Lumax Industries Limited (517206) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Lumax Industries Limited Q4 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Jain, Chairman and Managing Director, Lumax Industries Limited. Thank you, and over to you, Mr. Jain.

Good afternoon, ladies and gentlemen, a very warm welcome to the Q4 and FY '20 Earnings Call of Lumax Industries Limited. At the outset, let me wish everyone good health in these unprecedented times. Along with me on this call, I have Mr. Anmol Jain, Joint Managing Director; Mr. Vineet Sahni, CEO and Senior Executive Director; Mr. Naval Khanna, Executive Director, Lumax Management Services; Mr. Sanjay Mehta, Group CFO; Mr. Shrutikant, CFO; supporting with him, Mr. Ankit Thakral from the finance team; Ms. Priyanka Sharma, Head, Corporate Communication; and SGA, our Investor Relations adviser. The results and investor presentation are uploaded on the stock exchange and company website. I hope everybody has had a chance to look at it. Before we start with discussions on the financial performance of the company, I would like to share a few highlights of the automobile industry of India. The year 2019 witnessed the slowest demand in the past 2 decades owing to multiple reasons. The industry was pinning hopes on a demand revival in FY '21. However, the outbreak of COVID-19 pandemic has added to the pain of an already reeling automobile industry. The resultant lockdown announced to prevent the spread of COVID-19 adversely impacted the demand. The sector is also witnessing various supply chain issues along with labor migration and stretched cash conversion cycle. The auto OEMs have also trimmed their CapEx plans for FY '21. Industry bodies have appealed to the government to lower the GST rate and to provide some policy support to induce demand and is awaiting some positive response from the government. Despite all the negatives, one major positive development has originated from the COVID-19 outbreak. Most of the nations are now considering India as an alternative manufacturing destination to China and thus, major investments in the Make in India initiative can be expected in the times to come. This will help the industry grow and will be beneficial for the industry-leading companies like Lumax to capture the increasing opportunities that come our way. The forthcoming year is expected to be challenging, and hence, we remain cautious on the demand outlook. Our focus will be on efficiency improvement, reducing fixed costs and devising mitigation strategies to face the near-term headwinds. We are rethinking, regrouping and building a robust supply chain, along with making manufacturing processes more agile as the focus shifts from production performance to surviving in an environment of [indiscernible] change by being able to react quickly to the changing market conditions. With the changing dynamics of the industry, company's technological expertise backed with partner support, strong research and development and a customer-centric approach, Lumax has emerged as a leading agile and innovative global automobile lighting solution provider. By leveraging our experience and strength, we would capitalize on any opportunities that come our way and further our industry leadership. The company has made new launches during the quarter. In the PV segment, we have started supplying on various lighting products to Honda Cars India Limited for their WRV model. We're also supplying headlamps to the Bolero van of Mahindra. In the 2-wheeler segment, we are supplying various lighting solutions to BS-VI models of Passion Pro, Glamour 125, Super Splendor and Xtreme of Hero MotoCorp, Perak Jawa model of Mahindra and Unicorn from HMSI. Awards and recognitions. Lumax Industries Limited has 4 awards is the Fifth National Case Study Competition of ACMA. The company has also won the prestigious Gold Award for the top 100 best annual report for the excellence within this industry for the past fiscal year. Now I would like to hand over the line to Mr. Sanjay Mehta, Group CFO, to update you on the financial performance of the company.

Thank you, sir. Good afternoon, everyone. I will just update on operational performance. The share of LED lighting stands at 34% of our total revenue and that of conventional lighting stands at 66% during FY '20. The product mix for FY '20 as a percentage of total revenue is 66% as front lighting, 25% as rear lighting and 9% others. The segment mix for FY '20 as a percentage of total revenue is 66% passenger vehicles, 29% 2-wheelers and 5% commercial vehicles. Now I will update on the consolidated performance. The revenue stood at INR 1,602 crores for FY '20 as against INR 1,851 crores in FY '19, down by 13% year-on-year basis. For Q4 FY '20, revenue stood at INR 387 crores versus INR 433 crores in Q4 last year, down by 10%. The revenue was affected by countrywide lockdown due to COVID-19. Manufacturing revenue for FY '20 stood at INR 1,471 crores as against last year of INR 1,802 crores, down by 18%. For Q4, it stood at INR 334 crores against the last year of INR 418 crores, down by 20%. The company reported consolidated EBITDA of INR 165 crore for FY '20, same as in FY '19. The EBITDA for Q4 stood at INR 38 crores vis-à-vis INR 39 crores, Q4 FY '19, down by around 4%. EBITDA margin stands at 10.3% as against 8.9% for FY '19. Similarly, margin for Q4 FY '20 are 9.7% versus 9.1% for Q4 FY '19. Profit after tax and share of associates before exceptional items stood at INR 72 crores as against INR 75 crores in FY '19. Q4 FY '20, it stood at INR 16 crores vis-à-vis INR 14 crores in Q4 FY '19. PAT margin stood at 4.5% as against 4% for FY '19. For Q4, PAT margin stood at 4.2% as against 3.3% for Q4 FY '19. The CapEx incurred during FY '20 is INR 167 crores, including INR 22 crores incurred on new Electronics Facility and INR 24 crores on right-to-use asset. For FY '20, the Board has recommended a final dividend of INR 6 per equity share subject to the approval of shareholders at the ensuing AGM. This is in addition to the interim dividend of INR 17.5 per equity share paid in March 2020. Now we open the call for questions.

