phoenix lamps 231007

8/14/2019 Phoenix Lamps 231007

1/18

Phoenix Lamps Ltd.

Oct 24, 2007

Mata Securities India Pvt. Ltd. 1

GrowthIlluminated Buy

CMPRs.137 PhoenixLampsisthe largestmanufacturerofautomotive lamps inIndiaand isleadingplayer

in

Compact

fluorescent

lamps

(CFL)

and

general

lighting

halogen

lamps

in

the

country. The companyhas setup world classfacilities thatproduces lamps marked to

international standards. Its vastproductprofile suits requirements of all segments of

automobilesindomesticaswellasexportmarket.

Analyst

RahulJain

912265208815

Head Research

RaviGupta

912265208816

INVESTMENTTHESIS

FavorableIndustryFactors

o ShiftinconsumerpreferencefromincandescentlampstoenergyefficientCFLs

o HigherautodemandIncreasingcapacityofdomesticautoplayers,outsourcing

manufacturingofvehiclesfromIndiaandincreasingvehicleownershipwould

drivethe

auto

lamps

demand.

o Replacementdemand: Highersalesofvehicles in the last34years, forwhich

lampreplacementmaybedue,isthereadyreplacementmarket.

StrongPositionoftheCompany

o LeadingPlayerwithlargecapacity Ithasamarketshareof70%inautolamps

andsuppliestotier1vendorsaswellasallmajorOEMsunderthebrandname

Halonix. The aggregate manufacturing capacity of lamps would reach

138mnpiecesp.a.beforetheendofFY08.

o Prestigiousclientele: ItcaterstoallthemajordomesticandinternationalOEMs

and OLMs like Tata Motors, Maruti, M&M, Volvo, MICO, Lumax

(automotive) andPhilips,Osram,CromptonGreaves, Surya,Bajaj Electrical

andHavells

(general

lighting).

o Derisk business model: Phoenix caters to auto as well as general lighting

categories;alsoitcaterstodomesticaswellasexportmarketwhichinsulateit

fromriskofanysectoraloreconomicslowdown.

o StrategicLocationoftheplants Thecompanysplantsareconsciouslyselected

tobeeligiblefortaxbreakstokeepthecostlowandhencecompetitiveness.

o Sharpgrowthinsalesandprofit: Thecompanyssales(27%CAGRover200207)

and profits (31%CAGR over 200207) are growing at phenomenal rate, on

accountofstrongdemandandregularcapacityexpansion.

ProfessionalManagement Inducted:Recently, theoriginalpromoter familyhas soldoff

thecompany

to

Actis

(a

PE

fund)

which

has

inducted

professional

management

in

the

company. Someoftheinitiativestakenbythenewmanagementare:

o ChangeinBusinessProfile:Aslargeproportionofthesaleswascontributedby

sales to other private lampmarketers, themarginswere low;but now the

company wants to increase turnover from its own brand to increase its

margins.

o StrengtheningBrandname: RecentJVwithEveready industrieswill take the

company intothe leagueoftier1playerswheremarginswouldbehigheras

comparedtosupplyingtoOLMs.


2/18

Phoenix Lamps Ltd.

Oct 24, 2007


o GlobalOutlook: Newmanagementhashugeplans forexportsmarket,and is

tappingnewdestinationslikeUSandChina.

o Enriching the Productportfolio: The company plans to enter new generation

lampslike

LED

and

HID

lamps

(may

acquire

or

go

for

JV

to

venture

into

this

newgenerationlamps).

BrightFuture

o SufficientSpareCapacity: Recently,themanufacturingcapacityofthecompany

has increased to cater to the growing demand in both auto and general

lightingsectorandneednotincurmeaningfulcapexinnearfuture.

o LowFinancialRiskandRobustcashflows: Withsufficientsparecapacityinhand

&nonewprojectinline,lowoverallgearing(0.39xasonMarch31,2007))and

goodproductdemandprospects,thecompanyisexpectedtogeneratestrong

cashflowsinthenextfewyears.

VALUECREATION

0

100

200

300

400

500

600

700

FY05 FY06 FY07 FY08P FY09P FY10P

Sales

(Rs.

in

cr)

0

10

20

30

40

50

60

70

80

PAT

(R

s.

in

cr)

Sales (in Rs.cr) PAT (in Rs.cr)

0

5

10

15

20

25

30

FY 05 F Y06 FY 07 FY 08P F Y09P F Y10P

Earnings

pershare

(Rs.

)

0

1

1

2

2

3

3

4

4

Dividend

pershare

(Rs.

)

Earnings per share Dividend per share

PLL is showingup splendidlyonparameters likegrowth in sales,profits,earningsand

dividendpershare. MataResearchexpectsPLLwouldgrowaggressivelywith improved

marginwithfocusshiftingtohighgrowthhighmarginCFLbusinessandincreasedsales

throughitsownlabelHalonix.

VALUATION

MataResearchhasvaluedPhoenixLampsonrelativeaswellasDCFvaluationsmethods.

AtCMPofRs.137(asonOct.22,2007),itistradingat10xonFY08Pearningsandat5.82x

onFY09Pearnings.

