CRISIL has revised its rating outlook on the long-term bank facilities of Lumax Auto Technologies Ltd (LATL; part of the Lumax group) to 'Positive' from 'Stable', while reaffirming the rating at 'CRISIL A'.

The revision in outlook reflects CRISIL's belief that the Lumax group's business risk profile will improve over the medium term, supported by steady demand prospects in the two-wheeler industry, strong ties with leading auto original equipment manufacturers, increasing scale of operations at its new Bengaluru facility for Honda Motorcycle and Scooters India Private Limited (HMSI), and improving product diversity through collaborations. The outlook revision also factors in CRISIL's belief that the Lumax group will maintain its healthy financial risk profile supported by steady cash accruals, and low working capital and capital expenditure (capex) requirements. The group's revenue is expected to register a compound annual growth rate of 11 per cent over the medium term, while its operating margin is expected to remain at 8 to 9 per cent over the same period. Consequently, the net cash accruals are expected to be Rs.560 million to Rs.600 million annually over the medium term, as against Rs.380 million in 2013-14 (refers to financial year, April 1 to March 31). Against this, the group's capital outlay over the medium term is likely to be low at about Rs.100 million per annum, which, coupled with modest working capital requirements, will sustain its healthy financial risk profile.

The ratings continue to reflect the Lumax group's healthy financial risk profile, marked by a strong capital structure and sound debt protection metrics. The ratings also factor in the group's established position in the automobile illumination products market, and its steady relationships with key customers. These rating strengths are partially offset by customer concentration in the Lumax group's revenue profile, and vulnerability of its margins to volatility in raw material prices.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of LATL, along with those of its subsidiaries, Lumax DK Auto Industries Ltd (LDK) and 55-per-cent joint venture (JV) Lumax Mannoh Allied Technologies Ltd (LMAT), and its equal JVs Lumax Cornaglia Auto Technologies Pvt Ltd (LCAT) and Lumax Gill-Austem Auto Technologies Pvt Ltd (LGAT). This is because all these companies together referred to as the Lumax group (part of D.K Jain Group), are in the same line of business; moreover, LATL has extended corporate guarantees to LDK's bank lines.

CRISIL believes that the Lumax group's revenue will grow at a healthy pace over the medium term along with steady margins, supported by its diversified product mix and established customer base. The group's financial risk profile is expected to improve further, supported by healthy growth in cash accruals, modest capex and working capital requirements, and low reliance on external debt. The ratings may be upgraded if the group sustains steady growth in its revenue and profitability, while maintaining its healthy financial risk profile. Conversely, the outlook may be revised to 'Stable' if the Lumax group's revenue or profitability steeply declines leading to significantly low cash generation or if the group's financial risk profile weakens due to large debt-funded capex or substantial investments in unrelated ventures/real estates.

The Lumax group is part of the larger DK Jain group of companies. LATL was initially incorporated in 1981 as Lumax Auto Electricals Pvt Ltd, which was renamed Dhanesh Auto Electricals Pvt Ltd in 1988, Dhanesh Auto Electricals Ltd in 1998, and LATL in 2006. LATL got listed in 2006-07 (refers to financial year, April 1 to March 31), following an initial public offering, through which it raised around Rs.270 million. The company has two main divisions: manufacturing and trading. The manufacturing division produces sheet metal components, mainly chassis, for Bajaj Auto Ltd's (BAL's; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+') three-wheelers at its facilities in Pune and Aurangabad (both in Maharashtra); it also manufactures moulded parts for HMSI at its facility in Bengaluru. The trading division caters to the replacement market for head and tail lamp assemblies and miscellaneous products manufactured by Lumax Industries Ltd (LIL), a DK Jain group company.

LDK, incorporated in 1997, is a wholly owned subsidiary of LATL. It was acquired by LATL in 2005-06 for Rs.12.7 million. The company manufactures automobile components, including gear shifter assemblies, head and tail lamp assemblies, moulded parts, and parking brakes. The company derives a major share of its revenue from supply of lighting products and moulded parts to BAL, and the balance from gear shifter assemblies and parking brakes to Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'). The adjustor motor trading business in LATL has been shifted to LDK, effective April 2014; LDK will sell motor adjusters which are used in four-wheeler front lamp assemblies manufactured by LIL. LDK has manufacturing plants in Pantnagar (Uttarakhand) and Gurgaon (Haryana); all its facilities are certified by the International Organisation for Standardization. Additionally, in March 2013, LDK's Pantnagar facility was presented the 'TPM Excellence ' Category A' award for its most effective production system by Japan Institute of Plant Maintenance. LDK acquired the entire stake in Lumax DK Electric Engineering Pvt Ltd (LDKEE; formerly Stanley Electric Engineering India Pvt Ltd) for Rs.143.7 million on December 26, 2012. LDKEE was merged with LDK in 2013-14.

LDK's gear shifter business has been demerged, effective April 2014, into a separate company, LMAT, which is a 55:45 JV between LATL and Mannoh Industrial Co Ltd, Japan.


LCAT is an equal JV between LATL and Officine Metallurgiche G Cornaglia, SpA, Italy, through the Italian's company's subsidiary, Cornaglia Metallurgical Products India Pvt Ltd. The JV commenced operations in 2007-08 and manufactures and supplies air-intake systems and exhaust systems to automobile manufacturers.

LGAT is a 50:50 JV between LATL and Gill-Austem LLC. Gill-Austem LLC is also a JV between two industry leaders, Gill Group, USA and Austem, Korea. LGAT will manufacture components such as seating mechanisms, seating assemblies, and head restraints for the automotive industry. The existing seat frame business being carried on by LATL shall be transferred to this JV.

The Lumax group reported a profit after tax (PAT) of Rs.302 million on an operating income of Rs.7.64 billion for 2013-14, as against a PAT of Rs.411 million on an operating income of Rs.7.66 billion for 2012-13.

For the nine months ended December 31, 2014, the group reported a PAT of Rs.398.3 million on an operating income of Rs.6.26 billion, as against a PAT of Rs.208.7 million on an operating income of Rs.5.66 billion for the corresponding period of the previous year.