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In Q3FY24, LIL reported better than expected performance on the revenue and margin front. Revenue during the quarter grew by 9% YoY and -1.9 QoQ to Rs.6.4bn (vs est of Rs.5.99bn) due to weak growth in 2W segment and lower offtake from OEMs. EBITDA grew by (+4.7% YoY/+6% QoQ) to Rs.582mn and EBITDA margin contracted by 38bps YoY to 9.22% due to commissioning of new plant in Pune and higher staff cost. RPAT stood at Rs.256mn, -13% YoY/-2.5 QoQ. Income from Associate grew by 4.7% YoY to Rs.117mn. Post SOP of the Chakan plant, management expects revenue contribution from the new facility ( Phase-I and II) would be Rs.900-1000cr.

* Strong order book of Rs.2200cr this order to be executed in FY24, 70-75% in FY25 and remaining in FY26.

* We expect the Chakan plant will set the stage for Lumax Ind to grow better than the industry and also help to increase margin trajectory in the 10-12% band as the new plant is more efficient compared to other existing facilities.

* PV segment continues to dominate the growth going forward: LIL revenue share from MISL was low during the quartet as MSIL’s volume was lower due to limited SUV models. However, as MSIL has a better SUV portfolio now and a decent launch pipeline ahead, management expects revenue from its key customer to improve in coming quarters. Further revenue share between M&M and Tata motors should also improve from FY25 onwards as the new facility is largely dedicated for these two clients. Additionally, LIL’s largest client MSIL will be the next growth engine once MISL’s kharkhoda plant will be commissioned.

* Increasing LED share: In the last 5 years the share of LED for LIL has improved from 25% to 35% of total revenue. Of the current order book LED share is around 35% and management expect this will further increase to 50%. On the localization front, the company is in the process of reducing import content in LED lights by increasing localization. The current import content in 2W LED lighting is 25-30% and in PV 50% (depending upon headlamp and tail lamp) which is expected to reduce by half in the next couple of years. However, so far management is not able to meet the double digit margin trajectory despite increasing the local content

* View & Valuation: We continue to maintain our positive on LIL led by 1) its strong relationship with the majority of auto OEMs; 2) healthy demand in the PV segment; 3) increasing capacity in PV segment (will add incremental annual revenue of Rs500-600cr from FY25 onwards); 4) localization of electronic facility levers for margin expansion; and 5) addition of new clients and models. We Introduce FY26 and roll forward our valuation to Sep-25 to arrive at target price of Rs.2746 (15x of Sep-25E EPS) and maintain OUTPERFORM.

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