Lumax Auto Technologies (LATL) Q2FY22 results were above our estimates on account of strong sales growth and operating leverage benefit.

"We believe, opening of economy, higher vaccination drive and preference toward personal mobility is likely to drive stronger demand from Auto OEM post H2FY22.  We expect LATL to report strong aftermarket performance due to pent up demand and anticipate double digit growth across all of its subsidiaries in FY22. We retain our estimates for FY22 and FY23 and introduce FY24 estimates," said IDBI Capital Equity Research.

"We forecast revenue growth of 19.1%/13.7% for FY22/FY23 respectively on the back of robust recovery in the domestic 2W/4W domestic market. We maintain our Hold rating on the stock with a target price of 166 based (PER of 9x FY24E EPS)," it added.

Key highlights and investment rationale

Revenue above estimates: The Consolidated Sales increased by 42% YoY to Rs 4 billion due to better performance from its OEM clients. 2/3 wheelers, Passenger Car and After Market contributed 47%, 20% and 18% to its overall sales. Overall EBITDA increased by 50.2% YoY to Rs 447 million. The Company reported 60bps EBITDA margin expansion to 11.1%. PAT during Q2FY22 expanded by 67% YoY to Rs 263 million.

Outlook: The Management plans to double its aftermarket sales by introducing various new products. It remains to be high margin business for the company. On July 2, 2021, the Company signed a JV agreement with Alps Alpine (Japan) for manufacturing and sale of electric devices and components including software related to automotive industry.

View and Valuations: LATL is well positioned itself to benefit from Auto OEMs growth from H2FY22 onwards. We expect the Company to report 11.1% Sales CAGR and 28.1% PAT CAGR over FY22-24. We retain our Hold rating on the stock with a target price of 166 based on PER of 9x FY24E EPS.

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