fiem in - · pdf filefiem industries is the largest two wheeler lighting manufacturer in...

01-Feb-18

Key Highlights of the Report:

52wk Range H/L

Mkt Capital (Rs Cr)

Av. Volume (,000)

Financials/Val. FY16 FY17 FY18E FY19E FY20ENet Sales 988 1,019 1,184 1,396 1,642

EBITDA 127 118 135 179 221

EBIT 94 79 89 133 174

PAT 57 33 51 84 114

3QFY18 2QFY18 1QFY18 EPS (Rs) 48 25 39 64 86

Promoters 63.6 63.6 63.6 EPS growth (%) 35% -47% 55% 63% 36%

Public 36.4 36.4 36.4 ROE (%) 21% 8% 11% 16% 19%

Total 100.0 100.0 100.0 ROCE (%) 26% 14% 16% 22% 26%

BV 228 322 342 394 465

P/B (X) 4.0 2.9 2.7 2.4 2.0

1Mn 3Mn 1Yr P/E (x) 19 37 24 15 11

Absolute (7.5) (0.3) (13.1)

Rel.to Nifty (12.2) (7.0) (41.9) Recent Updates

INDUSTRY - AUTO ANCILLARY

BLOOMBERG FIEM IN

BSE Code - 532768

NSE Code - FIEMINDNIFTY - 11028

Target Price 1120

Previous Target Price

NAVEEN KUMAR [email protected]

Narnolia Securities LtdPlease refer to the Disclaimers at www.narnolia.com

MoU with VKL Holding Co. SPC, Behrain for a Joint Venture proposal to

market & manufacture LED Lights in Behrain and other GCC (Gulf

Corporation Council) member countries.

NA

Fiem Industries is the largest two wheeler lighting manufacturer in India

and derives around 94% of its revenue from two wheeler segment.

CMP 929

Revenue has grown at 13.7% CAGR over the last 5 years. Fiem

Industries is the first company to introduce LED headlamps for two

wheelers.

The company has strong margin profile of over 10%, which the company

has maintained even in tough times.Upside 21%

1116/821

1,223

MoU with Honda Locks Mfg. Co. Ltd. Japan and Toyota Tsusho

Corporation, Japan for a joint venture proposal in India for manufacturing

of Key Sets, Door Mirrors and Outside Handles.

MoU with TOYODENSO Co. Ltd. Japan and Toyota Tsusho Corporation,

Japan for a joint-venture proposal in India for manufacturing of automotive

switch assemblies.

3

RoE to improve sharply in FY20We expect Revenue and PAT to grow at CAGR of 17% and 51% over

FY17-20E. We expect RoE of 18.6% in FY20E. Hence we recommend

BUY on Fiem Industries for a target price of Rs.1120 (13x FY20E

EPS).

Honda Motorcycles & Scooter (HMSI) and TVS Motors are the top clients

for the company and hold over 65% of the revenue pie.

Signed MoU with Asian Industry Ltd Japan (Fuel Pump Module

manufacturer) and Toyota Tsusho Corp Japan(procurement of material

and components for manuafcturing of Fuel Pump Modules) for

establishing a JV in India to manufacture Fuel Pump Module and IC

connector Assembly for 2Ws and 3Ws.

Company Data

Stock Performance %

Shareholding patterns %

19%21%

8%

11%

16%19%

0%

5%

10%

15%

20%

25%

RoE

80

85

90

95

100

105

110

115

120

125

130FIEMIND NIFTY

Financials 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 YoY % QoQ% FY16 FY17 YoY %

Net Sales 292 235 245 291 327 12% 12% 988 1,019 3%

Other Income 0 2 2 2 1 181% -29% 1 5 385%

COGS 170 136 145 175 198 17% 14% 572 587 3%

Employee Cost 40 34 36 41 48 21% 19% 127 146 15%

Other Expenses 46 38 41 45 43 -8% -5% 161 168 4%

EBITDA 36 26 24 31 38 4% 22% 127 118 -7%

Depreciation 10 10 10 11 11 15% 3% 33 39 19%

EBIT 26 16 14 20 26 0% 32% 94 79 -17%

Interest 6 6 5 6 6 -6% -1% 16 23 47%

PBT 20 12 10 16 22 6% 37% 79 60 -24%

Exceptional Item 14 0% 0% 22 13 0%

Tax 6 3 (2) 6 7 -16% 35% - 14 0%

PAT 14 9 (2) 10 14 2% 39% 57 33 -42%

PAT grew by 2%YoY and 39%QoQ to Rs.14 crores in 2QFY18.

