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Robust 2W Segment; LED Transition Driving Growth

Growing share of high-value LED lighting: The percentage of automotive lighting revenue derived from LED lighting increased significantly to ~64% in Q2FY26, up from ~57% in Q2FY25. This share is expected to gradually increase to 75%–80% over the next couple of years. The company's pipeline for new models is 100% LED, indicating a continued shift towards LED technology. We believe this shift will contribute to a higher revenue potential as realisation for LED lighting is at least 2x higher than conventional lighting.

Deep-rooted OEM Partnerships and Resilient Customer Demand: FIEM continues to benefit from robust industry growth, especially in the two-wheeler segment, where domestic production volume grew 10.6%. The performance in Q2FY26 was significantly driven by robust demand from TVS, Royal Enfield and Yamaha. FIEM services the high-volume Classic model for Royal Enfield, holding a market share of more than 90% in this business. We believe this consistent strong performance with key clients, coupled with a robust expected demand in H2FY26 owing to the GST rate rationalisation and a good monsoon, positions FIEM for strong growth.

View and Valuation: We revise our FY26/27E EPS estimate upwards by 2.3%/2.3% and arrive our target price of INR 2,270. We value the company at 18x (maintained) on the average of FY27/28E EPS and upgrade our rating, from REDUCE to ‘ADD’.

Q2FY26 Results were in line with our Estimate

* Revenue was up 16.8% YoY and up 8.6% QoQ to INR 7,154 Mn (vs CIE est. at INR 7,268 Mn).

* EBITDA was up 22.6% YoY and up 10.6% QoQ to INR 990 Mn (vs CIE est. at INR 996 Mn). EBITDA margin was up 66 bps YoY and up 26 bps QoQ to 13.8% (vs CIE est. at 13.7%).

* PAT was up 26.9% YoY and up 10.7% QoQ to INR 637 Mn (vs CIE est. at INR 654 Mn).

High Potential for Growth in PV Segment: While the PV segment at present contributes only 2–3% to revenue, it is identified as a critical growth area for FIEM. The PV segment offers a significantly higher content per vehicle. The ratio of PV lighting to 2W lighting can be 4x or even greater. FIEM successfully secured new business awards from Mahindra across various components (Highmounted stop lamps, RR and fog lamps) for flagship models, such as Scorpio and Bolero. The company is also actively working on RFQs from Force Motors and Mercedes, which are at an advanced stage.

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