Fiem Industries Stock Analysis

Established in 1989, Fiem Industries Limited (“Fiem Industries” or the “Company”) manufacture automotive lighting & signaling equipments and rear view mirrors. As part of its diversification strategy, the Company has entered into LED luminaries for indoor and outdoor applications and integrated passenger information system for railways & buses. The Company is also among first companies in India introducing LED lights in two wheelers.

KEY FINANCIAL FIGURES (In Rs. Cr.)

	FY2013	FY2014	FY2015
Total Income from Operations	606.42	720.47	825.47
Expenses	536.11	632.08	722.72
EBITDA	70.32	88.39	102.74
Depreciation	18.35	21.79	30.72
Finance Costs	12.97	14.45	12.05
Other income	0.35	0.67	0.90
Exceptional items	0.00	0.00	0.00
PBT	39.36	52.81	60.88
Tax	11.63	15.54	18.40
PAT (before Minority Interest and share of Associates)	27.72	37.27	42.47
Profit attributable to Minority Interest	0.00	0.00	0.00
Share of profit of Associates	0.00	0.00	0.00
Consolidated Profit / (Loss)	27.72	37.27	42.47

KEY BALANCE SHEET FIGURES (In Rs. Cr.)

	FY2013	FY2014	FY2015
Share Capital	11.96	11.96	11.96
Reserves & Surplus	156.11	184.89	215.32
Net worth (shareholders funds)	168.07	196.85	227.28
Long Term Borrowings	76.18	57.96	51.47
Current liabilities	162.26	171.62	192.95
Other long term liabilities and provisions	2.52	1.14	2.01
Deferred tax liabilities	24.21	27.51	27.61
Total Liabilities	433.25	455.08	501.32

	FY2013	FY2014	FY2015
Fixed Assets	294.14	313.07	339.09
Noncurrent Investments	0.02	0.02	0.02
Current assets	131.14	136.42	154.41
Long term advances and other noncurrent assets	7.96	5.57	7.80
Total assets	433.25	455.08	501.32

RATIO ANALYSIS (In %)

	FY2013	FY2014	FY2015
Operating Profit Margin Ratio	11.60	12.27	12.45
Net Profit Margin Ratio	4.57	5.17	5.14
ROCE	28.79	34.69	36.86
ROE / RONW	16.49	18.93	18.69
Current Ratio	0.81	0.79	0.80
Debt/Equity Ratio	0.45	0.29	0.23
Interest Coverage	5.42	6.12	8.53

VALUATION ANALYSIS

	FY2013	FY2014	FY2015
Total Income from Operations (Rs. Cr)	606.42	720.47	825.47
Growth (%)	–	18.81 %	14.57 %
PAT (Rs. Cr)	27.72	37.27	42.47
Growth (%)	–	34.45 %	13.95 %
Earnings Per Share – basic	23.17	31.16	35.51
Earnings Per Share – diluted	23.17	31.16	35.51
Price to Earnings	8.35	13.31	18.01

INVESTMENT RATIONALE

Diversified Product Portfolio

fiem product portfolio

With its wide range of products, the Company is the market leader in the scooter segment with 85% market share. The Company’s major markets include UK, Italy, Germany, Indonesia, Japan and Australia.

Capex Plans

Fiem Industries has set up a new manufacturing facility in Gujarat for manufacturing of automotive lighting and plastic parts etc. The Company will supply the production to newly setup plant of Honda in Gujarat. This facility has started its commercial production from the month of January 2016.

Fiem Industries is also expanding its capacity in Tapukara plant (Rajasthan) for manufacturing of LED lighting products such as LED bulbs, LED street lights, LED tubes etc. The Company is expanding its capacity in LED segment to 2 lakhs bulbs per day from the present capacity of 60,000 bulbs per day, 500 street lights per day to 1,000 street lights per day and 1,000 down lighters per day.

Strong Client Base

Fiem Industries has a strong client base of more than 50 OEMs and has significant market share for supply of automotive lighting & signaling equipments and rear view mirrors to two-wheeler and four-wheeler OEMs. The Company exports automotive lighting to Honda Japan, Kubota Japan (Tractors & Farm equipments) besides exporting to Austria, UK, Germany, Thailand, Indonesia & Vietnam.

Top Clients

Two Wheelers Segment (accounts for 94.40 % of revenue) – Honda, TVS, Suzuki, Yamaha, Mahindra, Harley Davidson
Four Wheelers Segment (accounts for 5.60 % of revenue) – Tata Motors, Force Motors, Honda, GM, Hyundai, Daimler, Mahindra Reva

Entry into LED Lighting – Fastest Growing Segment

The LED market has emerged as one of the fastest growing industries in India. According to a report – India LED Lighting Market (2015 – 2021) by 6Wresearch, India LED Lighting market is projected to reach Rs. 21,600 Cr. by 2020 from Rs. 1,925 Cr. in FY 2013.

Fiem Industries has diversified into the LED lighting business and has developed more than 100 products and developing more and more LED lights to attain significant market share in the coming years.

Company’s Progress on LED Bulb Orders with Energy Efficiency Services (a Joint Venture Company of PSUs under power ministry)

Fiem Industries LED order book

Integrated Passenger Information System Segment

IPIS also provides huge opportunity in Indian Railways and State Transport Buses. IPIS is a computer based electronic system providing audio and visual information to passengers through multiple displays spanning over the entire station and coaches.

The Company has successfully installed this Passenger Information System in many DTC buses in Delhi operating at different routes and has also installed the same in many of the school buses of Delhi Public School, GD Goenka School, PP international school, Dynasty International School, Manav Rachna International School etc.

The Company has also received approval for IPIS with LED Display from Ministry of Railways – Research Design and Standard Organization. Fiem Industries is looking for big business opportunities from Railways, Central & State Government, Metro, Overseas Market etc.

INVESTMENT CONCERNS

Client Concentration Risk

A significant portion of Fiem Industries’s auto component revenue comes from two clients namely Honda and TVS Motors (45% and 26% of revenue). Any slowdown in off take from these two clients can hurt its revenue significantly.

Overdependence on 2 Wheeler OEMs

Fiem Industries gets about 94% of its revenue from 2 wheeler OEMs. Any slowdown in 2 wheeler segment could adversely impact its growth especially as its presence in 4 wheeler segment is small.

Failure to Gain Share in Led Luminaries

Though the underlying drivers for the LED segment continue to remain intact, slower off-take from Government agencies in implementation of LED lighting, competition from global competitors like China, who has become a global manufacturing hub for LED/ electrical components could cap the potential upside from this segment.