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Centrum Broking
FIEM Ind (Buy)
CMP: ₹601.25
Target: ₹980
FIEM has delivered its best ever quarterly profits and operating profit margins at 13 per cent, the highest in the past 14 quarters. In Q4, it executed ₹11.5 crore worth LED bulb order to Andhra Pradesh. As a result, despite muted demand environment in its core business (HMSI and TVS Motors, its key clients had y-o-y volume growth of 8.4 per cent and 7.8 per cent respectively), FIEM’s revenues grew by 17 per cent y-o-y.
Recent initiatives by the government have fast-tracked LED demand, apparent from the recent tenders, offering an opportunity to multiple players to win. Moreover, recent order win by FIEM (for LED street lights to Delhi worth ₹997) provides confidence that this segment can make meaningful impact on revenues in FY16E and FY17E.
We believe that strong earnings (FY15-FY17E earnings growth of about 40 per cent), healthy return ratios and the ability to generate free cash flow can lead to further re-rating of the stock, with stronger-than-expected traction on the LED side being the icing.
Key risks: 1) Failure to gain traction in LED segment; and 2) Delay in tendering of contracts and receipt of payments from the Indian Railways.
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