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Company Background

FIEM industries Ltd., is one of the leading manufacturers of automotive lighting & signaling equipment and rear view mirrors in India and its major business comes from the two wheeler segment (96% in FY20) of the automotive components industry. FIEM has diversified into LED Luminaries for indoor and outdoor applications and integrated passenger information system with LED display (IPIS). The company has 9 manufacturing facilities located close to OEM customers offering logistic cost saving and allows operational flexibility.

 Investment Rationale

The company has strong client base of more than 50 OEMs (90.55% revenue from OEMs in 9mFY21) which include renowned companies like Honda, TVS , Yamaha, Suzuki, Eicher, Royal Enfield, Harley Davidson in two wheelers and Tata Marcopolo, Force Motors, Honda Siel, Mahindra Reva etc. in four wheelers. FIEM also exports (Exports: 2.11% of revenue) automotive lighting to Honda & Kubota of Japan, Austria, UK, Germany, Thailand, Indonesia & Vietnam. A new client Piaggio was added during the quarter.

The company has an in-house R&D unit along with diversified product portfolio of the lighting products, located in India, Italy & Japan. The R&D has helped developing new generation LED technology for automotive and home lighting for modern homes. More than 50 products are under development and around 35 will come in production in the next three year time.

FIEM got recognition from Yamaha, Japan for development of World’s smallest LED Bi-Function Lighting module for two wheelers and had gained long standing business from the company.

FIEM’s top clients are Honda Motorcycle and TVS motor company which held 63.52% of company’s total sales in 9mFY21. The company had also shown major improvement in sales contribution by Indian Yamaha from 9.20% in FY20 to 11.61% in 9mFY21.

Electric vehicles (EVs) are becoming highly disruptive for global auto industry and India is yet to pick the pace of adoption of EVs which would see the company to benefit from LED lighting sales in future.

The long term growth trajectory of Indian two-wheeler industry is expected to remain strong despite short term hiccups. The industry has significant growth potential, considering that overall penetration levels are low in India (110 per 1000 persons) in comparison to other part of world. Two-wheeler is a thing of necessity rather a luxury for a large part of India’s population. It is more popular as an affordable means of commuting. As Company’s major business comes from two-wheeler segment, it remains hopeful to reap the dividends of two-wheeler growth story.

NIP (National Infrastructure Pipeline) launched by GoI on December 2019. envisages an investment of Rs.1.10 lakh crores over the next five years on infrastructure projects with major emphasis on Roads Railways and urban projects which would boost Auto sector majorly. The company is working with 70-75% capacity utilization which can go upto 90% on sales pickup. With strong return ratios and ROE of 15.70% and ROCE of 16.39%. We maintain positive stance on the stock and have a BUY rating with a target price of Rs.700 at 12x FY22 EPS of Rs.58.