Net sales trend COGS and Gross Margin trend

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Quarterly Performance

The company reported healthy revenue growth of 12%YoY in 2QFY18, which was primarily driven

by strong 2 wheeler sales during the quarter.

Strong volume growth from HMSI and TVS Motors led to robust revenue growth of

12%YoY

The major contributors in the sales are Honda Motorcycles & Scooters India (HMSI) and TVS

Motors. These 2 players command revenue share of over 65% of Fiem Industries. HMSI's volume

grew by 17%YoY and TVS Motor's volume soared by 16%YoY during 2QFY18.

EBITDA grew by 4%YoY to Rs.38 crores in 2QFY18. Higher commodity prices and losses in the

LED business led to slower growth in the EBITDA.

Depreciation was higher by 15%YoY to Rs.11 crores due to heavy capex on LED plant. Interest

expense for the quarter was lower Rs.6 crores on account of reduction in long term debt.

23

6

25

9

28

9

24

5

29

2

23

5

24

5

29

1

32

7

12%27%

24%

21%

24%

-9% -15%19%

12%

-20%-15%-10%-5%0%5%10%15%20%25%30%

-

50

100

150

200

250

300

350

Net Sales Growth YoY

13

7

15

1

16

5

13

6

17

0

13

6

14

5

17

5

19

8

42% 41%

43%

45%

42%42% 41%

40%39%

36%37%38%39%40%41%42%43%44%45%46%

-

50

100

150

200

250

COGS Gross Margin

Margin % 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)

Gross Margin 42% 42% 41% 40% 39% -2.56% -0.7% 42% 42% 0.3%

EBITDA Margin 12% 11% 10% 11% 11% -0.85% 0.9% 13% 12% -1.3%

PAT Margin 5% 4% -1% 4% 4% -0.44% 0.8% 6% 3% -2.6%

EBITDA and EBITDA Margin trend PAT and PAT Margin trend

HMSI volume ('000)and growth trend TVS Motor volume('000) and growth trend

Losses in LED business led to contraction in margins


Gross Margin declined by 256bps YoY and 70bps QoQ to 39% during 2QFY18. Rising commodity

prices since 1QFY18 have been putting pressure on margins.

EBITDA Margin contracted by 85bps YoY to 11.5% in 2QFY18. Higher employee cost and losses in

LED business have led to contraction in margins.

PAT Margin declined by 44bps YoY to 4.4% in 2QFY18. Higher Depreciation and tax expenses were

the main reasons for decline in PAT margins.

29

33

40

31

36

26

24

31

38

12%13% 14%

13%12%

11% 10% 11%

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-

5

10

15

20

25

30

35

40

45

EBITDA EBITDA Margin1

2

16

19

11

14

9 (2

)

10

14

5%

6% 7%

5%5%

4%

-1%

4%

4%

-2%-1%0%1%2%3%4%5%6%7%8%

(5)

-

5

10

15

20

25

PAT PAT Margin

1,2

16

1,0

99

1,1

27

1,2

95

1,5

15

1,0

49

1,1

49

1,5

61

1,7

69

1%-2% -2%

21%25%

-4%2%

21%17%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

-200 400 600 800

1,000 1,200 1,400 1,600 1,800 2,000

HMSI Volume Growth YoY

64

6

67

6

63

9

70

1

79

5

70

2

65

9

78

5

92

3

-3% 8%11% 15%

23%

4% 3%12%

16%

-5%

0%

5%

10%

15%

20%

25%

-100 200 300 400 500 600 700 800 900

1,000

TVS Motor Volume Growth YoY

Changes in product mix Top clientele contribution

AHO regulation to fuel LED demand further: The Automatic headlamp on (AHO) regulation has

come into effect from 1st April 2017. Two-wheelers accounted for being the single category of vehicles

to have suffered the highest number of fatal road crashes in 2015. Some of the OEMs have removed

the headlamp switches from 2Ws. However this move is not energy efficient and the halogen lamps

will consume even more power, in turn draining batteries as well. Keeping this in mind, OEMs have

launched 2Ws equipped with LED Daytime Running Lights (DRL). Faster adaption of LED DRLs will

lead to increase in realization and profitability for the company.

Major supplier to HMSI and TVS Motors: Honda Motorcycles and Scooters India (HMSI) and TVS

Motors are two major clients of the company. They contribute over 65% in the company’s revenue.

