Lumax Industries Ltd
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Lumax Industries Ltd
Earnings Call Analysis
Summary
Q2-2024
The company forecasts around 20% to 25% revenue growth in H2, predominantly driven by a new facility that is projected to contribute INR 150-190 crores. This indicates a robust H2 with substantial revenue and EBITDA margin expansion, specifically targeting a double-digit margin for the full year, based on a successful H1 margin of 8.8%. The commitment to maintaining an increment in wallet share for key partners like Mahindra & Mahindra underpins the optimistic revenue prospects.
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Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '24 Earnings Conference Call of Lumax Industries Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Jain, Chairman and Managing Director of Lumax Industries Limited. Thank you, and over to you.
Good morning, everyone. Let me, at the outset, wish everyone on this call a very prosperous and festive Deepawali season. Along with me on this call today from Lumax Group I have Anmol Jain, the Joint Managing Director; Mr. Sanjay Mehta; Mr. Naval Khanna; Mr. Ravi Teltia; and Ankit Thakral from the finance and taxation; and Ms. Priyanka Sharma from Corporate Communications, along with SGA, our Investor Relations advisers.
The results and the investor presentations have been uploaded on the stock exchange and company's website, and I do hope everybody has an opportunity to go through the same.
In terms of the industry landscape, post the COVID recovery in the automotive sector, it has been quite remarkable. There has been a notable shift towards indigenous manufacturing to mitigate supply chain risk, and the government support has also played a commendable role, like initiatives of FAME subsidy promoting green mobility solutions.
The contribution of the Indian auto industry to the country's progress is also developing cannot be overstated as the auto component industry has actually put in a record revenue of USD 50 billion. The most recent development in the industry has been also the commencement of Bharat NCAP. This will further raise consumer awareness and safety issues, and push auto manufacturers to prioritize customer safety and security and also enhance the overall stability and demand in the industry.
Speaking of the quarterly update, the growth of the economy has been quite robust and has been visible by strong GST collections, robust manufacturing volumes, high credit growth and cooling of inflation. The GDP growth is expected to surpass 6.5% for the quarter. Coming to the performance of the industry, PVs are outshining with volumes touching high every month on back of robust demand, especially in utility vehicles, which are outperforming sedans. Consumers are now preferring comfort and luxury and are also ready to spend more with a rising disposable income.
The 2-wheeler segment is undergoing a recovery driven by 2 primary factors. Firstly, it is the demand for the higher EV models with several brands launching premium options, which is contributing to the resurgence. We also believe that players' advanced manufacturing capabilities and technological innovations will eventually capture a larger share of the market.
On the automotive lighting industry, the industry is largely sector-agnostic. Its inherent diversity ensures that even if one segment experienced limited demand visibility, it is balanced out by the other sector.
Lighting Solutions are essential across all segments of the auto industry and also are becoming a safety element. The industry is witnessing a noteworthy shift through LED from conventional lighting technologies, and this transition is also having multiple factors of efficiency, longevity of LEDs as compared to its traditional counterparts.
The LED lighting offers basically better, brighter illumination on the roads and also helps basically safety. The design flexibility on LED technology will also give more actually diverse aesthetic appeal on the vehicle itself.
I would like to highlight that we have commenced commercial production of a new Chakan plant on 1st of November for the phase 1. This plant will primarily be catering to the new business received from Mahindra & Mahindra and Tata Motors and will add significant revenue and margins going forward.
It will also continue to solidify our position in the industry as we are able to basically deliver more technology-related products. We -- actually on the last basically order book front, the company has had a healthy order book of INR 2,200 crores, out of which 62% is new businesses, and the EV contribution is 34% of the total order book.
Now for the financial update, let me hand it over to Mr. Sanjay Mehta, the Group CFO.
Good morning, everyone. I will update on the operational and financial performance for the Q2 and H1 FY '24. The sale of LED lighting for the half year stands at 36% and conventional lighting at 64%. With respect to segment mix as a percentage of revenue, 66% from passenger vehicles, 29% from 2-wheelers and 5% from commercial vehicles for H1 FY '24. With respect to product mix for H1 FY '24 as a percentage of total revenue, 66% of revenue is from front lighting, 25% from rear lighting and 9% from others.
On the financial performance, I'm delighted to say that in quarter 2 FY '24, our revenue stands at INR 644 crores, a growth of 4% on a year-on-year basis. Revenue for H1 FY '24 is at INR 1,262 crores, growing at the rate of 12% year-on-year. Revenue for H1 FY '24 manufacturing business has grown by 11% and mould's revenue by 46% compared to previous year.
The company recorded consolidated EBITDA of INR 111 crores with a margin of 8.8% in H1 FY '24 as against INR 112 crores in H1 FY '23. PBT before exceptional expenses and share of associates is INR 48 crores in H1 FY '24 versus INR 60 crores in H1 FY '23. The profit after tax and share of associates stood at INR 49 crores for H1 FY '24 versus INR 53 crores in H1 FY '23. The CapEx incurred during the half year is INR 21 crores. The estimated CapEx for FY '24, including Chakan new plant is from INR 250 crores to INR 300 crores.
