Fiem Industries Ltd

About the business and background

Fiem Industries Limited (FIEM) is one of the leading manufacturers of automotive lighting, signalling equipments and rear-view mirrors in India. It also
supplies plastic moulded parts and sheet metal components to various OEMs.

Founded in 1989, Company was originally incorporated as Rahul Auto Pvt Ltd by Mr Jagjeevan Kumar Jain, who is in Automotive lighting business since
1970. He is a first-generation promoter and is also the Chairman and MD of the company.

Company derives majority of its revenue from 2W segment and has strong relationships with major global OEMs across the world.

Product Portfolio

Automotive segment LED segment

Automotive lamps Technical collaboration LED Luminaires
Rear View Mirrors Canister
Sheet Metal parts Bank Angle sensor Integrated passenger
Plastic Moulded parts JV products information system
Moulds, tools & Zig fixtures (railways)

Revenue segments

Company derives 99.5% of revenues from Automotive segment. Management has iterated that no further investments will be made in LED segment
and some of the usable assets will be transferred to automotive segment.

Automotive segment

Revenue derived from automotive segment can be further divided on the basis of
1) Vehicles (2W vs 4W)
2) Sales channel (OEM vs replacement market vs exports)
3) OEMs (HMSI, TVS, Yamaha, Suzuki)
4) Product mix ( Automotive lamps, rear view mirrors, plastic moulded parts, sheet metal parts)
 REVENUE BREAKUP

Vehicle Sales channel

4W replacement exports
4% market 4%

2W OEM
96% 90%

Product mix Clientele-OEMs

plastic others Eicher Others
moulded 11% 3% 11%
component Honda
s Replacement 29%
10% 6%

rear view Suzuki

mirrors 8%
automotive
11%
lamps
Yamaha
68% TVS
19%
24%
 Revenue Breakup
Product Mix

Company derives more than 95% of automotive revenue from 2W segment.

Further bifurcating the revenue on the basis of product mix,

65-70% of revenue is derived from automotive lighting segment, 11% from rear view mirrors and 10% from plastic moulded components

Automotive lighting segment can be further bifurcated into conventional halogen lamps and automotive LED lamps.
One of the observable trend is the increasing penetration of LED in automotive lighting over last few years
Automotive LED lamps contribution to total automotive lighting revenue has increased from 15% in 2018 to 44% in 2022. This number is expected to
reach about 60% in next 2-3 years as per the management

Clientele- OEMs
Company has built long standing relationships with major global OEMs

Revenue contribution from OEMs over the years

FY16 FY17 FY18 FY19 FY20 FY21 FY22
Honda 44.50% 45% 45.60% 41% 42.34% 35.45% 28.4%
TVS 25.25% 23.60% 27.80% 28.60% 26.42% 26.31% 24.1%
Yamaha 3.50% 3.84% 5.50% 8.70% 9.20% 12.69% 18.6%
Suzuki 3.40% 3.80% 4.25% 6.20% 7.72% 8.10% 8.25%
cumulative 76.65% 76.24% 83.15% 84.50% 85.68% 82.55% 79.24%

Top 4 OEMs (HMSI, Yamaha, TVS, Suzuki) cumulatively contribute to 79% of automotive revenue as of FY22.

There has been sharp growth in revenue from Yamaha and Suzuki in last 5 years as can be observed from increasing share in company’s revenues.
Cumulative revenue share of Yamaha and Suzuki has grown from 7% in 2017 to 27% in 2022.

Company has recently added Hero MotoCorp to supply for 2 models which will launch in FY24.
And, with 2W EV opportunity growing exponentially, Company is already working with all major EV OEMs in India.
Company accounts for high market share with OEMs in automotive lighting and rear view mirrors.

FIEM Industries- Market Share with major OEMs(FY22)

Yamaha Suzuki TVS HMSI
Headlamps 91% 80% 73% 40%
Tail lamps 64% 80% 69% 76%
Blinker 25% 25% 82% 82%
rear view mirror 36% 100% 55% 100%

Growth drivers

Transition to LED lighting-

Volume growth of FIEM is likely to remain impacted until there is recovery in volumes of 2W OEMs in India.
Growth in sales volume of 2W OEMs is obviously one of the major driver for revenue growth of FIEM, however continued transition from halogen to
LED based lamps has and will help the company in sustaining double digit revenue growth over next 2-3 years because of higher realizations of LED
based lamps compared to halogen. LED lamps are priced at 2-5x of conventional lamps.

In value terms, automotive LED contributes 44% of automotive lighting revenue in FY22 and the number is expected to grow to 60-65% over next 2-3
years.

What is driving the LED adoption in automotive lights?

Regulations, aesthetics, energy efficiency and longevity are the factors driving LED penetration in automotive lighting market

Indian government has come out with Automatic Headlamp On (AHO) regulation mandatory from FY2017 to curb the road accidents.
AHO regulations require that 2W headlamp should remain switched on throughout the day. LED is the most compatible technology considering the
efficiency as conventional lamps will drain out the battery and has smaller life compared to LEDs.

With 2W EV market growing at rapid pace, LEDs are most compatible for 2W electric vehicles as conventional lamps will drain out the batteries and
will impact the mileage of EVs.
Management

FIEM is family operated business and was founded by Mr Jagjeevan Kumar jain in 1989. He is first-generation promoter and is in automotive lighting
business since 1970s.

Mr JK Jain’s children, Rahul Jain and Aanchal Jain have been inducted into business since young age and are part of board of directors.

