Buy Lumax Auto Technologies For a Revised Target Price of Rs. 356: Sharekhan

The latest report by Sharekhan suggests a buy call on a stock with a low market cap. The brokerage firm is highly bullish on Lumax Auto Technologies and has maintained a buy call on this stock.

Lumax Auto Technologies is on a clear uptrend in the larger time frame and is moving to the upside with solid momentum from the past few months. According to the latest report of Sharekhan, the stock has the potential to go more than 25% from the current market price.

Outlook of Lumax Auto Technologies

Lumax Auto Technologies supplies and manufactures Plastic Moulded Parts, Automotive Lamps and Frame Chassis for two, three, and four-wheeler segments. The company is the market leader in Gear Shifters and has many big businesses as customers, including Maruti Suzuki India, Bajaj Auto and more.

The current market price of Lumax Auto Technologies is Rs. 284, with a 52-week low of Rs. 128 and a 52-week high of Rs. 303. The stock has been trading very near its all-time highs recently.

Valuation Outlook of Lumax Auto Technologies

According to the latest report of Sharekhan, "Lumax Auto is expected to benefit from strong underline demand from its clients in the 2 Wheeler, PV, and CV space, driven by an expected recovery in the automotive segment and expansion of the product portfolio. Management has guided a positive outlook, expecting 20-30% growth in FY2023E, driven by a recovery in the automotive industry, widening the product portfolio, and increasing wallet share from existing clients. Operating profit margin (OPM) is expected to remain firm, led by operating leverage and cost-control measures. The company expects its EBITDA margin profile to improve gradually to 12-13% over the next 3-5 years. The stock is trading below its historical average P/E estimates. We retain Buy on the stock with a revised PT of Rs.356."

Investment theme of Sharekhan on Lumax Auto Technologies

"Lumax Auto is expected to be a beneficiary of improving the business outlook for the automotive business. The company has a well-diversified customer and product portfolio, de-risking its business model from dependency on one customer or one product.", says Sharekhan's latest report.

Further, "We expect Lumax Auto to benefit from favourable changing product trends such as shifting from halogen lights to LED lights in 2 Wheeler/4 Wheeler, increasing the use of lighter plastic materials, and increasing automatic transmission in 4 Wheelers (shifting from manual gears to automatic gears). The company has received new businesses for M&M's Thar (gear shifter and control housing), Maruti's upcoming SUV (plastic parts), and Tata Motors' Hornbill SUV (air filter assembly). In the 2W segment, new business was received from Bajaj Chetak EV (helmet box lamp), CT100, and Pulsar (seat cowl and side cover)." says the report.

Key Risks on taking buy call of Sharekhan

The latest report of Sharekhan mentions two key risks of this buy. The report says,

• "Slowdown in economic activities can impact the company's revenue growth.

• Pricing pressures from automotive OEMs can impact profitability."