JBM Auto – Moving up the value chain

I wrote a DETAILED article talking about JBM’s business model, the tailwinds + headwinds surrounding the company which you can read here

Pros

• Growth Oriented Management – In 1990, the company was in the business of manufacturing tools & dies. In 1993, it entered the sheets metal business. In 2006, it set up an SPV for fabrication and assembly of bodies of heavy vehicles. In 2013, it entered into bus manufacturing and made it’s first fully electric truck in 2016. Presently, they’re going BIG on capturing the EV value chain. So – the management, is not scared to make big moves that can add shareholder value.

• Large Client base – JBM Auto supplies to majority of OEMs in India like Volvo, Fiat, M&M, VW, Ashok Leyland, Tata Motors etc. It also provides engineering services to Daimler, Mercedes, Lamborghini. Recently acquired new business from Volvo Eicher, TVS, Panasonic in the tooling business.

• Manufacturing Facilities – It has 17 state of the art manufacturing facilities. As per the FY23 Annual Report it has set up INDIA’s largest integrated EV ecosystem and electric bus manufacturing facility with integrated electronics manufacturing. JBM also wants to set up a Li-ion Giga factory in India in the near future.

• Growth Levers – Capturing the EV ecosystem is high on the priority list of JBM’s management. Following are the growth levers that could increase topline + bottomline for the company:

1. Develop new products like trolley buses + hydrogen buses.
2. Explore addition of new overseas market for the EV portfolio (e-buses, batteries & chargers) in countries like Singapore, Middle-East, UK, Australia, Europe.)
3. Explore partnership for JBM e-Verse (for BaaS, setting up manufacturing in for electric buses outside India, cell manufacturing)
4. Execution of existing order book of 5000+ e-buses. Investing 500+ crore in enhancing production capacity.

• Acquisitions – The company is in advanced talks to acquire controlling stake in SML Isuzu which would allow the company to gain foothold in new markets related to commercial vehicles (inc. the school bus segment). However, there’s been no update on this from the management.

Cons

• Lack of management commentary – It was EXTREMELY difficult to find information about JBM. There are no quarterly earnings call transcripts. No investor PPTs. No metrics to track how many e-buses were sold in a quarter. What is the best selling auto component. No revenue forecast for FY24. No EBITDA guidance.
• Declining margins – if you look at the return ratios of JBM Auto, it has been low across the counter for FY23 due to higher finance costs and depreciation.
  – High D/E Ratio – JBM Auto’s D/E ratio has been on the rise and generally a debt to equity ratio of >1 is a cause of concern because the interest cost starts taking a bite off your profits. I’d keep a close watch on this number to ensure that this ratio doesn’t exceed > 2 times.
• Contingent Liabilities — as at 31 March 2023, the Company has contingent liabilities of >200+ CRORE — which if it materializes would have a direct impact on profits.

Disclosure: Not invested, keenly tracking. Will take a position on a significant correction.