Lumax Industries Limited (517206) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Lumax Industries Limited Q4 and FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. 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. I now hand the conference over to Mr. Deepak Jain, Chairman and Managing Director, Lumax Industries Limited. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. At the outset, let me wish everyone good health and safety during these COVID times. A very warm welcome to the Q4 FY '21 earnings calls of Lumax Industries Limited. Along with me on this call, I have the Lumax management team, as Mr. Anmol Jain, Joint Managing Director; Mr. Vineet Sahni, Senior Executive Director and CEO; Mr. Naval Khanna, Executive Director of Lumax Management Services; and from the Finance team, Mr. Sanjay Mehta, Group CFO; Mr. Shruti Kant, CFO; as well as Mr. Ankit Thakral. We also do have Ms. Priyanka Sharma, Head Corporate Communication; and SGA, our Investor Relations adviser. The results and the investor presentation is uploaded on the stock exchange and company website, and I hope everybody has had a chance to look at it. Before we start the discussion on the financial performance of the company, I would like to share a few highlights of the automobile industry. Each segment of the auto industry faced headwinds during the year. Leading OEMs had to put their operations on hault multiple times during the year. Due to the nationwide lockdown, there is negligible sales in quarter 1. Things improved in the later part of the Q2, and coupled with the festival season, there was a V-shaped recovery in Q3 and Q4. The situation started seeing better from the start of the calendar year 2021, and by the time it reached starting of the fiscal 2022 within 3 months, again, started looking gloomy. As for ACMA, which is the Auto Component Manufacturing Association, the industry is expected to show a degrowth of 10% in '21, which is better than the auto companies. Demand has been muted due to the outbreak of the virus again. Logistic constraints have also intensified as a result of the regional lockdown during the past 2 months. We, however, strongly believe that as lockdown opens there will be pent-up demand, which will auger well for the auto industry. I would now like to briefly give you an overview of our business at Lumax Industries. Our company is engaged in production and delivery of automotive lighting solutions to 2-wheelers, passenger vehicles, farm equipment segment and commercial vehicle segment, and we are the preferred supplier to OEMs in India and continue to be the market leaders. The new product launches during the quarter have been as follows: in the passenger vehicle segment, we have had Mahindra & Mahindra XUV 300 and Maruti Suzuki for the YT3 export model. In the 2-wheelers segment, we had TVS NtorQ giving our products. The company won the prestigious gold award for also the Best Annual Report for the League of American Communication Professionals for the excellence within industry for the financial year '19/'20 and the Haridwar plant of the company won the gold award in the 10th convention of the HCQCC competition. I would also now like to share some measures that the company has taken to deal with the corona pandemic. For us, the employee health and safety are of utmost priority, Lumax DK Jain Group set up quarantine centers at all its plants' location, fully equipped with oxygen center and basic medical needs, having a doctor onboard and providing exclusive 24/7 assistance, besides ambulance services to its employees and the family members. We have also kick-started the COVID-19 vaccination drive back in April 2021 at our corporate office and at the Manesar, Dharuhera Gurgaon plant and over 300 vaccinations in the first camp were done. The second camp was recently held where we have vaccinated over 400 people. We have a plan for full vaccination as per availability of all eligible employees and the family members as a responsible corporate. 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, and good morning to everyone. I will just update on the operational and financial performance of the company for FY '21. The share of LED lighting expense is 34% of our total revenue and that of convention lighting stands at 66% during financial year '21. The product mix for FY '21 as a percentage of total revenue is 66% at front lighting, 25% rare lighting and 9% other. The segment mix for FY '21 as a percentage of total revenue, 62% passenger vehicles, 32% 2-wheelers and 6% commercial vehicles. SL Lumax. We are consolidating SL Lumax being -- we are holding our 21.28% of equity in that company. That company has reached a turnover of INR 1,477 crores in FY '21, and the Hyundai and Kia are the key customers of SL Lumax. I will just highlight the Q4 and FY '21 consolidated performance. The revenue stood at INR 504 crores for Q4 FY '21 as against INR 387 crores Q4 last year, up by 30%. For FY '21, the revenue stands at INR 1,426 crores as against INR 1,602 crores in FY '20, down by 11%, mainly due to nationwide lockdown in Q1 FY '21. Excluding mould sales, the revenue for Q4 stood at INR 490 crores as compared to INR 334 crores INR in Q4 FY '20, up by 47% as against industry growth of 27%. The manufacturing revenue for FY '21 stood at INR 1,375 crores as against INR 1,471 crores last year, down by 7% against the industry degrowth of 14%. The company reported consolidated EBITDA of INR 65 crores in Q4 as against INR 38 crores in the corresponding Q4 FY '20, up by 73%. The growth was higher due to onetime impact of subsidy income amounting to INR 12 crores in the Q4 FY '21 due to sanctioning of a scheme from the government for a period of 10 years effective from July 19. For FY '21, the company reported consolidated EBITDA of INR 125 crores as against INR 165 crores in FY '20, down by 25%. EBITDA margin for Q4, excluding subsidy income, stood at 10.6% as against 9.7% for Q4 FY '20, up by 90 bps. The margin for FY '20 (sic) [ FY '21 ] stood at 8.7% as against 10.3% for FY '20. Profit after tax and share of associate stood at INR 23 crores in Q4 as against INR 16 crores in Q4 last year, up by 39%. For FY '21 the same stood at INR 18 crores as against INR 72 crores in FY '20. For FY '21, the Board of Directors have recommended a final dividend of INR 7 per equity share. The CapEx during FY '21 was INR 42 crores. That is all from my side. We'll now open the call for questions.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.

