Report by- Sabyasachi Bhattacharya
Automotive lighting sector’s Q2 result review; Companies posting improved earnings-
Amid weakness in the overall market due to multiple macroeconomic challenges, many fundamentally strong companies have become available at attractive valuations. In this note, we analyse three companies in the auto component segment, which are into automotive lighting and have strong fundamentals and are available at reasonable valuations. In terms of latest quarterly performance, these companies posted good revenue growth on the back of strong demand from original equipment manufacturers (OEMs); however, margins were impacted due to sharp rise in raw material (RM) prices. Market leadership, marquee clients, focus on developing technologically- advanced products and the adoption of LED-based products provide improved earnings visibility for these companies and therefore, merit investors’ attention. Let us review the three companies-
- Lumax Industries-In the quarter gone by, net revenue from operations grew 36.4 percent year-on-year (YoY) on the back of strong volume and value growth driven by higher adoption of LED products. LED sales now contribute around 35 percent of the total sales, up from 8 percent in FY17. On the profitability front, the company posted 34.9 percent YoY growth in earnings before interest, tax, depreciation and amortisation (EBITDA) whereas margin remained largely flat. Margins, however, were down 38 bps on quarter-on-quarter (QoQ) basis. This is primarily due to the higher import of raw material (RM) for its LED products.
- Fiem Industries-Riding well on the growth coming in from 2W segment, the company posted a strong year-on-year (YoY) growth in sales of 20.8 percent driven by 19.8 percent YoY growth in the automotive segment. This was driven by strong volume growth from key clients HMSI, TVS and Yamaha. Interestingly, LED luminaries business clocked revenue of Rs 6.9 crore and grew 1.4 times as compared to same quarter last year. The company posted a YoY contraction of 144 bps in its earnings before interest, tax, depreciation and amortisation (EBITDA) margin primarily due to a significant rise in raw material prices. This got partially offset by the operating leverage and cost reduction efforts undertaken by the company. It reported a profit after tax (PAT) of Rs 14.8 crore, up 2.9 percent (YoY).
- Varroc Engineering-Net sales grew 24.1 percent YoY. Growth was 26.5 percent on a like-for-like basis, excluding the impact of Ind AS 115, the Interior Plastics Business in North America (phased out during FY18) and excise duty. On a like-for-like basis, the growth was fuelled by 27.4 percent YoY growth in Indian business and 24.1 percent in global lighting business (VLS) and 47.4 percent in other geographies. On a like-for-like basis, EBITDA margin contracted 30 basis points (bps) in the quarter as compared to the same quarter last year. The contraction came due to 130 bps contraction in VLS business due to the additional costs of rapid volume ramp-up which got partly offset by 40 bps expansion in Indian business.
Let us take a look at their performances-
Source- MoneyControl, Purple Trades Research Department
Indian Indices move ahead as Nifty holds 10,850-
Chart source- ChartInk
Indian markets had a mixed day today as major Indices Nifty and Sensex moved upwards. The gains in Nifty was mainly due to the Gap-Up that it had today. After the Gap-Up it didn’t move much higher and after touching the highs of 10,922 it started to come downwards. It got a support at the level of 10,838. Nifty was somehow able to hold on to the winning streak that it created for the past few day. At the end of the day benchmark indices ended marginally higher on Friday, but the Nifty could not hold on to 10,900 level. This is fifth consecutive day gain recorded by the indices. The Sensex was up 23.89 points at 36194.30, while Nifty was up 22.10 points at 10880.80. About 1278 shares have advanced, 1310 shares declined, and 146 shares are unchanged. Among the sectors pharma and IT space outperformed the other indices with 1-2 percent gain, while bank, infra, metal and energy stocks have underperformed. Lupin shares gained over 2 percent after the launch of skin infection treatment cream in the United States. Chambal Fertilizers company shares climbed over 4 percent after the commencement of production at company’s Rajasthan plant. A meeting of the board of directors of Allahabad Bank is scheduled on December 6 to consider and approve capital infusion of Rs 3054 crore in the bank by the Government of India.
Let’s take a look at the key reasons for the up move in the Indian markets-
- Asian markets rallied upwards which is an Indication that the global markets are improving and will also ensure that the Indian markets might rally upwards in the coming weeks.
- The Rupee has been constantly rising against the Dollar. Today Rupee gained almost 15 paisa.
- Oil prices fell sharply after US crude inventories hit their highest in a year, ahead of G20 meeting later this week.
- Foreign institutional investors have been net buyers in November after consistent selling in previous three consecutive months, which also boosted market sentiment.
- The Nifty50 closing above 10,850 indicate the sentiment has been turning positive and is probably heading towards psychological 11,000 levels.
Let’s take a look at the performance of major Indices-
European stocks were trading lower as FTSE, DAX and CAC were all losers for the day. Asia markets were higher as Nikkei went up by 0.40%. NASDAQ was seen trading in the red.
Source- MoneyControl, Purple Trades Research Department
Key Points for Traders to watch out for while trading Nifty tomorrow-
- 10,870 is a short term support for Nifty.
- If Nifty breaks 10,870 then it has the potential to go down.
- 10,892 is a short term resistance for Nifty.
- If Nifty breaks 10,892 then it has the potential to go up.
Top sectors that moved the market today- Data source- Moneycontrol
Top Gainers for today- Data source- Moneycontrol
Top losers for today- Data source- Moneycontrol