[Operator Instructions] First question is from the line of Vimal Gohil from Union Asset Management.

Yes, sir. Congratulations for a steady set of numbers in this challenging environment. Sir, I just had a question on the balance sheet. If you can just tell me what is the gross debt on your books currently, including the current maturities?

Okay. So I'll request the finance team to take it, please?

So, the debt on the balance sheet, long-term debt is around INR 53 crores. I mean the total debt is INR 53 crores. Out of that, long-term is INR 26 crores. It is excluding the working capital limits. And I've said the total borrowings, including term loans, it is around INR 319 crores.

So total borrowing is how much, you said, including working capital line?

INR 319 crores.

INR 319 crores. Okay. Okay. And this working capital limit is a part of your current liabilities, right? In the working capital, how much is that?

It's coming in the borrowings, both in -- I mean, it is coming in borrowings.

Okay. Okay. So basically, your total net debt will be INR 319 crores at this point in time, including all your working capital limits?

Yes, yes, yes.

Okay. Okay. Fair enough. And sir, what -- the next question was on the overall demand environment. So basically, how are you placed in terms of your top line, in terms of your product portfolio in Maruti and Honda? I see that this particular quarter was very strong for Honda. So what's driven that? So if you could just explain that? And plus, how will other top accounts like Maruti and M&M, how are they expected to perform going forward? And do you -- would you want to sort of maybe relook at your ambition to take your LED penetration to 50% in the next 3 years, would you want to shift that right now given the circumstances? If you could just comment on that, please?

So you had multiple questions. I could not hear your last question. If you could just repeat your last question, and then I'll...

Yes. So I think we had the target to achieve 50% penetration in LEDs in the next 3 years, if I'm not mistaken. So if that is shift -- if that goalpost has been shifted by -- to any extent because of the current disruption, if you can just highlight that, please?

Okay. Okay. So I'll just give you a little bit overview. I think fundamentally, if you look at the LEDs, currently, in '19-'20, we were at a ratio of about 34% LEDs vis-à-vis non-LEDs of 66%. We still maintain that LED adoptions will continue. Most of the new product development what we are doing has got some elements of LEDs in the lighting. And hence, we maintain our outlook that we -- in the future, between about 3 years or so, we should be able to get gradually to the 50-50 benchmark. Second, in terms of the outlook, it is extremely difficult to say in terms of the revenue outlook. However, because of the customer portfolio what Lumax Industries enjoys, at top 3, we have Maruti Suzuki as well as Hero MotoCorp and we are seeing that they are recovering faster than their peers in their respective segments. And we also are able to support them on their new product launches. So hence, we feel that we would be also better off when the recovery comes through.

Okay. Okay. Sir, on this -- on that Electronic Facility and localization initiatives, where are we placed right now? What is the update there, if you could just give me some color over there? You were supposed to launch some new products in the Auto Expo. So where are we on that?

We continue to basically push for the localization initiatives. We also participated in the quarter at the Auto Expo, which we had -- saw a very good footfall as well as very strong interest by the customers on the new technologies which we had displayed, specifically on the lighting. However, I think here, because of the COVID-19 more to conserve the cash, so whatever investments we have done over the last year on the localization, especially also on the PCB, we continue to do that. But going forward, we will scale down our CapEx and probably shift our basically investments on the PCB, specifically on the localization, for the next 6 months.

Yes. So my next question was going to be on CapEx only. What is the amount of CapEx that you are expecting to do in FY '21? And if I've understood it right, whatever the scale down is on CapEx, whatever incremental CapEx will be done, it will be done on the PCB facility, right? And it has a maintenance CapEx?

That is correct. But for this year, about INR 75 crores will be capitalized in terms of CapEx, and we would be doing about INR 40 crores or so would be the cash flow.

Next question is from the line of Varun Baxi from Equirus.

Sir, my first question is regarding our margin. So in this quarter, if I look at our Q-o-Q margin, there has been a significant rise in our raw material costs as well, but primarily our raw materials have been linked to the crude largely and crude has come down. So I just wanted to understand what led to our raw material costs going up and also -- was there any impact of higher mould sales on our EBITDA margin?

Yes. So would the finance team like to take this question, supplemented by Vineet?

Yes. So the raw material, which has been -- last quarter, it was at 60%. Now it is 61.9%. So it is -- hello?

Yes.

Yes, yes. So it is largely -- I mean, the increase is because of the product mix only, nothing like the crude or something has increased, that has affected. Second...