With this, we can open the floor for question and answer.
[Operator Instructions] We'll take the first question from the line of Mr. Abhishek from Dolat Capital.
Sir, revenue growth was only 4% quarter-on-quarter and Y-o-Y. So what is the reason for the underperformance in this quarter? Is it because of the shift in the mix towards the HEV segment?
Could you just repeat the last part of your question? I understood you said 4% quarter-on-quarter, and I didn't get the last part of your question.
So underperformance in this quarter is because of the shift in mix towards HEV segment where you have a lesser presence?
So there are a couple of things. I think if you look at the industry growth, of course, Maruti Suzuki and I'm talking now for H1, not specifically for quarter 2, in H1, our manufacturing revenues have grown by 11%. But if you look at certain customer mix, Maruti Suzuki, along with SMG, has actually had a flat growth in H1 in terms of their production numbers across all model mix.
Also, HMSI has had a negative 5% growth in their production numbers from H1 last year versus H1 this year. And Mahindra & Mahindra is the only customer, which their own growth has actually happened about 22%. And in line with that, our revenue growth on an H1 basis is also 33% on account of Mahindra. So overall, as an industry if you see, we are fairly in line with the industry growth. The 2% is broadly the industry growth on a H1 basis. Against that, we've done about 11% manufacturing revenue growth.
Okay, sir. So you had a guidance of 20% to 25% revenue growth in FY '25. Sir, do you maintain your guidance? And can we expect a sharp growth in the second half FY '24 onwards?
Yes, absolutely. I think in H2, we are expecting a very handsome growth, probably upwards of 20% because we have already commissioned our new Chakan facility, which will give us incremental revenues for H2, and we are sitting on a very healthy order book. Peak of that, we are sitting on almost INR 2,200 crores of order book, and almost 60% of that will get into SOP in FY '25. So that's the reason for FY '25, we are still bullish on a very handsome revenue growth outlook.
So how much incremental revenue can we expect in the second half from the premier plant and FY '25 as well?
So approximately, as I mentioned, we should be looking at around 20% to 25% growth in H2 for the company overall. And majority of this incremental revenue growth will come from the new facility in Chakan.
And what would be the absolute number, sir?
It will be approximately between INR 150 crore to INR 180 crores, INR 190 crores for H2 from the new facility.
Okay, sir. And my last question on your order book around 80% order book into the LED side, which is very high ASP products. So can we assume that your growth in FY '25 would be 2 or 2.5x higher than the industry growth?
So as I said, the order book of INR 2,200 crores, almost, yes, 80% plus of it is in LED, and almost 60% of this order book will get into FY '25 revenues. So we do expect a good growth in FY '25 as well. I mean giving you the specific numbers, we are looking at almost some INR 1,300 crores of order book, which will get into FY '25. And out of this, approximately, I would say, maybe INR 800 crores to INR 900 crores would be new orders, not replacement orders. So that will obviously have an incremental impact on the revenue, apart from whatever organic growth, which will continue into FY '25 from this year onwards.
We'll take the next question from the line of Puja Shah from Bright Securities.
Hello? Can you hear me? Am I audible?
Yes, ma'am, we can hear you. Please go ahead.
Sir, I wanted to ask our share of revenue from LED contribution has stagnated over the last couple of years. So by when can you expect more contribution from LED lighting?
Well, ma'am, on the contrary, I would defer from your statement. If you look at 2017, '18, literally 5 years ago, LED was 25% of our total revenue pie, LED lamps. As on 6 months of the current fiscal, LED's share is 36%. So we've definitely had an enhancement on the LED.
As I mentioned, on certain models that were -- we had gone back from LEDs for low-cost, let's say, focus on OEMs. But given the order book, having more than 80% of LED, we expect this number probably somewhere in FY '26 to be close to 50-50. LED share would be probably 50% in the next, let's say, give or take, 3 years -- 2 to 3 years.
Got it, sir. And also I wanted to ask with the premiumization being the theme in the auto industry, do we envisage more LED lighting supply with increasing content per vehicle?
So absolutely, I think premiumization is -- so there are 2 things. One is that technological changes, which is coming because of the segment shift towards more SUVs from small passenger cars. So in SUVs, the lamp technologies are definitely greater, more towards LEDs, more towards projectors. So that is one reason why we see the order book would have a much larger contribution per vehicle than in the past.
And second, within each model, I think the premium variants are selling a lot more than the mid variants. And that's the second reason why we see that our per vehicle contribution is significantly going to increase in the times to come.
Got it. And my last question is, what is the current contribution of revenue from EV business? And can you also share the 2-wheeler EV customer we are working with? Like have we signed any new age or traditional customer in the EV space?
So, ma'am, the current revenue from EV-specific models would not be very significant. And the reason for that is that if you look at our overall pie, our overall pie is still approximately 65% to 70% from passenger vehicles, where the EV penetration by itself as an industry is still low. However, in the order book of INR 2,200 crores, which the company is sitting on, almost 35% is from EV models, and they are more in the passenger vehicle space.
