Management Meet Note

April 16, 2013

Rating matrix
Rating Target Target Period Potential Upside : : : : Unrated NA NA NA

Fiem Industries (FIEIND)

| 190

Key Financials
| Crore Net Sales EBITDA Net Profit EPS (|) FY09 219 19.7 4.6 3.9 FY10 294.2 27.6 10.8 9.0 FY11 417.3 34.3 11.4 9.5 FY12 530.2 67.7 21.1 17.7

LEDs to light up future

We met the management of Fiem Industries (Fiem) to understand in greater detail the companys business and strategy. Fiems primary line of business has been manufacture of automotive lighting and signalling equipment for OEMs. The company has eight manufacturing facilities spread across India and employs ~6400 workers. The company is also involved in making plastic moulded components, in-house wiring harness, rear view mirrors, sheet metal components, etc. However, the main business remains supply of headlights, taillights, blinkers to twowheeler (2W) OEMs. Fiems top clients are TVS Motors (36%) and HMSI (31%). The company is also involved in the business of manufacturing products in the LED luminaries segment like display panels and street lightings. Fiem has entered into a 15-year India-exclusive technical collaboration with BrightLite Systems, Singapore (which holds the global patent for 3D heat flow management system) for making LED luminaries. Currently, this segment is contributing only 4% to the topline. However, going forward, the management sees this segment as the main growth driver contributing ~17% to revenues by FY16-17. Shifts focus to LED; as 2-W industry begins to meander Fiem is looking to secure a foothold in the LED luminaries segment as it sees the conventional 2W industry incumbents are seeing a structural slowdown while new entrants like Honda are growing fast. The company is entering the LED display signal systems bidding for Railway contracts and has been qualified for RDSO vendor approval, post-prototype presentation. Valuations reasonable but growth concerns in core business Fiem has been able to beat the slowdown in the 2W industry due to the strong performance of HMSI. Consequently, its dependency on TVS Motors has come down considerably over the past five years. However, given the muted growth expectation from the two-wheeler industry, we believe growth will remain a concern in the core business. The companys venture in the LED segment could lead to a fresh leg-up of growth. The ability of Fiem to enter the market with established, large players remains the key monitorable. The company also boasts of decent operating margins and operating ratios though D/E > 1.0x remains a concern. On the valuation front, the stock is trading at a reasonable trailing P/E multiple of ~11x FY12 EPS.
Exhibit 1: Financial Performance (Consolidated)
(| Crore) Total Operating Income EBITDA EBITDA Margin (%) Depreciation Interest Other Income Reported PAT EPS (|) FY08 177.3 21.1 11.9 7.8 2.0 2.9 9.3 7.8 FY09 219.3 19.7 9.0 8.8 4.0 1.0 4.6 3.9 FY10 294.2 27.6 9.4 9.2 3.3 0.8 10.8 9.0 FY11 417.3 34.3 8.2 13.0 9.5 4.0 11.4 9.5 FY12 533.5 67.7 12.7 16.6 20.8 0.3 21.4 17.9

Valuation summary
P/E EV / EBITDA EV / Net Sales P/BV RoNW RoCE FY09 49.1 13.9 1.2 2.4 4.8 7.5 FY10 21.1 10.1 0.9 2.1 9.7 11.1 FY11 19.8 10.4 0.9 1.8 9.0 8.3 FY12 10.6 5.7 0.7 1.6 14.8 16.6

Stock data
Market Capitalization Total Debt (FY12) Cash and Investments (FY12) EV 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 226.5 Crore | 162.7 Crore | 5.3 Crore | 383.9 Crore 206 / 134 | 12 Crore | 10 0.0 0.0

Return matrix
Return % Fiem Industries Ltd Lumax AutoTechnologies Motherson Sumi Systems Ltd 1M (4.3) (8.4) (14.0) 3M (4.6) (13.7) (10.1) 6M 7.1 (21.4) 13.2 12M 33.5 (10.7) 42.8

Price movement
6,300 6,100 5,900 5,700 5,500 5,300 5,100 4,900 4,700 4,500 Apr-12 Jul-12 Oct-12 Jan-13 Nifty (L.H.S) Price (R.H.S) 220 200 180 160 140 120 100 80 Apr-13

Analysts name
Nishant Vass [email protected] Venil Shah [email protected]

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Improving topline performance and steadying margin profile

550 500 450 Net Sales (|) 400 350 300 250 200 150 177.3 FY08 FY09 Net Sales FY10 FY11 EBIDTA Margin FY12 219.3 9.0 9.4 294.2 8.2 11.9 417.3 530.2 12.7 14.0 13.0 12.0 11.0 (%)
Dividend Per Share (|)

10.0 9.0 8.0 7.0 6.0

Source: Company, ICICIdirect.com Research

Exhibit 3: Return ratios improvingworking capital needs increase debt to equity

25.0 1.2 20.0 15.0 (%) 10.0 5.0 0.4 0.0 FY08 FY09 RoE FY10 RoCE FY11 Debt to Equity FY12 5.1 0.3 11.99.7 8.4 0.5 0.9 18.9 13.5 12.1 0.6 17.5 12.8 11.0 1.1 0.9 0.7 0.5 1.3

Source: Company, ICICIdirect.com Research

Exhibit 4: Increasing dividend per share for investors

5.5 5.0 Dividend Yield (%) 3.8 3.0 2.3 1.6 1.0 FY08 FY09 Dividend Yield FY10 FY11 Dividend Per Share FY12 2.2 5.6 3.6 3.0 3.0 4.5 3.0 3.0 3.5 2.5 1.5 0.5

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 [email protected]

[email protected]

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