02 September 2014

Phoenix Lamps -Management Meet :: ICICI Sec

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India OEM dominance + profitable export
We recently met the management of Phoenix Lamps (PHL) to understand
PHL’s strategy on the path ahead for the company in the automotive
lighting business. PHL is India’s largest automotive halogen lighting
manufacturer with healthy market shares: 55% - passenger vehicles, 70-
80% all other segments like two-wheelers, commercial vehicles. The
company has 11 manufacturing lines with total capacity of 87 million
bulbs. PHL has a professional management as the largest investment
stake (~71%) is held by private equity player Actis. In terms of revenues,
the India business share is ~50% while balance is exports. The India
business has large OEM share of ~65% while balance is aftermarket &
white good sales. The company has overall capacity utilisation at ~70%.
Of this, 2-W is at ~90%, other domestic segments at ~60% with exports
at ~70% utilisation. PHL is working on increasing capacity intercompatibility
between H4, HS1 (4-W, 2W) capacity. On the financials
front, the management expects a consistent EBITDA performance of ~20-
25% coupled with RoCEs >40% with improving dividend payouts.
India OEM proxy with strong tie-ups!
Phoenix Lamps is the most dominant player in the domestic OEM
halogen lighting business. It has direct relationships with major OEMs like
Maruti Suzuki, Honda Motors, Hero MotoCorp, etc. with market shares
between 60% and 80% across various clients and categories. The second
major competitor remains Philips, which primarily imports bulbs for
supplying products to OEMs and, thus, remains ~30-40% more
expensive than PHL. This provides PHL with a significant pricing
advantage vis-à-vis its closest competitor & improves pricing negotiation
ability with OEMs. This aids PHL in maintaining similar margins in both
OEM and aftermarket sales in the domestic market on the EBITDA front.
Export business good cash cow
PHL’s exports markets comprise Europe, Central Asia and Latin America,
primarily in the aftermarket division. The company has two brands in
exports markets, namely Trifa and Luxlite. PHL has been gaining market
share in export markets in the last few years and continues to do so by
seeding newer geographies. The contribution margin remains at ~40-
43% in export markets while customers range from Hela, Valeo and
Magnetti Marelli to big retail store chains like Aldi.
Post demerger, financials look solid while valuations remain comfortable
PHL has undergone de-merger of its loss making division in FY14, leading
to the real automotive division’s strengths getting highlighted. On an
annualised basis, it has reported automotive financials of ~| 250 crore
sales coupled with 25% EBITDA margins, 47% RoCE for FY14 and is
available at a trailing EV/EBITDA multiple of ~6.2x with limited debt.



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Link:
http://content.icicidirect.com/mailimages/IDirect_PhoenixLamps_MgmtNote.pdf

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