The next question is from the line of Harshal Shah from AM Investments. As there is no response from the line of Mr. Harshal, we move on to the next question from the line of Jatin Chawla.
My first question is, in the first half of the year, we have done an EBITDA margin of 8.8%. And for the full year, we have been trying to get to double-digit kind of margins. So do you think that is still possible this year? Once the Chanak plant, which has better margins, starts scaling up -- or we can get to double digit now only next year?
No, absolutely. I think for the current year, the guidance is still intact to have a double-digit margin at an EBITDA level. And as I mentioned in H2, while we are looking at a significant revenue growth, we are also looking at a margin expansion, specifically in H2. But answering to your question, full year, yes, the guidance remains unchanged.
Okay. So that would mean margins, for the second half, will need to be north of 10% because we've done 8.8%. So that's a significant almost like 150 to 200 bps improvement that we should see in the second half?
Absolutely, that's the focus.
Okay. Great. The second question is similar. The revenue guidance of 20%, given that we have done 12%, for the second half, we need to do almost 28%, 29% kind of growth. Is that possible or will be a little bit shy of 20% for this year?
No. I think for the full year, I'm still looking at anywhere between 15% to 20% of overall revenue growth. You're absolutely right. For H2, our revenue growth outlook is probably north of, let's say, give or take, 25%. The major reason is that we have recently commissioned the Chakan facility, and we've already gone into SOP for the XUV700 lamps, which is a significant contribution per vehicle.
And if the industry volumes continue to grow because we have seen a strong October and November month, probably because of festives, we are looking at some probably correction in December as an industry because of the, let's say, increased inventory levels at the dealers, which is sitting. But I think quarter 4, again, we will see a pretty decent growth. So our growth is not just coming out of the industry volume growth, but it is also coming as an incremental wallet share expansion for Mahindra & Mahindra.
Understood. And I think in the presentation, you also mentioned that you started producing for the Tata Nexon as well. So that is again being done from the Chakan plant? And is that only the ICE model or we have the Nexon EV as well?
So we are on the ICE model, and yes, it is done on the new Chakan facility as well.
[Operator Instructions] We'll take the next question from the line of Harshal Shah from AM Investments.
So Anmol, my question is Maruti has grown quarter-on-quarter for us, the contribution from Maruti. But the volumes from models that we are on were relatively flat. So have we started supplying for new models? Or like is there anything more to it?
So if you're looking at Q1 of current year to Q2 of current year?
Yes, yes, yes.
So we had a 24% growth on a sequential quarter vis-a-vis the customer growth of 14% to 15%. It is just a product mix. Again, in the last quarter, there is no significant new model introduction, but it is just a product mix, which has changed because of which we have shown the strong growth on Q-on-Q basis.
Are we seeing the same traction again, in this current quarter like...
So we have to first understand the dynamics that Maruti Suzuki is sitting on pretty much full capacity today. They don't have any more capacity to produce more units. As we all know that there will be an incremental capacity expansion in the new facility of Kharkhoda only in FY '25. So perhaps we are already looking at a peak in terms of the output of Maruti Suzuki.
However, given the product mix dynamics, I think we are not present on a few of the SUV models, which was already explained in the earlier calls. But I think we are still bullish. We are present on the Jimny. And again, we are looking at a pretty incremental growth of Jimny volumes as well in H2. So I would still expect growth momentum with Maruti Suzuki for the company to continue, despite Maruti's overall output probably being flattish quarter, consecutive quarters.
And one more question. We have one top level recruitment for the Lumax Group. Is it for the Lumax industry or for Lumax Auto from Toyota?
It is, as you rightly mentioned, for the Lumax Group. Mr. Raju Ketkale joins us as the Executive Director for Manufacturing and Corporate Planning at Lumax Management Services, which is a company which provides corporate services for the entire group. So he is not specific to industries or technologies. But as I mentioned, his role encompasses the entire group from the manufacturing and corporate planning.
Okay. And one more thing. Are there any structural issues with margins from the existing plants or something that we can do about?
Could you repeat that question, please?
Are there any structural issues with margins from the existing plants? New plants, we are sure you can do upwards of 15% that you have guided, 15%, 20%. But any problem with existing plants because you've been trying, and it's no fun working at 9% margins for you guys also. So I'm just trying to understand like what is the problem?
So I think there are 2 things. I think current plants also, we are upwards of perhaps 15% in certain plants. I think there are certain plants, which are not catching 15%. They are definitely below that. So I think going forward, we will be, again, consolidating, optimizing our fixed cost structures as well.
Of course, new plants is where the growth will come from at a much higher EBITDA. But we will also rationalize our cost structure so that the overall company's EBITDA grows from a manufacturing standpoint. Also, we are relooking at how we optimize our other fixed costs beyond manufacturing, be it on engineering or be it certain other cost structures. So definitely, we are -- as I mentioned before, the first step is to get into double-digit EBITDA, which we do foresee to happen in the near future. And once we are there, definitely, we'll probably take the next leap forward.