Yes, sir, my question is, one, on the margin side. So we had this aspiration to take the margins higher, let's say, upwards of 10% in the past calls that we have discussed. Where are we on that journey? I think it was about 12%, if I'm not mistaken. So where are we on that journey? Second, you mentioned that the SL Lumax business was about INR 1,400 crores, right? If I'm not -- and the corresponding profits that we are showing as a share of JV is a fairly small number. So any comments there? And my third question is, we've added about INR 400 crore of gross block in the last 5, 6 years. Our revenues are where they are at about INR 1,400 crore odd revenue. So this gross block, what is the capacity utilization on that gross block? And this gross block can generate what kind of business you are hoping?

So let me first take the first question, and then we can probably give -- the finance team can answer the second and third. I think, obviously, our endeavor is to improve the EBITDA margins, and our target is to actually head on to mid-teens. We firmly believe that with the advent of better capacity utilization, better utilization going forward. Also, if you look at it in terms of the technology shift, where more and more LED adaptability comes in, we, in the future, would actually be looking in at a teen margin. We have also given an outlook that our LED to conventional lighting revenue should actually come to about 50%, 50% in the next few years. However, I think with the pandemic coming in, at least, the last year had been extremely challenging year. But if you look at quarter-on-quarter, especially quarter 3 and quarter 4 performance, we see that we've been able to considerably improve upon basically our efficiencies. On question 2 and question 3, I will request the financing team to basically go through.

I think the question 2 is regarding SL Lumax. So SL Lumax has had a turnover of INR 1,477 crores during this financial year.

Sorry?

INR 1,477 crore, with EBITDA of around 4% and with a PAT of 0.5%.

So here what is the -- so why is this business so low on the margins vis-à-vis even your standalone operation?

Actually, because of the -- what they have to -- I mean, they have incurred a huge airfreight cost, et cetera. And there's also a deduction from their customers from Kia. So these are the reasons for the...

So Sanjay, I will support here. Vineet Sahni this side. SL Lumax is -- totally it supplies to Hyundai and Kia, and they have their own pricing policies. And therefore, it is a dedicated source. And therefore, the adjustments of price between the customer and supplier that fluctuates the EBITDA a bit. So it's not that every time it is like that. They also have shown increased EBITDA results in the past.

Then there is also -- they have depreciated. I think they have charged a depreciation of almost around INR 15 crores to INR 16 crores more by changing the life of the assets as advised by their auditor. So these are the all factors of reporting lesser PAT in SL Lumax. And if I compare with the last year, the last year, they have shift on the -- I mean, they have a gain in the tax by shifting to the 25% territory. That was the reason in the last year, the impact of the tax was there.

Can you tell what should be a more realistic PAT margin for this business?

For SL Lumax, if you see the history, and I think, again, you have to understand on the COVID pandemic. I mean so these are abnormal times, especially the last year. But if you look at it, it's probably been growing at around about 4% to 5%, which is a PAT level. You know that SL Lumax is an associate company where we actually have a minority holding. And based on the accounting principles, we are basically just consolidating their PAT. We basically are not in the day to day management affairs of SL Lumax. This SL Lumax continues to be our strategic joint venture, where we actually collaborate with them so that we are able to kind of consolidate the market share where they basically -- as SL is a Korean joint venture, they will basically continue to service only Korean players, which would be Hyundai and Kia as a recent entry, Lumax Industries would continue to service all other OEMs in India.

This is Anmol Jain here. I will also just add a bit to your third part of the question on the CapEx on the gross block vis-à-vis the sales. Please understand that the certain part of this CapEx incurred in the last 2 years as -- is largely also gone in the sourcing of the electronic facility, which has not necessarily added to the revenues, but it has added to our margin expansion. So a bulk of that has gone into that. Also, certain brownfield investments have gone in during the last 2 years on Bangalore as well as Gujarat facilities. However, unfortunately, due to the pandemic, the realization of those CapEx incurred has not happened. So we do expect a strong recovery in our revenues once the volumes of the OEMs are normalized post the lockdowns and post the pandemic. But coming to the electronic expansion or the in-sourcing, you do see a margin expansion which has been hovering in the double-digit space since even Q3 of this year as well as Q4, it has been in the double-digit space, in line with the overall guidance of the company to go into the teenage space over the next 2 years.

Yes. What is the peak revenue potential here on the INR 1,200 crores CapEx? Or what asset turns should we assume?

