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We retain our BUY rating and maintain our TP at Rs900. Fiem’s 4QFY21 sales performance was better than 2-wheeler industry production growth mainly because of its two key clients, TVS and HMSI showing stronger growth. Fiem has started supplies for Piaggio’s full LED lamp exports and now is focussing on new EV players, which will soon be announced. The debt repayment of ~Rs100mn per quarter continued which has led to a much more resilient balance sheet in FY21. We feel that the management has been prudent in repaying debt in times where growth was uncertain. This should help the company in growing much faster and expanding its client portfolio much sooner.

* Interest cost reduction continues: The top line increased by 31% YoY to Rs4.2bn as the automotive business grew by 30.7% YoY to Rs4.1bn and the LED luminaires reported revenue of R24mn, down 31% YoY. The RM/employee/other cost displayed a change of +32%/+11%/+40% YoY, respectively. The EBITDA grew by 42% YoY to Rs547mn with EBITDA margin expanding marginally by 101bps YoY to 13%. The repaying of debt also led to a lower interest cost of Rs27mn (down 23% YoY). The PAT rose by 25% YoY to Rs280mn.

* EVs to aid new order book: Fiem supplied to 4 new domestic and 2 new export models in FY21. The company has 30+ new projects under development and expects an incremental revenue of ~Rs2.5bn from them. While Fiem is already supplying to key electric vehicle players like Okinawa, Ampere and Revolt, Fiem is now planning to onboard new EV manufacturers soon and expects them to drive future growth.

* Outlook: With utilisation stable at ~75% since 2QFY21, we feel that HMSI’s elongated maintenance shutdown in 3QFY21 was the prime reason for Fiem’s revenue decline in FY21. Fiem’s 4QFY21 production performance has been resilient and while due to the second lockdown, 1QFY22 is expected to be a dampener for the entire auto industry, we feel 2-wheelers demand remains a long-term positive story. With a healthy monsoon and revenge buying themes at play, we think that personal mobility should pick up.

* Valuation and risks: As the promised debt repayment, new order supplies and cash conservation continues, we believe that better capital allocation and as result, higher return ratios are around the corner. We continue to maintain a 12x P/E multiple and roll over to June 2023E EPS. We also continue to value the AFI JV at 8x and thus through SOTP valuation, arrive at our fair value TP of Rs900. Our DCF valuation methodology pegs Fiem’s fair value TP of Rs1,090. Risks include slower than expected recovery in 2Ws due to extended lockdowns.

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