BasedontheDCFvaluation,thefairvalueofthestockisRs.270. Thehighervalueiswell

justifiedby

the

strong

industry

dynamics,

leadership

position,

rich

clientele,

wide

product

range,strategiclocationsandderiskbusinessmodelofthecompany.

WeinitiateourcoveragewithaBUYrecommendationandexpectstocktoachievelevelof

Rs.250markwitha1215monthshorizontotradeatamultipleof10.8x.

Mkt.Capitalisation Rs.386.67cr PromoterHoldings 66.06%

Av.Trading volume(3mth) 13thousandshares. FII/MF/Banks/Institutions 14.42%

52wH/L Rs.167/Rs.108 Public/Others 19.52%


3/18

Phoenix Lamps Ltd.


Operating

since

1991.

State of the art manufacturing

plants.

Plantsaresetupnearitsclient.

BACKGROUND

PhoenixLampsLimited(PLL),startedasanIndoJapaneseJointVenture

in1991byShriB.K.Gupta (Indianpartner),PhoenixElectricandSoei

Tsushoas

technical

and

financial

collaborators;

to

manufacture

halogen

lampsforautomobilesandgenerallightingpurposes. Later,theproduct

rangewasbroadenedtoincludecompactfluorescentlamps(CFL).

PLLhasfullyautomaticstateoftheartmanufacturingunitsfulfillingthe

demandofdiscerningcustomerswhichincludesworldslargestplayers

inautoandgenerallightingproducts.

Manufacturingunitsof the companyare locatedatNoida,NoidaSEZ

(EOU)andDehradun. Thecompanyiscomingupwithitsfourthplant

whichwouldmanufactureCFLatHaridwarandwouldbeentitled for

severaltaxbenefits.

Management:

Professional

with

Global

Perspective.

EventDiary:3rdJulywarrantsubscription

andsharepurchaseagreement

28thDecemberGuptafamily

agreedtosellatrevisedpriceof

Rs190pershare

20th February open offerfor

20% stake subscribed by

shareholders.

Parentcompany

having

acorpus

ofover$3.5billions.

Focusonbuildingitsownbrand

During first 10 years of operations, PLL went on tobecome largest

domestic lamp manufacturer in the automotive segment but mainly

supplyingtooriginallampmanufacturers. Italsoderiveshalfofitssale

fromreplacementmarketbutlargelyundertheprivatelabels.

InJuly2006,ActisthroughitssubsidiaryArgonIndiaandArgonSouth

Asiashowed interest in thecompanyandsubscribedconvertibleshare

warrantsandlateron,boughtentirestakeofpromoters(31%)and20%

frompublicthroughopenoffer.

Actisisaleadingprivateequityinvestorinemergingmarketsforlast60

yearsandhasUS$3.5billionofassetsundermanagement.

Actisafter

acquiring

the

control

of

management

inducted

their

representatives aswellasindependentdirectorsontheBoard. Thenew

management has shown its keen interest inbuilding companys own

brand insteadof continuing supplying tootherprivate labels. This is

expectedtoimprovethemarginsofthecompany. MDofthecompany

Mr.RajivPrasadenvisionstotakethecompanyintheglobalmarketina

bigwayandtostrengthenitsownbrand,Halonix.

SHAREHOLDINGPATTERN(asonJune30,2007)

Promoters

66%

Indian public

20%

Body corporate

10%

MF & FI

3%

FII

1%


4/18

Phoenix Lamps Ltd.


ThefacevalueofshareisRs.10. TotaloutstandingshareasonJune30,

2007were2.802croreandthetotalequityisRs.28.02crore. InJuly,2006,

thecompanyissued41.7lakhconvertiblesharewarrantsofRs.102each

in

a

preferential

allotment

(converted

entirely

in

FY07,

into

4,170,000

equitysharesofRs10eachatapremiumofRs92pershare inMarch,

2007) and raised Rs.42.53 crore to finance its ongoing capacity

expansionproject.

BUSINESSPROFILE

The company is engaged in manufacturing of lamps which can be

broadly classified as automotive lamps and general lighting purpose

lamps. Over the years, it has diversified its revenue streams across

clientsandbroadeneditsproductbaseacrossitsbothsegment.

In

2003

04,

automotive

division

contributed

two

third

of

the

sales,

but

CFLdivisiongrewatarateof27%CAGRinlastthreeyearstakingthe

share ofgeneral lighting to 45% of total sales. Also,withHaridwar

plant commencing commercial production in fourth quarter of the

current financial year, the share of general lighting would exceed

automotivelampsincomingyear.

65% 60%58% 55%

35% 40% 42% 45%

0%

20%

40%

60%

80%

100%

2003-04 2004-05 2005-06 2006-07

Automotive Lamps General Lighting

LargestplayerinAutomotive

lampswithsuppliestoallmajor

OEMsaswellasOLMs.

a) Automotivelamps:

PLL enjoys the status ofmarket leader in automotive halogen lamp

segmentinIndiawithsuppliestoallmajorOEMs. Thecompanysclient

profile includesAutomajors likeMaruti, TataMotors, Eicher,M&M,

Hyundai,VolvoandBajaj. ItalsosuppliestootherLampmanufacturers

likeMICO,Lumaxandothers. Thecompanyhasmarketshareofabout

70%inautomotivelamps. PLLsellsitsproductunderthebrandname

Halonix,which

is

an

undisputed

leader

in

its

segment.

