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HDFC Research
FIEM Ind (Buy)
CMP: ₹656.50
Target: ₹751-820
FIEM Industries is one of the leading manufacturers of automotive lighting and signalling equipment, and rear-view mirrors in the two-wheeler segment. It has reported strong growth in its core business over the past three years, driven by strong sales rise in the two-wheeler business of its key customer Honda. FIEM plans to expand into more products and the four-wheeler segment through new joint ventures; this is likely to help it maintain its growth trajectory in the core business. The company has also diversified into the high-margin LED luminaire business, which could boost growth further. Relative to peers, FIEM has grown at a faster rate over the past two years and is currently trading at cheap valuations.
We build in revenue growth at 24 per cent CAGR in FY15-17E with PAT registering a growth of 39 per cent. While we have estimated the LED business to contribute significantly to FY16 sales growth, in FY17 the Viramgam facility will start contributing in a bigger way. We feel that investors could buy the stock at the CMP and add on dips to ₹565-590 band for sequential targets of ₹751 and ₹820 over 1-2 quarters.
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