Okay. And also on the subsidy amount that has been disputed with the Gujarat government. So can we not go to clients and get the prices revised? How does it work?
So I think the clients don't have any role to play here in the OEMs. I think the OEMs are also supporting. And this is not specific to Lumax. This is across the Tier 1s within the state of Gujarat. So I think this is a collective matter, and I think this is being addressed at the topmost level selectively by both Tier 1s and OEMs. As a good conservative corporate governance practice, we have just decided not to book the subsidy income unless and until it's realized going forward.
Fair, fair. And last question, on the debt side, like what will be the peak debt for the company?
The debt is at INR 162 crores long term loan on as on 30th of September. And we are anticipating that on 31st of March, the peak would be INR 200 crores. And the debt equity ratio at present is 0.33, it will be go up to 0.35 or 0.36 as on 31st March 2024.
And full debt, like, along with the working capital debt, what will be the total debt on the books?
As noted, it is INR 551 crores precisely. But I think the total debt going forward maybe not that incremental as in long term. So the base forward, the debt should be almost around INR 500 crores, INR 600 crores, around that.
Okay, sir. And sir, last thing, any update on the Pune plant? Like how is the production going? Is it ramping up fast or like will it be very slow? You mentioned INR 150 crores to INR 180 crores turnover you'll be doing. But what is your take on it?
So I think I've mentioned already the Chakan one has gone online in quarter 3. We are expecting it to run at almost full capacity by the end of quarter 4. We have already kicked started Phase 2 planning. And perhaps in FY '25, FY '26, we will also execute Phase 2, which will be further enhancement of the current capacity. And we have a strong order book where we can see probably by FY '26, the new Chakan facility will also be running at maybe 80% plus capacity utilization. So we are not looking at incremental growth. We are looking at an exponential growth from the capacity utilization at Chakan.
Great. And Anmol, for the next 6 months, can we take like 15% margins from the incremental turnover from Chakan, like INR 150 crores with 15% types of margins? Or like it will cover all the cost or that's where I am coming from?
I would not be able to specifically give you the Chakan per se margins. But I think, yes, the EBITDA margins at a plant level should definitely be looking at around 15%, give or take, that ballpark figure. So I would not be having the precise number, but your estimate should be pretty much bang on.
The next question is from the line of Viraj from SiMPL.
Just a couple of questions. First is on the overall sales and realization. What we understand globally also, there's a change in technology within LED. And that itself is also driving a moderation in LED unit prices. So can you just share some perspective for us? And generally, what are we seeing in terms of the LED price trend? And when we talk about this, say 80% of the book being LED, how is the realization now compared to what it was earlier?
So the LED from a pricing perspective, obviously, as I mentioned before, it's almost close to 3x of the conventional lamp. Now depending on the technologies, depending on certain type of lamps, we are also seeing that the tailing, especially on the rear, has rapidly changed where you start seeing a linear end-to-end kind of tailgate lamp, which is integrated with the taillamp.
So it's not just a technological change, but it is also a styling change where the size of the lamp has exponentially increased, which also means the contribution per vehicle has increased. So there are series of reasons why the lamp technology is yielding better contribution per vehicle going forward.
In the order book also, as I mentioned, we are looking at a handsome LED penetration. So that is going to continue because apart from LED, as I mentioned, the projector is also another technology, which is fast, being adopted on the passenger vehicle. And there are certain technologies, which I cannot disclose, but we are expecting this will be the first time we will be at Lumax localizing this technology for one of the forthcoming models of an OEM in FY '25, '26. So there is a rapid technological advancement across the lighting spectrum, and it will definitely yield better contribution per vehicle.
So basically, the question was, are we seeing any moderation in unit realization because of these technology changes?
So definitely, I think the unit realization -- I mean, as the demand of LEDs goes up, the pricing also will somewhere get corrected. But I don't expect it to be a rapid dip compared to where it is today. Please understand that there are significant components of electronics, which continue to be imported in the country. And because of that, the pricing will continue to be at a much higher delta compared to the conventional lamps. There will be some correction because this will become the, let's say, technology which is the mass market, but it will still have an incremental impact with respect to the conventional lamps.
Okay. And second LED question was in terms of contribution margin also. Typically, what we understand is that LED versus a conventional, the contribution margin per se may be the same, but given the higher unit realization, the overall EBITDA margin is much better compared to conventional lighting. So with even moderation, whatever we're expecting, in LED unit realization, the overall EBITDA margin expectation in the business, that doesn't change materially. Is the understanding right?
So the EBITDA margins definitely would go up and not specifically on the contribution because as I mentioned, the material consumption on an LED would be probably a little more than that of a conventional, primarily related to a lot more imported part. However, as I mentioned, the 3x exponential contribution per vehicle will not add to the cost structure in the same proportion. So at the bottom line EBITDA level, definitely, we will have an enhancement of the margins yielding with the new technological lamps going forward as well.