Automotive

lampssegmentconstitutes55%ofcompanystotalsales.

MataResearchbelievesfollowingfactorswillresultinstrongandsteady

growthintheautomotivesegments:

Growth in domestic Auto Sector Phoenix Lamps has virtual

monopoly in halogen lamps. It supplies to Tier1 original lamp

manufacturers likeLumax,whothensellsunder itsownbrandsto

autoOEMssuchasMaruti,HeroHonda,TataMotors,Volvo,Bajaj

andAshokLeyland.HostofnewvehiclelaunchesbyautoOEMsare


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Phoenix Lamps Ltd.


expectedtocomeupinmid2008,whichwouldleadtohighersales

ofhalogen lamps in thepassenger carand twowheeler segments.

Also,theindustrydynamicslikelowcarownershiplevelwouldalso

give

boost

to

auto

lamp

sales.

Promising Two Wheeler Sector The two wheeler segment in the

domestic market will be key growth driver; with an increasing

number of twowheelersmanufacturer are now shifting towards

halogen lamps and size of our twowheelermarket is very large.

PLLhasdevelopedalampH6tocoverallleadingscootersandbikes

plyingworldover. Thecompanygarnercloseto90%marketshare

intwowheelerspace.

IncreasingAuto Exports Indiabecoming global hub for small car

wouldprovidestrongandsteadygrowthforthemarketleader.

hugereplacementdemanddueto

highgrowth

in

automobile

in

pastandshortproductlifecycle.

HighReplacementDemand TheCompanysellshalogenlampsunder

itsown

brand

mainly

in

the

replacement

market.

Strong

growth

in

the automobile industry in the last threefour yearshasmade the

aftersalesmarketattractive,asthereplacementlifeofalampis23

years. Thecompanysoldabout45millionhalogenlampin2005and

55 million in 2006 in aggregate which may now be ready for

replacement.

RegulatoryIssues Weexpectdomesticnormstoconformtothosein

Europeoverthenextfewyearswhichwillleadtohighergrowthfor

halogenlamps. Alsoaspernewregulation,carownersarerequired

tokeeptwosparebulbs,suchmoveswillfurtherboostdemandfor

automotivelamps.

b)Generallighting:

CFLtodrivethegrowth

momentumforthecompany.

Phoenix Lamp is also leading player in Compact Fluorescent Lamps

(CFL) and other general lighting halogen lamps. The company has

recordedagrowthofover27%inthissegmentandexpectsittobethe

maingrowthdriverinnextcoupleofyears. Inthisspace,arapidshiftis

takingplacefromordinaryincandescentlampstoenergyefficientCFLs.

General lightingsegment contributesaround45% to the toplineof the

companybutitsshareisexpectedtoincreasewiththecommissioningof

newfacilitiesatHaridwar.

Following key factors are expected to chart the growth path for the

companyingenerallightingsegment:

Economyof

scale

and

rich

clientele:

CFL

manufacturing

in

India

is

marked by around 400 companies in the unorganized sector as

against some 20 players in the organized sector. However,

organised players accounts for 65% of the total CFL market.

Phoenix Lamps has advantage of being one of the largest

manufacturerwhich supplies toallmajordomesticCFLmarketers

like Philips, Crompton Greaves, Bajaj Electrical, GE,Havells and

Osram.


6/18

Phoenix Lamps Ltd.


Lowpenetrationandhighgrowthprospects: CFLpenetrationinIndia

is low at 45% as compared to around 20% in overseas countries,

which

creates

opportunity

for

domestic

players

to

tap

the

uncovered

market. CFLmarket is expected togrow at the rate of3035% in

nextfiveyears.

Tieup with Eveready Industries: The company has entered into

distribution and cobrandagreementwithEveready Industries for

its general lighting products. Thiswould get access to the huge

distribution channel of around 9million outlets of Eveready and

wouldsell its lampswith HalonixEvereadybrand. Phoenixwill

alsobenefitfromthecobrandingbecauseofwidelyknownbrandof

Eveready.

Govt.favoringtheusageofCFL,

onaccountofitsenergyefficient

qualities.

Government initiatives: CFLsareenergy efficientand consumejust

20%oftheelectricityascomparedtoincandescentlampforthesame

amountof illumination. Thus,Powerministryhasurged theneed

towardsmoreusageofCFLinitsstepstowardenergyconservatism.

Ministry has asked for mandatory installation of CFL for

institutionalandgovernmentbuildings.

Decreasing price differential: Prices of CFL has come down

significantly in past few yearswhich has reduced the initial cost

barrier. Life of CFL is six times more than that of a standard

incandescent lamp which again makes economic sense for

consumers. Further, price can be reduced with initiatives like

concessiononsalestaxandlowercustomdutiesoncomponents.

c)Exports:

PLL is among the five largest automotive lampmanufacturers in the

world. In200304,exportscontributedmorethanhalfofthesales,but

gradually shareofdomestic sales increased significantly to67%of the

total sales, on account of strong domestic demand in the automotive

segment. Exportshasalsogrownbutatalesserrate.

