FOCUS LIGHTING AND FIXTURES (NSE:FOCUS)

(Disclosure: Invested. Not a recommendation).

CMP: ₹ 100.93/share

apologies in advance, this one is a long read- a deep dive into Focus' operations. I am personally invested in the company at an average price of ₹98.7/share.

About the Company

Focus Lighting and Fixtures (FLF) specialises in the manufacturing and trading of LED lights and fixtures. The company’s products are designed and developed by the finest producers in Germany and supported by a team of skilled Indian professionals. FLF caters to a broad spectrum of lighting verticals- including retail, office and home, hospitality, outdoor infrastructure and railways. The company operates across India, the Middle East, and Singapore.

Its products are highly innovative, technologically advanced and adhere to the highest international standards in both functionality and aesthetics. The company sets itself apart by offering a five-year warranty (extendable to eight years) on all its products - far exceeding the standard one to two-year warranty offered by most competitors. This commitment to quality and durability has even led Phillips to acknowledge that they can “match the quality of Focus.” Furthermore, FLF’s lighting solutions provide 30-40% cost savings compared to other LED products. 

Established in 2005 as a retail lighting company, FLF initially operated as a trading firm in partnership with a German company. During its early years, the company identified a significant gap in the Indian market - available lighting products were either highly expensive European imports or low-cost, poor-quality Chinese alternatives. To address this, FLF entered the market by leveraging European technology while manufacturing in India, thus offering products that were on par with or superior to European counterparts but at a significantly lower cost.

Initially, the company focused exclusively on retail lighting. In 2016, it expanded into the home lighting segment using the same approach. In 2022, it further diversified into the railway and outdoor lighting verticals. Looking ahead, in 2025, FLF plans to enter the trade vertical.

FLF operates in a highly niche market, serving buyers with specialised technical requirements. Unlike mass-market lighting brands, FLF primarily caters to professionals such as architects, interior designers and lighting consultants rather than the general public.

The LED Lighting Industry

India remains primarily a trading hub in the lighting sector. Most companies involved in lighting import products from either China or Europe, then either white-label them or sell them under their original brand names. Well-known brands such as Phillips, Havells, Panasonic, Crompton and Bajaj follow this model- outsourcing manufacturing, branding the products as their own and selling them in the market.

In contrast, Focus Lighting and Fixtures (FLF) operates in a niche category, where it imports advanced lighting technologies, enhances their value and manufactures the products in-house. This localised production model helps FLF significantly reduce costs for end users, while maintaining high product quality and innovation.

LED lighting has numerous advantages over conventional lighting and as a result has gained prominence in the Indian market. India is poised to be the largest LED lighting market globally. LED lights are highly efficient, eco-friendly, reliable and yield longer lifespans. Although initial purchase costs of LED lights are higher than traditional lighting, they offer long-term savings due to their lower energy consumption, reduced heat loss, and durability. Most LED products deliver over 50,000 hours of illumination while consuming minimal energy.

The production cost of LED lighting has also been steadily declining over the past decade, primarily due to the falling average selling price (ASP) of key components such as LED chips and other materials. This cost reduction has significantly lowered initial installation costs, driving mass adoption across commercial and residential sectors.

The Indian LED market has experienced substantial growth and rapid adoption over the years, driven by factors such as urbanisation, infrastructure development, technological advancements, and government initiatives like UJALA.

• In 2023, the Indian LED market was valued at ₹28,000 crores.
• By 2028, it is projected to grow by approximately ₹60,000 crores.
• The market is estimated to expand at a CAGR of 24.3% between 2021 and 2026.

These strong growth projections highlight India’s transition towards energy-efficient lighting solutions, solidifying LED technology as the dominant player in the country’s lighting industry.

Verticals

To understand how Focus Lighting and Fixtures (FLF) generates revenue and estimate its potential future valuation, it is essential to analyse its business verticals. The company operates in four primary verticals—retail, home, outdoor infrastructure, and railway lighting—with plans to launch a fifth vertical (trading) in 2025. Let’s dive into each in detail:

Retail Lighting

Between 2005 and 2015, FLF exclusively focused on retail lighting, establishing itself as an industry leader. The company initially catered to brands such as Shoppers Stop, Future Group, Reliance and various jewellery and department stores. Over time, FLF expanded its reach and now works with top global and Indian brands, including:

• Fashion & Retail: Muji, Diesel, Dune, Gas, Kate Spade, Kenneth Cole, BCBGMAXAZRIA, Tata, Uniqlo, Lenskart, Jockey, Apple, Guess, Arvind, and IKEA.
• Automobile Showrooms: BMW, Tata Motors, Audi, Porsche, Citroën, and Mercedes-Benz.

