Economic Overview Global Economy
The global economy saw recuperation from the significant setbacks inflicted by the
Covid-19 pandemic. Since the start of 2022, it has been in a relatively robust state.
Economies like the US, China, and India have successfully rebounded to their pre-Covid-19
levels, while those in Europe and Southeast Asia were steadily progressing towards
recovery. Across the world, countries have taken essential measures to prepare for
potential future ‘Black Swan disasters, having gained valuable experience from the
pandemic. As the global economy is staging its most powerful post-recession rebound,
suppressed demand brought on by economic stagnation, and a significant improvement in the
supply situation are further driving the recovery.
Unfortunately, the long-standing rivalry between Russia and Ukraine has sharply
intensified and snowballed into a full-fledged war since early 2022, denting the pace of
post-pandemic economic recovery. Furthermore, higher-than-expected global inflation is
also holding the recovery back. Naturally, the prospect of global economic outlook
reflects the sluggishness induced by these two critical factors. This is evident from the
fact that the International Monetary Fund (IMF) has projected a decline in the global
economic growth forecast, from 3.4% in 2022 to 2.8% in 2023.
Outlook
The global economy weathered the headwinds better than anticipated. Despite the
cost-of-living crisis affecting most economies, the priority remains achieving sustained
reduction in inflation. However, there was a possibility of a stronger boost from pent-up
demand in several economies or a faster decline in inflation.
As per IMF forecasts, global growth is projected to rise to 3.0% in 2024. Asian
economies are anticipated to remain the main drivers of global development in 2023, since
these nations continue to see reopening dynamics and experience less severe inflationary
pressures than other regions. For the next five years, the global economy is expected to
grow at a rate of 2.6% to 3.3% on an annual basis. By 2026, the global GDP is projected to
increase at a CAGR of 3.2%.
Indian Economy
Indias economy exhibited remarkable resilience in 2022, due to significant
improvements in the countrys digital infrastructure over the past five to six years.
Despite the Covid-19 pandemic, Indias domestic market experienced robust growth, largely
propelled by the expansion of B2B and B2C online platforms. In addition, Government
policies are being progressively customized to promote and enhance the manufacturing
sectors growth within the economy. Furthermore, with manufacturers worldwide seeking to
diversify their production facilities, the Indian Government is well-positioned to
capitalize on this opportunity.
Additionally, reductions in corporate tax rates and, more recently, sector-specific
fiscal incentives through the Production Linked Incentive (PLI) Scheme, have been crucial
motivators for both domestic and international manufacturers. Besides the inherent
domestic momentum, global macroeconomic factors, such as geopolitical issue, supply chain
gap, and rising trade conflict provide the spark to propel the Indian economy towards its
target of USD 5 trillion in nominal GDP from an estimated USD 3.4 trillion this year.
Buoyed by this momentum, Indias economy has surpassed that of the United Kingdom to
become the worlds fifth-largest economy in terms of nominal GDP (USD).
Outlook
Ceteris paribus, as we say, change is the only constant including the economy. India
has maintained its position as the worlds fastest-growing major economy in 2022-23 and is
anticipated to maintain the position throughout 2023-24, with a projected growth rate of
7.0%. The countrys economic prospects are optimistic, as investments are expected to lead
to significant increase in manufacturing output, bank lending, and consumer spending. This
in turn, would enhance business confidence and encourage more private-sector investment,
thereby fueling further growth of the Indian Economy.
Furthermore, the Indian economy has almost ‘recovered what was lost,
‘renewed what had halted and ‘re-energized what had stagnated during the
Covid-19 pandemic, and since the conflict in Europe in FY 2022-23. In the coming years,
India is set to emerge as a more formidable and rapidly evolving force, impervious to any
resistance.
Industry Overview Indian Automotive Industry
India experienced a significant downturn in auto manufacturing and sales between FY
2017-18 and FY 2021-22. The automotive industry was one of the sectors, hit hardest by the
strict lockdown measures implemented in the country to control the Covid-19 pandemic.
Severe cash constraints, supply chain difficulties, a cessation of global trade, reduced
purchasing power, and stifling raw material shortages had a devastating impact on
industry.
Furthermore, the automotive sector was impacted by the implementation of the Goods and
Services Tax (GST), the change from BS-IV to BS-VI phase 2, new emission regulations, the
shift to electronic vehicles (EV), and technological improvements in ride sharing
applications, like Uber and Ola. Notwithstanding the severe headwinds, India managed to
stand tall as one of the acknowledged markets for automobiles, with domestic sales of 21.2
million units in FY 2022-23. In December 2022, India surpassed Germany and Japan to take
over as the third-largest automobile market, as the sector contributed about 7% of Indias
GDP.