Okay. Just one last question from my side. When you talk about the order book, say, 80% being LED, and in that also you talk about major LED, we are getting more in the passenger vehicle. But in terms of 2-wheeler, especially in the EV part, we don't hear much of traction on the win rate from our side. So is it that strategically we have chosen to focus more on, say, passenger vehicle maybe because of higher kit value vis-a-vis the 2-wheeler? Or I mean, what is the thought process? What are the reasons we are not having a much more higher win rate or order book in 2-wheeler, especially in EV?
So there are 2 clear thoughts on this. Number one, I think the passenger vehicle, the technological leap and the, let's say, material margin as well as the contribution per vehicle is far, far greater than that of 2-wheelers. And going forward, we have, as I mentioned, a handsome order book on the passenger vehicles.
On the 2-wheelers, I think we are dissecting it again in two buckets. One would be the legacy players, with which the company has enjoyed relationship over decades. And second would be, let's say, the new-age entrants, who are specifically in the EV 2-wheeler business.
I think our strategy and focus is more with the legacy players. So we are already engaged, and we do have some engagement on discussions and even the order book for some of the EV models from the legacy players. It's not that we are ignoring or we are not present in the EV 2-wheeler space. But I think we are consciously choosing to go with the legacy players rather than going very aggressively with the new-age entrants.
The next question is from the line of Prolin from Goldfish Capital.
So pretty much most of my questions have been answered on you reaching double digits for the entire year. But starting with the margin part, right, I mean, what I understand is that most -- the reason for you reaching double digits for the full year FY '24 is largely the contribution which is coming from the new Chakan plant, right, which is at a 15% kind of a level. Just from your core existing client level, what is the scope of improvement in margin? You did touch upon it, right, in some sense.
But just want to understand, I mean, is there a significant scope of improvement in margin in terms of existing plants as well? And where I'm coming from is that we did this whole in sourcing of CCV, right, and all and obviously, operating leverage is also playing out. So if you can help us break down in the core existing plant, what can be the improvement in margin that can be seen maybe FY '25 onwards?
So definitely, there is an opportunity to further increase the margins in the current plants. Please understand, even though Gujarat plant would also have a rapid expansion going forward in terms of the order book. And the Chakan plant, as I said, is going to be yielding at 80%, 85% capacity utilizations. But of course, there are significant other plants, which will continue to grow.
I would expect anywhere between, give or take, 200 bps or upwards of that margin expansion in the current facilities as well, which is possible from, again, operational efficiencies, from better cost management. FY '25 onwards, definitely, there is an upside there as well, along with the new facilities, which would come at a probably lower cost structure in terms of the fixed cost and hence yield better EBITDA margins.
So clearly, I think the focus is on both current facilities improving their margins as well as making sure that the new facilities and the new investments yield better margins than the current facilities have been yielding.
Sure. So does that mean that our new base will probably shift from 8% to 10% kind of a range to 11% to 12% kind of a range? Is that a fair assumption to make starting FY '25?
Yes, absolutely. I think that's a fair assumption that we would inch forward on the margins to that level.
Okay. Sure. And on the Chakan plant, right, I mean can you just remind us that the current facility is the part 1 of our expansion, right, in some sense? What is the CapEx that we have already spent here? And what is the CapEx in the second phase? And when will that be up and running?
So absolutely right, phase 1 is over, which we are getting into SOP or we've already started SOP in quarter 3. The CapEx outlay for phase 1 was about INR 170 crores, INR 175 crores. And we've installed a capacity of about 0.5 million vehicle sets of passenger vehicle.
In phase 2, which would get kickstarted in FY '25, we expect probably another 0.5 million vehicles set additional capacity, probably a CapEx outlay of, give or take, INR 100 crores for phase 2. And again, the peak revenue from this facility is likely to be upwards of maybe INR 800 crores, INR 900 crores by FY '27.
Okay. One last question would be, if I look at your Q2 numbers and the specific line item, which I'm talking about is, this profit from associates, right, in some sense. Do you want to call upon -- I mean, what was the performance of this SL Lumax in the first half?
So I think I have mentioned this before that SL Lumax, we must not put too much weightage on a quarter-on-quarter basis. But I think on a year-on-year basis, it's something which is probably a more realistic picture. Obviously, if you look at H1, SL Lumax's revenue has grown by about 14%. And in terms of their PAT level, has actually grown again by 50%.
So that's only for H1. And again, from quarter 1 to quarter 2, they've had a 23% growth in their profitability despite just a meager 5% flattish growth on the top line. So I would expect again to see this for the full year rather than making some message or driving the message out of it on a quarter-on-quarter basis.
The next question is from the line of Dhruv Bhatia from Bank of India Investment Managers.
My first actually is just a clarification. You mentioned that H2, you kept mentioning 20% to 25% growth, sometimes you mentioned 25%-plus revenue growth. So could you just reiterate second half, what is the revenue growth that you are expecting so that to achieve your 20% growth, you require that you said about the run rate is 29%. So should we look at a 20% to 25% or 25% plus growth in H2?