Over the years, FLF has built strong goodwill and deep relationships with its retail clients, allowing it to secure competitive commercial terms and operational advantages. The company provides comprehensive retail lighting solutions, including product supply, planning and design, installation, and project execution monitoring.

Once approved as a retail lighting provider, FLF secures steady business for 2-3 years from each customer. While business continuity is assured, the exact number of projects and order values remain variable. Since FLF’s products are custom-designed for each retailer, customers tend to continue their contracts for subsequent 2-3 year periods. The company operates on a rolling purchase order model, with orders placed 1-2 months in advance and renewed regularly.

At any given time, FLF maintains a strong pipeline of ongoing retail projects, ensuring a consistent flow of business across different quarters.

While it is not customary for lighting suppliers to have exclusive contracts with brands, Focus holds an exclusive agreement as the sole lighting vendor for IKEA in India. The company has also been recently approved for the Middle East, where design work is already underway. Expanding further, FLF is actively pursuing approvals in Southeast Asia and Latin America. In the case of Uniqlo, the company is in discussions to supply lighting products, though Uniqlo’s requirements specify European-manufactured products. To meet this demand, FLF is working with a German OEM that will manufacture the products under the Focus brand name.

FLF has also made a strong impact in the automobile showroom lighting segment. It is estimated that 80% of new showroom lighting business from these brands in India is awarded to FLF. The company completes nearly 900 Tata Motors showrooms annually and estimates that it has executed between 1,800 and 2,000 showrooms over the last two years. In addition to the Indian market, FLF is an approved vendor for Mercedes-Benz and has already begun work in the Middle East and Egypt, with ongoing efforts to secure approvals for the European market.

In the Middle East, FLF has strengthened its market presence by securing large-volume contracts with Centrepoint and Splash, both of the Landmark Group. The company has also recently started working with two additional brands of similar scale, HomeCentre and Home Box. These partnerships are expected to double FLF’s revenue in the region.

A significant milestone for FLF is its strategic partnership with Schweitzer, an Italian firm that is one of the largest suppliers and contractors for supermarkets and hypermarkets in Europe, the USA, Canada and the Middle East. As Schweitzer’s exclusive OEM, FLF is responsible for manufacturing and supplying their lighting solutions worldwide. The company has already secured an initial order worth ₹1.8 crore for one store with gross margins of 40% and expects to generate between ₹ 8-13 crore in the first year of business. Revenue from this partnership is expected to grow to ₹20 crore or more in the following years. Through this collaboration, FLF aims to establish a strong foothold in Europe over the next two to three years.

Looking ahead, the retail lighting vertical presents significant opportunities for growth. FLF is rapidly expanding its presence in the Middle East and is actively seeking approvals for entry into Southeast Asia and Europe, which will be crucial for long-term revenue growth. While retailers in India may open only three to four stores annually, contributing ₹2 to 4 crore in revenue per retailer, internationally they could generate as much as ₹50 crore per retailer. 

In 2023, the company introduced a groundbreaking patented lighting technology that allows retailers to reduce their lighting costs by 30-40%. This innovation enables retailers to achieve multiple lighting effects using a single fixture, replacing the need for four separate lighting fixtures. The initial rollout of this technology in India has been met with a positive reception, and FLF plans to expand its availability to the Middle East and Europe in the near future.

The retail lighting vertical remains one of FLF’s mainstay and most promising business segments. With ongoing global expansion, strong partnerships in both fashion and automobile retail and the introduction of cost-saving proprietary technology, FLF is well-positioned to experience significant growth in this sector over the next two to three years.

Home Lighting

As the name suggests, this vertical focuses on providing lighting fixtures for homes and offices. It is one of the most lucrative and fastest-growing segments for Focus Lighting and Fixtures (FLF), alongside outdoor infrastructure. This segment offers the highest gross profit margins, estimated at around 60%, and has the potential to grow beyond ₹100 crore annually within the next three to five years. Since launching in 2016, FLF has now fully developed its home lighting portfolio and is aiming to become the largest player in the home segment.

