Lumax Industries Ltd Q2 FY2024 Concall Summary

Key Takeaways

• H2 revenue set to surge ~25%: The newly commissioned Chakan facility and XUV700 lamp SOP drive a sharp H2 inflection, pushing full-year revenue growth to 18–20%.
• Double-digit EBITDA margin guidance intact: H1 margin pressure from Chakan pre-operative costs is temporary; management expects significant H2 expansion to deliver a double-digit full-year EBITDA margin.
• Order book conversion is the FY25 story: ~60% of the ₹2,200 cr order book (~₹1,300 cr) enters SOP in FY25, anchoring a 20–25% revenue growth outlook for next year.
• Premiumization, not just volume, is the engine: The shift to SUVs and LEDs is structurally lifting content per vehicle, with LED share targeted to reach ~50% in 2–3 years.
• What to watch next quarter: The pace of Chakan’s ramp-up toward full capacity by Q4, the recovery of raw material cost increases from OEMs, and the trajectory of margin expansion toward the 11–12% range.

The Chakan Inflection

• H2 growth driver: The Chakan facility commenced commercial production on November 1st, with SOP already achieved for Mahindra XUV700 lamps and Tata Nexon ICE models. Management expects H2 revenue of ₹170–190 crores from the plant, driving the majority of the company’s 22–25% H2 growth.
• Rapid ramp-up: Capacity utilization is expected to reach near-full levels by the end of Q4 FY24, described as an “exponential” rather than incremental ramp. Phase 2 planning has already begun for FY25–26 execution, adding another half-million vehicle sets of capacity for ~₹100 cr CAPEX.
• Margin impact: Pre-operative hiring created a cost drag in Q2, but plant-level EBITDA margins are expected to be around 15% once stabilized. The facility’s better cost structure should help maintain overall manpower costs at 12–13% of revenue.
• Peak revenue potential: With Phase 2, peak revenue from the Chakan facility is projected at upwards of ₹800–900 cr by FY27.

Anmol Jain: “We are not looking at an incremental growth, we are looking at an exponential growth from the capacity utilization sector.”

Margin Trajectory & Cost Structure

• H1 margin pressure is temporary: Raw material consumption rose ~1% vs Q1 FY23 due to product mix, and Q2 manpower costs escalated from Chakan pre-commissioning hires. These costs are expected to rationalize as incremental revenue from Chakan flows through in H2.
• Double-digit commitment: Full-year double-digit EBITDA margin guidance remains intact, with significant H2 expansion. The aspiration is to achieve double-digit margins in a particular quarter, sustain it, and then grow to the 11–12% mark from FY25 onward.
• Existing plant optimization: Some current plants already operate above 15% EBITDA, but others lag. Management targets 200 bps or more of margin expansion in existing facilities starting FY25 through fixed-cost rationalization and operational efficiencies, shifting the base margin range from 8–10% to 11–12%.
• LED margin tailwind: LED lamps carry ~3X the realization of conventional lamps. While unit realization may correct gradually as demand scales, EBITDA margins should rise because the 3X per-vehicle contribution does not add to the cost structure in the same proportion.
• Raw material recovery lag: Some base raw material price increases are expected to impact Q3 and Q4; management typically recovers these from OEMs with a one-quarter lag.

Anmol Jain: “I am pretty optimistic to not just achieve double digit margins in a particular quarter, but also to then thereafter sustain it and then look at ways and means how to grow it forward as I mentioned maybe to 11% to 12% mark.”

Order Book & FY25 Growth Visibility

• Conversion timeline: Approximately ₹1,300 cr of the ₹2,200 cr order book will enter SOP in FY25, of which ₹800–900 cr represents net-new orders. This underpins management’s confident 20–25% revenue growth guidance for FY25.
• Content-per-vehicle tailwind: The order book is heavily weighted toward SUVs, with management estimating roughly two-thirds of the 4-wheeler portion is SUV-linked. Premium variants within each model sell more than mid variants, further increasing per-vehicle contribution.
• Maruti Suzuki growth despite flat output: Maruti is at full capacity with no incremental output until the Kharkhoda facility in FY25, yet Lumax grew 24% sequentially vs Maruti’s 14–15%, purely on product mix. The Jimny ramp and continued mix improvement are expected to sustain growth momentum with Maruti.
• Mahindra outperformance: Mahindra & Mahindra grew production 22% in H1, and Lumax’s revenue from Mahindra grew 33%, driven by volume share expansion and the XUV700 launch. The XUV700 will have an annualized impact in FY25.
• Hyundai Talegaon: SL Lumax will continue supplying Hyundai at its Talegaon plant. FY25 is likely the SOP year, with peak volume realization expected in FY26. The company is evaluating whether to set up dedicated infrastructure near Talegaon or use existing Lumax facilities.

Technology Shift & Premiumization

• LED share rising, not stagnating: LED share of revenue was 25% five years ago and reached 36% in H1 FY24. Management targets close to 50% in the next 2–3 years (by FY26), driven by the segment shift toward SUVs and premium variants.
• Styling-driven content expansion: Linear, end-to-end tailgate lamps integrated with tail lamps have exponentially increased lamp size, boosting per-vehicle contribution. Tail lamp share is expected to increase going forward.
• Imported electronics persist: PCB boards and their electronic components remain largely imported. While local SMT/PCB assembly exists, the components themselves are imported and expected to stay that way for the foreseeable future due to rapid technological change. Localization is a second-step strategy after quality and engineering capability are established.

Anmol Jain: “We do have a strategy or we do have a team working on localizing this, but I think that would be in second step once we are able to establish the quality, establish the engineering capability with these parts then we will look at localizing these parts.”

EV Strategy & Other Verticals

• EV revenue currently small: EV-specific model revenue is not significant because 65–70% of revenue comes from passenger vehicles, where EV penetration remains low. No specific timeline was given for when EV revenue becomes material.
• Legacy OEM focus in 2-wheelers: The company is consciously choosing to partner with legacy players rather than new-age EV entrants in the 2-wheeler space, citing existing engagements and order book for EV models from legacy OEMs.
• SL Lumax performance: H1 revenue grew 14%, with tax-level profit up 50%. Q2 profitability grew 23% despite flattish topline. Full-year associate profit contribution is expected at ₹41–42 crores (₹24 crores achieved in H1), though Hyundai’s capacity constraints may limit full-year growth to single digits.

Anmol Jain: “I think our strategy and focus is more with the legacy players, so we are already engaged and we do have some engagement on discussions and even the order book for some of the EV models from the legacy players.”

Capital Allocation & Balance Sheet

• CAPEX cycle moderating: No substantial CAPEX is envisaged going forward. Asset turnover, currently around 1:1.7, is expected to improve as the new order book carries higher contribution per vehicle and significant CAPEX for Chakan is already incurred.
• Debt peak: Long-term debt is expected to peak at ₹200 cr as of March 31, 2024, with total debt around ₹500–600 cr going forward. The debt-to-equity ratio is expected to be maintained around 0.35.
• Gujarat subsidy conservatism: The company has adopted a policy of not booking subsidy income until realized, as a conservative governance practice. The Chakan plant subsidy has been applied for and is expected in Q4 FY24 or Q1 FY25.
• Tax rate: The effective tax rate is expected at 27–30% for FY24, with MAT credit expected to be extinguished by FY26–27, depending on profitability and tax law changes.

Guidance & Commitments

Key Metrics