So in H2, just to reclarify, we are looking at upwards of, let's say, 22% to 25% of growth for H2, which means that for the full year, we should be looking at close to 18% to 20% growth.
Okay. And just to also understand on your order book mix, you mentioned the new orders, could you also mention the bifurcation of headlamps and taillamps in this order book? Because my understanding is headlamps is a far more profitable piece versus taillamps.
I would not have that breakup immediately on the head versus tail as of now. But again, I'm not sure if that is correct that headlamp is a more profitable business. Definitely, the headlamp contribution per vehicle, because of technology, is greater than that of taillamp. But given the fact taillamps also would be a higher profitability, I think for us, the -- in H1, almost 60% plus is coming from the front lighting and almost the remaining is coming from rear lighting and miscellaneous lighting. In our order book, we also have some strong order book of taillamps. So I do expect our share from taillamps to increase going forward as well.
Sure. And just also on the overall cost structure because for the Chakan plant, I think, in the last call also, you had talked about that you had already hired employees and already the investments were made as you were commissioning the plant. So this run rate of quarterly employee cost run rate currently of INR 80 crores is something that we should work on for the second half as well or will it materially increase in the second half?
So I am still looking at the manpower cost to be anywhere between 12% to 13%, which would be on a sustainable basis. There are certain incremental impacts because of wage agreements and the annual appraisals and inflationary costs. But given the fact that these new facilities will be at a better cost structure, we should be able to maintain the overall percentage -- manpower cost as a percentage of revenue.
Okay. And the Chakan facility, you had also mentioned H2 sales that you're expecting will be INR 150 crores to INR 190 crores? Or is it the entire phase 1 will be INR 150 crores to INR 190 crores?
No, this was only for H2, which would be close to around, give or take, INR 170 crores to INR 190 crores for H2. So if you annualize that, you're looking at almost close to about INR 350 crores to INR 400 crores of revenue on an annual basis from the new Chakan facility.
Okay. So because if I just do a rough calculation, quarterly INR 750 crores of revenue run rate will bring you to an 18%, 20% full year growth, which means on a INR 650-odd crores of sales that you're doing on a quarterly basis, large part or I think almost 90% of that will incrementally come from Chakan?
That's correct. I mean for H2, our incremental growth is largely coming from Chakan, that's correct.
Sure. And just 2 more questions. One on, could you talk about the components which are getting imported? And what is the percentage? And are you seeing any inflation in any of the raw materials that you are sourcing?
So as of now, on the -- I think the second portion first. On the raw materials, we are still being able to maintain the raw material consumption, give or take, at around 65%, 65.5%. We have recently started to see certain price increases on certain base raw materials globally. I do expect some impact of that drop probably in Q3 and Q4 or, let's say, in H2. However, most of that, as I've always mentioned, we do try and get it from our OEMs. There may be a 1-quarter lag, but we do recover these price escalations from the OEMs.
Coming on the imported electronic parts, as I said, the PCB is locally assembled. So we have a local manufacturing or assembly of the SMT or the PCB. But the PCB board, by itself, along with all the electronic components which go on the PCB board, are largely still imported. And we do expect with these technological changes happening at a very rapid pace, these will continue to be imported for at least the foreseeable future.
We do have a strategy or we do have a team working on localizing this, but I think that would be in second step. Once we are able to establish the quality, establish the engineering capability with these parts, then we will look at localizing these parts. But these are typically the small capacitors, registers and certain other small components that go on to the PCB.
So of your cost of materials, just on that, is that the 65% cost of material, how much -- what percentage is actually imported at this moment?
About 50% of that, give or take.
Okay. And just a last question on the tax rate. Obviously, we are at a much higher tax rate. When do we go back to normalized tax rate, which is the corporate tax rate of 25%? And on that, I see that you're paying somewhere about -- the P&L tax is about INR 22 crores, and the cash tax is about INR 10 crores. So how should we consider that going forward, just to understand from a cash flow point of view.
This is Naval Khanna. I would like to answer this question. The -- we are covered under MAT. So because of MAT and because of the taxation rules, once the MAT credit is extinguished, we will be changing it to the new rule.
Sir, just when will that get -- when will you get...
It's expected to be in the financial year '26-'27. That is assessment year '27-'28. Of course, it will depend upon the profitability of the company and if there are any further modifications in the tax law. But as of now, the company is covered under MAT.
So you will be at 30%, 40% tax rate going forward for the next 3 years?
No, no, no, not 40% because effective tax rate that way comes to around 27%. So we do take credit of the income tax depreciation. We do take credit of the allowable allowances. So effective tax rate that way comes to approximately 27%.
Okay. And last question is on just the Chakan facility in H2 because I think there is some subsidy benefit that you will get at the Chakan plant. Are we expecting to receive any subsidy gains in H2 from this facility?
I'll let Mr. Sanjay Mehta answer that. But just before that, Mr. Bhatia, just a correction on the imported piece. It is actually 1/3 of the raw material consumption and not 50% of the raw material consumption, which is imported. So I'll let Sanjay Mehta answer the subsidy part now.