The home lighting industry in India remains highly unorganised, with few technical products available from large players. The only high-quality technical lighting options besides FLF’s products are European brands, which are priced three to four times higher. FLF specialises in high-value home lighting projects, where the average order size per home ranges from ₹15 lakh to ₹1 crore. Given its current scale, the company believes it can efficiently handle over 100 home lighting projects annually, generating anywhere between ₹50 crore to ₹100+ crore per year from this vertical.

FLF operates this business through two primary models: channel partners and experience centres, sometimes using a combination of both. A majority of the company’s home lighting business is routed through channel partners who pay 100% upfront for the products and receive discounts on their sales in return. Currently, the company has 35 channel partners and plans to increase this number to 50 within the year. Each partner contributes an estimated ₹50 lakh to ₹1 crore annually in revenue. Among these, 25 partners already generate between ₹50 lakh and ₹1 crore, while those earning ₹25-50 lakh have nearly doubled in number.

When a channel partner opens an experience centre, revenue potential significantly increases, ranging between ₹1 crore to ₹5 crore per centre. Experience centres serve as showrooms for FLF’s home and retail lighting products, offering an immersive experience for potential customers. Some experience centres are company-owned, located in Mumbai, Ahmedabad, Bangalore, Delhi, and Hyderabad, while others operate as joint ventures with businesses such as BMTC in Dubai and Saudi Arabia. Additionally, some centres are established in collaboration with channel partners in cities like Hyderabad, Surat, Ahmedabad, and Chennai. Unlike traditional retail spaces, these experience centres do not directly handle sales transactions. Instead, they function as marketing hubs that enhance brand visibility and support channel partners.

The effectiveness of these experience centres is evident in FLF’s major project acquisitions. For instance, the Delhi Airport lighting project materialised after a Swiss consultant visited an FLF experience centre. Similarly, a Reliance Hospitality project in Jamnagar, which yielded gross profit margins exceeding 70%, was secured through the experience centre network. Recognising the importance of this model, FLF plans to aggressively expand its channel partner and experience centre network over the next three to four years.

With strong revenue potential, strategic partnerships, and a growing network of experience centres, FLF is well-positioned to dominate the home lighting sector in the coming years.

Outdoor & Infrastructure Lighting

The Indian market for outdoor and infrastructure lighting is witnessing rapid expansion, driven by the growth of urban infrastructure and public spaces. There is a rising demand for LED installations in parks, streets, railway stations, heritage sites, and smart city projects. Outdoor lighting includes streetlights, landscape lighting, and facade lighting, all of which enhance both aesthetics and functionality. Infrastructure lighting, on the other hand, covers airports, temples, landscapes, and large-scale facades.

Recognising the potential in this segment, Focus Lighting and Fixtures (FLF) ventured into outdoor and infrastructure lighting in 2022. Since then, the company has worked with prominent clients such as GMR, L&T, GVK, Reliance, Indian Railways, and Bombardier.

For the past two years, FLF primarily operated as a trader in outdoor lighting, collaborating with two of Europe’s top outdoor lighting companies while executing large-scale projects in India. However, the company has recently transitioned into manufacturing outdoor lighting products and plans to develop a comprehensive outdoor lighting portfolio within the next one to two years. The shift from trading to manufacturing is expected to drive exponential growth, given that in-house production leads to higher margins and improved efficiency. FLF has already rolled out a small section of its manufactured products, with these offerings being patented and capable of reducing inventory costs by 40-60%. The company has secured worldwide exclusivity on this innovative lighting technology from its inventor, reinforcing its competitive edge.

FLF is particularly focused on landscape and facade lighting, as order values in this segment are significantly large, with the potential to double or triple revenue. Infrastructure projects typically range in value from ₹5 crore to over ₹100 crore, with completion timelines spanning six months to three years, depending on project size and complexity. A single large infrastructure project can have a transformative impact on the company’s revenues. Just two years ago, FLF’s largest project values were under ₹2 crore, but today, it has successfully executed projects exceeding ₹15 crore. The company currently has ₹35 crore in confirmed order bookings and is actively bidding for individual projects worth ₹30-100 crore, with a total pipeline valued at ₹250-300 crore. FLF estimates that 30-40% of these bids will be approved, translating to ₹100-120 crore in secured orders from this vertical alone. However, there is a time lag between bidding and execution, meaning that many of the projects FLF is bidding for today will only materialise in two to three years.