During FY 2022-23, domestic demand for automobiles experienced significant growth,
driven by an upswing in demand for premium vehicles and the introduction of new models.
Passenger vehicle demand remained buoyant throughout the year. Nevertheless, inflationary
pressures caused distress in rural demand, leading to concerns about the demand for
entry-level passenger vehicles and 2-wheelers. Despite this, sales of 2-wheelers
experienced steady growth, while the growth of 3-wheelers was driven by an increase in
auto-rickshaw and public transportation services. Furthermore, companies like Maruti
Suzuki have planned to set up new plants to launch hybrid models of vehicles as a way
forward.
Segment-Wise Sales of Automobiles in India from FY 2018-19 to FY 2022-23 ( in
Thousands)
| Segment |
April-March (Nos. in Thousands) |
|
FY 2019-20 |
FY 2020-21 |
FY 2021-22 |
FY 2022-23 |
CAGR % |
| PVs |
2,774 |
2,711 |
3,069 |
3,890 |
12% |
| CVs |
718 |
569 |
716 |
962 |
10% |
| 3-wheelers |
637 |
216 |
261 |
488 |
-8% |
| 2-wheelers |
17,416 |
15,119 |
13,466 |
15,862 |
-3% |
Source: https://www.siam.in/statistics.aspx?mpgid=8&pgidtrail=14
Indian Automotive Component Industry
The Indian auto components industry is well-positioned for growth, with an optimistic
outlook according to the Automotive Component Manufacturers Association of India (ACMA).
The nations automobile component market is split between organized and unorganized
sectors. Original Equipment Manufacturers (OEMs) are a part of the organized sector, which
oversee the production of expensive precision devices. In contrast, low-value products,
that are geared towards after-market services, are found in the unorganized industries.
Engine parts, electrical parts, drive transmission and steering parts, suspension and
braking parts, and allied equipment are the sub-sectors of the automobile component
industry in India. The auto component sector witnessed a successful FY 2022-23, despite
supply-side issues. OEMs, aftermarkets, and exports contributed to the sectors
outstanding growth during the year. The factors responsible for this surge include greater
value addition to satisfy regulatory compliance, a recovery in external markets, and
resilience in the domestic market. While recent supply-side challenges with semiconductor
supply and input raw material pricing have more or less subsided, the auto industry
continues to be concerned that the ongoing geopolitical turmoil may have a detrimental
impact on the sector.
Indian Automotive Lighting Industry
According to Research and Markets, the automotive lighting market is anticipated to
increase from USD 21.9 Billion in 2022 to USD 28.5 Billion in 2027, at a CAGR of 5.3%
during the forecast period. (Source: https://www.businesswire.com/news/
home/20221124005221/en/Automotive-Lighting-Market-for-ICE-EVs-Global-Market-Report-2022-Increase-in-Demand-for-Premium-Vehicles-Drives-Sector---ResearchAndMarkets.com).
The analysis predicts that increased customer demand for aesthetically pleasing automobile
lights and the implementation of strict safety regulations by regulatory agencies are
poised to be the major drivers of growth. Additionally, rising purchases of electric
vehicles are expected to open up a number of profitable prospects for the supplying of
EV-agnostic automotive lighting solutions. Growing demand for luxury cars & SUVs, and
technological developments in adaptive lighting technology, are some of the factors
driving the substantial growth of the automotive lighting industry. The automotive
lighting market is likely to be driven further by strict safety standards, put forward by
the Government regulations. In addition, the increasing global sales of automobiles are
anticipated to drive the growth of the automotive lighting industry. Factors like growing
population and rising customer demand are further stimulating the industry.
Key Growth Drivers
LED Technology to Witness Growth
LED technology is anticipated to grow at the fastest rate during the estimated period
owing to the numerous technical advantages of LEDs compared to conventional lighting
technology. The benefits include reduced power consumption, improved visibility and
safety, increased durability, enhanced design flexibility for better aesthetics, and
environment friendly attributes, among others. Furthermore, Government regulations have
been the driving force for boosting the adoption of LEDs in automobiles.
(Source: https://www.marketsandmarkets.com/PressReleases/
automotive-lighting-market.asp).