So we have applied for the subsidiary and are expecting to be have that in February or March, maybe the last quarter of this financial year or the Q1 of the next financial year we will get it.
The next question is from the line of Dhiral Shah from PhillipCapital.
Sir, as you are sending the order book of INR 2,200 crores, so what is the execution time line for this?
So almost, let's say, 20% of this will get realized in this year itself, FY '24, 60% of it will be in the next financial year FY '25, and the remaining 20% would come in FY '26.
Okay. And sir, since you generate almost 65% of revenue from the passenger vehicle side, if you can check what percentage of revenue comes from the SUV segment?
We would not be having that data immediately, what percentage of the revenue is coming from SUV. But I think in due course, we could share that data as well.
Sure. No problem. Sir, any guess on the incremental order book, sir, what is the share of SUV, if we have the data.
I think on the 4 wheelers, we have about 70% of the order book is in the 4-wheeler space. And I would say a large part of that would be from the SUV segment because please understand, the new model launches from almost all OEMs are more focused towards SUVs because that is the trend and that is where the market is shifting. So when I say 70% of the order book is in passenger vehicles, I would say a significant part, probably maybe 2/3 of it would be in the SUV space.
Okay. And sir, any particular reason why our base business would not grow in H2 because majority of the revenue you're talking about will come from the Chakan plant. Any reason why our base business will not grow at the decent pace?
What business -- I'm sorry, there's a lot of background noise. I could not understand what you said.
Sir, as you're talking about that incremental growth for H2 will come from the Chakan plant, which is a new plant. So any reason why our base business will not grow at the decent pace?
As I mentioned, the base business, you have to look at the industry overall. And again, passenger vehicles, which is still about 65% of the company's revenue, most of the OEMs are still -- except Mahindra & Mahindra, where again, I'm saying that in H2, we will see an even stronger growth of our presence in Mahindra & Mahindra because of the new XUV700 commercial production.
But if you look at Maruti Suzuki or if you look at Tata Motors, you will see that there is a flattish growth on H1. And probably in H2, also, there will not be a significant incremental growth because of capacity limitation. So at an OEM level, I think they're turning out to their peak capacity. And that's why our growth is only coming from a product mix change.
But in Mahindra, we have added a new model to our product portfolio, and that's why you see an incremental growth coming in. Of course, we've had significant growth in Toyota as well as MG Motors, but again, the overall numbers because still remain low compared to the other OEMs.
The next question is from the line of Mr. Abhishek from Dolat Capital.
Sir, your effective tax rate is around 37% in first half FY '24, and you were talking about the effective tax rate would be around 27% after deducting all other benefits. So what items, sir, we can take in terms of the effective tax rate for two layers, FY '24 and '25?
Mr. Khanna, would you like to step in and answer, please?
Am I audible, please?
Yes, please go ahead.
Yes. So effective tax rate for us comes to about 27%. That is what I mentioned after taking all the allowances and the depreciation benefit. However, since we are under MAT, there is no cash outflow. So the MAT credit, which is available with us is expected to be extinguished or utilized in the next 1 or 2 financial years. That is what I meant to say.
Abhishekji, the effective rate, which comes in the financial as on 30th September is 34% after considering the deferred tax and all this. Mr. Khanna is talking about purely for the income tax outflow considering the MAT credit he mentioned.
So 27% is net of the deferred taxation. Deferred taxation, as you know, is the credit and debit of whatever asset utilization is there. So net-net, in this quarter, if it is 34%, in some other quarter, it will be less. That is the this thing of deferred tax. But effective tax rate, net of it, effectively comes to about 27%.
Can we assume that in FY '24 that tax rate would be around 27% to 30% of the...
Yes, you can assume like that.
So in the first half already, we have done tax of around 47%. So in the second half, it will be much lower, right?
Yes, because there will be some capitalization of the assets, which has not taken place because one of our plants has been put to start on November 1st only. So those all will be considered for enhanced utilization, et cetera, and that taxation is expected to be in that range, about 27% to 30%.
Okay. So we can assume that the effective tax rate would be higher -- 1% or 2% higher than the corporate tax rate, that is around 25.4%?
Correct.
The next question is from the line of Jatin Chawla from RTL Investments.
Just a quick clarification. So it's been noted that you recently bought the GM's Talegaon plant. Will SL Lumax continue to supply to that plant also? Or do they have some other plants for the Western region of the country?
No. So SL Lumax will definitely continue to provide its services to Hyundai in Talegaon as well. They are currently evaluating the feasibility of perhaps setting up an infrastructure near Hyundai in Talegaon or perhaps utilizing some of the infrastructure from Lumax. So that discussion is ongoing with SL Lumax, but the order book for Hyundai Talegaon will continue to go with SL Lumax.
Okay. But there is a possibility that Lumax Industries Gujarat plant might be supplying to this -- sorry, the western plant, not Gujarat plant, sorry.
