Phoenix Lamps - luminous; initiating coverage; Buy

 

Phoenix Lamps (PL IN, INR 240, Buy)

 

The Indian market for compact fluorescent lamps (CFL) estimated at INR 8.3 bn in 2006 (Source:ELCOMA India) has been growing at ~40% over the past few years. Phoenix Lamps is looking to triple its current capacity of 25 mn units to 75 mn units by FY09E, post which the company would be one of the largest producers of CFL in the country. The CFL segment, which contributed 45% to Phoenix Lamps' FY07 turnover, is likely to grow at a CAGR of 46% over FY07-10E and contribute INR 4 bn (64% of total sales) to revenues in FY10E.

 

Lower energy requirements and heat emissions, higher product life, and increasing affordability, are the main reasons behind consumers switching over to CFL. Proactive measures by the Indian government towards energy conservation such as providing CFL at lower rates for below-poverty-line households and lowering of VAT in some states will help augment the market for CFL in the country. Considering these initiatives to promote CFL, we believe Phoenix Lamps is well placed to exploit opportunities in the domestic market.

 

Phoenix Lamps , domestic market leader in automotive halogen lamps, is increasing its installed capacity of automotive lamps by 14% to 80 mn pieces by Q1FY09. The company plans to augment its presence in international markets by capitalizing on its existing relationships with OEMs like Suzuki, Renault, and Hyundai. The automotive lamps business, which contributed 55% to FY07 revenues, is likely to grow at ~11% CAGR over FY07-10E to INR 2.2 bn in FY10E.

 

The company's CFL segment, which grew at 48% CAGR over FY04-07, is likely steer the company's growth over the next few years on the back of a radically changing industry. We expect the company's revenues and profits to grow at a CAGR of 29% and 24%, respectively, over FY07-10E. At INR 240, the stock is trading at 13.8x and 11.2x our FY09E and FY10E EPS of INR 17.4 and INR 21.5 respectively. Given the growth in its CFL segment, decent valuations, and high management pedigree, we initiate coverage on the stock with a 'BUY' recommendation.