Shareholding pattern

Shareholding Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22

Promoters 69.95% 63.59% 63.59% 64.32% 66.56% 66.56% 66.56%
Public 30.05% 36.41% 36.41% 35.68% 33.44% 33.44% 33.44%
Total 100% 100% 100% 100% 100% 100% 100%
Outstanding shares 1,19,62,226 1,31,59,830 1,31,59,830 1,31,59,830 1,31,59,830 1,31,59,830 1,31,59,830

As far as shareholding pattern is concerned, Promoters have held more than 60% stake over last 5-6 years which is reasonable to assume that family
has skin in the game.

The decline in shareholding as observable in 2017 was because of a QIP issue of 120 crores in Sept- 2016. Absolute shareholding remained the same
and has increased over previous years

Management has increased shareholding from 63.59% to 66.56% in a seven month period from Jan-19 to August-19.as per records available
management bought 3.91 lakh shares through open market at average consideration of Rs 455 per share.
Financials and Valuation

Summarizing the above sections

• FIEM is one of the largest players in 2W automotive lighting market with strong focus on LED lamps.
• The company was built long standing relationships with key 2W OEMs and boasts of clients such as TVS, Honda, Yamaha and Suzuki.
Company has recently added Hero Motocorp into the foray and is already working with all the 2W EV OEMs in the country.
• Company accounts for dominant share in lighting and rear view mirror business with key OEMs
• Increasing LED penetration on account of regulatory requirements, energy efficiency and longevity will be the growth driver of revenues in
the near term until 2W volumes picks up which is close to 7-8 year low.

Note that LED lamps cost 2-5x the cost of conventional lamps and increasing adoption of LED will drive revenue towards double digit growth.

At current price of 1460, the market cap of FIEM is 1930 crores and the enterprise value is close to 1900 crores. Thus the stock is trading at close to 20
times trailing twelve month earnings and 10 times EV/EBITDA and around 3 times price to book value.

While the multiple does look inflated, the median P/E multiple for the company over last 15 years is 18 and price to book multiple is 1.9, 2W OEM
industry is coming out of severe slowdown due to pandemic and regulatory hurdles (BS-VI norms)

Moving forward, increasing LED penetration and demand revival for 2W auto OEMs are going be the driver of revenue growth.
Company has been able to outperform 2W OEM sales growth over last decade.
EBITDA Margins have been stable and in the range of 10-12% over last decade despite of various turbulences in the industry.

Risks and concerns

Slowdown in auto segment

2W industry is a deep cyclical industry. 75% of buying of automotives are financed through banking system and slowdown of credit and increasing
interest rates can push down the demand revival for few years.
The ongoing slowdown in industry has been severe and if volumes start plummeting again, then revenue and profitability will have to take a hit

Volumes – crores FY17 FY18 FY19 FY20 FY21 FY22

Domestic sales- 2W 1.76 2.02 2.11 1.74 1.51 1.34
Technology risk
Price erosion of existing LED lamps and development of more efficient and cheaper lighting by competitors will remain a threat for the company.
Unlike FIEM, competitors collaborating with foreign companies and earlier access to newer technology can impact the business.

Financials (in cr.) 2016 2017 2018 2019 2020 2021 2022
Revenue 988.1 1018.9 1239.7 1449 1379.4 1221.1 1572.3
growth 3.1% 21.7% 16.9% -4.8% -11.5% 28.8%

Gross profit 415.9 432 500 548.4 539.2 466.6 586.24

GPM 42.1% 42.4% 40.3% 37.8% 39.1% 38.2% 37.3%

EBITDA 127.3 117.8 140.7 157.1 156.8 133.8 194

EBITDAM 12.9% 11.6% 11.3% 10.8% 11.4% 11.0% 12.3%

Other income 1 4.7 4.5 0.9 1.7 3.2 2.6

Finance cost 15.8 23.3 22.7 22.1 17.7 11.6 8.6

Depreciation 33.1 39.3 44.3 48.9 53.2 57.2 59

PBT 79.4 59.9 78.2 87 87.6 68.2 129.04

PAT 57.4 33.1 52.6 55.7 74.4 46.8 94.2
PATM 5.8% 3.2% 4.2% 3.8% 5.4% 3.8% 6.0%
Financials (in cr.) 2016 2017 2018 2019 2020 2021 2022

Non current assets 434.1 515.3 585.9 625.8 635.8 601.4 529.1
Current assets 210.8 354.2 349.5 337 284.7 324.4 525.1
Total assets 644.9 869.5 935.4 962.8 920.5 925.8 1054.2

Current liabilities 252.1 302.2 350 334 269.3 265 338.1

Non current liabilities 129 157.2 136.1 151.6 125.8 87.3 68.6
Total liabilities 381.1 459.4 486.1 485.6 395.1 352.3 406.7
Equity 263.8 410.1 449.3 477.1 525.3 573.5 647.4

PATM 5.8% 3.2% 4.2% 3.8% 5.4% 3.8% 6.0%

Asset turnover 1.53 1.17 1.33 1.50 1.50 1.32 1.49
Financial Leverage 2.44 2.12 2.08 2.02 1.75 1.61 1.63
ROE (%) 22% 8% 12% 12% 14% 8% 15%

Cash flow from Operations 121.9 45.6 124.7 121.02 207.3 135.6 92.6
investments in fixed assets -109.4 -115.8 -115.5 -109.8 -48.21 -19.9 -19.1
Free cash flow 12.5 -70.2 9.2 11.22 159.09 115.7 73.5