46% 49%

65% 67%

54% 51%

35% 33%

0%

20%

40%

60%

80%

100%

2003-04 2004-05 2005-06 2006-07

Domes tic Exports

Exportswillflourishwithnew

managementtakingcompanys

ThecompanyexportsmainlytoEurope,Japan,SouthKorea,Australia,

Middle East and South East Asia. Global OLMs like Bosch sources


7/18

Phoenix Lamps Ltd.


producttonewterritories. lamps from PLL and sell them under its ownbrand in international

market. Now, thenewmanagementof thecompany isengaged in its

brandbuildingandwantstotapglobalmarketswithitsownbrand.

MataResearch

feels

the

factors

that

would

drive

the

export

growth

of

companyare:

ThecompanysefforttoexplorenewmarketslikeUSforautomotive

lamps.

ImplicationofDaytime lightingnorms forautomotives inEurope,

whichrequirescarstoswitchonthelightsevenduringthedaytime

leadingtomoreusagenecessitatingearlyreplacement.

Proposedban on incandescentbulbs inAustralia and Europeby

2009whichwill create further demand for energy efficient lamps

likeCFLs.

AGGRESSIVE

GROWTH

STRATEGIES

Expandedcapacitiestoexploit

theemergingopportunitiesin

highgrowthCFLsegment

PLListhelargestlampmanufacturerinthecountryandtomaintainits

leadershipstatus,thecompanyhasbeenincreasingitscapacityregularly

from61.34millionlampsinMarch200304to138millionlampsin2007

08 to cater the growing demand triggered by strong demand from

automobilesectorandrevolutionarydemandinCFLsegment.

TocatertothegrowthintheCFLsegment,thecompanyissettingupa

GreenfieldplantatHaridwarwithacapacitytomanufacture43million

CFL lampsatan investmentofRs.27cr,whichwouldstartcommercial

productionlaterthisyeartakingtheaggregatecapacityofthecompany

to138mnlamps. Thisplantislocatedintaxfreezoneandwouldenjoy

100% excise exemption for 10 years and income tax exemption for 5

years. Plantwill cater tobothbranded i.e.Halonix aswell asbulk

unbranded supplies to other OLMs to be marketed under their

respectivebrandnames.

Recentadditionofcapacitywill

makePLLaslargest

manufacturerofCFLlamps

Capacities in million units

61.375.1

138

95.189.4

0

20

40

60

80

100

120

140

160

2003-04 2004-05 2005-06 2006-07 2007-08F

Capacityutilisationhashoveredinanarrowrangeof6469%duringthe

period200307due toregularadditions inthecapacityacrossdifferent

product ranges. Capacity utilisation for current year is estimated

around68%evenwith theplannedadditionof43mn. Theutilization

would improve as the company does not plan any further capacity

additioninnexttwoyears.


8/18

Phoenix Lamps Ltd.


Worldclassautomatedfacilities

Internationalstandardproduct

quality.

Thecompanyhassetup fullyautomatedstateoftheartmanufacturing

facilitiesforall itsproductofferings. Thecompanyisrenownedforits

qualitativeproduct

having

quality

certifications

like

ISO

9001:2000,

QS

9000andTS16949:2002under itsbelt. Itsunithasmassiveproduction

infrastructure setup over four different locations, which at its full

capacity can deliver over 100million lamps, benchmarked to

internationalregulationsforquality,safetyandperformance.

Plantslocatedstrategically

attractingtaxbenefits

Alltheplantsofcompanyarelocatedstrategicallytobeentitledfortax

benefitsandinacloseproximitywithmajorclientstoservethembetter.

Thetaxbenefitsgiveitacompetitiveedgeoverrivalsintermsofpricing

power.

Plant Autolamp* GeneralLighting* TaxBenefits

Noida

13.4

13.0

Noida(EOU):

Unit1

Unit2

27.5

13.4

Exciseexemption

Dehradun 15.6 12.0 Excise&ITexemption

Haridwar 43.0 Excise&ITexemption*Capacityinmillionunitsoflamps

ProductPortfolio:

Someofthekeyproductsofthecompanyareasfollows:

AutomotiveLamps

Products Applications

H1 SleekandcompactlampsuitingEuropeanstandards

H3 Foglamp;improvesvisibilityinbadclimaticcondition

H4 Internationalqualitylampsuitableforallautomobilesegments

H7 Anideallampforcarshavingfourbeams

H13 Doublefilament,5axisfocusdesignedpatentedWorldover.

M5 Mustfor2wheelers,designedtowithstandvoltagefluctuationofdynamo

9000series Increasesvisibilityonroadsign&givewhitelightlikeHIDlamps

Nightvision Lightoutputis100%moreat50100metresaheadofvehicle


9/18

Phoenix Lamps Ltd.


H1XenonBlue UltraBlue H4Gold

Apart from the huge current product offering company is looking

forward into development of new lamps which will add new

dimensionstothefastgrowingenergyefficientlamps. Thecompanyis

looking forward for an acquisition or joint venture to enter into

manufacturernewgenerationLED&HIDlamps.

GeneralLightingLamps

Products Application

Integrallamps 6timesmorelifethanordinarylamp,upto80%electricitysavings

Nonintegral Avglifeof8000hrswithhugeenergyefficiency

Jlinear Floodlightsourceforwhitecoverage,availableinrangeof1501000watt

MiniSpiral ELD Jseriesfloodlights


10/18

Phoenix Lamps Ltd.


