LED business is expected to remain under pressure in the near-to-medium term.
FIEM’s Q2FY18 results witnessed improvement q-o-q, supported by strong growth in two wheeler demand. FIEM’s key customers continue to witness strong growth in sales, thereby benefitting FIEM. LED luminaries business suppressed the performance to some extent. Overall revenues grew 12% y-o-y and q-o-q. EBITDA margin was lower y-o-y but improved q-o-q. PAT in the quarter grew 1% y-o-y and 38% q-o-q. We expect the company’s performance in the auto segment to remain robust in H2FY18/FY19.
LED business is expected to remain under pressure in the near-to-medium term. In the past two quarters, FIEM has reported sequential improvement in financial performance. From Q3FY18, we expect the company to witness y-o-y growth in earnings. We retain ‘buy’ on the stock with revised price target of Rs 1,203 (earlier Rs 1,254), valuing the stock at a PE of 18x on FY19E earnings
FIEM’s revenue in Q2FY18 grew 12.2% y-o-y to Rs 3,265 m. Compared with Q1FY18, revenue was up by 12.3%. In the auto segment, net revenue stood at Rs 3,237 m, 22% higher compared with similar period last year. Strong production growth in the two wheeler segment coupled with market share gains by FIEM’s clients translated into robust y-o-y increase in auto segment revenue. LED luminaries net revenue in the quarter was `28 m against `270 m in Q2FY17. Decline in LED revenue impacted overall revenue growth during the quarter Gross margin in the quarter stood at 39.3% against 41.7% in Q2FY17. Contraction in gross margin is on the back of fall in LED business margins and increase in raw material cost in the auto segment.
Employee cost during the period was higher y-o-y and q-o-q on account of annual increment becoming effective and one-off bonus to contract workers. Other expenses was low in the quarter, despite strong increase in revenue. EBITDA for the quarter was up 4% y-o-y and 22% q-o-q. EBITDA margin was lower y-o-y due to loss in LED luminaries business and raw material impact on auto business.
However, in comparison with Q1FY18, EBITDA margin expanded by 90bps on account of operating leverage from robust growth in automotive business revenue. PAT for the quarter came in at `143 m, 1.4% growth y-o-y and 38% higher q-o-q.