One of FLF’s landmark projects was the Delhi Airport lighting contract, valued at ₹18 crore. The project was initially awarded to a German company, but when they failed to deliver, the contract was reassigned to FLF through L&T and GMR. L&T was highly impressed by FLF’s work, leading to multiple additional project assignments. The company has also successfully executed lighting projects for Central Vista, Central Secretariat, Bade Baba Temple, Surat Fort, and ITC Shanghai. Additionally, FLF secured contracts for Guwahati Airport (Adani Group, ₹8.5 crore) and Phase 1 of the new Mumbai Airport (₹8.5 crore), scheduled for execution this year. Since the Mumbai Airport project consists of four phases, FLF estimates that the total contract value will be around ₹35 crore.

Having completed lighting installations for three major airports, FLF has now been approved by the Airport Authority of India. The company is working closely with Adani Group, which has 27 additional airport projects in its pipeline. FLF hopes to secure exclusivity with Adani Group, which would substantially boost the company’s turnover. Additionally, a lighting consultant bidding on three separate airport projects has specifically mentioned FLF in their proposal, increasing the likelihood of future contracts.

Beyond airport projects, FLF is actively collaborating with state tourism and municipal departments to secure large-scale lighting contracts, particularly in Gujarat and Maharashtra. Following its work on Surat Fort, FLF is now eligible to participate in larger government projects. Gujarat alone has ₹600 crore worth of tourism-related lighting projects lined up, presenting significant revenue opportunities.

It is important to note that all the infrastructure projects executed so far have been under FLF’s trading model. Moving forward, future projects will be completed using FLF’s own manufactured lighting solutions, which will lead to higher profit margins. The company anticipates that by FY26, a significant portion of its revenue will come from government infrastructure projects, with expected earnings from this vertical ranging between ₹50-100 crore annually.

With its expansion into in-house manufacturing, strong government and corporate partnerships, and a growing pipeline of large-scale infrastructure projects, FLF is well-positioned to become a major player in India’s outdoor and infrastructure lighting sector over the next few years.

Railway Lighting

Although revenue from the railway vertical has yet to contribute in any meaningful way to Focus Lighting and Fixtures’ (FLF) income statement, it remains one of the most promising growth segments for the company. Understanding the financial potential of this vertical requires a closer look at how railway contracts and projects operate.

The railway business is entirely tender-driven, with new tenders being issued every week. Before bidding, companies must first obtain product approvals from relevant railway authorities such as ICF (Integral Coach Factory), NCF (North Central Railway), and RCF (Rail Coach Factory). Currently, around 15 lighting companies work with the railway sector, most of which belong to the unorganised sector, with only one or two organised players. While most companies are only approved for two to three products, FLF is the only company that has secured approval for 16 railway lighting products. The company is actively working to expand its portfolio by developing and obtaining approvals for additional products.

Once a company receives approval from railway bodies, it becomes eligible to bid on tenders under two vendor statuses: developed vendor and approved vendor. Developed vendors are numerous and compete for a maximum of 20% of railway business, working with gross margins no higher than 25%. The competition among these vendors is intense, with frequent price wars leading to aggressive underbidding. Approved vendors, on the other hand, have a distinct advantage, securing up to 80% of business with gross margins as high as 60%. To transition from a developed vendor to an approved vendor, companies must supply a minimum quantity of products, often leading them to operate at a loss to fulfil these requirements.

For the past 1.5 years, FLF has been working toward securing approved vendor status, a milestone originally expected by May 2023. Until late 2024, the company remained a developed vendor, awaiting approval. Finally, FLF received approved vendor status for eight out of its 16 railway lighting products, allowing it to bid for 80% of orders at significantly higher margins. The company estimates that within two to three years, as it secures approval for all its products, revenue from the railway vertical could reach ₹70-80 crore annually with strong profitability. Once fully approved, this vertical has the potential to contribute as much as 35% of FLF’s total valuation.

The company’s strategy for railway revenue generation goes beyond standard tender bidding. Instead of engaging in price wars, FLF aims to supply exclusive products for which it holds a monopoly. While railway tenders are typically competitive, railway authorities have the power to award direct contracts for essential or innovative installations. FLF is leveraging this approach by introducing proprietary railway lighting technologies, which, once approved, will grant the company monopolistic contracts for a few years.