The asset turn for the company usually is about 1 is to 1 point -- Sanjay, 1.6?

Therein, 1.8.

1.8, and we do expect that, that is the kind of asset turns, which one should expect, taking out the electronic investment because the electronic investment is not adding to the revenues, but it is adding only to be margins.

Okay. No, so you should take 1.8 ex of electronic investment or 1.8 on the reported, I got confused?

No, so 1.8 is the total asset turnover. Yes. Total asset turnover would be 1.8.

Okay. And sir, lastly, any market share changes in your key clients? And any market share change in the TV space, if any, you want to highlight?

Vineet, would you like to take that? Or you want me to?

Yes. So market share changes, as I explained, the Ntorq in TVS. We have added TVS as a customer. So that's a big win for us. And Ntorq is a successful vehicle. So that is a change in market share. And going forward, the investment that you have just spoken, that will also be catering to increased market share revenue starting Q1 of the next calendar year.

Okay. So there's no loss of market share anywhere, right?

No. No, loss of market.

So let me give you a little bit different also on this what -- supplement what Vineet also said. I think if you look at as our top 3 customers, right, and you put out a performance of Q4 itself, it basically is Maruti Suzuki, Honda 2-wheelers and Hero MotoCorp. Here in all the 3 customers actually enhanced our basically share, it is basically better than what the customer has basically grown quarter-versus-quarter. I'm talking about quarter 4 '19, '20 vis-à-vis quarter 4 2021. Also, there has been certain degrowth. If you look at the full financial year, but it has been much lesser than basically customer books. Rather, in Hero, we have actually grown the account of almost 6% year-on-year. And then Tata Motors, we have also significantly grown the account. So there are areas where we have actually basically entered on the existing customers. As Vineet was saying, there are a few customers where we were not present like TVS. We are also looking at a strategic basically entry and upping our market share in the farm equipment sector and the commercial vehicle sector. So over and over, I mean, it's not a loss of market share. We are maintaining wherever we have high market share, and we continue to penetrate in certain key customers going forward as well.

All the best.

Thank you.

The next question is from the line of Ashutosh Tiwari from Equirus Securities.

Yes. So firstly, on this mould sales number around INR 50 crores for the year. Obviously, it is impacted by COVID in the first half. But this also basically means that the new urban development or launches were lower. So how do you see this mould sales number going in the next year? And what would your pipeline on this product that we have today?

So let me give you a point on the mould sales. I mean, it's obviously in our business, especially on lighting, being a esthetic, there are a lot of minor model changes. And I mean, say, mould sales is a significant part of our business. What we saw in basically the COVID year that, as you have rightly said, a lot of customers delayed their product launches. There were 2 fundamental reasons for that because of very strong headwinds on supply chain, on the shortage of parts, availability of parts, even the current existing models, they were not able to run. And I think we have seen in some cases where they actually have customers launched a model and were not able to produce up to the delivery expectations and even quality expectation and basically tarnished the brand image. So most of the customers have actually delayed the product launches. Most of them are now looking at this financial year. And I think we would be back on track in terms of the mould sales because the order books have not decreased out rather, I mean say the new product development has been pretty busy. In terms of specific numbers, I'll ask the finance team of Vineet to basically give the numbers.

So during this financial year, we had a mould sales of around INR 51 crores. And if I compare with the last year, it was INR 131 crores, so there's a down of 61%. But all will be shifted in the next financial year. So there is no -- as Deepak sir has told, there is no change I mean in the lost business. It is simply a shifting from this year to next year.

So you mean to say that FY '22, the mould sales number -- range goes out INR 130 crores, INR 140 crores kind of run rate?

Yes, yes.

I'm not sure about INR 130 crores, INR 140 crores. But on an average, yes, our mould revenues do happen close to a vicinity of about INR 100 crore plus mark. So we should expect to come back to that mark up from INR 50 crores in the last year to about INR 100 crores plus in FY '22 as a part of the budget, should all the launches go in time.

Yes. So I -- Vineet this side. I also agree what Anmolji has just said. Because see lot mould sale is something which is dependent on the product launch. While the average of -- historical level is around INR 100 crores, but it also depends on the OEM's decision to launch a product, and that would determine the sales.

Okay. Sir, on this part, I mean, the shift to the LED that you have been talking about. And if I look at say certain models of [ SMCI ] let's say, Maruti and all, LED lamps are there in the top 1 or 2 variants and others, the lower variants is [ retentions lamps ] are there. So are you seeing a trend, especially with the Maruti that visibly in the new -- whatever is under development, given the lower variance will have LED the -- from, say, 1 or 2 variants having to ready to shift towards more whereas having LED is that shift happening? Are you seeing that uptick visibly?

Yes. So I think instead of saying a premium segmentation or basically the entry segmentation, how we basically track our LED revenues that with total contribution of our revenue, how much is basically coming in from LED lighting and how much is coming from conventional lighting. And in terms of even premium segmentation, we've seen that be it Maruti or even 2-wheeler space, I mean say some customers would launch it in partial LEDs. So there are multiple functions in lighting. It not necessarily have to be a complete LED headlamp. It could also have certain partial lighting, which would be LED within the vehicle, and that also boosts our revenue. And we firmly still believe that going forward, I mean, say, from a 60-40 ratio, we probably would be coming into a 50-50 ratio in the next few years on our revenues.

