Lumax Auto Technologies

Stock Opportunities Not-so-Hidden Gems
20

Hi Donald excellent set of questions

Questions from my side would be

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  1. Trading margin had jumped from average of 8.5% during 2007-09 to around 15% during FY11-12. Whatâs the reason for this steep jump?

  2. Trading had enjoyed gross margin [Sales âcost of goods traded, taken from notes to account] of about 28crs in FY11 and 35crs in FY12. Assuming a SG&A expenses of around 4% [as per company level on consolidated basis], trading EBITA for FY11 comes to around 19crs for FY11 and 26crs for FY12. This accounts for around 35% for FY11 EBITA and 45% for FY12 EBITA. What enables us to enjoy such a high margin on trading sales and is it sustainable?

  3. In FY12 around 8.5 crs were recorded as labour charges. Can you explain more about this [Note Labour charges contribute about 12% to FY12 EBITA]

  4. Lumax Industries [another group company and a listed entity] which is exactly in same business as Lumax Auto technologies had EBITA margin between 2-4% during last five years and simple average of last five years is 3% whereas Lumax Auto technologies EBITA margin for last two years is around 7.5%-8%.[[look at standalone number for Lumax Auto, subsidiary is engaged in providing brake and parking assembly]. Lumax Industries enjoys almost 60% market share, whereas Lumax Auto technologies serve mostly Bajaj Auto [on standalone level]. Whatâs the reason that Lumax Auto margin are much higher than Lumax Industries.

  5. Under related party transaction part of transactions with Lumax Industries are classified under Raw materials and part under finished goods. A) Can you please explain what is the value added done on the finished goods. B) Also Why Lumax Industries is procuring raw material through Lumax Auto, and what sorts of margins Lumax Auto technologies enjoys on sale of raw materials to Lumax Industries.

PS: Its note the volume of related party transactions which worries me. But from analysis of numbers I SUSPECT it is being used to MANIPUATE reported profits in year of slowdown. Even if we assume half of trading sales are from after market, why Lumax industries is supplying at a price which leaves so high margin for Lumax Auto. All in all continue to remain HIGHLY sceptical of REPORTED NUMBERS. Not able to understand what enables company to report such an excellent numbers. If we exclude trading margin and labour charges, core EBITA from manufacturing operations had remained in the range of 10-20 crs for the last five years [see the google doc link in earlier post]

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