IDirect_FiemInds_MgmtNote

8/22/2019 IDirect_FiemInds_MgmtNote

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April 16, 2013

ICICI Securities Ltd|Retail Equity Research

anagement Meet Note

LEDs to light up futureWe met the management of Fiem Industries (Fiem) to understand ingreater detail the companys business and strategy. Fiems primary line ofbusiness has been manufacture of automotive lighting and signallingequipment for OEMs. The company has eight manufacturing facilitiesspread across India and employs ~6400 workers. The company is alsoinvolved in making plastic moulded components, in-house wiringharness, rear view mirrors, sheet metal components, etc. However, themain business remains supply of headlights, taillights, blinkers to two-wheeler (2W) OEMs. Fiems top clients are TVS Motors (36%) and HMSI(31%). The company is also involved in the business of manufacturingproducts in the LED luminaries segment like display panels and streetlightings. Fiem has entered into a 15-year India-exclusive technicalcollaboration with BrightLite Systems, Singapore (which holds the globalpatent for 3D heat flow management system) for making LED luminaries.Currently, this segment is contributing only 4% to the topline. However,going forward, the management sees this segment as the main growthdriver contributing ~17% to revenues by FY16-17. Shifts focus to LED; as 2-W industry begins to meander

Fiem is looking to secure a foothold in the LED luminaries segment as it

sees the conventional 2W industry incumbents are seeing a structural

slowdown while new entrants like Honda are growing fast. The company

is entering the LED display signal systems bidding for Railway contracts

and has been qualified for RDSO vendor approval, post-prototypepresentation.

Valuations reasonable but growth concerns in core businessFiem has been able to beat the slowdown in the 2W industry due to the

strong performance of HMSI. Consequently, its dependency on TVS

Motors has come down considerably over the past five years. However,

given the muted growth expectation from the two-wheeler industry, we

believe growth will remain a concern in the core business. The companys

venture in the LED segment could lead to a fresh leg-up of growth. The

ability of Fiem to enter the market with established, large players remains

the key monitorable. The company also boasts of decent operating

margins and operating ratios though D/E > 1.0x remains a concern. Onthe valuation front, the stock is trading at a reasonable trailing P/E

multiple of ~11x FY12 EPS.

Exhibit 1:Financial Performance (Consolidated)(| Crore) FY08 FY09 FY10 FY11 FY12

Total Operating Income 177.3 219.3 294.2 417.3 533.5

EBITDA 21.1 19.7 27.6 34.3 67.7

EBITDA Margin (%) 11.9 9.0 9.4 8.2 12.7

Depreciation 7.8 8.8 9.2 13.0 16.6

Interest 2.0 4.0 3.3 9.5 20.8

Other Income 2.9 1.0 0.8 4.0 0.3

Reported PAT 9.3 4.6 10.8 11.4 21.4

EPS (|) 7.8 3.9 9.0 9.5 17.9 Source: Company, ICICIdirect.com Research

Fiem Industries (FIEIND)

| 190

ting matrix

ing : Unrated

get : NA

get Period : NA

ential Upside : NA

y Financials

Crore FY09 FY10 FY11 FY12

et Sales 219 294.2 417.3 530.2

BITDA 19.7 27.6 34.3 67.7

et Profit 4.6 10.8 11.4 21.1

PS (|) 3.9 9.0 9.5 17.7

luation summary

FY09 FY10 FY11 FY12

/E 49.1 21.1 19.8 10.6

V / EBITDA 13.9 10.1 10.4 5.7

V / Net Sales 1.2 0.9 0.9 0.7

/BV 2.4 2.1 1.8 1.6

oNW 4.8 9.7 9.0 14.8

oCE 7.5 11.1 8.3 16.6

ock data

arket Capitalization | 226.5 Crore

tal Debt (FY12) | 162.7 Crore

sh and Investments (FY12) | 5.3 Crore

| 383.9 Crore

week H/L 206 / 134

uity capital | 12 Crore

ce value | 10

F Holding (%) 0.0

Holding (%) 0.0

turn matrix

eturn % 1M 3M 6M 12M

em Industries Ltd (4.3) (4.6) 7.1 33.5

umax AutoTechnologies (8.4) (13.7) (21.4) (10.7)

otherson Sumi Systems Ltd (14.0) (10.1) 13.2 42.8

ce movement

80

100

120

140

160

180

200

220

Apr-13Jan-13Oct-12Jul-12Apr-12

4,500

4,700

4,900

5,100

5,300

5,500

5,700

5,900

6,100

6,300

Price (R.H.S) Nifty (L.H.S)

alysts name

ishant Vass

[email protected]

enil [email protected]


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ICICI Securities Ltd|Retail Equity Research Page 2

Exhibit 2:Improving topline performance and steadying margin profile

177.3

219.3

294.2

417.3

530.2

11.9

9.4

8.2

12.7

9.0

150

200

250

300

350

400

450

500

550

FY08 FY09 FY10 FY11 FY12

NetSales(|

)

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

(%)

Net Sales EBIDTA Margin

Source: Company, ICICIdirect.com Research

Exhibit 3:Return ratios improvingworking capital needs increase debt to equity

5.1

12.111.0

17.5

12.8

18.9

9.78.411.9

13.5

0.4

0.50.6

0.9

1.2

0.0

5.0

10.0

15.0

20.0

25.0


(%)

0.3

0.5

0.7

0.9

1.1

1.3

RoE RoCE Debt to Equity


Exhibit 4:Increasing dividend per share for investors

3.8

2.3

1.6

2.2

5.6

3.0 3.0 3.0

3.63.0

1.0

3.0

5.0


DividendPerShare(|)

0.5

1.5

2.5

3.5

4.5

5.5

DividendYield(%)

Dividend Yield Dividend Per Share



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ICICI Securities Ltd|Retail Equity Research Page 3

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Mumbai 400 093

[email protected]

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