Okay. And the other question is on the cost items. If I look at while revenues have grown very well on a quarter-on-quarter basis, but even our other expense employee also increased in the same proportion, in fact, slightly higher. So our margins basically are lower. So any -- what really -- is there any one-off in the resistence in the employee cost?

So there's no -- I think in other expenses, there is increase in the -- I mean the design expenses for which corresponding income is there in the sales, and there is also a certain repair expenses, which has been booked. That is the reason of the increase in the other expenses. To the extent of employees expenses, the employees expenses is at 14.5% what it was 13.1% earlier, because of certain wage agreement has been there in the revision, et cetera. That is the reason of that.

There's a supplement there. If you look at the quarter 3 versus quarter 4, if you look at a quarter-on-quarter rolling basis, my employee cost has been pretty much static at about under 13%. So in Q3, it was at 12.7%. And in Q4, it was 12.9%. Of course, for the full year, because of the revenue degrowth in quarter 1, for the full year, it does appear to jump up to 14.5%. But once the revenue offtake starts, we do expect this to come back to the normal levels of roughly around 13%, which has been the one in 2019, '20 as well.

Sir, my question is that this INR 64 crore number of employee cost, is that run rate going ahead? Should we assume that run rate?

No, we do expect that should be broadly maintained. Of course, there would be certain statutory increases in terms of wage agreements, in terms of the inflationary costs, which would go up. But largely, we would be able to maintain it at about close to 13% of the revenue pie.

And lastly, on this tax rate was very high in the quarter. And sir, last 4 -- 3, 4 quarters, tax rate has remained quite high. Obviously, there's some level deferred tax rate or there's a cash flow tax is negative. So what's the reason behind this?

No, it is what -- it's because of the deferred tax only because goodwill tax is also I mean accounted for. And we -- in future, because of the tax rate is from 34% to 25%, so that tax and the deferred tax liabilities assets adjustment is there. So out of 45.9%, 17% or 18% is the max tax, remaining is largely relating to deferred tax.

So in '22, the tax will go refer towards 25%?

No, not '22, I think, like '23 onwards, because we have a max credit, so we don't straight forward go to in 25%. But while calculating the deferred tax asset liabilities, auditor will take cognizance of next 5 to 6 years. So that is the reason of change in the deferred tax.

[Operator Instructions] The next question is from the line of Jamal Gohil (sic) [ Vimal Gohil ] from Union Asset Management.

Yes. Sir, I had a few questions. Firstly, is a clarification on the balance sheet. Now if I were to look at the past few years, and this is specifically on working capital, so if you look at the last 5, 6 years, our inventory days have almost doubled, okay? And so I just wanted to know the -- what has led to this trend? And what gives us the confidence that this will be corrected going forward? That is my first question. The second question is on -- I just missed out on your -- I'm not sure if you've highlighted this because I joined the call a bit late. But if you can just give me what is the breakup of other income this quarter because it is on slightly higher side. And going forward, given the fact that you are guiding for maybe a higher mould sales and mould sales typically have a lower margin. So when you talk about sort of 13% -- early teen sort of margins, is this assumption baked into that estimate? These are my 3 questions, sir.

So let me just answer your first and third and then the finance team can supplement on other. I mean say obviously, when I'm looking at basically improving production efficiencies, better capitalized utilization so that we are able to get and manage basically our team's EBITDAs, obviously, I mean say mould sales would come in and mould sales, also, we have been improving basically the margins, what we basically get on the mould sales. On the first, I think you're right, inventory levels have substantially increased. And the reason is basically COVID. Supply chains have been pretty fragmented. And especially our Tier 2, Tier 3, we had to basically carry on more inventory, both finished goods as well as basically stock. So I think that's what it has been because the first priority was that with this whole open and close kind of scenario, multiple risks playing in, in terms of logistics, we needed to protect our customer lines. And with Q3, Q4, V-shaped recovery. I think the supply chains were pretty much stressed to have a very high delivery performance for which we have to carry high inventory. But this is not a normalized situation in our business. And we target that as basically we have production run, which is continuous and sustainable, we will obviously, be basically, again, going in and reducing our inventory and probably also getting into a negative working capital cycle. Your other questions...

Sir, just 1 clarification here, sorry. I'm extremely sorry to interrupt. But I completely take your point in the last couple of years, the industry has been -- maybe not last couple, but let's take FY '19 as well, where the industry was sort of depressed. But even before that, if I were to say since FY '16, you used to have inventory of 30 days at best. Today, it's very close to 57 days. So this is probably not a 1- or 2-year phenomenon that I'm observing. But I just want to probably take your attention to a very -- a slightly long-term trend, which seems to be a bit worry. So just wanted to -- I just -- I was just hoping as to get some more confidence on correcting this aspect because given the fact that we are operating at 13% margin, this is very important to keep our working capital intact so that our ROEs are healthy.