In addition to manufacturing and designing standard railway lighting products, FLF is independently developing three new products specifically for the Vande Bharat train network. Of these, two products are currently under the approval process, while one—a reading light designed exclusively for Vande Bharat trains—has received provisional approval and has now gone for testing. If the product passes the required tests, it will enter regular large-volume supply.

The railway and government sectors operate on slow decision-making cycles, making FLF’s entry into this vertical a long and painstaking process. However, the company’s recent approval as an approved vendor for multiple products signals major progress. Over the next few years, FLF expects to secure full approvals for all its railway products and, more importantly, obtain exclusive contracts for its specialised lighting technologies.

FLF’s railway vertical is poised for substantial revenue generation over the next two to three years, with its approved vendor status, exclusive product development for Vande Bharat trains (over 500 trains schedule in the coming few years), and strategic shift toward monopolistic contracts setting it apart from competitors. As the company expands its product approvals and secures long-term supply contracts, railway lighting could contribute ₹100+ crore annually and account for a significant portion of FLF’s total valuation.

Trade Vertical

FLF operates in two types of trading activities. The first, as reflected in its financial statements, is not B2C trading in the conventional sense. Before venturing into in-house manufacturing for a vertical, FLF first trades products in that category to understand the market, demand, and technical specifications. For instance, all outdoor lighting projects executed so far were completed under the trading model, as FLF used this phase to learn about the segment before transitioning to in-house manufacturing.

In addition to this market-testing approach, FLF also trades specific products that, while not highly technical or high-value, are necessary for certain projects. Even when these products are not manufactured by FLF, they are always sold under the company’s brand name.

Beyond these existing trading operations, FLF is preparing to enter the B2C trade segment, launching a new vertical under the "trade" category, which is set to begin operations in August 2025. This segment holds strong revenue potential and could become a significant driver of future growth. The new trade vertical will focus on the same high-volume, low-value market that leading brands like Phillips, Havells, Panasonic, Crompton, and Bajaj dominate. The trade segment is the largest lighting market in India, where product prices are low, but sales volumes are extremely high.

Initially, FLF had planned to enter this vertical as an OEM (Original Equipment Manufacturer), producing products for larger brands. Typically, a trade OEM can generate ₹300-400 crore in annual revenue within two to three years after establishing operations at scale. However, after careful evaluation, FLF pivoted away from the OEM model and instead chose to manufacture trade products under its own brand name. While this process takes longer (as it takes time to build a brand and product differentiation), the margins and profitability will be higher. 

The company was approached by Panasonic to become an OEM trade supplier, but ultimately decided not to proceed with the opportunity. Instead, by selling trade products under its own brand, FLF expects to generate ₹30-40 crore in revenue within its first year of operations. While this figure is lower than what an OEM model could potentially achieve, FLF will benefit from substantially higher profit margins and greater brand control.

With this new trade vertical, FLF is positioning itself to compete directly in India's largest lighting market, establishing itself as a key player in the high-volume, low-value segment.

Manufacturing Facility and Production

Focus Lighting and Fixtures (FLF) operates an 80,000 sq. ft. manufacturing facility, producing over 1,500 lighting fixtures daily. In 2021, the facility achieved NABL accreditation. The NABL certification allows FLF to self-certify its products, eliminating the need for external agency approvals in most global markets, except for select regions like the United States. This certification provides FLF with a significant competitive edge, as large-scale projects require extensive certifications, which are typically costly and time-consuming. Notably, only 5-6 lighting companies in India have NABL-accredited labs, reinforcing FLF’s strong positioning in the industry. In addition, the company obtains various other international certifications such as UL (USA), CB, SASO, and KuSAC for its products, allowing it to expand its international business.

In terms of infrastructure investment, most of the capital expenditure required for the lab has already been incurred in prior years. Of the 80,000 sq. ft. facility, FLF is currently utilising only 40,000 sq. ft., operating at half its maximum capacity and running on just one shift. The company estimates that, at full capacity, the facility can support over ₹600 crore in revenue, meaning that future business growth does not require significant additional infrastructure investment.

CEO Amit Sheth is heavily involved in product development and technology and strongly believes in maximizing in-house manufacturing to ensure better quality control, supply chain efficiency, and higher profit margins. In 2024 alone, FLF developed over 100 new products, which have now entered the tooling phase and will soon be available for sale. The company follows a monthly product launch strategy, continuously introducing new lighting solutions to keep pace with market trends and technological advancements.

