19-Mar-19 : We covered Fiem Industry on 14-Mar-17. The stock was hovering around Rs 850 at that time. Thereafter it reached a high of Rs 1078. And as we know, the mid and small cap carnage started in January-2018. With all other stocks, Fiem Industry also drastically lost its market capitalization. The stock price fell below Rs 450. However, as the midcap and small cap stocks again regained their value to some extent in the last couple of weeks, Fiem Industry, as well, climbed above Rs 500. As on the date of writing this article, the stock price has been hovering around Rs 500.

In spite of recent up-move, the stock is currently available at around 12 PE. Thus the valuation is quite cheap, if we look into its growth prospect. Fiem Industry is one of the leading manufacturers of automotive lighting & signaling equipment and rear view mirrors. Its major business comes from the two-wheeler segment of the vehicle industry. Fiem Industry has two business verticals, namely automotive segment and LED luminaries segment. Where automotive segment is seeing traction, the LED segment is dragging. In the nine months ended December, 2018, automotive segment revenue was 1068 crore against 935 crore in the corresponding nine months of FY-2018. The profit before tax from the automotive segment was 91 crore for the same period, whereas the loss from LED segment was 6 crore.

As said earlier, Fiem Industry mainly caters to the two wheeler industry. In the current juncture, two wheeler industry is undergoing through a rough weather. However, we believe that this is temporary phenomenon based on liquidity crunch and increase in insurance premium. Two wheeler will again start seeing robust growth going forward. The rural sale may revive after 2019 election. Irrespective of the outcome of the 2019 election, there will be substantial budget allocated for rural development. We have already seen waiver of farmer’s loan, yearly allowance in the current situation.

In September, 2016, Fiem Industry raised Rs 120 crore through placement of equity shares to qualified institutional buyers. As per plan, the company planned to utilize the proceed to fund its international JVs and expand its existing automotive and LED facility. In FY-2018, the company invested Rs 133 crore to create the next growth platform. In the coming years, we can see this investment will reap benefit for Fiem Industry.

Coming to company’s prospect, Fiem Industry is the most prominent supplier of LED for the two wheeler industries. As more and more OEM shift towards LED light, Fiem Industry will be the major beneficiary.

Raw Material Cost – As rupee depreciated in the near past, the raw material cost of Fiem Industry was at the elevated level. However, now as rupee slides below Rs 70 /USD, Fiem industry is expected to have higher margin.

Parts mandatory for Bharat Stage VI compliance – In view of the development of BS-VI, FIEM entered into joint venture with Asian Industry Co. Ltd. and Toyota Tsusho to manufacture fuel pump modules for the domestic market. These two components are mandatory for BS-VI.

We believe that as the market recovers, all medium and small cap stocks will rediscover their fair value. Currently the stock is hovering at PE of 12, which is below its average historical valuation of PE 20. Based on low valuation, strong balance sheet and future prospect, we believe that the stock has potential to touch Rs 850 in the next twelve months.

Risks: 1. The two wheeler industry may be muted for extended period of time, in which case Fiem Industry may underperform the market. 2. Fiem Industry has two major clients, namely Honda and TVS. Any underperformance from these two companies will impact the performance of Fiem Industry.

 

NSE Code : FIEMIND

BSE Code : 532768

Written by Research Analyst (SEBI Registered) Suvendu Manna

Disclaimer : The research analyst has position in the stock as on the date of writing this article.

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