Sharekhan reiterates its BUY recommendation on Lumax Auto Technologies (LATL), retaining the price target (PT) of Rs 682. The company has demonstrated robust financial performance in Q2FY25, with a 57.3% YoY increase in adjusted PAT to Rs 42.9 crore, exceeding estimates. LATL's diversified product portfolio, strategic partnerships, and strong order book of Rs 1,050 crore (90% new business) underscore its growth potential. Focused on organic and inorganic expansion, LATL is positioned to grow significantly above industry averages. However, headwinds such as gross margin contraction and pricing pressures warrant caution.

Strong Financial Performance in Q2FY25

LATL delivered exceptional financial results in Q2FY25:

Revenue Growth: Revenue rose 20.3% YoY to Rs 842.3 crore, surpassing the estimate of Rs 774 crore. This was driven by 29.4% YoY growth in the IACI business and 16.2% YoY growth in other segments.
EBITDA and Margins: EBITDA increased by 13.4% YoY to Rs 102.2 crore, while the EBITDA margin contracted slightly by 70 bps YoY to 12.1%, reflecting a 100 bps contraction in gross margin.
Profitability: Adjusted PAT surged by 57.3% YoY to Rs 42.9 crore, exceeding the estimated Rs 35 crore.

Segmental Contributions Highlight Growth Potential

LATL's revenue composition underscores its strategic diversification:

Passenger Vehicles (PV): Contribution increased from 47% in H1FY24 to 50% in H1FY25, bolstered by strong festive demand.
Advanced Plastics: This division, contributing 57% to revenue, reported 20.5% YoY growth, driven by increased penetration of LED lighting.
Aftermarket: Though contributions declined from 14% in H1FY24 to 12% in H1FY25, recovery is anticipated in H2FY25 with upcoming product launches.
Mechatronics: This high-growth division achieved 20% YoY revenue growth, backed by an expanding order book of Rs 175 crore.

Order Book and Growth Drivers

Robust Order Book: LATL’s order book stands at Rs 1,050 crore, with 40% comprising EV-specific projects. Key wins include a full-service supplier contract for Tata Motors, set to commence in 2026.
Inorganic Expansion: The acquisition of Green Fuel Solutions is expected to contribute Rs 300-350 crore in annual revenues starting Q3FY25, with higher EBITDA margins than LATL’s core business.
Strategic Initiatives: LATL is enhancing R&D to focus on cutting-edge technologies like autonomous driving assistance and Human-Machine Interfaces.

Management Commentary and Strategic Outlook

The management has outlined a robust growth strategy:

Industry Outperformance: LATL aims to achieve organic growth 50% above industry averages over the next 3-4 years.
Product Diversification: Focus on increasing content per vehicle through innovative offerings.
OEM Partnerships: Strengthening collaborations with major players like Maruti Suzuki and Tata Motors ensures LATL's position as a trusted single-source supplier.

Valuation and Target Price

Valuation Metrics: The stock trades at a P/E multiple of 15.8x FY26E and an EV/EBITDA multiple of 7.0x FY26E.
Target Price: Sharekhan maintains its PT of Rs 682, reflecting anticipated improvements in product mix, content per vehicle, and expanded growth opportunities.

Key Risks

Economic Slowdown: A deceleration in macroeconomic activity could suppress demand across LATL’s key segments.
Commodity Prices: Increased raw material costs may exert pressure on margins.
Pricing Pressure: Intensified competition among OEMs could impact LATL’s profitability.

Investment Thesis

LATL's strategic focus on innovation, market diversification, and strong financial performance positions it as a compelling investment. With significant opportunities in the EV and advanced plastics segments, LATL is set for long-term growth.

Investors are encouraged to BUY with confidence, leveraging LATL’s robust growth trajectory and a target price of Rs 682.