One of FLF’s most significant advantages in manufacturing is its modular approach to product design. The core technology and components used in most of its products remain the same, with variations made primarily in product design. These design changes serve both functional and aesthetic purposes, allowing the company to adapt its technology for multiple applications. This streamlined approach also enables rapid product development, as new products do not have to be designed from scratch each time.

Given its ample production capacity, comprehensive certifications, and streamlined product development process, FLF is well-positioned for scaling up production with minimal additional investment. Furthermore, the company’s growth does not require a proportional increase in workforce size. Management estimates that revenues can grow by up to 70% with the existing team and that only a 10-20% increase in manpower would be needed to double revenues. The in-house design team has also been expanded from six to twelve members, further accelerating the development of innovative lighting designs.

Financials and Performance

FLF operates in the project-based business segment, meaning that revenues are recognized as and when projects are executed. This results in earnings volatility on a quarter-on-quarter (QoQ) and year-on-year (YoY) basis. Management advises investors to evaluate FLF’s financials on a consolidated three-year basis, rather than focusing on short-term fluctuations, as a single large order can significantly impact overall revenues.

Over the past three years (FY22-FY24), FLF has demonstrated exceptional revenue growth, with revenues more than doubling from ₹106.5 crore to ₹230 crore. Even more notably, EBITDA and net income margins have expanded considerably, rising from 9.5% and 4.3% in FY22 to 22.9% and 16.8% in FY24, respectively. Management states that these margins will further improve as a result of FLF’s strategic shift from trading to manufacturing, particularly in outdoor infrastructure lighting.

Despite strong long-term performance, recent financial figures for FY25 have been mixed. Sequential revenue declines over the past two quarters have raised concerns, with 91.5% of total revenue in the past two quarters coming solely from the retail vertical while the other business segments have contributed minimally. However, retail revenues in H1FY25 now nearly match total revenues of FY22 and are 18.5% higher than retail revenues H1FY24, indicating strong performance within the segment.

The primary reason for the temporary revenue decline is the absence of significant outdoor infrastructure revenue bookings in H1FY25. Despite short-term fluctuations, FLF remains confident in achieving 15-20% revenue growth for FY25, implying a substantial uptick in revenue generation in the latter half of this fiscal year.

From a long-term perspective, management remains highly optimistic, projecting a 30-35% top line growth rate over the next three to five years while maintaining EBITDA margins between 20-25% and net income margins of 17-19%. By FY27, FLF expects to achieve ₹500 crore in annual revenue, driven primarily by growth in the outdoor infrastructure and home lighting segments. Additionally, the company anticipates that revenues from the railway and trade verticals will contribute significantly to overall revenue expansion in the coming years.

With a strong manufacturing foundation, aggressive product innovation, and a diversified revenue pipeline, FLF is positioned for sustained financial growth and operational scalability over the next several years.

Opportunities and Risks

Over the next three years, Focus Lighting and Fixtures (FLF) has multiple avenues for revenue growth across its business verticals.

In retail lighting, the company has demonstrated consistent year-on-year revenue growth. FLF has recently strengthened its presence in the Middle East, securing contracts with major brands like Mercedes-Benz and IKEA. As FLF continues expanding in the region, it is only a matter of time before it enters the European market and beyond. Additionally, the company signed an OEM agreement with one of the largest supermarket suppliers in the world and began manufacturing for them this year. The contract value is expected to grow next year, providing further revenue potential.

The home lighting vertical has also exhibited consistent growth. FLF is aggressively expanding its experience centre network, both in India and the Middle East, to drive higher sales. The number of channel partners is increasing, as is the number of partners reaching higher sales volumes. Since FLF has only scratched the surface of the home lighting market, there is still tremendous expansion potential in this segment.

In outdoor infrastructure lighting, FLF has proven its ability to secure and execute large government projects, particularly for airports. The company already has ₹30-35 crore in order bookings and is bidding for over ₹300 crore in projects. With eligibility for larger government contracts and strong partnerships with leading private infrastructure firms like L&T and Adani, the company is now well-positioned for significant revenue growth. The transition to in-house manufacturing for this segment will further boost profit margins.

The railway vertical has yet to make a meaningful contribution to revenue, but the potential is enormous. Within three years, it is highly likely that this vertical will become a substantial revenue driver. FLF is currently developing special lighting products for Vande Bharat trains, with some already in the testing phase. Once fully approved, with 500+ Vande Bharat trains planned over the next three to five years, this vertical alone could generate ₹100 crore or more annually.

