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  • Stock recommendation: FIEM Industries Ltd – BUY – TP Rs.1030

    Publish date: August 16, 2018


    Result Update

    FIEM reported strong revenue growth; however increase in raw material cost impacted operational performance in the quarter.

    Key Highlights

    • FIEM reported revenue of Rs3,604mn, 24% higher over 1QFY18.
    • Growth in revenue was ahead of 15% YoY production growth witnessed by two wheeler companies in 1QFY19.
    • FIEM's top two customers by revenue - HMSI and TVSM reported 12% and 16% YoY increase in production respectively.
    • Sharp increase in raw material prices led to YoY and QoQ decline in EBITDA margin in the quarter.
    • FIEM's 1QFY19 PAT came in at Rs126mn, 22% growth YoY

    Valuation & Outlook

    • Two wheeler industry is witnessing strong demand, supported by continued demand for scooters and good monsoon leading to pick-up in motorcycle demand. With more than 90% of revenues coming by supplying products to the two wheeler segment, FIEM is expected to benefit from growing two wheeler demand. Further, over the medium to longer term, we expect company’s clients to outperform industry growth and that is expected to be positive for FIEM.
    • Over the next two-three years, we expect the two wheeler industry to witness meaningful shift from halogen headlamps getting to LED headlamps. FIEM’s EBITDA margin in 1QFY19 was below expectation on account of steep impact of raw material cost increase and INR depreciation. As FIEM initiates price increase with the customers, we expect the impact of raw material cost on margins to subside.
    • Given below expected EBITDA margin in 1QFY19, we lower our FY19/FY20 earnings estimate. We retain BUY on the stock with revised price target of Rs1,030 (earlier 1,214).

          

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