Technological Advancements
Automotive lighting companies are creating new lighting solutions to replace outdated
standard lights in response to the growing trend of advanced vehicles. The most recent
advancements in car lighting are being sought after by drivers for improved safety,
aesthetics, in addition to just lighting the road in front.
The new technologies in the market include Laser Light Technology, Bendable Headlights
with LED and Organic Light Emitting Diodes.
Opportunities
Supporting Infrastructure and Expanding R&D Hub
India is evolving into a worldwide automotive R&D hub, with multiple market
participants entering the automotive development and manufacturing sector. This has been
made possible by the availability of economically viable labor force, favorable Government
initiatives, ease of doing business, knowledge pool and expertise, robust technical and
managerial support for establishing manufacturing facilities, and convenient access to a
large client base.
Threats
Raw Material Shortage
The automotive industrys supply chain was significantly impacted by Covid-19 pandemic,
followed by current geopolitical tensions. Volatility of raw material prices, growing
competition and relative lower penetration of advanced lighting in passenger and
commercial vehicles are one of the biggest challenges to the Indian automotive lighting
market.
Price sensitivity towards adopting new advanced technology is still a road block.
Persistent Spike in Commodity Prices
Due to the current geopolitical concerns, manufacturers in the automotive sector are
struggling with the high cost of raw materials. The OEMs had to push up their prices
during H1 FY 2022-23 as a result of the sharp increase in the prices of aluminium and
steel, in process, raising the price of the vehicles. It is felt that such a substantial
price increase could have a negative impact on demand as well.
Business Overview
Lumax Industries Limited (referred to as ‘Lumax or ‘The Company), the
flagship company of DK Jain Group, is a prominent automotive lighting supplier in India
with a rich history of over 75 years in the industry. The Company has established itself
as a significant player in the Indian automotive market, specializing in automobile
lighting. Lumax is known for its strong emphasis on customer satisfaction and has been
growing steadily by delivering superior-quality lighting solutions to its customers.
Lumax, a company with its roots in India, has established itself as a versatile and
innovative manufacturer of automotive lighting solutions over the years. The Companys
wide range of product portfolio include end-to-end premium lighting solutions such as
headlamps, tail lamps, fog lamps, and other lighting components and auxiliary lamps, among
others. In addition to lighting products, Lumax also manufactures electronic components
for 4-wheelers, 2-wheelers, commercial vehicles, and tractors in the Farm Equipment
Segment (FES).
Lumax is well known for its exceptional R&D capabilities and innovation prowess.
This has enabled the Company to create aesthetically appealing and best-in-class
automotive lighting solutions, establishing the Lumax brand as a symbol of excellence.
Lumax Industries recognizes the value of collaboration and has formed a robust
partnership with Stanley Electric Co. Limited, a global leader in offering premium
electronic components and systems such as LED components, displays, electronic control
units, and energy management systems for nearly four decades. The Company, including its
associate company, SL Lumax, has 11 ultra-modern manufacturing facilities that are spread
across 6 states in India, strategically located near the manufacturing locations of major
OEMs.
Operational and Financial Overview Standalone
On standalone basis, the revenue from contracts with customers during the FY 2022-23
stood at 231,952.34 Lakhs as compared to 1,75,131.10 Lakhs in the last year,
registering a growth of 32.45%.
For the FY 2022-23, the profit before exceptional items and income tax stood at
11,287.45 Lakhs as compared to 6,328.70 Lakhs in the last year, witnessing a
significant increase of 78.35%. The Profit Before Tax (PBT) after exceptional items stood
at 10,743.62 Lakhs as compared to 4,614.75 Lakhs in the last year, registering an
increase of 132.81%. The Profit After Tax (PAT) stood at 7,063.59 Lakhs as compared to
3,543.37 Lakhs, registering a significant increase of 99.35%. The total
comprehensive income increased to 7,131.92 Lakhs as against 3,211.23 Lakhs in the last
year, registering an increase of 122.09%. The basic and diluted earnings per share stood
at 75.57, registering a significant increase of 99.35%.
Consolidated
For the FY 2022-23 on consolidated basis, the Profit After Tax (PAT) stood at
10,308.02 Lakhs as compared to 4,072.47 Lakhs, registering a significant increase
of 153.11%. The total comprehensive income increased to 10,445.47 Lakhs as against
3,785.45 Lakhs in the last year, registering an increase of 175.94%. The basic and diluted
earnings per share stood at 110.27, registering a a significant increase of 153.11%.