Based on the improving demand scenarios in urban as well rural areas, strong presence in scooter

segment these two companies are growing at faster pace than industry. Apart from that Fiem also

supplies to Harley Davidson and Suzuki for premium segment lightings. So we believe that Fiem

Industries will also post strong double digit growth going ahead.

LED luminaries business facing a short term blip: For the time being, the LED business is

undergoing a difficult phase. Growth was adversely impacted due to disruptive practices and under

pricing. Although the Indian LED lighting market is at a nascent stage, it offers innumerable

opportunities for growth over the next few decades. The Energy Efficiency Services Limited (EESL) is

one of the nodal Indian agencies actively propagating and implementing the replacement of

conventional street lighting products with LED alternatives. EESL seeks to unlock energy-efficiency,

estimated to be a USD12 billion opportunity that can potentially result in energy savings up to 20 per

cent of current consumption.

Investment Arguments:

Shift towards LED from conventional headlamps: Fiem Industries is the first automotive lighting

company which introduced LED headlamps in Indian 2W industry. The LED lamps are 4-5x energy

efficient in comparison to halogen lamps. In addition to that, the life span of LED lamps is above

50000 hours compared to halogen lamps which have only 3000-4000 hours of life. These lamps are 2-

5x costlier than the halogen lamps.


45%

24%

4%

1%4%

4%

9%

9%Honda Motorcyles

TVS Motor Company

Suzuki Motorcycle

Mahindra 2W

Royal Enfield

Yamaha India

Other Customers

Replacement Market

72% 71% 67% 66% 65% 66%

8% 10% 13% 12% 14% 12%

13% 13% 13% 13% 14% 14%

7% 6% 8% 9% 7% 8%

0%

20%

40%

60%

80%

100%

120%

Auto Lamp Plastic Moulded Parts Rear View Mirrors Others

View & Valuation

Return ratios to improve going ahead

Fiem Industries is the first company to introduce LED headlamps for 2Ws in India. The LED lamps are

4-5x energy efficient in comparison to halogen lamps. Considering the increasing fatal road accidents

in two wheelers, government has introduced Automatic Headlamp On (AHO) regulation which is

mandatory from 1st

April 2017. However this move is not energy efficient and the halogen lamps

consume even more power, in turn draining batteries as well. Keeping this in mind, OEMs have

launched 2Ws equipped with LED Daytime Running Lights (DRL). Early shift towards electric vehicles

will also act as a fillip for LED lamps. These LED lamps are costlier by 35-40% than the halogen lamps

and we believe that faster adaption of LED DRLs will lead to increase in realization and profitability for

the company.

Honda Motorcycles & Scooter (HMSI) and TVS Motors hold over 65% of the revenue pie. Based on

the improving demand scenarios in urban as well rural areas, strong presence in scooter segment

these two companies are growing at faster pace than industry. Apart from that Fiem also supplies to

Harley Davidson and Suzuki for premium segment lightings. So we believe that Fiem Industries will

also post strong double digit growth going ahead.

Fiem Industries is one of the leading manufacturers of 2Ws Automotive Lighting & Signaling

Equipments and Rear View Mirrors in India. The company derives its 94% revenues from 2Ws

segment. The company has grown at 13.7% CAGR over the last 5 years.


Company’s LED luminaries business is undergoing a difficult phase and facing a short term blip.

Though Indian LED market is in nascent stage and offers innumerable opportunities for long term

growth. The LED luminaries business has margin profile of over 15%. Besides that Fiem Industries

also installs Integrated Passenger Information System in STUs, Indian Railways and School Buses.

Currently it contributes only 1% of sales but holds big opportunity for the company as Indian Railways

and more of STUs are opting this system for public convenience.

We expect Revenue and PAT to grow at CAGR of 17% and 51% over FY17-20E. We expect RoE of

18.6% in FY20E. Hence we recommend BUY on Fiem Industries for a target price of Rs.1120

(13x FY20E EPS).

