Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Positive/CRISIL A1+’ ratings on the on the long term bank loan facilities and commercial paper programme of Lumax Auto Technologies Limited (LATL; part of the Lumax group).

 

Company registered a strong 37% year on year growth during the first half 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 was also on a relatively lower base given pandemic induced slowdown during the first quarter of last fiscal. This 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

 

Operating margins for the first half of fiscal 2023 also remained healthy at 10.5% compared to 9.2% during the corresponding period previous 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 grow by 10-12% driven by 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% over the medium term.

 

Financial risk profile and liquidity will continue to remain healthy. The group has maintained a lean balance sheet over the years, while networth has improved gradually over the years leading to low gearing. Supported by repayment of existing debt, and prudent funding of capex and working capital requirement, credit metrics should remain healthy over the medium term. LATL has also been evaluating growth opportunities through the inorganic route. Given its strong balance sheet, small to mid sized acquisitions is not expected to materially impact the credit risk profile However, size of acquisition, if any, along with mode funding shall continue to be key monitorables.

 

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.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of LATL with its subsidiaries and joint ventures. These companies collectively referred to as the Lumax group, are in similar line of business, have common management and significant operations and financial synergies.

 

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/FAA/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. In an effort to further 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 further strengthens business risk profile. Moreover, the group continues to pursue JVs to augment their product profiles and to expand geographically.

 

Healthy financial risk profile

Financial risk profile continues to remain healthy. The group has maintained a lean balance sheet over the years. Networth has improved over the years and gearing remains robust. Backed by steady revenue growth and profitability, net cash accrual is expected to increase to Rs.100-120 crore over the medium term. Lumax group’s capex plans of Rs.50-70 crores is expected to be funded by internal accruals. Hence minimal addition of debt, prudent working capital management and steady increase in networth will strengthen the credit metrics.

 

Weaknesses:

Customer concentration risk in revenue

Sales to BAL, MSIL, and LIL collectively contribute around 60% to total revenue. Despite strong customer relationships, revenue and margin will remain vulnerable to a change in the business plans of a major client. As a strategic volume partner to 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 volatile 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 enjoys strong liquidity driven by accruals of Rs.60 crores in H1-FY23 ( Rs.99 crores accruals in FY22) and cash equivalents of Rs 200 crore as on September 30,2022. LATL also has access to working capitals limits of Rs 205 crore, utilized moderately at 58% over the 6 months ended October 2022. The company has long term repayment obligations around Rs 4-6 crore each in fiscal 2023 and 2024 with capex of around Rs 50-70 crore per annum. Cash accruals should be sufficient to fund repayment obligations and capex requirements. Further, with a gearing of 0.25 times estimated as on September 30, 2022, the group has sufficient gearing headroom, to raise additional debt if required. Its bank lines are expected to meet its incremental working capital requirements, which are assessed to be minimal.

Outlook: Positive

CRISIL Ratings believes that the Lumax group's revenue will grow at a steady pace over the medium term along with steady margins, supported by its diversified product mix and established customer base. The group's financial risk profile is expected to remain healthy supported by healthy growth in cash accruals, modest capex and working capital requirements.

Rating Sensitivity Factors

Upward Factors:

• Sustained revenue growth of while maintaining healthy operating margin supported by diversification of customer base and product mix leading to healthy cash accruals of over Rs. 120 crores
• Sustenance of healthy credit metrics and liquidity

 

Downward Factors:

• Decline in revenues and moderation in operating margins impacting cash generation.
• Unexpected changes in procurement strategy by key customers, resulting in suboptimal capacity utilisation
• Large, debt-funded capex for acquisition or substantial investment in unrelated ventures/real estate leading to deterioration in key credit metrics – gearing above 1.25 time

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 two main divisions: 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 HMSI) 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 Limited (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 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 and Manesar. The gear shifter business was demerged, effective April 2014, into Lumax Mannoh Allied Technologies Limited (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. It is the engine for LATL's non-auto business. The company has a wholly owned subsidiary, too—Lumax Energy Solutions Pvt Ltd—which deals in LED lighting products. It has also entered into a JV with SIPAL SpA (Lumax SIPAL Engineering Pvt Ltd), which deals in defence services. LIVL holds 51% equity with management control over the JV, while SIPAL SpA holds the remaining 49% equity. Sipal Engineering Pvt. Ltd has filed petition for voluntary liquidation with NCLT

 

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 automotive manufacturers. The manufacturing facilities are in Pune.

 

Lumax Metallics Private Limited(formerly;Lumax Gill-Austem Auto Technologies Private Ltd (LGAT) manufactures, assembles and sell various types of seating mechanisms, seating frame structure and seat assemblies to automobile manufacturers. LGAT was formed as a 50:50 JV between Lumax Auto Technologies Ltd (LATL) and Gill-Austem group in 2013. Gill-Austem group was also an equal JV between Gill Industries Inc. (USA) and Austem Co. Ltd (Korea) that is engaged in the manufacture and sale of components such as seating mechanisms, seating assemblies and head restraints for the automotive industry. The JV Agreement was terminated in October 2020 post Gill Austem LLC filing for bankruptcy. LATL has acquired its shares in the JV. Consequent upon the acquisition, the LGAT has become wholly owned subsidiary of LATL.

 

Lumax Management Services Pvt. Ltd (LMSPL) is engaged in providing corporate support services to the DK Jain group companies. LMSPL provides services like Research and Development, SAP-ERP support, IT/ITES support, skill development and human resource support services to Lumax Auto technologies Limited (LATL) and Lumax Industries Limited(LIL).

 

Lumax FAE Technologies Private Limited was established in July 2017 by LATL and FAE to manufacture oxygen sensors for the Indian automotive industry, with LATL owning 51% and FAE 49%. The facility being set up at Manesar, Haryana, will have the 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.

 

Lumax Alps Alpine India Private Limited(LAAIPL)  is a subsidiary of LATL which hold 50% while the rest is held by Alps Alpine Corporation Limited, Japan. LAAIPL will manufacture and sell electric devices and components including software related to the automotive industry. LAAIPL was set up in September 2021.

 

Lumax Yokowo Technologies Private Limited(LYTPL) is a subsidiary of LATL established in February 2020 .LATL holds 50% while the rest is held by Yokowo Company, Japan. LYTPL is involved in the manufacture and supply of antennas and other communication products

 

Lumax JOPP Allied Technologies Private Limited(LJATPL) , was set up in April 2019 in collaboration with JOPP, Germany to manufacture transmission products. LJATPL holds 50% in LJOPP while rest is held by JOPP.

Key Financial Indicators (Consolidated)

As on/for the period ended March 31	Unit	2022	2021
Revenue	Rs Crore	1510	1113
PAT	Rs Crore	82	51
PAT margin	%	5.4	4.6
Adjusted debt/adjusted Networth	Times	0.21	0.13
Interest coverage	Times	16.90	11.22

*CRISIL Ratings adjusted numbers

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs Cr)	Complexity level	Rating Assigned with Outlook
NA	Cash Credit*	NA	NA	NA	80	NA	CRISIL A+/Positive
NA	Vendor Bill Discounting Limits	NA	NA	NA	40	NA	CRISIL A+/Positive
NA	Non-Fund-Based Limits	NA	NA	NA	12	NA	CRISIL A+/Positive
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	200	NA	CRISIL A+/Positive
NA	Commercial Paper	NA	NA	7-365 days	50	Simple	CRISIL A1+

*Interchangeable with working capital demand loan