Ayush,
Question for Lumax Auto Technologies Management
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1. GROWTH
Lumax Auto Technologies has grown rapidly in the last 5 years and more. Sales have grown by over 26% CAGR while Net Profits have grown by over 40% CAGR. Kindly take us through this journey and the key success factors.
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2. QUALITY OF GROWTH
What is even more remarkable is the quality of this growth. You have continuously reduced debt to almost zero debt. Inventory turns have have gone up more than 2x in 5 years (7x to 18x). Fixed Asset Turns have also almost doubled (4.3x to 8.3x)
This kind of numbers is perhaps uncommon in Auto Ancilliary industry. Kindly educate us on what makes this possible?
Is this sustainable, especially as you gain more business from other segments like Gear- shifters (MSIL), and Plastic Moulds (HMSI) which may be more capital intensive than Lamps?
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3. PRODUCT SEGMENTS.
Lighting (55%), Sheet Metal (11%), Gear-Shifters & Parking Brakes (15%), Rest from Light Adjuster mechanisms,, Mouldings.
Kindly educate us on the major product segments.
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Lumax Auto Technologies Product Mix Lighting
Gear-Shifters & Parking Brakes
Sheet Metal
Level Adjuster Motors
Others
Total (Cr)
756.26
100.00%
Do you see this product-mix changing significantly over the next few years, as you scale up other relationships (non BAL)?
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4. CUSTOMER SEGMENTS
BAL (49%); MSIL (6%); LIL (12%) , After-Market (21%)
Kindly take us through the major segments, with some colour on the relationship, growth & profitability picture,etc.
BAL: (Head Lamps, Tail Lamps, Sheet Metal, Chassis)
What is the scope of supply to BAL? All above and more?
Is it right to say Lumax Auto-Tech was started at the behest of Rahul Bajaj? Kindly tell us more on the long-term nature of this relationship.
Does LATL cater to all the major platforms? Boxer, Pulsar, Discover? How are the plans drawn up for these platforms. How early is LATL taken into confidence?
What percentage of BAL's requirements is catered to by LATL? Platformwise?
How do you see this relationship scaling up in the next 3-5 years? Can moulded products (around Lamp assembly) be supplied to BAL also, post HMSI success?
Who are the other prominent competitive suppliers to BAL in these categories/platforms?
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LIL: (Head Lamps/Tail Lamps, anything else?)
The next biggest customer is Lumax Industries. What does LATL manufacture for Lumax Industries, and why?
Given that it is a related company in the same line of business as your biggest product segment, how do you ensure there is no conflict of interest?
Could you throw some light on following Related Party Transactions.
Sale of Raw Material & Components : 108.96 Cr (104.23)
Sale of Finished Goods : 31.92 Cr (22.14 )
Purchase of Raw Material & Components : 19.70 Cr (8.48)
Purchase of Finished Goods : 45.93 Cr (43.87)
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MSIL: Maruti Suzuki India Ltd. (Gear-Shifters/Parking Brakes)
MSIL is the biggest customer for Gear-Shifters and Parking Brakes. Is it correct that LATL supplies around 70% of total Maruti's requirement for these 2 products?
Which platforms does this relationship cover?
How do you penetrate deeper into the relationship? How do you see this relationship growing over the next 3-5 years?
Is it correct that you have Toyota, Daimler, Fiat and Tata Motors as new customers in Gear- Shifters and Parking Brakes segment? How much does MSIL contribute today and how much do the rest?
What are the plans for penetrating deeper into these new accounts, and addressing new customers?
Who are the competitive suppliers in this segment?
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After-Market: (Tail Lamps/Head Lamps, others?)
Is it correct After-Market Sales now comprise a healthy 20% of Sales today? How has the after-market sales grown over the years? What are the key success factors?
How strong is LATL's pan-India distribution network today? What was the strength and level of business 5 years back?
Trading Sales today ~212 Cr (212 Cr) or 27% of Sales. Is it right to say most of Trading Sales address after-market sales?
Is it right to say most of trading sales comprise Lumax Industries products after-market sales?
What percentage of after-market Sales is from LATL's products? How much from LIL products? And Others?
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5. Honda Motorcycles & Scooters India (HMSI)
Kindly tell us more about this new relationship? Is the new plant on schedule? When will commercial supplies start? Is this a sole supplier relationship?
This seems to a big investment (80 Cr)in the midst of the general auto slow-down? How much has already been spent (FY13) and how much will be spent in FY14? Kindly comment.
What is the potential sales from this factory in FY14? What are the plans? Where do you see Sales in 3-5 years from this segment?
This is for plastic moulded parts? Is it correct to say that the plastic moulded parts are for around the Lamp assemblies?
Who is supplying the Head & Tail lamps? Is it Lumax Industries?
Is there any restriction on LATL for approaching new customers for Head & Tail Lamps? Any restrictions for approaching Japanese customers like Maruti, Suzuki, Toyota's?
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6. Lumax DK Auto Technologies
Can you tell us more about this 100% subsidiary? The IPO prospectus mentioned setting up Automotive lighting unit at Pantnagar, and Leveling Motor unit at Manesar. Subsequently Gear-shifters & Parking brakes have been also introduced?
Kindly give us a break-up of product segment contributions from Lumax DK Auto?
| Lumax DK Product Mix | ||||||||||||||||||
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Kindly tell us a little more on level Adjuster Motors? Is it true that you are the only local manufacturers of this product currently in India? Is it true that this is mandatory for use with Headlights today?
Who are your customers currently? Where do you see this segment in 2-3 years?
Looks like this is not a Capital-Intensive business รข initial investment of ~4 Cr only? Are there any other barriers to entry? Is it likley that OEMS will buy Level Adjuster Motors assembly along with the headlights manufacturer only, not stand-alone?
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Kindly tell us more on the Moulded Parts business? Is this catering to Head/Tail light assemblies?
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Is it correct to say Gear-shifter & Parking brakes business is only carried out from Lumax DK Auto?
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So there seems to be overlap between Lighting business and Moulded Parts business between this wholly-owned subsidiary and parent company? How do you prevent overlaps in jurisdiction between marketing/after-sales, and customers, etc.
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7. Lumax Industries Ltd
Lumax Industries is a leading player in this market. Is it correct that it holds over 60% market share in Inidan market? Do you enjoy exclusive/majority supplier relationship with some customers?
Kindly comment on other leading players like Varroc, Minda Industries & Rinder? What kind of market shares do they enjoy in Automotive Lamps? Do they have exclusive relationships/majority supplier relationships with some customers?
What are the plans for this company along with the JV partner Stanley?
Given the dominant industry position, it looks likely that either Lumax Industries or Stanley should look to buy out the entire stake? Kindly comment.
Is there any possibility of merging Lumax Industries with LATL being considered?