FRIDAY TELE FOLIO DT:7.12.07

CAPITA TELE RECOMMENDATION

Phoenix Lamps

Illuminating prospects

With Actis, a strategic investment fund, at the helm, one can look forward to aggressive growth as well as value unlocking once Actis decides to exit

Buy


Phoenix Lamps

BSE Code


517296

NSE Code


PHOENIXLMP

Bloomberg


PL@IN

Reuter


PHLM.BO

52-week High/Low


Rs 211 / 108

Current Price


Rs 184 (as on 7th December 2007)

Phoenix Lamps is India's number 1 manufacturer of lighting sources for automotive and general lighting applications including Automotive Halogen Lamps and Compact Fluorescent Lamps (CFLs). It manufactures lamps at 5 state of the art facilities. Phoenix sells its lighting products under its own ‘Halonix’ brand, and also does white label manufacturing for other leading brands in India. A pioneer in lighting products in India, Phoenix Lamps is recognized and trusted for its high quality, technologically advanced and innovative products.

The company’s products include automobile headlamps under the Halonix brand, H3 type halogen lamps for fog lamps, J-type halogen lamps for general lighting applications, compact fluorescent lamps (single/double H-type), etc.

Actis at the helm

During May 2006, the company identified potential foreign investors namely Argon India Limited and Argon South Asia Limited (controlled by Actis, which manages funds of Commonwealth Development Corporation) to invest into its expansion project by way of Convertible Share Warrants. During the process of obtaining statutory approvals for the same, the Acquirers had also expressed desire to purchase 87,35,727 equity shares held by the Gupta Family (the main promoters of Phoenix Lamps) thereby acquiring controlling stake into the Company. Accordingly, a warrant subscription and share purchase agreement was entered on 3rd July, 2006 which was subsequently amended on 28th December, 2006, wherein Gupta family agreed to sell their shares at Rs.190/- per share.

As per the requirements of SEBI Takeover Regulations, the acquirers made an open offer to acquire 56,03, 860 equity shares from public at Rs 190 per share. Having complied with the SEBI Takeover Regulations, Acquirers have acquired the control of management of the company and inducted their representatives as well as independent directors on the Board. The company has also redeemed the entire preference share capital of IDBI Ltd. The new Board of Directors has thorough knowledge, expertise in every field and is confident of further strengthening the company and improve wealth of investors in the years to come.

Market leader in growing market

The company enjoys the status of Market Leader in automotive Halogen Lamp segment in India with supplies to all Major OEMs. Continued growth in automotive segment with increasing demand from replacement market has enabled the company to perform well on consistent basis.

The company is also leading player in Compact Fluorescent Lamps and other General Lighting Halogen Lamps. In case of General Lighting Lamps a rapid shift is taking place from Ordinary incandescent lamps to energy efficient Compact Fluorescent Lamps (CFLs). In FY 2007, this segment recorded a growth of over 27%. CFLs will be the main growth driver of the Company in next couple of years.

Consistent financial growth

Even when other automobile ancillaries have not registered good results, PLL has managed to register robust growth. And importantly, the company has been successful in expanding its profit margins along with handsome rise in sales.

For the quarter ended September 2007, while its sales rose 26% to Rs 91.31 crore, OPM improved by 90 basis points to 17.9%. This took OP up by 32% to Rs 16.36 crore. Falling interest cost (down 18% to Rs 1.59 crore) and lower depreciation growth (up 14% to Rs 2.76 crore), saw its PBT rise by a good 46% to Rs 12.59 crore. Even as taxation grew 211% to Rs 1.15 crore, PAT rose by a solid 38% to Rs 11.44 crore.

For the six month ended September 2007, while its sales rose 21% to Rs 162.02 crore, OPM improved by 70 basis points to 16.6%. This took OP up by 26% to Rs 26.92 crore. PBT went up 42% to Rs 19.85 crore. Even as taxation grew 305% to Rs 85 lakh, PAT for the six month too rose by a solid 38% to Rs 19.00 crore.

New facility, overwhelming demand and new strategic markets to boost performance further

The company is riding high on the increased production with the start of the Haridwar facility having been commissioned since July 2007. Buoyed by the overwhelming response from the export market, Phoenix Lamps has also entered new strategic markets for auto exports and plans to increase market penetration in the coming years.

