Jamna Auto Industries Limited Research Report By SMIFS

Company Overview

Jamna Auto Industries Limited (JAI) is the undisputed leader of the Indian automotive suspension space with a mammoth 72% share in the OEM segment. It is the India’s largest and world’s second largest manufacturer of tapered leaf springs & parabolic springs for Commercial Vehicles (CVs) in India with an annual production capacity of 240,000 MT and produces over 500 modes of springs for OEMs.

It has been a trusted and preferred supplier of Leaf and Parabolic Springs to all major CV manufacturers for over 50 years. The Company has 9 strategically located state-of-the art manufacturing facilities at Yamuna Nagar, Malanpur, Jamshedpur, Pune, Chennai, Pilliapakkam, Hosur, Pant Nagar and Lucknow.

With marquee clientele in its kitty and strong financials, Jamna Auto Industries is well placed and deserves investor attention.https://t.co/tPozgkRw7B

— moneycontrol (@moneycontrolcom) September 17, 2018

It supplies to auto OEMs across the globe and boasts of a strong clientele consisting of Ashok Leyland, Tata Motors, General Motors, Kamaz Motors, SML ISUZU, Mahindra & Mahindra, Volvo and others.

Key Highlights

-Consolidated revenue for Q2FY19 reported at INR548.4 crore, up 42.4% YoY owing to the strong volume growth in the CV segment. It has managed to beat our estimate of INR521 crore. Despite having a strong market share, rising raw material prices have dented its gross margin by 144 bps YoY to 36%.

NIRMAL BANG ON JAMNA AUTO
Initiating Coverage
BUY
TGT 99
~33% UPSIDE TGT pic.twitter.com/bp2h2oVSkg

— SONAM MEHTA (@sonamcnbcawaaz) October 5, 2018

-Absolute EBITDA for the quarter under review stood at INR68 crore, up ~35% YoY, which is marginally lower than our estimate of INR70 crore. Despite optimization in employee benefit expense and other expenses, EBITDA margin dipped 66bps YoY to 12.4%.

-Co. reported a PAT of INR35.5 crore, up ~21% YoY, which is marginally lower than our estimate of INR37 crore. However, PAT margin dropped by 117bps YoY to 6.5% due to higher higher financing cost and effective tax rate.

IDBI Capital on Jamna Auto
Initiate Buy with TP of Rs 107
Demand for parabolic spring to raise due to higher tonnage trucks
Believe the opportunity for increase in content per vehicle is enormous
Increase in truck axle load by 20-22% would help boost aftersales segment

— Darshan Mehta (@darshanvmehta1) July 13, 2018

-The Board of Directors has declared an Interim dividend of INR0.50 per equity share of INR1 each amounting to ~INR20 crore on the paid-up equity capital.

Outlook & Valuation

Going forward we believe, BS IV to BS VI transitions, proposed implementation of fleet modernization programme, Government’s increased focus on building world-class road infrastructure, Indirect Tax reforms, enactment of weigh-in-motion system and higher demand from consumption driven sectors should result into healthy orders for Jamna Auto.

We believe company’s focus on bringing technologically advanced products and solutions through its in-house R&D and technical collaboration with global leaders should help the company to increase its market share in the OEM space and to make inroads in the Passenger Vehicle segment.

Considering the recent steep rise in CV demand, strategically located state-of-the-art manufacturing facilities, uncontested leadership in the OEM space, recent brownfield expansion at Hosur & Yamuna Nagar facilities, decision to set up a new plant at Indore to meet the rising demand from the CV space & manufacture U-Bolt and other allied products, increased number of dealers to take advantage of post-GST opportunities in the replacement market, wide array of product offerings and strong focus on R&D; we expect the EPS of the company to grow at a CAGR of 19% from FY18 to INR6.40 by FY21E and accordingly we assign a PE of 20 to FY21E EPS, to arrive at a Target Price of INR128.