Multibagger: Lumax Auto stock grows 230% in 2 years, 400% in 5 years; is it still a ‘buy’?

Auto ancillary companies have seen substantial increases in their stock prices in recent years, propelled by heightened demand for vehicles. This surge in demand is linked to rapid urbanisation and a burgeoning middle-class population with increasing disposable incomes, fostering greater ownership of motor vehicles.

As vehicle sales grow, the need for components and spare parts also rises, boosting the performance of auto ancillary companies. Additionally, growth in aftermarket sales and exports has further boosted the volume of auto parts.

Amid this backdrop, stocks in this sector have seen substantial gains, with Lumax Auto being a notable performer. The company's shares have been on a consistent winning streak, concluding the last 17 months with impressive gains.

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From their January 2023 trading price of ₹224 apiece, they have surged by a remarkable 147% to trade at the current price of ₹554 apiece. Over the last two years, the shares have jumped 230%, and in the last five years, they have gained 400%.

Lumax Auto is a leading auto component manufacturer with a well-diversified product portfolio. The company supplies to most of the leading 2W OEMs in the country and is present in the 2W and 3W segments, passenger cars, and aftermarkets.

In its latest report, domestic brokerage firm Sharekhan highlighted the company’s success in securing significant orders, bolstered by the acquisition of IACI. As of FY2024, the company’s order book stands at ₹900 crore, with 90% coming from new business.

The brokerage also noted that the quality of the company's order book has improved, with the EV segment now constituting around 40% of the total order book.

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The brokerage stated that the company's revenue from the passenger vehicle (PV) segment has improved, driven by contributions from IACI. Mahindra & Mahindra (M&M), one of IACI’s major clients, accounted for 26% of the company's revenue in FY2024.

IACI is undergoing capacity expansions with a capital expenditure of around ₹50 crore in FY2025. Looking ahead, management aims to attract new customers to the IACI business, increase wallet share with existing customers, and explore cross synergies with its existing portfolio. Recently, IACI has added Tata Motors as a new customer.

Additionally, the brokerage noted that the company is in discussions with Bajaj Auto for future orders, particularly for the Pulsar brand.

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It stated that the company's aftermarket segment's contribution decreased to 14% in FY2024 from 20% in FY2023. However, it expects improvements in FY2025 with the introduction of new products. Additionally, the company is exploring new product lines, including mechatronics, sensors, switches, and EV-related products.

Considering these growth factors, the brokerage maintained its ‘buy’ rating on the stock with a revised target price of ₹650 per share.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.