A recovery in the aftermarket business, higher contribution from the passenger car segment and a range of emission control products could boost Lumax Auto Technologies along with revenue growth, the company supplies lighting, chassis and gearshifts to automakers.

The company’s revenues declined sharply in the first quarter of the current fiscal due to reduction in aftermarket inventory and GST transition. high-margin aftermarket segments in 2017 fell to 14% in the June quarter of the year and 19% in the previous fiscal.

However, channel inventories are gradually normalizing and have recorded nearly 30% YoY growth in the last 6-month quarter. Longer term, the company plans to expand its aftermarket coverage to 15,000 retail touch points over the next three years, starting at $10,000 today.

The company with a current annual turnover of Rs. 2 billion aims to more than double its aftermarket sales business in the next three years. Margins in the aftermarket business are 18% to 25% higher than OEM sales.

On the automotive supply side, we are looking at more opportunities from passenger car manufacturers. The passenger car business has increased to 40% of total revenue from nearly 0% five years ago.

This has helped the company diversify its revenues. Earlier, the company was primarily focused on the two-wheeler segment (mainly Bajajajajaja) Auto). The company has over 70% market share in passenger car gearshifts and is the only company in India with local R&D capability to manufacture gearshifts.

To strengthen its implementation, the company has also started manufacturing Automatic Transmission (AT) levers and supplying them to Maruti’s Baleno and Ertiga models.

AT levers are still being imported, providing an excellent opportunity for new orders. Many automakers expect the ATAMT share of new vehicle sales to start increasing from the current 8% to 20% by the year 2020. AT joysticks perform 2 to 3.5 times better than manual joysticks.

In addition to gearshifts, the company has developed a range of new products in joint ventures with foreign countries to meet new emission standards beginning in 2020.

The exhaust emission systems joint venture, Lumax Criaglia, will produce new products such as urea tanks, plastic filler pipes and plastic fuel pumps, which will play a key role in reducing emissions and ensuring durability.

Entered into a Joint Venture with a Spanish company to manufacture Oxygen Sensors to comply with BS-VI regulations related to emission standards for two-wheelers. Oxygen Sensors is a low capitalized but technologically advanced company with an asset turnover of 8 to 10 times.

The company has no significant capital expenditure in the medium term. Lumax has invested Rs 2.55 billion over the last five years. The company is targeting a return on capital employed (RoCE) of more than 20% for the financial year 2018 2018, compared to 17.6-18.5% in the last four years.