I would also -- Sanjay, I would also like to add. What happens, the settlement with the customer, there is a lag, it happens quarterly. So if you see the raw material going down, the actual impact normally comes as per the agreement with the customer, which is either quarterly or 6 monthly. So that's why you may not have a direct correlation with the results. Okay.

This is Anmol Jain here. I'll just like to say -- Mr. Baxi, I didn't understand your question. If I look at my raw material consumption on a year-on-year basis for Q4, it has actually improved substantially. And if I look at a consecutive quarter, Q3 to Q4, there is a very marginal increase. So I'm still not understanding you're referring to what quarter or what period?

Sir, there is raw material price -- I mean, about 190 bps increase on a Q-o-Q basis in our raw material prices, but I mean, over last quarter, crude has actually come down. And I think raw material prices, there is some disconnect between that. So I wanted to understand that, on a Q-o-Q basis.

I don't know [Audio Gap] take offline.

Okay. We can take it offline. But I mean, on a Q-on-Q basis, we -- raw material consumption of the company has actually gone down on a quarter 4 year-on-year basis. So we can take it off-line and maybe have some more clarification.

Sure. Also, sir, was there any impact of higher mould sales on our EBITDA margins? I mean is there any difference between the margins that we earn on mould sales as well as the margins that we earn on our product sales?

So the mould sales, yes, do have a very different margin as compared to the product sales. But the mould sales are -- the mould margins are very different on model-to-model basis also and segment-to-segment basis also, but in totality, we do not see any major shifts in our mould margins on an annualized basis. But yes, quarterly, depending on the model mix, the margins do tend to differ.

Okay. Okay. Sir, also on our import content. Do we have any exposure to China in terms of our import? And is there any risk of all these geopolitical issues that are happening?

Yes. So this is Deepak here. I think for Lumax, I think, the direct import basically is roundabout -- from China is about INR 12 crores per annum, which is about 6% or so. So I think we do not -- and we have alternate sources all across Asia. I think globally and looking also the trend with China, I think everyone is considering China Plus One sourcing. And with that also, we have taken up with the customers. So to answer your question very directly, we don't see any impact on basically China's resourcing.

Sir, sorry to interrupt you. May I request you to come back in the question queue for a follow up question. Next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Yes, sir. Any comments you have on the margin side? We had managed the margin this year and expanded it actually despite a lower volume. FY '21 also probably seems to be a low volume year as of now for '21. So any thought process on -- are there any levers for margins that we are working on?

See, there is 2 things. Revenue may not be in my control. But obviously, I mean to say, costs are under our control. And I think what we, as basically a group and a company, are taking very strong cost reduction initiatives, primarily in 3 areas, which is basically the raw material cost reduction. Second is also on the manpower cost. And third is based on certain in-sourcing as well as localization initiatives. So these all 3 initiatives are going on. And we are hopeful that we would be able to at least not have a significant depletion of margins, if even our revenues contract. And I think, as I said before that we probably would be in a better state to suggest in the next quarter, depending on how basically our revenue model is shaping up.

Sorry, I missed what you said that even if our revenue dip...

We don't see we're going to have such severe impact on basically our margins because we are taking very stringent fixed cost reduction efforts.

Perfect. Okay. And one more question I have. We keep on hearing all the time that in times like this, the OEM preference for LEDs on the vehicle reduces because it tends to increase a bit of the cost for the end customer. I just wanted to understand, is this true? And what broader trends do you see? So is it also a situation where even lower end models are seeing LED adoption. If lower end models are incrementally seeing LED adoption then the first comment that we keep on listening or hearing or reading in newspaper may not be true. So we just wanted to understand your thought process on this LED acceptance in the current phase?

So I think as you know, lighting as a product is a very, very strong, not just a safety product, but also has a very strong correlation on the design as well as on the visual appearance of the vehicle. And that actually has a big impact on the consumer buy decisions. And of course, cost is one aspect only. However, at least, as I mentioned before in the call, that whatever new product developments we are doing, we are seeing actually a faster adaptability of LEDs. Just a case in point, even in some segments, like the agriculture, the tractor segment, even they are actually adopting LEDs now. So we see that this trend will continue. The -- even in these unprecedented times, the new product development with our customers continue as is. So we haven't seen any basically stoppages on that. And I think this is also probably correlated and you've probably seen media announcements on majority of the OEMs are saying that at least their R&D work and the business development work continues as is. So I think we are actually still maintaining our position that there will be fast-tracking of LED adoptions. And hopefully, from the 34%, 35-odd percent, we would be going closer towards the 50% in the coming years.

And lastly, what was our volume decline for FY '20?

So finance team, would you like to basically see what was the volume decline?

It was 18%.

Yes, 18%, yes.

What is industry of?

15%. Around 15% to 16%, yes.

Next question is from the line of Nikhil Rungta from Nippon India Mutual Fund.

