Fiem Industries Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Automobile & Ancillaries

Company

Fiem Industries Ltd

Reco Price
Rs. 925
Price Target (12 Months)
Rs. 1700
Upside
83.78%

Date

15 january 2015
Sensex
28075.55
CNX Nifty
8494.15

Exchange

Code

NSE
FIEMIND
BSE
532768

Growing sales of LED segment & a proxy play on Honda will be next trigger for FIEM.

Strong positioning:
Fiem Industries is a dominant player in 2 wheelers lighting and rear-view mirrors, with the company having >75% share of business of players such as HMSI (Honda), TVS, Suzuki and Royal Enfield for these components. The two large OEMs not served by the company are Hero and Bajaj, both of which have promoter group companies catering to their demand. Hence Fiem has a relatively dominant share and low competition in its addressable segment. While there are other large players in automotive lighting such as Lumax, IJL (India Japan Lighting) and Minda industries, 4W is the main segment for all of them. Honda is Fiem's largest customer, contributing to 44% of company's revenues followed by TVS at 25%.

Margin drivers:
Management expects shift of mix towards LED to aid margins. Margins in LED luminary are higher at 18% compared to 12% in the auto division. Currently, it is operating at 60-70% utilisation of its capacity, so utilisations should improve as growth picks up. Its return ratios were also on the lower side between 10% and 15% in the last few years as it had spent Rs 250 crores in plant modernization but returns should improve with lower incremental investments going forward.

Other segment growing:
While the company is dominant in 2W lighting it is also looking to grow into other segments beyond that. As per the company, most of the 4W companies in India are MNCs. These MNCs want their local suppliers from home countries to cater to their overseas operations in countries such as India. OEMs. Fiem is also looking to get a foothold in the 4W market and has entered into MoUs for establishing JVs with group companies of Honda (Honda Locks) and Toyota (Toyota Tsusho Corp). The tie-up with Yamato industrial should enable entry in to new segments of autos such as control cables, wires among others, according to management.

Led Segment:
Company is extremely bullish on LED luminaries and integrated passenger information systems considering the large opportunity size. Although management advises that LED bulbs have higher upfront costs, their life expectancy and energy efficiency are much higher than for CFL or traditional incandescent bulbs (which are largely used in India currently). It is a similar trend for any public transport systems, with railways, buses or aero planes all showing greater usage of LED displays. The company is also now qualified to receive bulk tenders from the government in both these segments (LED luminaries and passenger information). It expects the share of these segments to grow to large extent of revenues in 4-5 years from the current 6%, implying exponential growth. This year itself, as per company LED business will grow from Rs 38 crores to Rs 90 crores. According to management, the LED lighting industry in India is forecast to grow to Rs 1600 crores in a few years, while integrated passenger display systems can grow to Rs 2000 crores. It says even if the company were to gain a small market share, this would mean large growth.

Growing LED Player:
Since Fiem is a high end manufacturer of LED lighting for auto majors , it makes it much easily for them to enter the LED bulbs and luminaries segment as they have a complete know how and can manufacture at much cheaper cost compare to competitors. To add to this FIEM does not need too much capex requirement to grow this business and the sales from the LED segment can grow multifold with small capex. Even the government has come up with extremely attractive reforms to promote LED and Honorable PM Mr Narendra Modi has shown clear intent to transform LED industry.

Strong Financials:
FIEM has registered a CAGR volume growth of 26.50% over FY08-FY14. This was largely added by better than industry growth achieved by its key client HMSI. With strong growth expected from HMSI and TVS Motors, key clients accounting for more than 70% of its FY14 revenues, we expect the momentum to continue over FY15-FY17E. As a result, we expect 14.5% revenue growth each for FIEM for FY15E and FY16E. Company has strong ROCE of 22.79% and ROE of 22.11% with strong working capital management. The company has also diversified into the LED segment. We expect the LED segment to grow by 50% each for FY15E and FY16E on a low base largely driven by commercial segment. Though, we are not factoring in potential upside to revenues from IPIS and street lighting segments, any tender wins in this segment could lead to potential upside to our revenues from LED segment.

