CD Equisearch's research report on Lumax Industries
SIAM estimates that the auto sector is looking at a decline of 26-45% in the current fiscal depending on the vehicle category. It would take 3-4 years to reach the peak levels of 2018, so right now there is enough capacity in the sector and hence no investment is required, the industry body added. Moreover, the industry has invested heavily for the transition to BS-VI emission norms in a very short span of three years, Rajan Wadhera, President of SIAM said. Stroked by the pandemic, Lumax intends to slow down its capital expenditure with cash conservation in mind in the current fiscal to Rs. 40 cr, majority of which will be utilized towards the electronics facility – this is a sharp fall from around Rs. 167 cr in FY20. This downturn is not least due to the dire condition of the Indian automobile Industry but also the excess capacity on account of low expected volumes for atleast the next couple of years. Considerably high capex last fiscal, would do Lumax no favours as fall in revenues this fiscal would seriously impair its fixed asset turnover –1.7 in FY21 vs 3.5 in FY19.
Outlook
On balance we recommend ‘buying’ the stock with a revised price target of Rs 1513 (previous target of Rs 1558) based on 24x FY22 earnings over a period of 9-12 months.
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