towards the team EBITDA, which is, let's say, 13% or upwards. I think first step this year, we should be definitely looking at a double-digit EBITDA and post that, probably be trying to achieve somewhere around 12-odd percent in the next 12 to 24 months."

Order Book & the LED Mix Shift

• Order book size and composition: The order book stands at over ₹1,000 crores, with almost 50% LED content, which management expects will significantly shift the LED-to-conventional mix from the current 34% LED share over the next 2–3 years.
• Execution timeline: Approximately 25% of the order book is expected to be realized in FY24, 75% in FY25, and 100% in FY26.
• LED margin question deflected: Management declined to quantify the EBITDA spread between LED and conventional lamps, stating it is "not necessarily true" that LED always carries better margins and that the exact incremental expansion per lamp cannot be provided.
• Customer-wise breakup withheld: Management declined to provide a customer-wise breakup of the order book when asked.

Anmol Jain: "the order book of more than INR 1,000 crores, almost 50% would be LED. So that should significantly change the mix of LED to non-LED in the next 2 to 3 years until when this order book peaks out in the revenue."

Capacity Expansion: Chakan & Capex

• Chakan plant anchored by XUV700 win: Lumax has been nominated as a second-source supplier for the Mahindra XUV700, with development go-ahead received; production will be commissioned at the new Chakan facility starting at a 50-50 wallet share, with potential to ramp to 60-40 or 70-30 depending on total volumes.
• Chakan Phase 1 economics: Phase 1 capex is ₹175 crores, with SOP expected in Q2 FY24; peak revenue is projected at ~₹600 crores by FY25, of which ~₹500 crores is largely new business from Mahindra (XUV700) and Tata Motors platforms (Nexon, Punch).
• Chakan Phase 2: From FY26 onwards, Phase 2 targets peak revenue of ₹900–1,000 crores.
• FY24 capex jump: Total FY24 capex is budgeted at ₹225–250 crores, up from ~₹75–80 crores in FY23, with ₹175 crores allocated to Chakan Phase 1.
• Balance sheet headroom: Post-expansion, the debt-equity ratio is expected to remain manageable at 0.5x to 0.6x.
• Sanand plant peaking: The Sanand plant is expected to peak at ~₹600–700 crores in annual revenue next year, with some production shifting to Chakan.

Competitive Position & Customer Strategy

• Market structure concentrated: Management noted that 90% of the Indian passenger car market is controlled by four players: Maruti Suzuki, Hyundai/Kia (served 100% by associate company SL Lumax), Mahindra, and Tata.
• Wallet-share strategy: The priority is to grow share with Mahindra, next with Tata, and retain share with Maruti, while SL Lumax builds with Hyundai/Kia.
• Hero MotoCorp entry: Lumax received orders from Hero MotoCorp as Hero derisks from a supplier under financial risk, and also penetrated TVS, enhancing wallet share in 2-wheelers, while remaining stable on Hero market share.
• Maruti platforms not currently on: Lumax is not present on the Brezza, Baleno, or Grand Vitara platforms but is in conversations to secure orders for forthcoming new platforms.
• Honda Cars opportunity: Lumax is not significantly present with Honda Cars but is hopeful of securing orders for forthcoming models.
• New client conversations ongoing: Management is in constant dialogue with certain non-current customers and hopes to materialize some wins in subsequent quarters.
• Stanley collaboration: The 40-year technical collaboration with Stanley Electric continues, with royalty payments ongoing; exports are a secondary priority to domestic demand, though dialogue with Stanley on supporting their global systems is active.

Deepak Jain: "90% of the India market is actually controlled by 4 players. We have Maruti Suzuki, we have basically Hyundai, Kia, and I'm clubbing them as one because our associate company, SL Lumax, caters to both 100%. We have Mahindras, and we have Tatas."

Guidance & Commitments

Key Metrics