Just 2 questions from my side. First is, how are we placed in terms of liquidity? And second is, in this current environment, there would be lot of opportunities which might be coming in for acquisition. So if any opportunity come, would we be interested in taking over something?

So let me give you the second question's answer first. I think we are always looking out wherever we can fit our customer needs. And basis that, we will basically take a measured outlook. Today, our basically idea is to conserve cash and get over these unprecedented times and hence, cash flow management and cash conservation remains the key. We, I think, agree that there will be opportunities in the future. But instead of just acquisition, there could also be consolidation on the industry based on just elimination because these are just very different times. And hence, we will be having a very close outlook based on our customer requirements and needs. In terms of the cash, we can just -- I can give it to the finance team, they can answer.

Yes. Yes. We have unutilized limits of almost around INR 150 crores. My all fixed assets are not given as a security. So I have enough leverage to take further debt in case needed for any acquisition or something. So answer to your question, liquidity wise, there is no problem. Our -- all -- we have sufficient unutilized limits with us.

Okay. And in terms of leverage, to what level would the management be comfortable increasing the leverage to?

I think the issue here is not about a rule of what kind of comfort we have on the leverage. As I said, it's basically to do with the opportunity, to see that what kind of customer basically import is given and driven. So we will basically take at that time a decision at what type of leverage. But today, I mean to say, our balance sheets are not at all leveraged, and we do have basically good liquidity in the system, if we need to further invest on any external opportunities.

Next question is from the line of Pratik Kothari from Unique Asset Management.

Sir, this is Sunil. And congratulations for good number in this tough time. Sir, my question is you -- in your opening remarks, you said there is a scope to become a manufacturing hub already second source to China. So larger picture, you talked about Lumax, if you can say, if there is a possibility of Stanley making India or Lumax as a hub for some -- maybe some products which were previously available in China? Because you previously also said that we are planning some announcement by quarter 4 of new products. So larger opportunity in terms of manufacturing in India? And second, related to Stanley, what new products, new projects we are planning, if you can little bit elaborate on this?

Sure. Thank you, Sunilji, for your comment and the question. I think there are 2 things very clearly. With Stanley, we share a very, very good and strong relationship over the last 36 years. I hope you may have visited basically the stall at the Auto Expo, which happened in February first week. I think there, we displayed certain products, which are probably electronic derivative, which are in the HVAC panel, and that is something we are exploring for the Indian market. And this will be expansion of our relationship with Stanley, post -- it was right now only lighting, but these would actually then cover other electronic agents. Vis-à-vis actually using Lumax Industries as an export hub for Stanley's requirement, we are under discussion. But as you can well understand that the exports is not just because China has done something or something has happened geopolitically, it is primarily much more midterm to long-term strategy based on cost quality and competitiveness. However, we are in discussions with Stanley, how do we basically ensure that we are able to leverage the Indian manufacturing system for their global requirements.

Right, sir. And second point, just wanted to understand, normally in this type of tough time, we always try to reduce cost, fixed cost and so many other things. We try to improve in terms of productivity. So if you can talk, which is a sustainable cost reduction and productivity improvement things we are doing? And how sustainable do you think will be, if you can say something about this?

So I think whatever cost-cutting we do is going to be sustainable because our first emphasis is to basically cut down on the fixed cost. I said before on the call, I think the bigger opportunities, where I'd say bigger opportunity means saving potential is almost of around close to about 50%-plus is primarily where we are seeing good cost this thing. However, the big-ticket items are on the manpower cost. Also, in terms of the raw material cost, these are 2 costs, which are big-ticket items for us. Of course, we are looking at all other costs, which could be of fixed of nature and trying to see wherever we can reduce that.

[Audio Gap] more about -- any latest update and trend from your customers month-on-month? How you're getting figures and [Technical Difficulty] also recovery from maybe 4-wheeler, 2-wheeler? Whatever larger pictures you can give.

Sure. So I think in terms of -- let me go segment by segment, but there are common elements in this segment. What we are seeing is that in the 4-wheeler and the 2-wheeler space itself, I think the rural market has bounced back a lot better and which of the OEMs which are having a far outer reach at the rural markets, also who have good basically cash reserves of strong balance sheets, which can help finance the sales; and third, also, which are in the lower segment of the industry vehicle. I think those are having a much better scope of a V-shaped recovery. The other shapes of recovery are basically coming in other segments. So for example, let me elaborate. On the passenger car, let's say, for Maruti, Hyundai, I mean to say, they are in the entry-level segment. If you remember 10 years back, I mean to say, A segment, B segment, they were actually having the majority of the revenues in the vehicles. And I think that has shifted to a C and D segment. And I think what we are seeing is, again, in the short term, at least, inquiry starting from the A to B segment in both passenger car as well as also on the 2-wheelers. So motorcycles is having a lot better resumption also because of the efficiency as well as the motorcycle with the lower segment is basically having a strong revival in the domestic market. So we are quite optimistic. However, cautiously because Maruti, Hero are in our top 3 customers. And we are also having large market share with them. So we feel that we would be able to have a better recovery when they start selecting these models. So these are some trends which are actually coming out. Of course, agriculture, in the tractor segment, we actually are seeing a good stable recovery because of the rural demand. Commercial vehicles, we feel that it will take time. It has been basically overregulated as well as we are not seeing such a traction on basically the HCVs per say. However, the exposure to the commercial vehicle segment with Lumax Industries is relatively limited as we are more exposed to the pass car and 2-wheeler, and hence, we're expecting a better recovery than compared to our peers.