INDUSTRYDYNAMICS

AutoSector

Structureofindustry

Industrycontributes5%to

GDPofthenation.

Indianautomotivelampindustrycanbeclassifiedintotwocategoriesor

valuechain;firstisthatoforiginallampmanufacturersandotheristhat

of lamp assemblymanufacturers. The industry has very few players

directly catering toOEMs,butmanyunorganisedplayersproduce for

thereplacementmarket. Replacementmarketisverybigasproductlife

is as small as 23 years. Indian automobile industry has grown

substantially in last five years which has created huge demand for

autolamps.

Robustdomesticsalesacrossallsegments

Indianautomobile

industry

has

flourished

enormously

in

last

five

years

resulting in strong growth in the auto ancillaries including that of

automotive lamp industry. Growth in all the segments, right from

commercial vehicle (CAGR26%), passenger vehicles (CAGR19%) to

thatoftwowheelers(CAGR14%)havebeenphenomenal. Thiscreates

an astounding opportunity in the replacement market for the auto

lamps.

Robustdomesticgrowthacross

allthesegments

2.0 2.8

10.33.5

13.8

84.7

49.9

7.8

56.3

65.8

12.3

75.7

3.9 5.2

15.8

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Commercial Vehicles Passenger Vehicles Two-Wheeler

Vehicle

sold

(unitsin

lakhs)

2002-03 2003-04 2004-05 2005-06 2006-07

Source:SIAM

Capacityinlakhsunits

Segments 2007 2010

C.V

6.2

10.3

P.Car 19.4 38.1

2wheelers 121.5 169.2

MataEstimates&Companydata

CapexprogramsofDomesticOEMs

Consideringthe

huge

potential

in

the

industry

due

to

factors

like

India

becoming global hub for automobile industry, low penetration of

vehicle,risingdisposableincomeandhugeinfrastructuredevelopments

all the major domestic and international OEMs are increasing their

capacities in thecountry. Allmajorplayershavehugecapexprogram

whichwillbeabigboonforancillariescateringtotheseOEMs.

GeneralLighting

The CFLmarket in India is marked by the presence of around 400

unorganised companies and 20 companies in organised sector.


11/18

Phoenix Lamps Ltd.


Currently,theCFLpenetrationincountryisverylowat5%ascompared

to2025%inothercountries. AstudybyPhillips(inventorofCFL)says

CFLdemand in Indiawouldgrowat50%CAGR fornext5years. At

present,

CFL

market

is

growing

at

the

rate

of

25%.

Demandsupplygapcanbefilled

byenergyconservationmeasures

likeusingCFL

India is facing shortageofpowerby10%,which isexpected towiden

consideringtheeverincreasingdemandandthelonggestationprogram

to develop power infrastructure. Demand for powerwould go from

current 135,000mw to 215,000mw by 2012. To meet the widening

demandsupply gap;Government has started initiatives like usage of

energyefficient lamps likeCFL,whichcansaveelectricityupto80%as

comparedtoordinaryincandescentlamp. Followingfactorswillinduce

demandforCFL:

Awattsaved isequivalent to1.5wattgeneratedbecauseofT&D

losses;andCFLsavesasmuchas80%electricity

Govt. initiative to renovateallgovernmentbuildingsandutilitieswithenergysavinglamps.

DecreasingpricedifferentialofCFLwithordinarylamp.

CFLhavingfivetimeslongerlifeascomparedtoordinarylamp.

Huge infrastructure cost of Rs.5cr/MW, for power generation,

whichfurtheremphasizetheneedofpowersavingbyusingenergy

efficientCFL.


12/18

Phoenix Lamps Ltd.


STRATEGICOVERVIEW

Phoenix Lamp Limited is engaged in manufacturing of lamps for

automobileand

general

lighting

segments.

PLL

is

largest

lamp

manufacturer inautomotive segmentwithannualproduction capacity

of 66 million lamps. Its fourth plant, which will start commercial

production from fourth quarter of FY0708, will make the company

largestCFLmakerinthecountry.

Avg.SWOTscore#: 4points Strategicanalysis

4pts Strengths

Largestlampmanufacturerinthecountry

Marketshareofabout70%inautomobilesegment

Worldclassproductquality

First

mover

attitude

with

rich

clientele.

4ptsWeaknesses

LargelysupplyingtoOLMswhichislowmarginbusinessarea

4pts Opportunities

HugedemandpotentialinCFLsegment

Massivecapacityexpansioncomingupinautosector

Replacementdemandcomingoutofrobustpastautosales

VenturingintolargemarketofUSforexports.

3pts Threats

LargenumbersofunorganisedplayersinCFLmarket

CheapChinese

products

Slowdowninautosector

Currencyfluctuations

#Scoringrangeis15(higherscoreisbetter)


13/18

Phoenix Lamps Ltd.