So I completely agree and buy your point. I think the point is that the business dynamics have also changed if you compare from 2016. There has been a lot of basic electronics which have come in, and that's where I mean say -- I've been saying that last 1.5 years, 2 years, we have also invested on try to localize it because more and more you import out, the more basic longer lead times, you basically get out, and obviously, this has been accentuated over the last 1 year, where if you see there are certain components where even we are talking about a 6-month or a 1-year kind of lead times to actually procure material. So that basically, I don't think is a normal sustainable way to look at it, but we are cognizant of the fact that we need to basically be putting the inventory checks, so that our basically ROE is healthy as well. So I completely agree, and that is the management parameter, which we're very closely monitoring now.

Sure also -- Vineet, this side, I would like to add what Deepakji has said that see, the LED started coming in since the time that you are mentioning. And also the projectors and the DRL. So these LED change in technology led to increased imported parts. And for imported parts, the inventory levels had to be increased, which is the norm of the customer. And gradually, as we start the localization, this will improve not only the margins, but also the inventory levels.

Okay. So as and when probably the LED -- what you mean is, as and when your LED share improves, you will also be able to improve your finished goods -- I mean, reduce your finished good inventory levels, is it?

Yes. As we localize going forward, which is the focus, step-by-step, we are now localizing the products which were imported, so this would be improve the inventory, but also it will improve our margins.

Okay. Okay. Sir before we get to the other end, I had 1 question on localization. We are sort of consolidating all our localization initiatives in 1 facility in Bawal. So what would be the -- yes. So what would be our -- sorry?

Can you repeat what would be what? I missed your last...

So yes, I was completing my question, sir. So my question is, just wanted to get an update on when we say localization, I'm sure the product has to go through customer approvals before we start supplying these locally manufactured products to the customer. Where are we in that process, sir? Have the customers, especially the large ones, which is the Maruti and Honda, have they approved all our localized products? Where are we in that process?

So I will answer that. See, the localization is started only after the consent of customers. In automotive, it is not an isolated activity, which is always done jointly with the customer. And therefore, approval is the integral part of localization. Example, we are localizing PCB assembly in our new electronics Bawal plant. It is with the approval of customer. We have recently localized the projector. It is with the approval of customer. So the process involves mandatorily approval of the customer, and it is a joint process.

So I think if you're looking at the cycle, I think the launches, which we will be doing more and more so will actually be having localized products coming through, be it projectors, be it the LED, PCBs. And I think now the next level of deep localization would be on basically LE -- or components which are electronic components, that probably will take about 2 to 3 years because it's not just the company initiative, but there is a lot of electronic industry initiative, which are looking at localization. But I think as far as we are concerned, I think first was in-sourcing; second was PCB localization, which you have done; second now is on projected localizations.

Okay, sir. PCB localization has already been done. I mean, that has already started. And the customer approval has also come?

That is correct. All these plants, as Vineet has said, all these plants of localization and plants have basically customer approvals, and they usually take about 2 years to basically starting for inception investments to basically having a good production run.

Okay. So when you say 2 years, then we should see some material improvement or we should see an impact on your -- positive impact on your numbers by FY '23?

That -- yes. And you've been seeing it -- yes, and you have been seeing it also over the last 1 year or so on when we started the in-sourcing. That was also, if you saw -- I mean, say we basically went from an 8%, 8.5% to 10%, that was one basically. So that would be -- so that would be the next level of basically impact. And hence, we are pretty confident to achieve those teens levels. We also understand in last 1 year, there has been quite steep escalation on raw material prices, commodity prices. And obviously, I mean say there could be certain impact on margins because of that. But I think, again, because of our contracts with the customers, we also would be negotiating with them to basically try and get the raw material prices.

Fair enough, sir. I have a few follow-up still on the working capital, but I'll take it off-line.

The next question is from the line of Abhishek Jain from Dolat Capital.

Sir, what sort of the benefit are you looking from the PLI schemes? What is your CapEx plan to capitalize the benefit of PLI?

I think Abhishek, it will be too early to basically talk about the PLI because currently, we are still all waiting for details. There's a lot of basically banter on what the PLI is. What my understanding of the PLI scheme is that now it has not just only looking at export threshold, we are looking mainly for the investment threshold and how much we'll be able to scale up, including domestic in this. But we will wait for the PLI schemes to be announced so that we can basically give you some estimate or a calculated estimate. Right now, it would be all speculation.

Okay, sir. Sir, are you eligible to apply in a PLI?

As per our understanding, all companies would be eligible, but we still have to see what the filters would be.

Okay. Sir, my next question is related with the your HVAC panel plan. So you are also looking to enter in this space. So what is the progress now? And what would be the opportunity side?

Vineet, would you like to take that?

