| Lumax Auto Technologies Limited | ||||||
| Ratings Reaffirmed; 'CRISIL A1+' reassigned to short-term bank debt | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank loan facilities of Lumax Auto Technologies Ltd (LATL; part of the Lumax group) and its ‘CRISIL A1+’ rating on the commercial paper programme of the company. CRISIL Ratings has also reassigned its ‘CRISIL A1+’ rating on the short-term bank loan facilities of LATL.
LATL, on a consolidated basis, recorded strong revenue growth of 47%, to Rs 1,332 crore, in the first six months of fiscal 2024 over the corresponding period of the previous fiscal, driven by consolidation of the India business of International Automotive Component (IAC) since March 10, 2023, and scaling up of subsidiaries. The consolidated performance is driven by healthy offtake from original equipment manufacturers (OEMs), especially in the passenger vehicle (PV) segment, while the two- and three-wheeler segment remained subdued, amid reduction in export volume of key OEM customers. Subsidiaries (including IAC India) contributed 52% to the consolidated revenue in the first half of fiscal 2024, a sharp increase from over 28% in fiscal 2023.
The growth comes on the back of healthy 23% on-year growth in fiscal 2023, driven by healthy demand, including pent-up demand, strong aftermarket demand and increase in wallet share with major customers. LATL’s subsidiaries, which are engaged largely in import-substitute automotive (auto) components, improved their performance backed by the increasing demand for safety, emission and comfort requirements in automobiles.
The operating margin improved to 12.8% in the first six months of fiscal 2024 from 10.6% in the corresponding period of the previous fiscal. For fiscal 2023, the margin had improved 90 basis points (bps) on-year to 11.1%, owing to higher capacity utilisation, cost rationalisation measures and ability to largely pass on input cost increase to both OEMs and in the aftermarket segment.
The Lumax group’s revenue is likely to cross Rs 3,500 crore over the medium term, driven by increasing contribution from IAC India and scaling up of subsidiaries and joint ventures (JVs), with monetisation of new orders, contribution from existing products such as lighting, automatic gear shifter and sheet metal, incremental revenue from new products such as oxygen sensors, and strong aftermarket demand. The business profile will be supported by healthy segmental diversity, diversified product portfolio and established customer relationships. Healthy growth in the aftermarket business and change in product mix towards higher-margin LED lighting and integrated plastic components should help sustain the operating margin at 12%-14% over the medium term, benefitting from the acquisition of IAC India.
The financial risk profile and liquidity will remain healthy despite the debt-funded acquisition. While debt protection metrics moderated at the group level in the first half of fiscal 2024 due to addition of debt, they still remain comfortable and are expected to improve hereon with progressive reduction in debt from fiscal 2025.
LATL had earlier acquired 75% equity stake in the India business of IAC at an enterprise value of Rs 587 crore, with the acquisition value of ~Rs 450 crore (for 75% equity stake) funded primarily through debt, through its special purpose vehicle (SPV), Lumax Integrated Ventures Pvt Ltd (LIVL), completed on March 10, 2023. IAC India recorded revenue of ~Rs 419 crore for the six months ended September, 2023 with earnings before interest, taxes, depreciation and amortisation (Ebitda) margin of ~18%. The acquisition of IAC benefitted the business risk profile of LATL as IAC derives majority of its revenue from PVs, which complements the two-wheeler dominated revenue profile of LATL (standalone).
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 in revenue and vulnerability to sharp volatility in raw material prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of LATL and its subsidiaries and JVs. The companies, collectively referred to as the Lumax group, are in similar businesses, have common management and significant operations and financial synergies. Goodwill arising from the acquisition of stake in IAC India has been amortised over five years. Other intangibles arising from the acquisition have been amortised over 10 years.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Established market position and strong relationships with key customers LATL has an established market position in the auto lighting products industry and strong relationships with key customers, Bajaj Auto Ltd (BAL; 'CRISIL AAA/Stable/CRISIL A1+'), Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’) and Lumax Industries Ltd (LIL). The group mainly supplies two-wheeler and three-wheeler lighting products and two-wheeler chassis to BAL, and four-wheeler gear shift assemblies to players such as MSIL, Toyota Motor Corporation, Honda Motor Company, and Renault-Nissan. To diversify the product offerings, the group has commenced supply of swing arms for two-wheelers and trailing arms for three-wheelers. A network of over 400 distributors across India for aftermarket sales strengthens the business risk profile. Moreover, the group continues to pursue JVs to augment product profiles and expand geographically. Additionally, the acquisition of IAC India has enhanced the product portfolio of LATL, enabling supply of integrated solutions to its clientele, which will increase the content supplied per vehicle. Post the acquisition, at a consolidated level, dependance on the two-wheeler segment has come down from 37-42% to 25-30% while the revenue share of the PV segment has risen from 18-21% to 45-50%.
Healthy financial risk profile The financial risk profile and liquidity will remain healthy despite the debt-funded acquisition of IAC India. At a consolidated level, total borrowings stood at Rs 614 crore (excluding lease liabilities) as on September 30, 2023. The debt protection metrics moderated in fiscal 2024, as indicated by interest coverage of 5.90 times and net cash accrual to adjusted debt ratio of 0.25 times for the first half of fiscal 2024, against 13.1 times and 0.21 time, respectively, for fiscal 2023, due to addition of debt. The debt protection metrics still remain healthy and are expected to improve hereon with progressive reduction of debt from fiscal 2025.
Steady revenue growth and profitability will help increase the net cash accrual to over Rs 200 crore over the medium term. The group’s capex plan of Rs 120-130 crore per annum is expected to be funded through internal accrual, with no significant debt addition expected for capex.
