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B. Krishnakumar

THE steady growth in automobile production has been a positive for the financial performance of quite a few companies including Lumax Industries, makers of automotive lighting systems.

The steady growth in automobile production and the strong fundamentals should keep Lumax growing at a steady pace.

Long-term investors may include the stock in their portfolio.

Lumax Industries, which has a technical-cum-financial collaboration with Stanley Electric , has a strong presence in the original equipment market with its clients including leading auto companies such as Maruti Udyog, Tata Motors, Hero Honda, and Mahindra and Mahindra.

Lumax derives 84 per cent of its revenues from OEM supplies and 14 per cent from the replacement market; the balance is accounted for by exports.

Helped by the robust growth in automobile production over the recent quarters, Lumax has reported a steady growth in earnings, and should sustain it as well.

Lumax is also exploring export opportunities and is in discussion with global majors. The association with Stanley Electric should be useful.

Lumax is also implementing capacity expansion projects, which would help it cater to potential growth in demand. The company has also relocated its assembly line from Dharuhera in Haryana to Chennai.

With close to 12 per cent of the turnover accruing from the two-wheeler segment, the company would stand to gain from the sustained growth in demand for these vehicles, motorcycles in particular.

With clients such as Bajaj Auto, Hero Honda, and Honda Motorcycles and Scooters, the company appears well-positioned to capitalise on the growth potential offered by the two-wheeler segment.

On the flip side, the exposure to the original equipment market is of concern.

As it is typical for any auto-ancillary company, the exposure to this market constrains the company's ability to revise product price to accommodate changes in input costs. This could affect the company's margins if input costs move up.

With 80 per cent of Lumax's revenues flowing from the original equipment market, the company's growth prospects are linked to the growth in the automobile industry.

Though there are no concrete signs of a slowdown in the economy or the automobile production, such an eventuality would, in turn, affect the company's performance.

The "Buy" recommendation is subject to the above-mentioned risk factor.

Any signs of sustained slowdown in automobile production would warrant dilution of exposure in the company.

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