In its latest research note, domestic brokerage firm Sharekhan has maintained its "buy" rating on Lumax Auto Technologies with a target price of ₹288 apiece, which hints towards the upside potential of 10.34% from the stock's current market price of ₹261.
Lumax Auto Technologies is a part of the D K Jain Group of companies. The company is a manufacturer of automotive parts for the two-wheeler and three-wheeler industries. Its products include sheet metal parts, fabricated assemblies, and tubular parts, including two-wheeler chassis, exhaust systems, mufflers, fork and handlebar assemblies, petrol tanks, adjustor motors, and auto lighting.
In the last one year, the stock has gained 64%, rallying from ₹159.25 apiece to the current market price of ₹261. It has risen 86% since its 52-week low of ₹142.
Despite such strong performance, Sharekhan maintains a bullish outlook on the Lumax Auto, citing the company's shift in business mix towards four-wheelers as a key factor that is expected to positively impact its profitability.
Lumax Auto has been a predominantly two- and three-wheeler-focused company, but going forward, the company expects a significant shift in its revenue mix. The company is aiming to de-risk its business model and aiming to increase revenue from the four-wheeler segment, said the brokerage.
According to Sharekhan, the passenger vehicle (PV) segment has accounted for 25% of the top line in the first nine months of the fiscal year 2023. The company plans to generate one-third of its revenue from the four-wheeler segment, another third from two- and three-wheelers, and the rest from aftermarket and commercial vehicles.
Furthermore, the company is looking to expand in the EV market and has secured orders in the EV market in the metallic frame business, it added.
The company is witnessing an increased share of business from clients. In the 2W segment, the company received orders for the supply of chassis for KTM (a division of Bajaj Auto) and plastic parts from Bajaj Auto and HMSI.
In the PV segment, the company has orders from leading OEMs such as Maruti Suzuki, M&M, and Tata Motors for the supply of gear shifters, plastic parts, and air filter assemblies for their upcoming models.
Besides, the company has been modernising its product portfolio to address the changing needs of the auto industry and investing side by side in research and development to develop futuristic products, the brokerage highlighted.
The company has introduced new products like urea tanks for PVs and CVs and oxygen sensors for two-wheelers, in response to the introduction of BS-VI emission norms. These new products are expected to increase the company's revenue per vehicle and drive its growth, said the brokerage.
Meanwhile, the current order book of the company stood at ₹500 crore, and out of that, 90% would be for new business, and the rest was for replacement business.
Lumax Auto has a robust foothold in the two-wheeler and passenger vehicle (PV) sectors, which account for 48% and 20% of its overall revenue, respectively. The brokerage anticipates that the company will profit from the growth in demand for two-wheelers and PVs.
In the October-December quarter of FY23, the company posted a muted performance, hit by a weak performance at the OEMs level. However, the management guided for a healthy recovery in the coming quarters on the expectation of a revival in OEM volumes.
Lumax Auto reported a 12% rise in its consolidated net profit to ₹28 crore in Q3FY23 from ₹25 crore in Q3FY23. Revenue from operations was ₹445 crore, a 4% increase year on year and an 8.67% drop quarter on quarter.
Meanwhile, the company on Monday said it has signed an agreement to acquire a majority stake in IAC International Automotive India from the International Automotive Components Group at an equity valuation of ₹587 crore.
02 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.