Here is an opportunity to bet on India's 2-wheeler EV play

The Indian 2-wheeler industry is poised for a shakeout with the launch of Ola Electric. Improved awareness about the environment and rising fuel price that are already putting a dent in consumer’s pocket has already piled a huge demand for electric 2-wheelers. The launch of Ola Electric will revolutionize Indian road especially 2-wheelers primarily due to its competitive pricing which is at par with petrol 2-wheelers and robust product that has made charging the vehicle easy and user friendly.

There is no doubt that the Ola Electric is in great demand as the got over 1 lakh bookings within 24 hours of its launch. We all have heard about the wealth creation story of Eicher Motors the manufacturer of Royal Enfield. If the same of amount money equivalent to the value of a bike was invested in the company in 1995 today the investor would be able to buy any high-end luxurious car like Mercedes, Audi or BMW. As a matter of fact, Eicher Motors market capitalization was Rs 100 crore in 1995 which has grown to a whopping Rs 70,824 crore today. That’s the kind of wealth creation Eicher Motors has done for its shareholders.

A similar opportunity is in the making due to the advent of the electric 2-wheeler (E2W) industry. However, Ola Electric is not a listed company hence one will need to wait to invest in India’s largest electric 2-wheeler original equipment manufacturer. But don’t be disappointed there is a listed proxy play that supplies part to Ola Electric.

Proxy play

Delhi-based FIEM Industries is the sole supplier to Ola Electric for headlamps, tail lamps, indicators, rear fender assembly and mirrors. On August 16, 2021, the company in a regulatory filing said that, “After Ola Electric Mobility (Ola Electric) Scooter S1 and S1 Pro’s public launch yesterday, with a view to disseminate information to all investors and exchange, we are extremely happy to inform that Fiem Industries Limited is a sole Supplier to Ola Electric for headlamps, tail lamps, indicators, rear fender assembly and mirrors.” It further added that this is a landmark client addition for us and it is excited and fully prepared to cater demands of Ola Electric in the future.

The company sees a huge potential in the Indian 2-wheeler electric vehicle (EV) segment and going forward, it is hopeful to capturing greater market share in this segment.

The company is engaged in the lights, signalling equipment and parts, rearview mirror and parts, plastic moulded parts, and light-emitting diode (LED) luminairies business. The company’s segments include automotive and LED luminaries. It is also engaged in the business of sheet metal components for motorised vehicles and other parts for automotive.

Since the announcement shares of the company have rallied almost 34% to Rs 1,015 apiece.

Brokerage view

Brokerages are bullish on the counter and see another 34% upside despite the recent run-up. Equirus has a ‘Long’ rating on the stock with a price target of Rs 1,361 for the next twelve months.

“Company declared that its sole supplier to Ola Electric for Head Lamps, Tail Lamps, Indicators, Rear Fender Assembly and Mirrors used its model S1. Company is also supplying all the lamps for 2 models of Okinawa Electric and lamps to other E2W OEMs like Ampere, Tork and Revolt. As most of the Electric 2W use LED lamps to save energy, this transition is beneficial as LED light content in 2Ws are more than 2x of halogen lamp,” said Ashutosh Tiwari of Equirus.

In 2019, FIEM had developed World’s smallest Bi-Function lighting module for 2Ws with PES lens for Yamaha Japan. These lamps are to be used in multiple Yamaha motorcycles to be launched globally. Company is already supplying these lamps for 5 programs of Yamaha global and few more will start in this year. This along with higher use of LED lamps by Yamaha India has helped Yamaha share in company sales consistently increase from 4%/6%/9%/9%/13% in FY17/18/19/20/21, in fact it was 19% in 1QFY21 as exports were less impacted during 1QFY22.

In fact, the technology prowess of FIEM Industries is visible from its ability to develop complex LEDs. It’s the only company in auto lighting to developed advanced LED lights on its own without any tie-up or acquisition.

Despite a 35% Q-o-Q decline in sales due to the lockdown effect, FIEM’s EBITDA (earnings before interest tax depreciation and amortization) margin at 11.5% dipped only 118 basis points Q-o-Q as FIEM controlled costs well during the quarter. Historically also the company has delivered better margins than other competitors in auto lighting. With its plant operating around 75% utilization, capex will be limited over FY22 and 23, Tiwari added.

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