FINANCIALPERFORMANCE

Robustsalesgrowthaidedbyconstantincreaseincapacities

181.91

240.84

289.93

148.19139.21

89.00

0

50

100

150

200

250

300

350

FY02 FY03 FY04 FY05 FY06 FY07

Sales (Rs.in Cr)

Sales of the company have increased at an impressive rate of 27%

(CAGR) over aperiod of fiveyears (200207) fromRs.89cr inFY02 to

Rs.289.9cr in FY07. The company has been increasing its capacity

regularlybothinautomotiveandgenerallightingsegments. Itscapacity

hasincreasedfrom61millionlampsin2003to95million lampsp.a.in

2007. PLLs new plantwill also start production in the current year

takingthetotalcapacityto138millionlampsbytheendofFY08.

Thecompanyhasbeenable toregisterstronggrowthonaccountof its

richproductportfolioaswellasmassiveclientelefeaturingdomesticas

wellasinternationalOLMsandOEMs.

PLLseesimmensepotentialinCFLmarketandhenceincreaseditsfocus

in the category. CFL penetration is low today and will see robust

growthinnextfewyearsbecauseofitsenergyefficientqualities.

0%

5%

10%

15%

20%

25%

FY04 FY05 FY06 FY07

PAT P BD IT

ImprovedEarningMargins

AlthoughPBILDTmarginsofthecompanydeclinedfrom22%inFY04

to 16% in FY07 (mainly on account of rising rawmaterial prices as

percentagetototalincome),overallPBILDTincreasedfromRs.32.81crto

Rs.45.17crduring thesameperiod. Highervolumesalesaregenerally

accompaniedbylowermargininordertoincreasethemarketshareand

meetcompetition.

PLLsPATmarginhasincreasedduringpastfewyears,mainlybecause

oflower

depreciation,

interest

and

taxation.

The

company

strategizes

its

plantinordertotakeadvantageoftaxholidaysandexciseexemptions.

Two of its four units currently have tax exemptions. New plant at

Haridwarwillalsofeaturenotaxliabilitieswhichwilloverallreducethe

totaltaxoutgoofthecompany.

The new management has emphasized on the branding of the

companys product and went on for dual branding agreement with

Eveready;suchmovewilldecreasedependenciesonprivate labelsand

improvemargins(asmarginsinsupplyingtoOLMsarelow).

Strongcashflow,liquidity andsolvency

The company has strong cashflows, which can finance the regular

capitalrequirements.

It

has

conservatively

financed

its

expansion

from

theproceedsofconvertiblesharewarrants,andalsopaidofftermloans

andpreferencecapitalwhichwill furtherreduce interestanddividend

outgo.

Overallgearinghascomedownconsiderablyfrom1.12asonMarch31,

2005 to 0.39x as on March 31, 2007, which is crucial to maintain

profitability in current high interest rate scenario. With declining

overall gearing,despite loweringPBILDTmargins, interest coverwas


14/18

Phoenix Lamps Ltd.


comfortableat4.64xforFY07.

Liquiditypositionisalsosecuredasindicatedcurrentratioof1.64xason

March 31, 2007 as compared to 1.26 as onMarch 31, 2006With low

gearingand

high

interest

cover

the

company

has

adequate

financial

flexibilitytomeetanycashflowmismatch.

Mata Researchbelieves thatwith strong cashflow expected in coming

years,itwillfurtherenhancetheoverallliquidityandsolvencyposition

ofthecompany.

Marginsimprovingoverthe

increaseintherawmaterialcost.

Performanceilluminatedinthefirstquarter

Thecompanyregisteredsplendidperformanceinthefirstquarterofthe

year as compared to correspondingperiod inprevious year. Topline

grewonaccountofgrowthopportunitiesintheindustry. Profitmargins

has improved on account of lower interest outgo and accruing tax

benefitsduringtheperiod.

Q1 FY08 Q1 FY07 Growth FY'07

Net Sales 70.7 61.7 15% 70.7

PBDIT 12.3 10.6 16% 45.2

PBIT 10.9 10.1 8% 34.4

PBT 8.1 6.2 30% 33.3

PAT 7.5 5.5 36% 31.5

PAT Margin 10.6% 8.8% - 10.7%

EPS (Rs.) 2.68 1.96* - 11.22(Rs. in cr)

*CalculatedonfullydilutedbasissharecapitalofRs.28.02cror2.8crshares.

GLOWINGFUTURE

MataResearchbelievesfollowingfactorswouldcontributetodrivevalue

forPhoenixLampsLtd:

VolumestoDrivetheSales

Withpositive industry factors (asstatedonpage#10)andcompanys

efforttoincreaseitsproductioncapacitiestoincreaseitspresenceinthe

growingmarket, the sales of the company is expected to grow at a

CAGRof30%inthenext3years.

MarginstoImprove

Margins of the company are expected to improve on account of the

following:

Productmix getting richer,with higher proportion ofCFL in

totalsales.

Highermarginsonaccountofsellingunderownbrandlabel.

60%ofthesalescomingfromtaxbreakszonesresultinginlower

taxoutgo.


15/18

Phoenix Lamps Ltd.


Lowerinterestpayoutsduetowritingoffoflongtermloansand

dividendbearingpreferenceshares.

Economiesofscale.

FinancialRiskforthecompanywouldremainlowasnofurthercapexis

on cards and the company is expected to generate significant cash

accrualstofurtherlowerthegearing..

