Business Analysis 26: Lumax Auto Technologies Ltd
If you are getting a company at 3-4x EV/EBITDA multiple, then you are getting a real good deal, right? Sounds doubtful? Let's study deeper.
Where most companies are coming up with their ambitious guidance, Lumax also joined the race. Recently, they have set their ambitious mid term guidance. The stock has already run up much.
If you are getting a company at 3-4x EV/EBITDA multiple, then you are getting a real good deal, right? Sounds doubtful? Let's study deeper.
It's a leading manufacturer and supplier of automotive systems and components serving as a prominent supplier to OEMs across diverse segments. They have 26 manufacturing plants across 6 states.
Let's look at the revenue mix by category wise.
Revenue Mix
Product wise
Advance plastics - 56% + Structures & control systems - 20% + Mechatronics - 3% + After market - 11% + Alternate fuels - 3% + Others - 7%
Customer wise
M & M - 27% + Bajaj - 14% + Aftermarket - 11% + MSIL - 8% + HMSI - 5% + LIL - 8% + Tata - 5% + Others - 23%
Segment wise
PV - 53% + 2/3 w - 22% + Aftermarket - 11% + CV - 8% + Others - 6%
Total order book as of FY25 is 1300 cr. Order book mix is as follows.
Advanced plastics - 57% + Structures and control systems - 15% + Mechatronics - 16% + Alternate fuels - 12%
Order book completion time by FY28 in phases - 333 cr (26%) in FY26 + 550 cr (42%) in FY27 + 417 cr (32%) in FY28
Their products include cockpits, headliners, door panels, trims, air intake systems, tanks, power window switch, antennas, smart actuator, shift tower, CNG delivery systems, lamps, fenders, O2 sensors, frames, and many more.
The most interesting part is their huge guidance.
Future plan for FY26-31
20% CAGR revenue minimum
20% ROCE
20% future & clean mobility from current 6%
20% EBITDA margin
It's quite interesting. That's why the stock reacted very positively. Revenue to touch 11000 cr by FY31 with organic growth 15% CAGR and organic+ inorganic growth 20% CAGR. So, cumulatively it's a 20% CAGR. The management is confident of doubling EBITDA to 1000 cr by FY28. So, you are getting 7-8x EV/EBITDA multiple considering FY28 numbers and 3-4x by FY31 assuming debt to equity remains 0.7-0.8% to 1% as per management guidance.
Even if we take position from here, you have an upside of 2-4x by FY28-31 if we consider current EV/EBITDA multiple. Currently peers are also trading a similar valuation. However, considering PE multiple, then the upside would be much higher. This is the bull market case scenario. In bear market also, you are making 2 times by FY31. But this is just a guidance. If 2-4x satisfy your hunger, then one could buy and hold it for long, of course, given the business is doing well.
Every big dip could be a buying opportunity. We have to constantly track how they are performing going forward. Over a long period, financials look fantastic. If they can maintain the same, stockholders will get handsomely rewarded. If the stock falls 20-30% from here, it could be a great buying opportunity.
How can they achieve such guidance? Through new product segments in clean and future mobility, software driven solutions in ADAS & connected vehicles, trends in premiumization & light weighting, and also future acquisitions. They have done several acquisitions till now including IAC India, Mannoh, Cornaglia, Yokowo, Ituran, Alps alpine, Jopp, FAE, and Greenfuel energy.
The industry looks brighter. Globally, new electric cars registration in CY23 was 14 mn and 100 mn in CY26. The future is sustainability. So EV will play a bigger role. Greenfuel could be their great asset going forward. According to management, Greenfuel could achieve revenue of 300-350 cr in FY26. That subsidiary is going faster than any others.
One has to remember that the end user industry which is auto, is inherently cyclical. So, it's better to play conservatively on the valuation front.
Thanks for reading
Take care
Rabi
Disclaimer: I'm not SEBI registered. This content is for educational purposes only. Do your own diligence.