Buoyant outlook; Management confident of robust future and significantly higher margins

Rajeev Prasad, Managing Director, says. "The growth in profit is mainly because of better planning, forward and backward integration of units, better realization of value addition products, and working capital management .The management expects the current fiscal to be robust on account of capacity enhancement with the commissioning of Haridwar plant. We are confident of achieving significantly higher margins in the current year. In addition the company has started looking at acquiring synergistic businesses in India and Abroad".

Setting up of a new Unit at Haridwar will result in further tax saving for the company. The management’s stringent focus on cost management to remain competitive will enhance operating margins.

The company has also introduced new generation lamps like LED, HID etc.

Moreover, the management is confident that the Compact Fluorescent Lamp shall witness exponential growth going forward.

Valuation

Actis is a strategic investor in Phoenix Lamps. Normally Actis enters into a company when it feels it is undervalued and it can add value to it. Over a period of time when appropriate value is realised it exits from the company. In the process minority shareholders also gets the benefit of its management and value creation strategies.

We expect the company to register sales and net profit of Rs 336.12 crore and Rs 40.29 crore respectively in FY 2008. On equity of Rs 28.02 crore and face value of Rs 10 per share, EPS works out to Rs 14.4. This EPS is expected to rise to 18.7 in FY 2009 on sales of Rs 420.15 crore and PAT of Rs 52.51 crore. The share price trades at Rs 184. While the P/E on FY 2008 EPS is just 12.8, it falls to an attractive 9.8 on FY 2009 EPS. Expectations are building up that automobile industry will soon come back on growth track and interest rates will come down. This will help rerating of Phoenix Lamps, which in any case is doing well in spite of the recent sluggish phase in the auto industry. With Actis, a strategic investment fund, at the helm, one can look forward to aggressive growth as well as value unlocking once Actis decides to sell its 66% stake which it bought from earlier promoters at Rs 190.

Phoenix Lamps: Financials






0403 (12)


0503 (12)


0603 (12)


0703 (12)


0803 (12P)


0903 (12P)

Sales


162.83


202.75


232.72


277.83


336.12


420.15

OPM (%)


20.3


18.7


17.4


15.9


16.9


17.2

OP


33.03


37.86


40.60


44.24


56.93


72.27

Other Inc.


1.64


1.5


5.44


2.78


3.31


3.50

PBIDT


34.67


39.36


46.04


47.02


60.25


75.77

Interest


7.16


7.51


6.88


7.23


5.90


5.50

PBDT


27.51


31.85


39.16


39.79


54.35


70.27

Dep.


14.18


14.83


14.30


10.75


12.33


13.81

PBT


13.33


17.02


24.86


29.04


42.02


56.46

Tax


3.89


4.18


0.97


-2.43


1.74


3.95

PAT


9.44


12.84


23.89


31.47


40.28


52.51

EPS* (Rs)


3.9


5.5


8.5


11.2


14.4


18.7

*Annualised on current equity of Rs 28.02 crore;
Face value of Rs 10 each
(P) Projections,
Figures in crore,
Source: Capitaline Corporate Databases



Phoenix Lamps: Results






0709 (3)


0609 (3)


Var. (%)


0709 (6)


0609 (6)


Var. (%)


0703 (12)


0603 (12)


Var. (%)

Sales


91.31


72.71


26


162.02


134.42


21


277.83


232.72


19

OPM (%)


17.9


17.0





16.6


15.9





15.9


17.4




OP


16.36


12.38


32


26.92


21.33


26


44.24


40.60


9

Other inc.


0.58


0.60


-3


1.58


1.31


21


2.78


5.44


-49

PBIDT


16.94


12.98


31


28.50


22.64


26


47.02


46.04


2

Interest


1.59


1.93


-18


3.05


3.80


-20


7.23


6.88


5

PBDT


15.35


11.05


39


25.45


18.84


35


39.79


39.16


2

Dep.


2.76


2.42


14


5.60


4.90


14


10.75


14.30


-25

PBT


12.59


8.63


46


19.85


13.94


42


29.04


24.86


17

Tax


1.11


1.06


5


1.64


1.99


-18


0.62


3.71


-83

Deferred Tax


0.04


-0.69


-106


-0.79


-1.78


-56


-3.05


-2.74


11

PAT


11.44


8.26


38


19.00


13.73


38


31.47


23.89


32

EPS* (Rs)


16.3


11.8





13.6


9.8





11.2


8.5




*Annualised on current equity of Rs 28.02 crore;
Face value of Rs 10 each
Figures in crore,
Source: Capitaline Corporate Databases