Recommendation from Automobile & Ancillaries Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Lumax Auto Technologies Ltd : DIVERSIFIED AUTO COMPONENTS POWERING GROWTH

HERE IS WHY
✓  Strong Q1 earnings momentum
✓  Future-tech content driving margins
✓  Rising OEM wallet share

I ndia’s automotive industry started FY27 on a strong footing, with vehicle production rising 22 per cent YoY in Q1 FY27. This favourable operating environment, alongside increasing vehicle premiumisation, localisation and technology content, provides a supportive backdrop for auto-component manufacturers. Hence, we recommended Lumax Auto Technologies Ltd. for this issue of the magazine as a Choice Scrip.

The company has transformed from a predominantly lighting-focused supplier into a diversified auto-component manufacturer. Its portfolio now covers areas such as cockpits, consoles, gear shifters, sensors, antennas, telematics and CNG delivery systems. The company has also strengthened its technology capabilities through strategic joint ventures, the 100 per cent acquisition of IAC India and the SHIFT technology centre focused on software-defined vehicles, ADAS and connected mobility.

The company delivered a strong start to FY27, with Q1 revenue rising 33 per cent YoY to ₹1,364 crore. EBITDA increased 51 per cent to ₹205 crore, with the margin expanding by 190 basis points to 15.1 per cent, while PAT rose 83 per cent to ₹99 crore. The improvement was broad-based, with Advanced Plastics revenue increasing 47 per cent to ₹769 crore, Mechatronics growing 56 per cent to ₹84 crore and Structures & Control Systems rising 20 per cent to around ₹218 crore. Alternate Fuels and Aftermarket also grew 17 per cent and 6 per cent, respectively.

A key growth driver is increasing wallet share with existing OEM customers, supported by premiumisation and localisation. Management highlighted four major growth levers, including higher wallet share, greater value content per vehicle, localisation of imported components and the introduction of new technology products. The company is also expanding its presence in intelligent and connected mobility, with five new products planned over the next 18 to 24 months. The Body Control Module has already been launched.

Mechatronics offers particularly strong optionality. The segment currently has an Order Book of around ₹500 crore, while management expects the division to generate around ₹400 crore in revenue in FY27 and approach ₹1,000 crore by FY31. Greenfuel is another growth engine, with Mahindra added as a new passengervehicle customer for CNG delivery systems. The consolidated order book stood at approximately ₹1,600 crore, providing revenue visibility. Around 25 to 30 per cent of the order book comprises newer technologies linked to the future of mobility, which management expects to support margin expansion. The company plans around ₹300 crore of capex in FY27, primarily for the upcoming Mechatronics and IAC expansions.

The balance sheet remains manageable, with a debt-to-equity ratio of 0.32. The stock trades at 41.1x earnings, above both the industry P/E of 29.1x and its three-year median P/E of 29.6x. The premium valuation means the investment thesis is dependent primarily on sustained earnings growth rather than multiple expansion. However, with 43.4 per cent three-year profit growth, 26.4 per cent ROE and management targeting around 20 per cent revenue CAGR over the long term, earnings growth provides the basis for the current premium.

Management has also indicated that 17 to 17.5 per cent EBITDA margins, alongside around 20 per cent growth over the next three to five years, would represent a satisfactory trajectory. While the valuation leaves limited room for disappointment, the combination of earnings visibility, new technology-led opportunities and margin potential supports our BUY recommendation.

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