Lumax Auto Technologies Ltd - Long-term rating upgraded to 'CRISIL AA-/Stable', Short-term rating reaffirmed

CRISIL Ratings has upgraded its rating on the long term bank loan facilities of Lumax Auto Technologies Limited (LATL; part of the Lumax group) to 'CRISIL AA-/Stable' from 'CRISIL A+/Positive'. The rating on the commercial paper programme is reaffirmed at 'CRISIL A1+'.

On February 18,2023, LATL announced that it will be acquiring 75% equity stake in International Automotive Component's (IAC) India business at an enterprise value of Rs. 587 crores. LATL is expected to fund the acquisition value of ~Rs. 450 crores (for 75% equity stake) through debt. LATL will set up a special purpose vehicle(SPV) for the acquisition. The acquisition of IAC is expected to be completed by end of March 2023. IAC India recorded revenues of ~Rs.470 crores during nine month ending fiscal 2023 with EBITDA margins of ~15%. The acquisition of IAC is expected to be beneficial for the business risk profile of LATL as IAC derives majority of its revenues from passenger vehicles(PVs) which will complement the two-wheeler dependent revenue profile (38% revenues in 9M-FY23) of LATL.

The upgrade also factors in the better than expected performance of LATL in the first nine months of fiscal 2023 driven by healthy offtake from OEMs especially in the PV segment while the 2W segment also recovered post de-growth in fiscal 2022. The growth comes on the back of a healthy 35% year on year growth witnessed during fiscal 2022 driven by healthy demand scenario including pent up demand, strong aftermarket demand and increase in wallet share with its major customers. LATL's subsidiaries, which are engaged largely in import-substitute auto components, improved their performance given the increasing demand for safety, emission and comfort requirements in automobiles.

Profitability has also improved to 10.6% in the first nine months of fiscal 2023 compared to 9.7% in the corresponding period last fiscal. For fiscal 2022, profitability improved by 100 bps to 10.2% vis-a-vis fiscal 2021 owing to higher capacity utilisation, cost rationalization measures undertaken and ability to largely pass on input cost increase to both OEMs and in the aftermarket segment.

Over the medium to long term, Lumax group's revenues are expected to cross Rs.2500 crores driven by incremental contribution from IAC India, monetisation of new orders, contribution from its existing products such as lighting, automatic gear shifter and sheet metal business, incremental revenue from new products such as oxygen sensors and strong after market demand. The business profile will be supported by healthy segmental diversity, diversified product portfolio and established relationship with its clientele. Benefitting from healthy growth in the aftermarket business and change in product mix towards higher margin LED lighting, operating margin should sustain at around 10%-12% over the medium term also benefitting from the acquisition.

Financial risk profile and liquidity will continue to remain healthy despite the debt funded acquisition. At a consolidated group level, Rs.450 crores of debt is expected to be added(Rs.200 crores in LATL and Rs.250 crores in SPV) to fund the acquisition. The debt metrics will temporarily moderate from fiscal 2022 levels due to addition of debt but will continue to remain healthy for the rating category.

The ratings continue to reflect the Lumax group's established market position, strong relationships with key customers and healthy financial risk profile. These strengths are partially offset by customer concentration risk in revenue and vulnerability to sharp volatility in raw material prices.

Shares of Lumax Auto Technologies Limited was last trading in BSE at Rs. 258.85 as compared to the previous close of Rs. 265.65. The total number of shares traded during the day was 14428 in over 644 trades.

The stock hit an intraday high of Rs. 265.60 and intraday low of 257.00. The net turnover during the day was Rs. 3758432.00.

Source : Equity Bulls

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LumaxAutoTechnologies INE872H01027 RatingUpdate