Lumax Industries Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Margin reset, recovery promised: EBITDA margin contracted YoY, but management guided to a return to double-digit EBITDA for the full year, potentially matching or exceeding the FY20 peak.
• Order book is the conviction anchor: A strong order book of ~₹2,200 crores underpins the 20–25% top-line growth guidance, with 40–50% converting to revenue this year.
• LED shift is messy, not linear: LED penetration is expected to move from 35% to 50% by FY26, but some models are reverting to conventional lighting and certain LED models face volume shortfalls, muting the near-term mix benefit.
• New Pune plant is a margin lever, but costs come first: The Chakan greenfield plant starts commercial production in Q2, targeting ~20% EBITDA at optimum utilization, though upfront manpower costs are already weighing on margins.
• What to watch next quarter: Whether the Chakan plant SOP hits its Q2 target and starts converting the order book into revenue, the pace of the promised margin recovery toward double digits, and any stabilization in the LED-to-conventional reversal trend.

Margin Walk & Recovery Path

• Q1 contraction drivers: EBITDA margin fell YoY because a ~0.7% subsidy gain from last year's Q1 was absent, raw material consumption rose ~0.5% YoY, and manpower costs increased slightly due to the new Pune plant hiring ahead of revenue. Raw material costs are expected to improve as certain products just hit start of production and price actualization from OEMs is yet to come.
• Employee cost elevated: Employee cost at 13.2% of revenue is up from 12.4% last year, driven by appraisals, wage agreements adding 0.5–0.6%, and manpower added for the greenfield site that has not yet started revenue. SOP is expected by end of Q2, with the cost ratio dropping in Q3. Full-year manpower cost is guided at 12–12.5%.
• Other income headwind: Other income dropped significantly because the ₹3 crores subsidy income recognized in the previous year's Q1 was not accrued this quarter. Management took a conservative view due to delay in subsidy disbursement from the Gujarat government and will recognize it only when received.
• Gross margin outlook: Management guided to 35–37% gross margin going forward. Raw material prices are stable, with no significant increase or reduction expected in the next eight months of this fiscal.
• Sustainable margin ambition: Management stated sustainable margins for the business should be anywhere upwards of 12% at the consolidated level after R&D expenses, with an endeavour to get into teen margins. Margin expansion is expected from LED transformation, rationalization of internal cost structures, and greenfield plants operating at much higher margins.

Anmol Jain: "My guidance for the full year is that definitely, we will be going back to a double-digit EBITDA and perhaps the meeting or exceeding the FY '20, which was peak EBITDA, which we had reported in terms of the margin."

Order Book & Revenue Growth

• Order book size: The company holds a strong order book of almost ₹2,200 crores, described as a per-annum number, not a life-cycle value.
• Revenue conversion timeline: About 40–50% of the order book will convert into current-year revenue, with roughly 80% converting next year and the full 100% flowing into revenue by FY26.
• Top-line guidance: Management maintained 20–25% overall top-line growth guidance for the current year based on orders in hand, against an expected industry growth of 8–10%.
• Honda revenue dynamics: Honda revenue grew 27% largely on volume growth, though there was a contraction in value because one of HMSI's high-selling models converted back from LED to conventional lighting per customer demand.
• Maruti SUV catch-up: Maruti's market share shifted from small cars to SUVs, where nominations went to competitors 4–5 years ago due to the two-year lead time for lamp development. However, the next SUV model and the first EV model have now been nominated to Lumax.

Anmol Jain: "So we definitely need to enter the SUV space in our order book. And in the order book, the next model of SUV has already been nominated to us, along with also the first EV model, which has already been nominated to us."

LED Transition: Promise vs. Reality

• Penetration target: LED share in revenue is expected to move from the current 35:65 LED-to-conventional mix to 50:50 by FY26, based on the order book in hand. Only marginal improvement is expected this year, with a significant shift in FY25.
• The reversal problem: Parallel to gaining LED on certain models, some models across OEMs are moving back from LED to conventional lighting, and certain LED models have seen 40–50% shortfalls in projected volumes, pulling down LED revenue.
• Margin differential is not generic: Management declined to give a ballpark margin differential between LED and conventional lamps, stating it differs lamp to lamp based on localization content and is not generic across all lamps. LED does not necessarily increase gross margin because of the high value of imported LED components, but content per vehicle is higher, so overhead costs get rationalized and EBITDA expands.
• Localization progress: LED modules are still imported by everyone; SMP and other electronic subcomponents are localized. Localization is expected to move from ~30% to around 50% in the next two to three years, though certain OEMs still prefer the imported route while others localize due to cost pressures.

Anmol Jain: "I would also like to just mention here, please understand that parallelly there are also a lot of models across OEMs, which are going back from LED to conventional. However, bizarre it may sound, but that's the reality."

Chakan Greenfield Plant

• Timeline: The greenfield project in Pune is on schedule, with commercial production expected to commence in Q2 of the current financial year, preponed from the original end-of-Q3 target to reduce the trial period.
• Phase 1 capacity: Phase 1 capacity of 0.05 crore vehicle sets has been created. Phase 2 will commence from FY26 onwards.
• Revenue ramp: FY24 revenue is projected at ₹190–200 crores, rising to ₹400–500 crores in FY25, peaking at ₹600 crores in FY26. After Phase 2, the plant could reach ₹800–1,000 crores in the next five years.
• Margin profile: Management's endeavour is to achieve around 20% EBITDA margin at optimum utilization. Breakeven is at 40% capacity utilization.
• Government support: The Maharashtra government provides an investment subsidy of 40% of investment in the form of GST reimbursement and cash investment subsidies.
• Existing plant contribution: Current facilities are continuously improving cost efficiency and volumes as OEM demand goes up, contributing to margin expansion alongside the new plant.

SL Lumax (Associate)

• Performance snapshot: SL Lumax, in which Lumax holds 21%, reported sales of ~₹634 crores versus ₹522 crores last year, with profit from associates more than doubling YoY. However, management cautioned that the full year is the better metric; the current quarter PAT is in line with the full-year number of last year.
• Margin volatility risk: SL Lumax net margin improved from 2–3% to 8% over the last year, possibly due to better pricing from Hyundai/Kia or a better product portfolio. Management is not certain of the reason, as day-to-day operations are run by Koreans with decisions made in Korean headquarters. Management explicitly warned that this 8% could go back to 4%.
• Growth constrained: Hyundai and Kia are operating at 95–100% capacity and face a capacity crunch, so SL Lumax will likely see similar or single-digit growth for the rest of the year. The current year is expected to continue in the same vicinity as last year.

Anmol Jain: "I would not be surprised if this 8% goes back to 4%. Please understand that Koreans have a very different way of, let's say, the Tier 1 management from a cost structure point of view."

New Business & Product Launches

• New model supplies started: During the quarter, the company began supplying tail lamps and high mount stop lamps to the Maruti Suzuki Jimny, tail lamps to the Honda Shine 100cc, headlamps to the Hero MotoCorp Super Splendor, and headlamps and roof lamps to new models of John Deere and Mahindra respectively.
• New-age OEM engagement: Matter Motors is already a customer. Management is not very bullish on new-age companies but continues to engage and will entertain opportunities on a case-to-case basis if there is a good business proposition.
• Tax rate trajectory: The effective tax rate is expected to remain at 35.4% for the full year, with a reduction to around 30–33% anticipated in FY25.

Guidance & Commitments

Key Metrics