[Operator Instructions] The next question is from the line of Anubhav Rawat from Monarch Networth Capital.

I hope you guys are doing well. Just a couple of questions from my side, sir. So just wanted to know what would be our estimated CapEx outflow for this coming year?

I just had mentioned in the call that, I mean to say, our CapEx is about INR 75 crores -- capitalization is INR 75 crores, CapEx would be INR 40 crores.

INR 40 crores?

Yes, 4-0.

Okay. Perfect. And sir, just wanted to know, out of our total RM cost, I mean, can you give a flavor on how much would be the LED cost, light-emitting diodes?

Only LED cost or the LED systems you're talking about, lighting, because there's the conventional type?

No, no. So my understanding is that LEDs are something which, I mean, is imported, right? So I just wanted to know how much is that light-emitting diode for...

So Vineet, would you answer that question, please?

Yes. So it's around 18% of the total RM cost is contributing to LED cost.

All right, all right. Perfect, sir. And sir, I just wanted to know, so what would be our current import content level? And what is our target going forward?

So the current, basically, import content is primarily in the -- let's talk about headlamps. So I think we are talking about in the conventional, both in the 4-wheelers and 2-wheelers lighting, it is actually, I would say, even less than about 4%, but when it comes to LEDs, the -- in the passenger car and the 4-wheeler side, it is probably -- on the headlamp, it's about 60%; and on the taillamp, it's about 30%. And on the 2-wheeler front, it is, on the headlamp, about 30%; and on taillamp, it's about 25%. And I think the localization, we are looking at is a 30% to -- around say, 15% to 30% improvement in the 4-wheeler and on the 2-wheeler, about 5% improvement.

Okay. Okay. Understood, sir. Just one last question from my side. So these new products that we are entering into HVAC, so can you give some indication on what would be the CapEx or revenue potential from these products?

See, the order book which we have currently, with the new products coming in, is close to round about INR 450-odd crores. However, I mean to say, INR 300 crores would be actually the replacement business. As you know, lighting has many, many minor model changes. So we basically would be having INR 300 crores, and INR 150 crores would basically be the projects which probably would be additional. And this is over a span of about 2 years or so. Now this will also depend on the RFQ volumes based on. So you need to basically set off on that.

The next question is from the line of Abhishek Shah from Valcore Capital Advisors.

Sir, I just had a few questions. I wanted to dwell further on our cost-cutting initiatives. Most organizations that we speak to currently are talking about how they intend to come out much more leaner after -- in the post-COVID side. I just wanted to understand what sort of fixed cost reduction -- maybe what would be the areas that we're looking at? Some idea if you could just help us understand. And post-COVID, what would be the cost that -- what would be the cost that would stay? Maybe -- I don't know. If it is possible to quantify, that will be helpful? That is one. The second question is that a lot of companies have taken salary cuts, especially at the management level, could be temporarily, but just want to understand, are we doing a similar -- are we taking a similar hit or not really?

Okay. So let me give you a little bit of outlook on our cost-cutting initiatives and then I'll also tell Vineet to supplement it. As I mentioned before in the call that I think the 2 key costs, even if you look at our P&L, is the raw material cost as well as our manpower cost. And especially in these COVID times, I mean to say, the manpower fixed cost is the one which basically is at a discussion level. Now as a proven management, what we have done is that from a -- we have discussed about the salary cuts for the staff for this quarter, and we will review it for the next quarter based ending this quarter, which is the Q1 for the 2021. And we have actually, from the top management taken a 100% salary cut and down the level to 5%, averaging almost close to about 27% for basically the company. And this has been voluntarily collectively been decided. Also, we are in discussions with our workmen, how to basically also further take certain salary cuts given this unprecedented time. On the raw material cost, of course, I mean, say there is renegotiations as well as there is fundamentally in-sourcing and also consolidation of certain suppliers. But this is a long-term initiative more than short term. And we'll continue to basically improve on our raw material consumption, based on the consolidation and the localization initiatives. In other costs, there are many other initiatives on the cash management, be it inventory, cash flow as well as, I mean to say, looking at certain contracts which have been on the, let's say, legal and professional, security, housekeeping, so all the other kind of service contracts we're talking to our service providers to renegotiate them and at least get certain reliefs so that we are able to reduce our fixed costs to ensure that we are able to have a consistent profitability even once our revenue contract. On the variable cost, of course, it is an outcome of our productivity as well as the revenue contraction, so we continue to monitor that on the basis. So Vineet, would you like to add anything further?