Strong cash flow generations to led sharp

reduction in debt

16

.5%

18

.9%

18

.7% 21

.0%

7.8

% 11

.4%

16

.2%

18

.6%

21

.3% 2

6.1

%

25

.8%

25

.9%

14

.5%

16

.2%

22

.3% 26

.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

RoE RoCE0.63

0.44

0.38 0.40

0.43 0.38

0.29

0.21

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Debt Equity Ratio

Income Statement Rs in Crores Key Ratios

Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E

Revenue from Operation 1,019 1,184 1,396 1,642 ROE 8% 11% 16% 19%

Change (%) 3% 16% 18% 18% ROCE 14% 16% 22% 26%

Other Operating Income 5 7 7 7 Asset Turnover 1.1 1.3 1.4 1.4

EBITDA 118 135 179 221 Debtor Days 42.9 41.0 41.0 41.0

Change (%) -7% 15% 33% 23% Inventory Days 36.7 40.0 40.0 40.0

Margin (%) 12% 11% 13% 13% Payable Days 53.8 52.0 52.0 52.0

Dep & Amortization 39 46 47 47 Interest Coverage 3 5 8 12

EBIT 79 89 133 174 P/E 37.1 23.8 14.6 10.7

Interest & other finance cost 23 19 17 14 Price / Book Value 2.9 2.7 2.4 2.0

Other Income EV/EBITDA 11.2 9.4 6.9 5.5

EBT 60 77 123 167 FCF per Share 117 130 140 160

Exceptional Item 14 - - -

Tax 13 26 39 54

Minority Int & P/L share of Ass. - - - -

Reported PAT 33 51 84 114

Adjusted PAT 33 51 84 114

Change (%) -42% 55% 63% 36%

Margin(%) 3% 4% 6% 7%

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores

Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E

Share Capital 13 13 13 13 PBT 46 77 123 167

Reserves 410 437 505 598 (inc)/Dec in Working Capital (67) 7 (13) (15)

Networth 424 450 518 612 Non Cash Op Exp 39 46 47 47

Debt 183.6218 172.8 150.6 128.4 Interest Paid (+) 23 19 17 14

Other Non Current Liab 45 48 48 48 Tax Paid (15) (26) (39) (54)

Total Capital Employed 543 547 593 664 others 34 19 17 14

Net Fixed Assets (incl CWIP) 498 498 502 506 CF from Op. Activities 38 124 134 160

Non Current Investments 0 1 1 1 (inc)/Dec in FA & CWIP (116) (46) (51) (51)

Other Non Current Assets 37 30 30 30 Free Cashflow (78) 78 83 109

Non Current Assets 536 529 533 536 (Pur)/Sale of Investment (83) 3 (25) (40)

Inventory 102 130 153 180 others 4 - - -

Debtors 120 133 157 184 CF from Inv. Activities (195) (44) (76) (90)

Cash & Bank 23 49 54 66 inc/(dec) in NW

Other Current Assets 3 18 21 25 inc/(dec) in Debt 88 (11) (22) (22)

Current Assets 355 414 494 604 Interest Paid (25) (19) (17) (14)

Creditors 150 169 199 234 Dividend Paid (inc tax) (4) (25) (15) (21)

Provisions 4 3 3 4 others 1 - - -

Other Current Liabilities 84 101 107 114 CF from Fin. Activities 176 (55) (54) (57)

Curr Liabilities 238 272 309 352 Inc(Dec) in Cash 19 26 4 13

Net Current Assets 117 142 185 252 Add: Opening Balance 4 23 49 53

Total Assets 891 943 1,026 1,140 Closing Balance 23 49 53 66

Financials Snap Shot


Narnolia Securities Ltd201 | 2nd Floor | Marble Arch Build ing | 236B-AJC Bose

Road | Kolkata-700 020 , Ph : 033-40501500

email: [email protected],

website : www.narnolia.com

Risk Disclosure & Disclaimer: This report/message is for the personal information of

the authorized recipient and does not construe to be any investment, legal or taxation

advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any

action based upon it. This report/message is not for public distribution and has been

furnished to you solely for your information and should not be reproduced or

redistributed to any other person in any from. The report/message is based upon publicly

available information, findings of our research wing “East wind” & information that we

consider reliable, but we do not represent that it is accurate or complete and we do not

provide any express or implied warranty of any kind, and also these are subject to change

without notice. The recipients of this report should rely on their own investigations,

should use their own judgment for taking any investment decisions keeping in mind that

past performance is not necessarily a guide to future performance & that the the value of

any investment or income are subject to market and other risks. Further it will be safe to

assume that NSL and /or its Group or associate Companies, their Directors, affiliates

and/or employees may have interests/ positions, financial or otherwise, individually or

otherwise in the recommended/mentioned securities/mutual funds/ model funds and

other investment products which may be added or disposed including & other mentioned

in this report/message.

fiem in - · pdf filefiem industries is the largest two wheeler lighting manufacturer in...

Documents