Lumax Industries Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Q4 margin miss, but FY24 promises a step-change: EBITDA declined 12% YoY in Q4 on mix and one-off inventory charges, yet management guided to double-digit EBITDA margins for FY24, with an ambition to achieve and perhaps surpass the historic 10–11% band.
• A ₹1,300 Cr order book is the growth engine: 85–90% is new business, 40% is from EV models, and it carries asset turns of ~2.5x, promising a structural lift in returns as it ramps up.
• Revenue growth guided at 20–25% for FY24: This is a deliberate step down from FY23’s 32%, built on volume growth, full-year benefits of recent launches, and only a 10–15% contribution from the new order book.
• Profit expansion is expected to outpace revenue: Management stated operating margins and bottom line will grow at a much faster rate than the top line, with profit expansion of greater than 25% in FY24.
• What to watch next quarter: Whether Q1 margins stabilize as guided, the pace of high-cost inventory consumption through June/July, and any update on customer compensation for the Q4 design-change inventory charge.

Q4 Margin Miss: The One-Off Drags

• Product mix shift: Raw material cost was higher by ~0.5% QoQ because of a change in product mix, directly compressing gross margin.
• Design-change inventory charge: Raw material consumption spiked in Q4 specifically because of certain design changes on existing inventory; the company is still discussing with customers to get compensation for those changes, so this is a recoverable item, not a permanent cost.
• Mould business deferment: Mould margin compressed to ~17% in Q4 (vs 26% in Q4 FY22) because tooling sales were deferred to the next financial year, pushing profitability out rather than destroying it.
• Backward integration benefit neutralized: The full gross margin benefit from the Bawal electronics facility was not yet visible in FY23 because price changes impacting raw material consumption offset the internal margin expansion; FY24 should see the full electronics benefit flow through.

Anmol Jain: "In FY '24, we are a lot confident that we will be able to not just getting to the double-digit space, but definitely outperform our historic performance in terms of the margins as well."

Order Book: High-Value, High-Return Backlog

• ₹1,300 Cr confirmed order book: 85–90% is new business, 40% is from EV models, and over 90–95% is LED lamps, which carry a higher value contribution than legacy lighting.
• Asset turns step-change: The order book has come at asset turns of ~2.5x–2.6x, significantly above the company’s current ~1.5x; management expects overall company asset turns to improve to at least ~2x in the next 2 years as this backlog converts.
• Ramp-up cadence: Only 10–15% of the order book converts to revenue in FY24; peak revenue conversion of ~60% hits in FY25, making FY25 the year the backlog truly lands in the P&L.
• Capacity to meet it: One greenfield and maybe another brownfield expansion may be seen in the foreseeable future to meet the order book; Chakan Phase 1 alone is expected to add ~₹450 Cr in incremental revenue in a full-year FY25.

Anmol Jain: "On this current order book, the investments we are making, the asset turnover would be significantly higher than the asset turns the company enjoys today."

FY24 Growth Drivers

• Volume growth across key customers: Strong growth expected with Mahindra in FY24, momentum with MG Motors to continue, and the XUV700 supply starts from the new Chakan facility in Q3 FY24, contributing ~6 months of revenue.
• Full-year benefit of H2 FY23 launches: Models launched in the second half of FY23 will contribute for the full year in FY24, adding a layer of growth beyond the order book ramp.
• 2-wheeler segment momentum: FY23 2-wheeler revenue grew ~30% YoY driven by HMSI (~25% growth) and TVS (a new customer, contributing ~25% growth); the company is bullish on established players like Bajaj, TVS, Hero, and HMSI as they launch EV models.
• SUV premiumization tailwind: The strong shift from A/B segments to premium SUVs is a structural demand driver; Maruti, Mahindra, Tata, and MG are expected to remain in the top 5 customer list.
• Industry backdrop: Auto industry expected to grow by high single digits in FY24, supported by a robust domestic environment, GDP expansion to 6.5%, and a pre-election year consumerism push.

Deepak Jain: "I don't think anyone would have envisaged this kind of a very strong shift, which basically happened in the pass car, especially from A, B segments to actually a premium SUV kind of a segment."

Margin Recovery Path

• Gross margin inflection from Q2 FY24: High-cost inventory is expected to be consumed by June/July, after which gross margin should improve; Q1 FY24 margin is implied to be below double-digit as stabilization takes hold through Q1 and Q2.
• Backward integration benefit unlocks: The Bawal electronics facility will see a large chunk fully utilized in FY24, and the benefit of backward integration of electronics will start showing in margins after being neutralized in FY23.
• Operating leverage on a higher base: With 20–25% top-line growth and profit expansion guided at greater than 25%, operating margins and bottom line are expected to grow at a much faster rate than revenue.
• Endeavour to surpass historic bands: Management’s stated endeavour is not just to reach double-digit EBITDA margins but to perhaps surpass the historic 10–11% EBITDA band in FY24.

Anmol Jain: "Definitely, our endeavour is to achieve and maybe perhaps even surpass that bandwidth in FY '24."

Capex & Balance Sheet

• FY24 capex of ~₹300 Cr: Split into ~₹135 Cr for maintenance and brownfield, and ~₹175 Cr for the Chakan greenfield project, all to be capitalized in FY24.
• Chakan funding via debt: The greenfield will be funded through long-term debt of ~₹150 Cr, pushing the debt-equity ratio from 0.16 to ~0.3–0.32, a manageable levered bet on a high-return order book.
• Revenue upside on existing gross block: Per management, there is an upside of maybe about 10–20% on revenue based on the current gross block, implying existing assets can stretch further before new capacity is fully needed.
• Tax rate stays elevated: Full-year FY23 actual tax rate was 32.6% (Q4: 38%) due to deferred tax; the company has not opted for the 25% regime because available MAT credit continues till next year, so the tax rate is expected to remain around 32–33% at least in FY24.

Strategic Positioning

• Gurugram plant closure: A consolidation move, not a revenue loss; the plant, set up in the mid-80s, did not support new technology lamps in terms of technology, space, and infrastructure, and carried significant blue-collar manpower cost; all business moved to another NCR facility.
• Pune greenfield on schedule: Production expected to commence in Q3 FY24, with Chakan Phase 1 SOP scheduled for Q3 FY24 catering to Mahindra and Tata Motors; Phase 2 revenue stream likely from FY26 onwards.
• EV-agnostic lighting franchise: Lighting is powertrain-agnostic, so the company benefits from EV adoption without betting on any single EV OEM; on 2-wheelers, the strategy is to back established players as they transition to EVs while also trying to make inroads with 1 or 2 new-age EV players.
• SL Lumax associate strength: The Hyundai/Kia JV is performing well, with both OEMs strong and the JV as a 100% dedicated single-source supplier; margins of 13% expected to be sustained at least for next year, depending on Hyundai Korea’s purchase strategy.

Deepak Jain: "Lighting is actually powertrain-agnostic. So irrespective of EV or ICE, I mean say we'll continue to do with lighting."

Guidance & Commitments

Key Metrics