So -- no, no, I think it's very clear. Just to add, on a regular basis, we have 28 areas identified clearly in the organization, which -- on which the teams work to reduce the cost on a consistent basis. And of course, the results are reflected in the raw material cost or in the manpower cost, that is a reflection of the results.

Got it. Got it. Sir, just one more question I wanted to ask is, in terms of labor availability, let's say, for example, if volume supplies are on the upside, can we scale up quickly or will there be a labor shortage for us to ramp up?

I think the industry is grappling with a labor shortage. We are cautious about it. Lumax is better placed because our contractual to our permanent workforce has a better ratio. However, I think there could be certain areas, not just because of the labor shortage, but still on the containment zones like Maharashtra, like Tamil Nadu. So we are actually on a very, very cautious way. The safety of our employees are at the paramount of our concern today. So we are taking the adequate measures to have safe shop floors and also try and see where and all we can ensure that our labor is kept even on reserve basis. We are probably seeing certain measures for that as well.

Next question is from the line of Dhagash Shah from CD Equisearch.

Sir, my first question is that how do you see the industry as a whole recovering and what are the signs that you would be on the lookout for as a company?

So I think I am very optimistic always. I think as far as the recovery is concerned, the supply chains are ready, and I think there is a whole issue of demand. You can always -- already see that there are green shoots in the rural in Tier 2, Tier 3 cities, where it is not so congested and people have already started to buy. I think my biggest basically point would be, I think, although SIAM has given a data where they are talking about, based on the macroeconomics contraction of the GDP, they have correlated it with the industry outlook. And there, basically, thing is to almost about -- if the GDP is about the minus 2%, you're talking about a contraction of about close to 25% to 35%. That's how basically they have given. I think for our business plan scenario, I remain more optimistic than this. Although we do feel that there will be definitely a contraction because given how the April and the May month have been but our -- very clearly, we are seeing signs of recovery, as I mentioned before, in our key customers where they have a better, far outreach in the lower segment, entry segment vehicles in their segment as well as in terms of a higher financing power and rural outreach. We are also seeing that in the aftermarket and the spares, we are seeing basically an uptick there. So that's a positive cycle. So that means people are starting to come to the shops and basically started to buy. So we feel that the next quarter, we are very, very cautious. We still have to see how basically the state-level governments will talk about opening up or unlock version 2 and version 3 will play out. But we at least remain optimist that in H2, specifically leading up to the festive season, I'm figuring that the growth should come back at least to about 75% of what we had basically last year.

All right. And sir, just for an understanding purpose, what is the revenue differential between a regular light and an LED light? Or if you can just explain the difference for 2-wheelers and 4-wheelers both?

So I think primarily, not just to give a unit figure, but I think mainly depending on the amount of LED adoption because LED has multiple functions within a lighting system. So depending on the LED adoption from a completely conventional to LED, it can go anywhere between 1.5x to 4x.

All right. And sir, you spoke a bit about this in your opening remarks also, but -- and someone asked a question as well. But any sort of chance of reverse migration in the short term, I mean, 6 months or so?

You're talking about reverse migration of the labor, again?

No, LED, sir.

No, I personally -- again, as I said, I mean to say, the -- you have to understand that for lighting, it is an early adopter in terms of the development cycle of the vehicle. And we do feel that in terms of going forward, LEDs will continue to get adoption. So as far as reverse migration, I don't think that is going to happen. However, there can be -- instead of 3 years, it can take 4 years. That will depend on basically the customers' plans to launch. If they plan to then delay their launches, I think they may basically have a delayed LED adoption impact. But other than that, I don't think there is going to be a reverse migration for that.

All right. Sir, just one last data point. Any plans for the company to increase its debt in the current year or next year?

Not as of now.

Next question is from the line of Hasmukh Gala from Finvest Advisors.

Yes. Congratulations, Deepak, for a very nice set of numbers in such a trying environment.

Thank you.

Yes. Just 2 things I wanted to know. SL Lumax, we have not discussed. So they have done pretty well with 30% growth in the profit. So how do you see the SL Lumax?

So, Hasmukh, we were waiting for your -- this thing to that question, I think. So SL Lumax, as you know already, it's Hyundai-based, basically, entity. And I think, as I've always mentioned that we should not look at quarter-on-quarter, but on the full year annualized. So if you look at from that perspective, they have had a strong performance, based on, of course, Hyundai's performance also, which has been quite strong. So I think that is correlated on that as well. And going forward, I think they are very closely linked with Hyundai's plans and outlook. And I think there also, we hope that they will be able to maintain a stable performance.

Okay. And Kia also we are catering to. Is it not?

Yes. So all Korean joint ventures, I would say, is already in there.

Okay. Okay. And one just clarification on this CapEx of INR 167 crores which we mentioned, how much you have spent on the electronics? I missed that number.

Sorry, I did not get your last part. Can you just please repeat it?

