JBM Auto Research Report By HDFC Securities

JBM Auto (JBMA) delivered decent numbers in 2Q amid challenging environment for PV segment. Consolidated Revenue (Standalone+JBMAS) rose 10% YoY to Rs. 4.5bn led by strong growth in tooling (+24%YoY) and bus division.

Despite slowdown in PV sales core sheet metal business grew by 3% YoY led by new business acquired from Tata Motors, M&M, Fiat and Toyota. EBITDA grew 8% YoY to Rs 547mn with margin at 12%(-30bps YoY). APAT came at Rs 209mn (+10% YoY)

We remain positive on JBMA, based on

1) Sustenance in Sheet metals business led by incremental wallet share from M&M, Ford, Tata Motors, VECV, RE and HMSI

2) Strong revenue potential in tooling business(high margin+30%), owing to increasing localization and outsourcing of tooling requirements by major global OEMs (cost-benefit of 25% in India)

3) Economies of scale coming in bus division, will foster margins and profitability going ahead. Moreover, the recent amalgamation of its subsidiary JBMAS and JV JBMMA (likely to be effective from next quarter) into a single entity will be synergetic and EPS accretive.

We cut EPS by 5% for FY19E factoring in 1H performance. Expect 27% EPS CAGR over FY18-21E; fuelled by improving operating leverage, richer product mix and acquisition of new clients At CMP stock available at 13/10x for FY19/20E EPS vs 5 Yr mean at 15x. We value stock at Rs. 560 (17x Sept-20E EPS) and maintain BUY.

Key highlights

❑ Sheet metal division: Delivered 3% YoY growth in 2Q in revenue and EBIT led by acquisition of new businesses for Mahindra Marrazo and Tata Nexon. Ramp up in CV segment also supported revenue growth led by higher revenue from Volvo-Eicher.

❑ Tooling division: Witnessed 78% jump in 1H to Rs 676mn backed by new launches and large orders secured in FY18. This segment enjoys 2.5-3x higher margins compared to sheet metal division.

❑ Bus division: The business, which was a drag (Rs 102/118 mn losses at EBIT level for FY17/18) on the JBMA’s financials, is gaining momentum with improving sales volume. The company sold 50 buses in 1H and to attain EBITDA breakeven, the company needs to sell 120 buses annually.