It may not be supplying the entire land. But if we are able to have certain surplus capacities being utilized for Hyundai's end production through SL Lumax, we are evaluating that. But also SL Lumax will continue to evaluate investing in a facility in Talegaon for meeting Hyundai's needs.
Because you know Hyundai has been constrained for capacity. So once this new plant comes, there will be a decent increase in their capacity. So for SL Lumax, also, should we expect that once the new plant comes in, I think they're talking about only 2025, we should see some uptick in their revenues.
That's correct. I think FY '25 is probably just SOP. And I think the real peak revenue or the peak volume realization of Hyundai is expected in FY '26.
We'll take the next question from the line of Sunil Kothari from Unique Asset Management.
Sir, my question is basically we're aspiring for our double-digit margin since long, we reached there sometime. Again, we come back to below 9. So would you like to comment qualitatively, which are the challenges that we are not able to sustainably keep a 10%-plus margin, which our aspiring is I understand 12%, 13%. But in this first half, also, we are below 9%. So if you can talk a little bit, Anmol.
So Sunilji, thank you very much. I think there are few areas of focus, clearly. I think number one, on the raw materials side, we continue to have a very strong focus to try and reduce the raw material consumption. We have, let's say, if you look at quarter 1 of the last financial year FY '23, and if you look at the current quarter FY '24 quarter 2, you will see that the raw material consumption is up by about 1%. Now this is largely on account of product mix, but our endeavor is consistently to reduce the raw material consumption. And as I mentioned, with new technology, the raw material consumption tends to go up, but we're working very hard to make sure that this is at least maintained and further reduced.
I think second, if I look at the overall -- the expenses are definitely balanced. They are in control, around 14%, 14.5% to revenue. But there clearly is always an opportunity to further optimize and save on the costs on both the other expenses as well as the manpower. I think there has been certain manpower costs, which have been in the quarter 2 escalated because of the commission of Chakan plant going into Q3. And typically, we hire about 3 to 6 months before to train these associates on our existing plants. So there is a duplicacy of cost structure without having a realization on the revenue.
So these are fundamental reasons, but I think, overall, we are looking at operational efficiencies. We are also looking at -- with incremental revenue growth, our fixed cost structure should get more rationalized. So I think these are some of the key focus areas, and I am pretty optimistic to not just achieve double-digit margins in a particular quarter, but also to then thereafter sustain it, and then look at ways and means how to go forward, as I mentioned, maybe to 11% to 12% mark.
Great, sir. Very good detailed expansion. Sir, my second point is, say, now onwards, it seems we'll be at a better margin, a little better cash flow because we have -- depreciation is also very heavy. So our capital allocation policy will require some debt repayment also within a year or 2? Or yet we want to do a major CapEx continuously?
So I think for the order book, I'm not envisaging any substantial CapEx. I think going forward, the asset turn, which is currently around 1.8 to 1.7, I think on the new order book that should substantially improve for 2 primary reasons. Obviously, one, the contribution per vehicle is higher. And number two, because a significant part of the CapEx has already gone in the current year with respect to the Chakan plant. So I think going forward, we are very comfortable with our debt equity ratio, and I think we will continue to maintain it in a similar mention of about 0.35 or so.
So sir, this INR 550 crores currently, which Sanjay bhai has clarified, should we consider maybe INR 25 crores plus/minus will be the peak, our debt?
Yes, around INR 600 crores could be taken as a peak debt figure for working capital as well as long term.
Right, sir. And one small -- two questions, do you expect any growth from the contribution of SL Lumax year-on-year?
Well, again, difficult. If you look at SL Lumax, I mean, of course, Hyundai has done reasonably okay in H1 versus last year to this year. But again, in H2, they, as I mentioned, would be struggling for capacity. So this is something which I will have to look at from a full year perspective. But again, if you look at the quarter 1 to quarter 2, there is only a nominal 5% increase. So I think it would be probably single digit only, which is what my best estimation would be for the full year.
Yes. Because sir, operationally we've grown almost 50% contribution share of profit from associates. That's why I'm trying to understand. Last year, we got INR 41 crores, INR 42 crores. Is it possible to achieve those? Or it seems difficult?
No, I think that should be reasonably okay because we've achieved about INR 24 crores in the first half. So I think the INR 41 crores, INR 42 crores should be definitely something, which we should expect for the full year.
And sir, last question is next year, you are -- I think just I'm reconfirming, growth rate of around 20%?
Next year in FY '25?
Yes, '24-'25.
Yes, I think we should be definitely looking at that kind of a growth, both because of the new order book as well as certain organic growth. We would have only done Mahindra XUV700 for H1 in this fiscal. So that also annualized impact will give us a growth for FY '25.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Anmol Jain for closing comments.
Well, I would like to thank everyone for joining onto the call today. We continue to remain confident on the growing prospects of India and particularly, the automotive sector. I hope we have been able to respond to your queries adequately. For any further information, I request you to please get in touch with SGA, our Investor Relations adviser. Thank you once again, and I take this opportunity to wish all of you on the call today and your families a very happy Diwali. Please take care.
Thank you. On behalf of Lumax Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.