Yes. The CapEx in FY '20, we said is INR 167 crore. Out of that, electronics was how much?

On the electronics, the PCB of that INR 167 crores was INR 24 crores.

INR 24 crores? Okay. Okay. I thought INR 24 crore I think he said something else.

Can you, Mr. Mehta, clarify, please?

Yes. INR 24 crores is also -- what sir is telling is correct, PCB, INR 24 crores, and INR 24 crores what you're talking is leased assets also, right-to-use is also...

Right-to-use assets, correct, correct.

Yes. Yes.

But then, which are the other areas on which we have spent? Because this is only, say, INR 48 crore we are covering.

So primarily, I mean to say, they were done in terms of our expansions in our various plants: Bangalore, Sanand, Bawal, Dharuhera, Pant Nagar, Chakan. So we had basically expanded on our this thing. Mainly, it was done, I would, if I were to look at it in terms of -- except -- excluding the leased assets, it is about INR 145 crores. And in our Bangalore, Bawal and Sanand, which were the main parts, which is where we're doing in the north, south and also in the west, we're basically together cumulative, we have done close to around about INR 90 crores.

Okay. So current year, when you are guiding for INR 75 crore capitalization and INR 140 crore CapEx, will there be any other thing other than that on account of, say, the regular maintenance CapEx, et cetera?

That would be included in that, about INR 25 crores would be in that.

Okay. It will be included in that?

Yes. Yes. I mean to say, we want to be very conservative this year, at least, on the CapEx. And of course, I mean to say, with some contraction, we will have capacity. So we want to be very, very cautious on conserving cash.

Next question is from the line of Vishal Srivastav from Edelweiss Financial Service.

Sir, congrats for good set of numbers, even in the challenging scenario. Sir, I have one question. Sir, there is an understanding that with implementation of BS-VI, the adoption of LED will increase further. So hence, in FY '21, do you think LED penetration will naturally be more compared to FY '20? That was my question, sir.

Yes. So as I mentioned that because of this COVID, we maintain our direction that from a current 35% LED revenue, we will basically move to about a 50-50 LED revenue within a span of 3 years. I think this year, we will -- whatever launches we are having, will have certain LEDs to it, but because of the whole volume being muted, it is difficult to estimate what will happen this year, but it's not just because of BS-VI transition but also the multiple factors on actually changing consumer behavior, which is actually having a fast track of LED adoption as well as light-weighting and energy efficiencies. So we continue to see the strength and faster adoption of this. And as I mentioned before, again, that on all the new projects what we are doing, there is some element of LED in the lighting systems on all settings.

Next question is from the line of Shashank Kanodia from ICICI Securities.

Congratulations for exceeding the performance and your detailed response to all queries. Sir, one query I had was regarding some 2 or 3 years back, there were some investigation by tax authorities across the group level. So have that investigation been terminated or everything that -- anything that you've heard from the tax authorities or any development on that?

I will request Naval Khanna to basically answer this question.

Yes, sir.

Naval, are you there?

Yes, sir. Yes, sir. Yes, sir. I am here.

Yes. So can you please answer on that question?

Can you please repeat the questions again? Could you please repeat the...

Yes. So I think in December 2017, there was some investigation by tax authorities across the -- at the group level, right, for Lumax Group. So just wanted to understand, have we heard anything back from them? Or what were they looking for? Have that claims been resolved? Any color on that?

The block assessments for that has already been done. Most of the points have been settled. And whatever are the objectionable points, we are at the stage of first appeal and we are quite confident and hopeful that it will be settled in favor of the company because there is nothing major findings which have been found.

Okay. And sir, what is the concession amount at their side? I mean, what is they contesting? And -- or is there any contingent liability to us?

No, there is no contingent liability because as such, we are having a huge amount of MAT credit available as well as the unabsorbed depreciation also available. So whatever demand is also there, which is less than INR 5 crore kind of a demand, that is also appealable. So because of the MAT credit available and the unabsorbed depreciation this thing, there is no reason of putting it into the contingent liability.

Next question is from the line of [ Atul Prakash ] from [ Investor Research ].

Sir, I just wanted to have a target level for FY '21? Just wanted to know that.

Sorry, can you repeat your question?

Yes. What is the target level for FY '21?

Target level in terms of what? Revenue, you are saying?

Yes. Yes, revenue.

Yes. As I said, I mean to say, we are not giving any outlook as of now. I mean to say, we are going to probably be on a wait and watch, but cautiously optimistic. And probably in the next quarter, this thing, we would be in a better position to give you a target outlook.

Okay. Just one more question, sir. What is the CPLTD portion, if you can tell?

Can you basically -- Mr. Mehta, can you basically do that?

Can you repeat the question, please?

What is the Current Portion of Long-Term Debt?

Current Portion of Long-Term Debt is, I think, INR 26 crores.

INR 26 crores?

Yes.

Next question is from the line of [indiscernible] from [indiscernible] Capital Advisors.

I just wanted to know what's the cost difference between your import content and the localized content?