Finally, FLF’s soon-to-launch trade vertical is expected to generate ₹30-40 crore in its first year, with higher earnings in subsequent years. While the company has opted not to enter the trade OEM market, this remains an alternative revenue opportunity should it decide to pursue it.

With retail and home lighting revenues growing steadily, outdoor infrastructure and railway revenues set for significant expansion, and the new trade vertical poised to contribute, the company has a realistic path to reaching ₹500 crore in revenue by FY27. Importantly, this growth trajectory requires little to no additional capital investment.

However, there are inherent risks. The most obvious is that some or all of these opportunities may not materialise. Since FLF operates in the project-based business, it is possible that the company may not win the key projects needed to drive substantial revenue growth.

Another key risk is working capital pressure, particularly in outdoor infrastructure projects. In this segment, payments are received only upon project completion, creating potential liquidity constraints. However, since FLF works primarily with government agencies and large infrastructure firms like L&T and Adani, payments are secured. Additionally, bill discounting services are available for government contracts and L&T projects, reducing some financial strain.

Despite being debt-free, FLF may require additional financing if high-value projects accumulate simultaneously. Recently, receivables increased, primarily due to a trade partner in the Middle East. While FLF has only collected 45% of outstanding dues so far, management remains confident that 80% will be recovered by February and the remainder soon after. This type of delay could repeat in the future, but management is actively managing working capital to mitigate risks.

Another factor to consider is earnings volatility. Because FLF operates in a project-driven business, there may be quarters where no major projects are booked, leading to temporary revenue drops. While this does not pose a fundamental business risk, it can cause short-term stock price volatility, particularly for investors who assess the company based on quarterly or year-over-year comparisons.

Valuation

Due to the project-driven nature of FLF’s business, projecting earnings three to five years in advance is difficult. As a result, valuation must be guided by management’s estimates and broader revenue assumptions.

Based on available data, it is reasonable to expect FLF to generate ₹500+ crore in revenue by FY28, one year later than management’s own FY27 target. Assuming a conservative net income margin of 15% (far below the 16.8% margin in FY24 and management’s projected 17-19% range), FLF would generate a net income of ₹75 crore in FY28.

Over the past three years, the company has traded at a median price-to-earnings (P/E) ratio of 27x and an average P/E of 17x since listing in 2018. Applying a conservative P/E multiple of just 15x, FLF’s FY28 market capitalisation would be ₹1,125 crore (₹167/share). Discounting this back 3.5 years at a 15% discount rate, FLF’s present market capitalisation would be ₹640 crore (₹95/share).

If we assume a P/E of 20x (which is still on the lower end of FLF’s multiple range over the past three years), the company’s market capitalisation in FY28 would be ₹1,500 crore (₹223/share). Discounting this back 3.5 years at 15%, the current fair valuation would be ₹850 crore (₹126/share). Given FLF’s current market capitalisation of ₹675 crore (₹101/share), the stock is trading at fair value based on conservative estimates and at a 20% discount to the base-case estimate.

For a more optimistic scenario, if FLF meets its ₹500 crore revenue target in FY27, maintains 17% net income margins (consistent with FY24), and trades at a P/E of 25x (its five-year median), its FY27 market capitalisation would be ₹2,125 crore (₹316/share). Discounting this back at 15%, the current fair value would be ₹1,420 crore (₹211/share). At the current market capitalisation of ₹675 crore (₹101/share), FLF is trading at a 52% discount to this valuation.

While these projections are rough estimates, they suggest that if FLF achieves ₹500 crore in revenue over the next 3.5 years, the stock is currently undervalued or fairly valued at worst.

Conclusion

FLF has multiple growth drivers across its business verticals, with a clear path to achieving ₹500 crore in revenue within the next three to five years. While risks such as project-based revenue fluctuations and working capital challenges exist, the company’s debt-free status, strong government and corporate partnerships, and shift toward in-house manufacturing provide stability and margin expansion potential.

From a valuation standpoint, FLF appears fairly valued based on conservative assumptions and deeply undervalued if it meets its revenue and margin targets. Investors must recognise the inherent earnings volatility in a project-based business but also acknowledge that FLF’s long-term trajectory remains strong.

Given its scalability, cost advantages, and international expansion potential, FLF presents an intriguing investment opportunity and a reason why I am invested in the company.