We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• LED is going to be a game changer in the automobile lighting system. Lumax Inds., being a leading producer of LED lighting system and supported by Stanley, Japan, would be a big beneficiary of the shift towards higher usage of LEDs. Lesser energy consumption and aesthetics is going to drive the shift towards LED lighting system. Implementation of BSVI will call for increased usage of electronification in order to bring in energy efficiencies and hence higher usage of LED. The value of lighting per vehicle is expected to rise by 3- 10x post implementation of BSVI.

• The company is focusing on its Gujarat plant for future growth. The Sanand plant of Lumax Inds. would be currently dedicated to MSIL’s Swift platform. The Sanand plant has capacity to produce 300,000 sets of head & tail lamps per annum with peak revenue potential of Rs 275-300 cr per annum (out of which 70% is expected to be from LED lighting and rest from conventional) which is expected to be realized by FY20.

• Company’s focus on LED is helping it gain market share; LED has contributed ~25% to the revenues in FY18 (as guided earlier) and is expected to reach 35% by end FY19. The import content of LED kit is ~40%; the company is working on indigenization of the LED lighting system, localization of electronic segment of the LED kit to help improve margins. Localization to lead to drop in unit price along with improvement in margins.

• The associate company SL Lumax posted annual growth of 29% in FY18 by reporting PAT margins of 5.8% in FY18 on sales of Rs 1084. Lumax industry owns 21.28% in SL Lumax which is promoted by SL Corporation, Korea and supplies to Hyundai.

• We maintain a BUY with a target of Rs.2,442.