Finding opportunities post celebrity investor sell-off
Vertically integrated architectural lighting and fixtures company with strong product focus, strong global reach and great ROCEs
In public market investing, market dynamics often shift dramatically when major/celebrity investors decide to exit their positions. The departure of these influential investors can lead to significant price corrections as the market adjusts to the overhang—the potential for a large sell-off that has kept prices under pressure. We’ve observed this pattern in companies like CMS and Indus Tower, where the exit of key stakeholders resulted in notable price declines, creating attractive opportunities for new investors to step in. These situations, where strong and established companies experience a dip after a major shareholder exits, often present promising entry points for those looking to invest.
One such opportunity has emerged with a homegrown architectural lighting company, founded in 2005, which has grown into a major player in the LED lighting industry. This company has been instrumental in developing the architectural lighting segment within the domestic market. By focusing on the finer aspects of architectural lighting—beyond just basic illumination to enhancing interior spaces and creating a welcoming atmosphere—they've established a unique niche that was previously untapped at this scale. Their dedication to elevating interior environments with precise lighting solutions has earned them a significant market share and positioned them as a leading choice for those seeking more than just conventional lighting. In this way, the company has become a pioneer in bringing sophisticated, locally produced lighting solutions to the forefront of the industry.
The precision and customization required in architectural lighting make it a challenging field, and that’s where these guys excel. This isn’t just about fixing some lights on a wall; it’s about engineering solutions that use advanced optics and specialized materials designed to withstand the conditions of any given environment. The lights they produce are custom-made for each project, requiring meticulous planning and design to ensure that the light highlights just the right spots.
One of the company’s strengths is its use of cutting-edge technology. By integrating miniaturized LEDs, sophisticated lighting control systems, and IoT technology, our OEM can offer automated and personalized lighting solutions, something that others cannot easily copy in the market. These features—like lights that adjust based on motion detection, daylight, or time of day—don’t just make a space look good; they make it smart and responsive, which is becoming increasingly important in modern design and architecture.
They also play a lot with materials and design which are also crucial elements. This isn't about mass-producing plastic fixtures; it involves using high-performance LEDs, special coatings, and heat sinks that can handle tough conditions, whether indoors or out. These are not off-the-shelf solutions; they are tailored to the specific needs of each client, and that level of customization is a big part of why the company stands out.
The market for architectural lighting is dominated by a few global gold-standard companies like Crestron/ Lutron, and TAL Lights, who are known for their ultra-expensive, bespoke solutions. These companies pour huge amounts of money into research and development, and their products are premium-priced, often without the benefit of economies of scale due to their custom nature. What our homegrown company does differently is use open-source and modular designs to offer advanced features at a lower cost. This approach not only keeps prices down but also ensures their systems are flexible and can work with other hardware, which is a big selling point in today’s interconnected world.
Recently, the company’s revenue growth has been driven by its focus on outdoor and home lighting. They’ve made significant strides in regions like India, the Middle East, and Europe, particularly with outdoor lighting for architectural buildings, heritage sites, and beautification projects. They’re even working on securing patents for new outdoor lighting technologies, which could open up even more opportunities.
But it hasn’t all been smooth sailing. The company has faced challenges, like increased debt levels due to delayed payments from partners in the Middle East and Southeast Asia. However, management is confident these issues will be resolved soon and doesn’t see a high risk of bad debts. They’ve also managed to keep their operations efficient despite the pressure on working capital from expanding their outdoor lighting portfolio.
The company’s revenue can be a bit cyclical, especially when it comes to large project contracts in the home segment. This means that sometimes, revenue will fluctuate depending on when projects are completed. There’s also been a lack of orders in the railway segment, which has added some uncertainty. However, the management team remains optimistic, believing that their long-term investments across various markets will pay off.
Financially, the business is in good shape. While their stock has dipped recently due to profit-taking by long-term investors, this doesn’t reflect the true state of the business. The company continues to land significant government contracts, particularly in street lighting and airport projects, where they are an approved vendor. They have a strong market cap, solid returns on capital employed (ROCE) and equity (ROE), and their low debt-to-equity ratio shows financial discipline. Their dividend yield is conservative, and with no shares pledged, stakeholders can feel secure.
Looking to the future, this OEM is well-positioned for growth. They plan to continue expanding their product range, deepening relationships with channel partners, and pushing the envelope on lighting innovation. While architectural lighting might be considered a niche market today, the trends suggest that it’s poised to go mainstream, driven by demand for more sophisticated, customizable, and intelligent lighting solutions.
What these guys are doing isn’t just important; it’s groundbreaking, and their early investments in this space will likely pay off as others struggle to catch up. The complexity and innovation behind their products create significant barriers to entry, making it tough for competitors to replicate what they’ve built. As architectural lighting becomes the norm, they are set to lead the way, turning what was once a specialized field into a new standard for the industry.
NOTE: This piece represents the initial phase of our study into this company. We've taken a small tracking position to monitor the company's performance closely. Our scuttlebutt and due diligence efforts are ongoing, and we are actively gathering more information to better understand the company's long-term potential. '
We will provide further updates if our research leads us to consider making this a core position in our portfolio
Strengths
Product Diversity: Wide range of products catering to multiple sectors (retail, home, hospitality, infrastructure).
Strong Revenue Growth: Notable growth, particularly in outdoor and home lighting segments.
Innovation: Ongoing product development, including patented technologies and partnerships with international majors.
Global Reach: Presence in key international markets (India, Singapore, Dubai) with strategic partnerships.
Financial Health: Solid financial metrics with strong ROCE, ROE, and profit growth; low debt-to-equity ratio.
Weaknesses
Debt Management: Recent increase in debt due to delayed payments from international partners.
Revenue Cyclicality: Dependence on large project contracts leads to revenue variability.
Railway Segment: Lack of current orders in the railway segment, highlighting a gap in market penetration.
Opportunities
Outdoor Lighting Expansion: Growing market for outdoor lighting in architectural buildings, heritage sites, and beautification projects.
Experience Centers: Expanding experience centers could enhance customer engagement and strengthen channel partner relationships.
Government Projects: Involvement in government projects (street lighting, airports) offers growth potential.
Product Innovation: Continued development of advanced lighting technologies, including patented outdoor solutions, could drive future growth.
Threats
Market Conditions: Revenue variability due to project completion timelines and market conditions could impact financial performance.
Payment Delays: Ongoing challenges with delayed payments from international partners may strain financial resources.
Stock Performance: A recent decline in stock price, driven by investor profit booking, could affect market perception despite strong business fundamentals.
Disclaimer:
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. Readers must conduct their due diligence and exercise caution. Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss this in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reach out at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com