Details of Key Financial Ratios
Please refer Note 51 of the Notes to the Standalone Financial Statements for the year
ended March 31, 2023.
Risk Management
Lumax is dedicated to identifying potential business risks and implementing the
necessary measures to mitigate them. The Company engages in comprehensive risk management
activities to minimize the impact of any potential threats and ensure the ongoing success
and sustainability of its business operations.
| Risk |
Impact |
Mitigation |
| Economic Risk |
Changes in the social, geopolitical, legal, or economic environment, both domestically
and internationally, have the potential to disrupt Lumaxs regular operations or impede
its business expansion plans. |
To address this risk, Lumax diligently monitors developments in the relevant business
environment, while taking proactive measures to mitigate any potential disruptions to its
operations or business expansion plans. |
| Competition Risk |
The automotive industry is known for its high level of competition, and this trend is
expected to continue as the industry evolves. As a result, Lumax faces the risk of a
potential negative impact on its market share, margin profile, and return on capital
employed. |
Lumax remains vigilant in developing and implementing strategies to maintain its
competitiveness and consolidate its position in the market. As the market leader, the
Company leverages its technological expertise, strategic alliances, customer
relationships, and development solutions, to mitigate this risk. |
| Technology Risk |
Currently, the automotive industry is undergoing a significant transformation, driven
by the adoption of Industry 4.0, and the continued digitization of the entire value chain.
These new developments present inherent risks that must be carefully addressed. |
Lumax remains focused on the development and adoption of new technologies and
offerings, that can enhance its efficiency and help safeguard and expand its market
position. By prioritizing innovation and staying ahead of industry trends, the Company
aims to mitigate this risk. |
| Regulatory Risk |
The automotive industry is subject to extensive regulatory oversight, particularly
around safety and environmental standards. Non-compliance can lead to significant fines,
reputational damage, and legal liability. |
Lumax has developed robust compliance mechanism and implemented a Software-based
Compliance Tool to identify the compliance requirement and monitor the on a regular basis.
The Company also communicates with regulators to stay ahead of changes in regulatory
requirements. |
| Procurement Risk |
Any adverse fluctuations in market prices or the disruption of supply chain,
availability of raw material could potentially impact its financial position and earnings. |
Lumax is aware of these risks and proactively works towards their mitigation,
including closely monitoring market prices, developing a robust supplier base, contingency
plans and focusing more on localization. |
Human Resources
Lumax acknowledges that its workforce is its most precious asset and plays a pivotal
role in driving success. Through its employee-centric approach, the Company endeavors to
establish a secure and stimulating workplace that fosters productivity. It invests in its
people by building their capabilities, sharpening their expertise, and nurturing their
leadership skills. To achieve this, Lumax offers relevant learning and development
programs. The Company respects employee diversity, and it aims to strengthen its corporate
capabilities accordingly. Lumax Management believes in teamwork and a self-motivating work
environment to propel the holistic growth of the Companys employees.
To strengthen its human capital, and attract, cultivate, and recognize exceptional
talent, Lumax has formulated human resource policies, centered on fostering a positive
work environment.
As of March 31, 2023, the Company had a total of 2,514 employees on its payroll.
Internal Control Systems and Its Adequacy
Lumax maintains an adequate and synchronized system of internal controls. The Company
strictly adheres to various procedures, laws, rules, and statutes. Keeping the nature and
business complexity of operations in mind, periodic risk assessment, mitigation, and
monitoring are done to ensure operational efficiency. Lumaxs independent auditors carry
out internal audits, ensuring proper recording and reporting. In the event of
discrepancies, the issue is immediately reported to the Management and Audit Committee for
timely correction. The IT system implemented by the Company ensures the security of
sensitive data and streamlines the audit process. Accounting standards are strictly
followed at the time of recording transactions. The MIS, on the other hand, strengthens
real time reporting and assists in controlling expenses. Any variance in the actual and
budgeted allocations, if any, is promptly reported and rectified to ensure strict
compliance.
Cautionary Statement
Statements in the Management Discussion and Analysis Report describing the Companys
projections, estimates, and expectations may be interpreted as ‘forward-looking
statements within the meaning of applicable laws and regulations. Actual results could
differ from those expressed or implied. Important factors that could make a difference to
the Companys operations include economic conditions affecting demand/supply, price
conditions in the domestic and international markets in which the Company operates,
changes in Government regulations, tax laws, and other statutes. The Company assumes no
responsibility to publicly amend, modify, or revise any ‘forward-looking statements,
based on any subsequent development, information, or events.
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