FY07 FY08P FY09P FY10P

TotalIncome(Rs.cr) 289.9 364.6 555.8 644.5

PAT(Rs.cr) 31.4 38.6 66.4 73.7

OperatingMargin 16.2% 16.1% 16.1% 15.2%

PATMargin 11.3% 10.8% 12.1% 11.6%

ROCE 21.9% 23.5% 31.8% 28.3%

Overall

gearing

(x)

0.39

0.31

0.23

0.19

EPS(Rs.) 11.2 13.8 23.7 26.3

STOCKVALUATION&RECOMENDATIONS

Mata Research believes that the market leadership, untapped

opportunitiesinthefastgrowingCFLbusiness(newcapacityof43mn

lamp added during the year), continued growth fromdomestic auto

lamp market (new as well replacement market), rich client base

(representingallsegmentsofautomobilesandalsogenerallightinglamp

manufacturer),lowertaxandinterestoutgo;woulddrivethegrowthin

net cash flow, profitability and thus, a superior valuation for the

company.

HaridwarplantwillcommissionfullybyQ4FY08andwillfunction

in full swing inFY09whichwould lead toa salesgrowthof31%

overFY0710takingsalestooverRs.6bnbyFY10.

Thecompanyservesasasuppliertoallelitesinthe lamp industry

including the likes ofMICO,Lumax,TataMotors,M&M,Maruti,

Hero Honda, Volvo and Bajaj in automotive lamp segment and

Havells,Osram,Phillips,CromptonGreaves and Surya ingeneral

lighting segment. Such rich clientelewould insulate the company

fromanysegmentalorcompanyspecificslowdownrisk.

The newmanagements vision to take the company to the global

levelunder

its

own

label

would

serve

PLL

to

emerge

as

astronger

playerintheglobalarena.

The company has low interest and tax outgo and future capex

would be funded with internal accruals which would result in

strong free cashflows for the company, creating value for the

company.


16/18

Phoenix Lamps Ltd.


PLL is quoting at Rs.137 as onOct 22,which translates into 10x on

FY08Pearningsandat5.8xonFY09Pearnings.

Onrelativevaluationbasis,thecompanyisoneofthemosteconomical

stockavailableinautoancillaryspacewithP/Eofjust12xascompared

toother lampmanufacturers. PhoenixLampat itsFY09Pearnings is

expectedtotradeatRs.293pershareataPERof12x.

Basedon theDCFvaluation, the fairvalueofthestock isRs.270. The

valuation iswelljustified on account of low risk and strong growth

prospectsandfavorableindustrydynamics.

Basedonthegrowthprospectsofthecompany,MataResearchfeelsthe

stock has strong investment prospects to reach Rs. 250 over a 1215

monthsperiod.


17/18

Phoenix Lamps Ltd.


OperationalPerformance BalancesheetParticulars FY 04 FY 05 FY 06 FY 07 Particulars FY 04 FY 05 FY 06 FY 07

(Rs.cr) Assets (Rs.cr)

NetSales 133.35 172.09 228.33 277.33 FixedAssets 89.74 88.05 85.85 95.11

OtherIncome

17.77

20.84

4.49

0.51

Investments

0

0

0.05

0

TotalIncome 151.12 192.93 232.72 277.84 NCA/NWC 20.97 48.26 73.12 86.28

CostofSales 118.31 157.19 191.23 232.67 CurrentAssets 60.43 88.38 105.81 118.73

PBDILT 32.81 35.74 41.49 45.17 CurrentLiabilities 39.46 40.12 32.69 32.45

Depreciation 14.25 14.83 14.31 10.75 TotalCap.Empld 110.71 136.31 159.02 181.39

PBILT 18.56 20.91 27.19 34.42 Liabilities

Financecharges 6.12 7.58 7.11 7.42 ShareCapital 47.88 47.88 46.76 41.18

Op.ProfitbfrTax 12.46 13.33 20.09 27.00 Reserves 6.15 13.67 31.59 89.37

Extraord.Items 3.43 5.36 7.19 6.27 Miscexpw/o 0.09 0.13 0.11 0.13

PBT 15.89 18.69 27.28 33.27 NetWorth 53.94 61.42 78.24 130.42

Less:Tax 6.57 6.36 3.39 1.80 TermLiabilities 56.77 68.50 80.78 50.97

PAT 9.32 12.33 23.89 31.47 TotalCap.Empld 110.71 129.92 159.02 181.39

KeyRatios Cashflows

FY 04 FY 05 FY 06 FY 07 FY 04 FY 05 FY 06 FY 07ProfitAfterTax 12.3 23.9 31.5 38.6

GrowthinTotalInc. 19% 28% 21% 19% Depreciation 14.8 14.3 10.8 14.3

GrowthinPAT 24% 32% 94% 32% MiscExow/o 0.0 0.0 0.0 0.0

PBDITMargin 22% 19% 18% 16% ChangeinWC 0.0 13.1 23.5 11.3

PATMargin 6% 6% 10% 11% Opg.CashFlow 27.2 25.1 18.7 41.6

ROCE 18% 18% 19% 21% Inc/DecGro.Block 19.6 9.7 3.9 27.0

RONW 17% 21% 34% 30% Inc/(DecinCWIP 6.8 0.2 15.6 11.0

Gearing(x) 0.99 0.66 0.37 0.09 Inc/DecinInv. 0.0 0.1 0.1 0.0

OverallGearing(x) 1.05 1.12 1.03 0.39 C.F.Investing 12.8 9.9 19.4 16.0

CurrentRatio(x) 1.37 1.30 1.26 1.64 Dividendpaid 3.58 4.77 8.40 8.41

InterestCover(x) 3.04 2.76 3.83 4.64 TaxPayment 0.560 0.770 1.580 1.177

Inc.inT.Liab. 6.0 11.7 11.2 2.0

SalesPerShare 63.36 80.89 97.58 99.16 C.F.Financing 7.6 5.6 8.0 52.5

EPS

(Rs.)

