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Leadership position in the Indian two-wheeler automotive lighting market to benefit going forward: The Indian 2W industry is likely to resume its long-term growth trend on account of various growth drivers such as young population, expanding middleclass and improving affordability, etc. Growing preference for electric vehicles, last mile connectivity, inclination for personal transport particularly post-pandemic and rising exports will continue to drive the Indian two-wheelers market.

New orders, rising exports and transition to LED to drive growth: FIL has bagged several new orders including Yamaha, Harley Davidson, Ola Electric, etc. During the current fiscal, the revenue from Yamaha is projected to surpass Rs.200 cr. The Management stated that there are almost seven projects under development as of now and still further scalability is possible in Yamaha’s revenue. Further, FIL has recently started exporting for Harley Davidson in Thailand & US from Q2 FY22. The company has also been selected as a supplier to Ola Electric for headlamps, tail lamps, indicators, rear fender assembly and mirrors for both S1 and S1 Pro models.

Robust fundamentals to support future growth and better valuations: FIL is a leader in automotive lights and is rapidly expanding its wings with the onset of robust demand for automotive LEDs amidst growing push for electric vehicles in the industry. Apart from the strong orders, diversified portfolio and robust clientele the company’s overall financial profile has been improving over the last few years. The company’s debt has consistently reduced over the last few years and as on September 30, 2021, FIL stood virtually debt-free and the company’s investments have grown to Rs.111 cr over the last couple of years.

OUTLOOK & VALUATION

FIL is a leading auto-ancillary player engaged in manufacturing of automotive lights, mirrors and LEDs. The company supplies to all the leading OEMs and derives more than 95% of its turnover from two-wheelers. With growing push for electric vehicles, the demand for LED lamps is also rapidly rising. This transition from conventional lights to LED lights is leading to an increase in the kit value of the company’s products. The Management expects the share of LED products to further increase over the next couple of years. The company stands virtually debt-free and has negative cash conversion cycle and consistently generates good operating cashflow. We expect FIL to deliver an EPS of Rs.78.5 in FY23; assigning a target multiple of 20x we arrive at a target price of Rs.1,570 showcasing an upside potential of ~31% from current levels with an investment horizon of 12-18 months.

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