Weaknesses: Customer concentration in revenue The acquisition of IAC India has improved the revenue profile of the Lumax group, with increased contribution from Mahindra and Mahindra Ltd (M&M; ‘CRISIL AAA/Stable/CRISIL A1+’), reducing reliance on BAL. However, these two customers contribute 40-45% to the group’s revenue. Despite strong customer relationships, the revenue and profitability will remain vulnerable to any change in the business plans of a major client. As a strategic volume partner to M&M and BAL, the Lumax group faces demand fluctuation risk on an ongoing basis, which leads to volatility in revenue and margin, especially when capacity is underutilised.
Vulnerability to volatility in raw material prices The main raw material used for making plastic powder is polypropylene (PP), which is a downstream petrochemical product. Hence, the price of PP is directly linked to crude oil rates, which are highly volatile. Also, steel prices have been volatile in the past 4-5 years. Given that most customers are OEMs, the group does not have the cushion to fully pass on increase in input rates as price revision happens annually. |
Liquidity: Strong The group will maintain strong liquidity, driven by expected accrual of over Rs 200 crore over the medium term and liquid surplus of around Rs 300 crore as on September 30, 2023. LATL has access to working capitals limits of Rs 255 crore (on standalone basis), utilised moderately at 65% on average over the six months through November 2023. The group has long-term debt obligation of Rs 80 crore per annum starting fiscal 2025 and plans capex of Rs 120-130 crore per annum. Cash accrual should be sufficient to fund the debt obligation and capex requirements. Bank lines are expected to meet incremental working capital requirements. |
Outlook: Stable The Lumax group's revenue will grow at a steady pace over the medium term, along with steady profitability, supported by its diversified product mix and established customer base. The financial risk profile should remain healthy, supported by growth in cash accrual, and modest capex and working capital requirements. |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Company The Lumax group is part of the DK Jain group of companies.
LATL was incorporated in 1981 as Lumax Auto Electricals Pvt Ltd, and renamed Dhanesh Auto Electricals Pvt Ltd in 1988 and Dhanesh Auto Electricals Ltd in 1998. The company got its current name in 2006. LATL has divisions catering to lighting systems; and sheet metal components, gear shifters and moulded parts. Lighting products (head lamps, tail lamps, and blinkers) are manufactured in Pune, sheet metal components (mainly chassis for BAL's two-wheelers) in Aurangabad and moulded parts (for Honda Motorcycle & Scooter India Pvt Ltd) in Bengaluru. The company's aftermarket division (domestic and export) trades in auto components such as lightings, accessories, and audio and navigation systems.
Lumax DK Auto Industries Ltd (LDK), incorporated in 1997, is a wholly owned subsidiary of LATL and was merged with the latter in December 2018. The company manufactures auto components, including gear shifter assemblies, head and tail lamp assemblies, moulded parts, and parking brakes. The bulk of revenue comes from the supply of lighting products and moulded parts to BAL, and the remaining from gear shifter assemblies and parking brakes for MSIL. Manufacturing plants are in Pantnagar (Uttarakhand) and Manesar (Haryana). The gear shifter business was demerged, effective April 2014, into Lumax Mannoh Allied Technologies Ltd (LMAT), which is a 55:45 JV between LATL and Mannoh Industrial Co Ltd, Japan.
Lumax Integrated Ventures Pvt Ltd (LIVL), incorporated in fiscal 2016, is an investment company and a wholly owned subsidiary of LATL. LATL has acquired the India business of IAC through LIVL effective March 2023.
Lumax Cornaglia Auto Technologies Pvt Ltd (LCAT) is a JV between LATL and Officine Metallurgiche G Cornaglia, SpA, Italy, through the Italian company's subsidiary, Cornaglia Metallurgical Products India Pvt Ltd. The JV commenced operations in fiscal 2008 and manufactures and supplies air-intake systems and exhaust systems to auto manufacturers. The manufacturing facilities are in Pune.
Lumax Management Services Pvt Ltd (LMSPL) provides corporate support services to the DK Jain group of companies. The company provides services such as research and development, SAP-ERP support, IT/ITES support, skill development and human resource support services to LATL and LIL.
Lumax FAE Technologies Pvt Ltd was established in July 2017 by LATL and FAE to manufacture oxygen sensors for the Indian auto industry, with LATL currently owning 84% and FAE 16%. The facility being set up at Manesar will have capacity to manufacture 2.5 million oxygen sensors.
Lumax Ituran Telematics Pvt Ltd is a 50:50 JV between LATL and Ituran, Israel. It was formed in fiscal 2017 to produce telematics products.
Set up in September 2021, Lumax Alps Alpine India Pvt Ltd(LAAIPL) is a 50% subsidiary of LATL with the rest held by Alps Alpine Corporation Ltd, Japan. LAAIPL will manufacture and sell electric devices and components, including software related to the auto industry.
Lumax Yokowo Technologies Pvt Ltd (LYTPL) is a subsidiary of LATL established in February 2020. LATL holds 50% while the rest is held by Yokowo Company, Japan. LYTPL manufactures antennas and other communication products.
Lumax JOPP Allied Technologies Pvt Ltd (LJATPL) was set up in April 2019 in collaboration with JOPP, Germany, to manufacture transmission products. LJATPL holds 50% in LJOPP and JOPP holds the remaining. |
Key Financial Indicators
CRISIL Ratings adjusted numbers. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with working capital demand loan #interchangeable with cash credit |
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
|
*Interchangeable with working capital demand loan
#interchangeable with cash credit
Criteria Details
|