Stock Data

CMP (Rs)
898.35
Face value (Rs)
10
52 Week Range (Rs)
945.30 - 301.10
Market cap (Rs Crores)
1076.6
Price To Book Value (x)
5.37
P/E Ratio (x)
28.83
EV/EBIDTA (x)
13.44

One Year indexed Stock Performance

Fiem Industries LtdSensex
Fiem Industries Ltd
Performance (%)
1m
6m
12m
Absolute
9.91
63.53
180.66
Sensex
2.77
11.28
31.88

Shareholders

(in %)
31-Dec
Promoter
69.96
FII
1.32
DII
4.65
Others
24.07
Total
100

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Industry

The Indian Auto Component Industry is one of the country’s rising industries with tremendous growth prospects. From a low-key supplier providing components exclusively to the domestic market, the industry has emerged as one of the key auto components centers in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen, amongst others.

The Indian auto component industry is expected to register a turnover of US$ 66 billion by FY 15-16 with the likelihood to touch US$ 115 billion by FY 20-21 depending on favorable conditions, as per the estimates of Automotive Component Manufacturers Association of India (ACMA). In addition, industry Exports are projected to reach US$ 12 billion by FY 15-16 and add up to US$ 30 billion by FY 17-18.

Profile

The Company was originally incorporated in India as Rahul Auto Private Limited on February 6, 1989 in New Delhi and was founded by Dr. J.K. Jain, a first generation entrepreneur. FIEM is one of the leading manufacturers of automotive lighting & signalling equipments and rear view mirrors in India. Its major business comes from the two-wheeler segment of the vehicle industry. After strengthening its position in the Automotive Industry, FIEM decided to go for diversification in two more additional segments: LED luminaries for indoor and outdoor applications and LED Integrated Passenger Information Systems for railways and buses.

FIEM is one of the largest suppliers of lighting solutions in India in the two-wheeler segment and commands 100% market share in mopeds, 75% in scooters and 25% in motorcycles. FIEM is the major supplier of all lamps and plastic body panels to Honda scooters produced at HMSI’s Tapukara plant in Rajasthan. In addition, the company is planning to expand exports and is already supplying lamps to Honda’s international motorcycles, including a 670cc motorcycle. Some of its major export markets are the UK, Italy, Germany, Indonesia, Japan and Austria.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16E
Mar-17E
Income:-
  • Gross Sales
  • Less: Excise Duty
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBIDTA
  • EBIDTA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Tax
  • Provision for Tax
  • Profit After Tax
  • PAT Margin (%)
  • Adjusted EPS
  • 581.44
  • 46.31
  • 535.13
  • -
  • 467.46
  • 67.67
  • 12.65
  • 0.31
  • 67.98
  • 20.78
  • 47.20
  • 16.88
  • 30.31
  • 9.18
  • 21.14
  • 3.95
  • 17.67
  • 668.03
  • 61.61
  • 606.42
  • 13.32
  • 536.79
  • 69.64
  • 11.48
  • 1.03
  • 70.67
  • 12.97
  • 57.70
  • 18.35
  • 39.36
  • 11.63
  • 27.72
  • 4.57
  • 23.17
  • 794.40
  • 73.94
  • 720.47
  • 18.81
  • 632.08
  • 88.39
  • 12.27
  • 0.67
  • 89.06
  • 14.45
  • 74.61
  • 21.79
  • 52.82
  • 15.54
  • 37.28
  • 5.17
  • 31.16
  • 925.00
  • 86.09
  • 838.91
  • 16.44
  • 729.50
  • 109.41
  • 13.04
  • 0.75
  • 110.16
  • 10.50
  • 99.66
  • 30.40
  • 69.26
  • 24.24
  • 45.02
  • 5.37
  • 37.63
  • 1090.50
  • 101.49
  • 989.01
  • 17.89
  • 840.50
  • 148.51
  • 15.02
  • 0.75
  • 149.26
  • 9.50
  • 139.76
  • 41.50
  • 98.26
  • 34.39
  • 63.87
  • 6.46
  • 53.39
  • 1310.50
  • 121.97
  • 1188.53
  • 20.17
  • 985.50
  • 203.03
  • 17.08
  • 0.75
  • 203.78
  • 9.50
  • 194.28
  • 52.50
  • 141.78
  • 49.62
  • 92.16
  • 7.75
  • 77.04
Source: Stockaxis Research, Company Data

Valuation

Considering its robust fundamentals, new tie-ups with MNC’s, esteemed clientele and strong position in its Auto component business; company’s growth prospects looks promising ahead. Also company is planning to double its sales from LED segment from current 6% of total sales to much higher levels in next three years. This will help company to improve its sales growth and EBIDTA Margins.

We assign target price of Rs 1700 indicating FY17E P/E of Rs 22.06x which is fair valuation of stock considering its diversification of business into LED segment and improved product portfolio with long term horizon of more than 1 year.

 

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