Yes. So see, HVAC panel, currently, we are starting in a step-by-step manner with one of the customers. And the start of production is in '22/'23. And post that, we will be making an entry into other customer. The total market size of this is approximately INR 600 crores the potential. However, already, some of the players are existing in this area. So we will have to make a step-by-step entry into this. And post our first launch, we will be finalizing the strategy on our market share.

So who are the key competitors in this area?

We have Japanese companies already in India with local partners who are supplying these products in -- to the customers.

Okay. Sir, my last question is related with the share of LED that accounts for around 34%. So how is your share in the LED now for the 2-wheelers, passenger vehicle and CV separately?

So I think overall, we have maintained a 35%, 65% ratio. And in 2-wheeler, I think let's say, it is also in a similar -- it's around 30-70...

No. Vineet, I just step in there. For -- I mean, it's approximately for 2020/'21 for 2-wheelers, it's about 60% non-LED and 40% LED. And for pass car, it's about 70% non-LED and 30% LED. So we do see a higher penetration in the 2-wheelers of LED.

Yes, that's mainly due to Activa, which has LED headlamp and a high selling scooter.

[Operator Instructions] The next question is from the line of Hasmukh Gala from Finvest Advisors LLP.

Congratulations for really brave performance in Q4. Just a couple of questions from my side. Since we are facing a lot of flack because of the domestic auto industry is down, with the help of Stanley can we push up our exports, like in INR 1,400 odd crore sales, how much would been exports in FY '21?

[ It is INR 38 crore, 73% ]

Yes. Hasmukh bhai this is Deepak here. Thank you very much for your questions. So I think you're right, I mean say but we still remain focused on our basically relationship with Stanley for the domestic business in the Indian market, and we still feel that maybe for the last 2 years or maybe 2.5 years, the domestic market has not performed well, but outlook of the domestic market still seems very strong. And we can also have a feeler of that in the Q4 where the industry actually turned around. And basically, we also have had a good performance, probably the highest performance in Q4 on a quarter basis. So I think going forward, I mean, say, once the unlocking happens, the vaccination drive come in, we are pretty hopeful that there would be a lot more demand going forward with this. In terms of the export opportunities, I think first and focus with Stanley is to basically capture the domestic market. We still feel that there's a lot more potential where we can enhance certain market shares on the domestic market. Of course, we keep on basically talking about where we can basically look and see and leverage our basically competencies and production. But I think, honestly, last 3 years, we've actually been able to just manage onto the domestic market per se and the -- so I think going forward, I think we remain committed to the domestic market. In terms of export, I think if there's any opportunity in Stanley's global framework, we will basically comply to that aspect.

Okay. My second question is, we were looking at introducing several new electronic products. So where do we stand on that with help from technology from Stanley?

Yes. So Stanley has a product, which is HVAC, which is the HVAC panel. I think Vineet just mentioned that we would basically -- we already received some orders. We will be basically doing the HVAC panel in 2023. Market size is almost about close to INR 600 crores on that. But this will be a new product line apart from lighting. So we will basically -- we have already secured 1 order. And we would be commissioning that. And based on that performance and the market acceptance, we will basically continue to then further invest and localize H. R.

Okay. Now my accounting related, just 2 questions, how much effective tax rate we should consider for FY '22?

It is almost around 35%, what we anticipate.

Okay. In FY '22. And...

I'm talking about the deferred tax including. Right now in the Q4 [ 146 ], yes.

Yes. So including deferred tax, it should be around 35%?

Yes. Yes.

Okay. And how much CapEx are we planning to incur now in FY '22?

We're almost planning around INR 160 crores.

1-6-0?

Yes, new Sanand facility also.

So which will be the major areas on which we will be spending this CapEx?

One is that new Sanand facility where we are putting a new plant almost around half of this CapEx is goes to that.

So company has orders to increase their market share from one of the major customers. And there are 2 customers, where the start of production will happen in Q4 of this year for which new facilities are being set up in Gujarat okay. So we are expanding in Gujarat to serve these new orders.

Okay. So that is a major part of the CapEx.

That's right. Yes.

Okay. And how are we going to fund it? Because we don't have very many liquid resources, except about INR 9 crores of investment. So we will go for debt funding?

Yes, we are going for debt funding and we have tied up for the long-term loan also.

Okay. Okay. Okay. What is your overall view for FY '22? Like, of course, the current period looks very heavy. But do you think that from going ahead, July onward, you will see some improvement?

Very difficult, Hasmukh why it's a million-dollar question. But I think if you see the company's confidence of investing, I think you can see that we are definitely very confident that the Indian market will grow. One lesson which I learned was that I think the industry, including us, were kind of -- I was on the back foot when basically the H2 recovery started in Q3, Q4. So I think we -- as an industry, we have lost a lot of vehicle sales because the supply chains were not ready. Lumax doesn't want to basically repeat that. We want to be proactive and invest. And we are pretty confident that we will probably continue to have a good year, at least as of now, the outlook remains positive.

The next question comes from the line of Anish Moonka from JST Investment.