3.91

5.17

10.02

11.23

Op.

Cash

Balance

2.0

1.3

13.0

2.7

DPS(Rs.) 1.00 1.50 2.00 3.00 Cl..CashBalance 1.3 13.0 2.7 5.1

(Rs.cr)

FinancialProjections

OperationalPerformance BalancesheetParticulars FY 07 FY08P FY09P FY10P Particulars FY 07 FY08P FY09P FY10P

(Rs.cr) Assets (Rs.cr)

NetSales 277.3 355.7 545.9 634.1 FixedAssets 95.1 96.9 87.1 79.4

OtherIncome 0.5 0.5 0.5 0.5 Investments 0.0 0.0 2.0 7.0

TotalIncome 277.8 356.2 546.4 634.6 NCA/NWC 86.3 108.0 168.5 233.3

CostofSales 232.7 298.6 458.7 538.5 CurrentAssets 118.7 146.7 213.7 285.2

PBDILT 45.2 57.6 87.8 96.1 CurrentLiabilities 32.5 38.7 45.2 52.0

Depreciation 10.8 14.3 15.8 15.8 TotalCap.Empld 181.4 204.9 257.6 319.6

PBILT

34.4

43.3

72.0

80.4

Liabilities

Financecharges 7.4 5.8 5.8 6.0 ShareCapital 41.2 38.7 36.1 33.6

Op.ProfitbeforTax 27.0 37.5 66.3 74.4 Reserves 89.4 118.4 173.7 236.2

Extraord.Items 6.3 2.1 1.7 1.3 MiscExp.Notw/o 0.1 0.1 0.1 0.1

PBT 33.3 39.6 67.9 75.7 NetWorth 130.4 156.9 209.7 269.7

Less:Tax 1.8 1.0 1.5 2.0 TermLiabilities 51.0 48.0 48.0 50.0

PAT 31.5 38.6 66.4 73.7 TotalCap.Empld 181.4 204.9 257.6 319.6


18/18

Phoenix Lamps Ltd.


ProjectedRatios ProjectedCashflowsFY 07 FY08P FY09P FY10P YrEndingMar.31 FY 07 FY08P FY09P FY10P

ProfitAfterTax 31.5 38.6 66.4 73.7

GrowthinTotalInc. 19% 28% 53% 16% Depreciation 10.8 14.3 15.8 15.8

Growthin

PAT

32%

23%

72%

11%

Misc

Exo

w/o

0.0

0.0

0.0

0.0

PBDITMargin 16% 16% 16% 15% ChangeinWC 23.5 11.3 59.0 12.9

PATMargin 11% 11% 12% 12% Opg.CashFlow 18.7 41.6 23.2 76.6

ROCE 22% 23% 32% 28% Inc/DecGro.Block 3.9 27.0 8.0 6.0

RONW 30% 27% 36% 31% Inc/(DecinCWIP 15.6 11.0 2.0 2.0

Gearing(x) 0.09 0.04 0.02 0.01 Inc/DecinInv. 0.1 0.0 2.0 5.0

OverallGearing(x) 0.39 0.31 0.23 0.19 C.F.Investing 19.4 16.0 8.0 13.0

CurrentRatio(x) 1.64 1.82 2.38 2.86 Dividendpaid 8.4 8.4 9.8 9.8

InterestCover(x) 4.64 7.52 12.51 13.41 Dividendtax 1.5 1.1 1.3 1.3

Inc.inT.Liab. 2.0 42.9 2.5 0.5

SalesPerShare 99.16 127.12 195.02 226.48 C.F.Financing 8.0 52.5 13.7 11.7

EPS(Rs.) 11.23 13.79 23.71 26.31 Op.CashBalance 13.0 2.7 5.1 3.6

DPS(Rs.) 3.00 3.00 3.50 3.50 Cl.CashBalance 2.7 5.1 3.6 52.5

(Rs.cr)

MATASECURITIESINDIAPVTLTD

2RahimtoolaHouse,1stFloor,7HomjiStreet,Fort,Mumbai400001

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it.Thisreportisnottobeconstruedasanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuch

anofferorsolicitationwouldbeillegal.NopersonassociatedwithMATASecuritiesisobligatedtocallorinitiatecontactwithyoufor

thepurposesofelaboratingorfollowingupontheinformationcontainedinthisdocument.Thematerial isbaseduponinformation

thatweconsiderreliable,butwedonotrepresentthat it isaccurateorcomplete,and itshouldnotberelieduponassuch.Neither

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the

use

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document.

The

recipient

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