Well, I think, obviously, in a localized content, I mean to say, we have a better possibility on specifically on the electronic component on the 4-wheelers, especially, to have a margin improvement of about 100 to 150 bps. However, on the 2-wheeler, it remains the same. But please bear in mind that about -- in 5 years, the rupee devalues 15%. So I think that's one of the basic attraction on basically localizing.

Okay. Okay. Got it. And in the last quarter, there were some questions regarding the debt levels. And you guys have mentioned that it's a temporary phenomenon because of the stretched working capital cycles, and I mean, I agree to the fact that the things have just gotten worse since then. But what's the -- what is your sense on the debt levels? Where do you see it going in the next 6 months to 8 months?

The company's debt level?

Yes, yes.

Can you repeat the question, please?

So basically, in the previous quarter, there were some questions regarding your debt levels. And the management had said that it was a temporary phenomenon because of the stretched capital cycle, the working capital cycle. So where do you see it going from here? From, I think, currently, you have INR 300-odd crores, right, so where do you see that going?

Yes. Mr. Mehta, would you like to basically -- to say that. And I think also, just before that, I just wanted to say that I think fundamentally, if you look at our cycle today, I mean to say, our biggest basically concern was on Tier 2, Tier 3s. And we need to also do certain vendor financing as well and the customer financing based on the customer cash flow. So just to give you, this is the current situation, not just with Lumax but of the industry. And now I'll just request Mr. Mehta to basically say how it's going forward for the next 3 to 6 months.

Definitely, it is not like that because of the revival of the sales, et cetera. And moreover, because of the lot of measures we have taken, as mentioned in the questions of cost measures as well as the limited very, very cautious CapEx, definitely the debt level way forward is going to be on the reduced way. So the answer, it will not like that. It will be -- way forward, it will be reduced in the decreasing trend. It's a temporary phenomena at the moment.

Okay. Okay. And one more question was on the order inflow, if there was any in the current situation? So you can -- in the news you see that a lot of car launches are happening actually in the last few months. Tata has launched one. Volkswagen and Skoda both have launched -- they have plans of launching models in the coming few months or years. So have you gotten new orders from those guys? What's the order inflow as of now?

I think I mentioned, again, earlier in my call that the total order inflow right now which we have is about INR 450 crores, of which INR 300 crores is replacement, INR 150 crores is new order. And as and when the orders materialize, we will basically be talking in our earnings call of the products which we have been launched.

Next question is from the line of Abhishek Jain from Dolat Capital.

Your revenue contribution from Maruti is encouraging continuously and what is the new business have you won from the Maruti, which is helping to increase your revenue pie? And what is the current SOB from the Maruti?

We can talk about not the new business which we've just awarded, but I think I can talk about the last basically 12 months. Vineet, would you like to just add that in terms of the SOB as well as what it is coming to be?

Yes. So we have around 65% our share in headlamps, the front lighting basically and 34% in the rear light in Maruti, yes.

The good part also -- just I would like to add, the good part also in the current situation is that we are actually almost in the models which are on the A, B segment and, of course, on the Swift. So we are pretty well placed if basically the reemergence of A and B segment sales start happening due to COVID. So we probably should see a better recovery than our peers or competitors within the Maruti framework.

Okay. Sir, in 2-wheeler space, how much as SOB we have with Hero MotoCorp and HMSI?

So HMSI, we are 50-50, 50%. And Hero, we are approximately 65%.

Okay. But your revenue from the Hero MotoCorp was seeing a sharp decline in the last couple of quarters. Is it because of change in mix? Or have you lost some business over there?

No, it's change...

Yes. If you see year-on-year, I mean to say, the customer has declined 18%. But we have basically declined around 24%. And as Vineet said, this is primarily because of certain models, which we were not on, and they have basically done that.

So you have lost some business there?

No. We have not lost any significant business. There has been some model allocation like instead of one model, we have got another. So those things have happened.

So let me explain how the lighting works. I think it is not model business which we lose, but actually, the model which we are on does not do better. So for example, if I -- and then if the -- depending on the complete pie of the customer, depending on how the model gets performed, depending on various models, then we get the market share.

Okay. Getting your point, sir. Sir, my last question is related with the effective tax rate. What would be the effective tax rate for FY '21?

Mr. Mehta, would you take that, please?

It could be around 26% to 27% because most of the deferred tax has been accounted this year. So we are continuously in the old tax rate, and our MAT is there for next 2 to 3 years. And after that, we will plan for our new rates in range.

So effective tax rate would be about 25%, 26%?

Yes. It is like that.

Ladies and gentlemen, due to time constraint, that will be last question for today. I will now hand the conference over to Mr. Deepak Jain for closing comments.

Well, I would like to thank everyone for joining on the call. I hope we've been able to respond to your queries adequately. For any further information, request you to kindly get in touch with SGA, our Investor Relation adviser. Thank you once again, and please be safe.

Thank you very much. On behalf of Lumax Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.