Yes. My first question would be, like what's your current stance on mergers and acquisitions, like including deals across the border or domestic? Like we are asking this question because we expect there should be some consolidation given the pain the industry has gone through over the last 3 years. And this could also help us in like a better margin profile through backward or forward integration. So what's your -- any color on that would be helpful.

From Lumax industry standpoint, I think right now, we are not looking at any cross-border acquisitions because Stanley basically leverage Stanley as global network. In terms of -- especially on production sites, we continue to grow our international presence on engineering centers. We already established 5 years ago our Taiwan engineering center. And now we are also doing so in basically Europe to counter and get more basically business developments there. However, we would and we are going to basically be actively looking out for any domestic, basically lighting-related acquisitions. We will evaluate that if it makes business sense, more importantly from customer point of view, we will evaluate at the right time.

So my second question would be like, what are the first signs of inquiries from customers that OEMs are giving after the second lockdown has opened? Is there any changes in the production figures for the year FY '22?

As of now, there are no changes in FY '22 production figures on an annual basis for customers. Rather, if I were to look at only June-related production, June-related production is better than basically -- better numbers in terms of planning, at least, than it was in pre-COVID 2.0. So we are expecting a better basically month of June. And I think all customers would like to play catch up as long as demand suppression is not there.

So like in a previous question, you mentioned that there was a problem like a shortage of parts, which happened last year, due to which a lot of new customers weren't able to launch their new products. So is there any supply chain risk that as an investor we should track going forward or as a management you are tracking internally, that creates problems again?

Absolutely. So we have a very strong risk enterprise metrics. And obviously, I mean, you say the top 3 risks right now is, obviously, first, is anything to do with COVID resurgence. #2 would probably be on global shortages of parts, which will indirectly impact us, and this is mainly related to semiconductor issues. #3 would be the cost escalations, where basically, we have seen -- fortunately, in plastics is not as steep as what it has happened in metals, especially in precious metals and steel, and they continue to be on an upward trend. And that basically does impact the vehicle pricing in terms may have demand suppressions. So these are the top 3 risks. I think others in terms of the manpower-related issues, I think more so to do with absenteeism because of illness, but happy to note right now that as a group, we are monitoring COVID cases, which right now is only on a single digit basis. So I think going forward, at least, we are hoping that we don't get hit by a third wave. And even if we do, we are more resilient than the supply chains are better prepared.

The next question is from the line of Ashvin Shetty from Marcellus Investment Managers.

I just had 1 question. So there are recent media articles that you are looking at setting up R&D facility in Europe, and we also had a senior level appointment based out of Europe. So just wanted to get your thought process on this, particularly in the context that European OEMs don't account for significant market share in the domestic passenger vehicle market and also we have a Stanley as a partner. So that contestant you to understand your overall view?

So first and foremost, you say the company I had mentioned just before in the call that 5 years ago, we had set up a Taiwan center. The main basically center was to get competence on project management as well as electronics. And I think that center has done well for us. All the expansions on engineering is validated and fully supported by Stan Electric. We last year have basically recruited a very experienced person who is named Todd Morgan. He's the Chief Technology and Innovation Officer for Lumax Industries, again, validated by Stan Electric. And this basically purpose would be to get forward technologies, which are probably there and prevalent in Europe. The skill settled there. And we would probably be focusing in India more on the basic engineering and adoption and localization of that. And I think with Taiwan, with Europe and with India centers, along with support of Stanley from Japan, we want to basically have a self reliance on technology. I think that's been the essence. Obviously, the future of lighting technology changing very rapidly be it on electronics, be it on LED, be it on sensorization, be it on optic development, I think you'll see more and more lighting technology as a product kind of evolved and very rapidly because also of case connected vehicles and all this autonomous driving because lighting would pay a very, very significant role in all that development as well. So for that, I think, with that self reliance thing, and having faster adoptability for, I would say, affordable products in India, I think we will try and make this global combination on engineering centers.

[Operator Instructions] The next question is from the line of [ Atul Prakash from Gupta Investments ].

First of all, congratulations on decent numbers. My first query is related to your CapEx plan. As per the media reports, it was INR 330 crores. There were INR 80 crores and INR 250 crores of the Lumax which will be going for the However, recently, you tell it is INR 160 crores. So #1 on that. And what will be the funding mix for the date and the target rate of completions vis-a-vis how much sales growth will be from the CapEx? Second query is what is the CP LTD portion? the current portion for the long-term debt for the FY '21? And the third question is, recently, it was in the news that on 15th May, company pledges around 3.3 lakh shares. So why so?

So I'm not sure where you're getting your media report, #1, I think let's talk about what we want to in Lumax industry. So we'll give you the figures right now. So Mehta ji, you can just emphasize on basically...

Yes. INR 160 crores of CapEx over this year, and for that, I think already explained previously, the major portion almost around more than 50%, 60% is for the new plant at Sanand. So that was the answer to your first question.

Yes let me add Sanjay the media report said about Lumax Group, not about Lumax industries yes.

Yes.

And funding mix for INR 160 crore?

Pardon?

Funding mix, what will be the funding mix for the INR 160 crores?

It will be around 50% of the tax, long-term and 50% would be around internal accrual.

Okay. The second question was that FY '21, I mean, the current long-term -- so there is 0, nothing is there. In fact, we are not carrying right now any long-term debt in the balance it as on 31st March 2021. Okay. One thing you missed in the CapEx part, what will be the sales growth from this INR 160 crores?

Actually, it includes the new plant for which I think already Mr. Sahni has told, it will come in Q4. So substantially from this new project, maybe not a substantial growth of cases, but other cap will be the maintenance cap and strong balance sheet equipment in some of the companies. So we are expecting growth in the double-digit in this...

On an average, we will maintain gross block to sales ratio around...

1.8.

1.8, right, in the full capacity utilization.

Okay. And on the pledge 3.3 lakh share was placed on 15th May. Any specific reason for that?

There was no pledge on -- you're talking about promoter pledging?

Actually, they were in a pledge of 3.3 lakh shares. So that's why I'm asking.

No, who -- I didn't still get it. Who pledged this share?

Promoters pledged, obviously.

So no -- so there is no promoter pledging on the shares. So that's what I was trying to come to. So maybe you can discuss with us offline, but this is not the accurate release.

Okay. Last 1 thing. You told up on the price escalation clause. so -- for the raw material acquisition. So what is the price escalation growth with the OEM? Can you here we color -- more color on this?

There's no price escalation clause. I mean, usually the OEMS, this is an industry norm practice that the OEM and the Tier 1s, depending on their products, on the commodity basis would have a base rate, which is probably reviewed every quarter or every 6 months on a case-to-case basis. And hence, I mean you say in an upward commodity cycle, the cash flow does get impacted. And downward, it also gets positively impacted, and we basically would get the revenue from basically the escalations in the quarterly review or a 6-month review.

[Operator Instructions] The next question is from the line of [ Johan Shah ], an individual investor.

Sir, most of the questions have been answered. Just a slightly medium-term question. We have been talking about the opportunity from the farm equipment and the commercial vehicle segment. Could you add some more color in terms of how big the opportunity could be? And when do we actually see some major revenues coming from these segments? Thank you very much and all the best.

Thank you. Vineet, would you like to take this?

Yes, sure. So as explained, what we are doing is to bring the change in the farm equipment segment, where we are promoting the use of LED lighting. And Lumax is the first one to initiate that. And we are getting good traction from the market. So almost all customers have started adopting it. So it is not that this market is existing. We are creating this market, and we see a market potential of around INR 100 crores in the next 2 to 3 years for the farm equipment sector, converting the existing technology into the LED technology.

Okay. And anything on the commercial vehicle, sir?

Yes. Same is on the commercial. This commercial vehicle will also see the traction. Actually, commercial is very price-sensitive at this moment in the current conditions. So there, the change will be slow, but definitely, it will happen in next 2 to 3 years.

The next question is from the line of Jamal Gohil (sic) [ Vimal Gohil ] from Union Asset Management.

Sir, I just wanted to get back to the margins question. If I were to sort of just see your margin trajectory has obviously improved over the last few years, and that is largely led by significant improvement in the gross margin. So out of this 250 to 300 basis point improvement in the gross margin that we've seen over the last couple of years, have -- most of it would have come from this PCB in-sourcing, right, that we got from [indiscernible] If -- or is it that we have some benefit of localization? Or are we yet to see the full benefits of localization from here on?

I think it's 600 bps -- go ahead Anmol.

Let me just first add. I think if you look at the gross margin expansion over the last few years, you're absolutely right. It has gone up significantly, 300 to 400 bps. But all of it is not pertaining to the localization of the electronics. There has been a lot of effort on the resourcing of raw materials and components. There also has been a tremendous focus on the pricing parity with our customers, with the technology shift that has also, in certain ways, improved, which has also added to our gross margins expanding. So the localization impact of electronic PCB has already come into place in the last pretty much 2 years, give or take, because of the in-sourcing of Lumax Autotech to Lumax Industries. But again, as the capacities get fully utilized, we do expect a greater benefit to come into our gross margins in the subsequent quarters as well.

So yes. So just to understand this better. You're saying that in-sourcing of PCB from Lumax Autotech, those benefits have already come, whereas the benefit from the electronic localization that is from your facility that will come. Those are yet to come in your margins. Am I understanding that right?

Not entirely. The facility is primarily for the in-sourcing of the PCB. Again, it is a part of our long-term strategy of making critical parts in-house. However, this is Phase 1 of localization. Apart from PCB, as Vineet had mentioned earlier on to the call that there would be projectors, which are also in the -- on the angle of localization. So during the Phase 2 localization, we do expect certain margin expansions to be created as well.

That was the last question. I would now like to hand the conference over to Mr. Deepak Jain closing comments.

Well, thank you, everyone, for joining the call today. I would like to say that we remain confident on the growing prospects of India and the automobile and auto component industry. I hope we have been able to respond to your queries adequately, and for any other further information, request to get in touch with SGA Investor Relation Adviser. Stay safe and healthy. Thank you.

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