Post on 22-Mar-2018
The CUB Series
“Catch the CUB before it roars like a Lion”
Jamna Auto Inds. Ltd Initiating Coverage (CMP INR 230)
November 2015
Debashish Mazumdar Research Analyst +91-22-4088 5819 Debashish.mazumdar@edelweissfin.com
Edel Invest Research
The CUB Series
We initiate coverage on Jamna Auto Industries Ltd. as part of our ‘CUB’ series. Under the ‘CUB’ series banner, we are covering small-cap companies with robust long-term growth potential. Our endeavour is to recommend small-cap companies that are not widely covered. Despite low liquidity and small size of business, these companies have strong long-term fundamentals and sustainable structural growth drivers.
In our view, investment themes in equity markets play out over the long-term with potential pay-offs taking time to materialize. By introducing the CUB series our objective is to identify quality small-cap companies in the early stages of their growth cycle.
Some of the key attributes of CUB series stocks are as under:
Small-cap companies with robust long-term growth potential
Steady cash flows, healthy balance sheets and high return ratios
Good corporate governance
Not widely covered and liquidity could be an issue
2
Jamna Auto Inds. Ltd CMP: INR 230 Target Price: INR 282
Jamna Auto Industries Ltd. (JAI) is a market leader in the CV suspension leaf spring segment (90% of sales), including products like the conventional leaf spring and parabolic leaf spring. JAI currently has a 64% market share in the conventional leaf springs segment and a market leader in the parabolic leaf spring segment. Being the industry leader makes JAI a key beneficiary of the ongoing domestic MHCV cycle recovery. The company is focused on capturing the rising content-per-vehicle trend and hence it has forayed into the Air Suspension and Lift Axle segments (10% of consolidated sales) where its main client is Ashok Leyland for the heavy tonnage trucks. JAI’s management has outlined a ‘33%-Rule’ to be applied on five key parameters with an objective to de-risk the business (through operational diversification), thereby improving overall profitability. We believe that the company is an attractive investment considering its strong topline growth (spurred by MHCV cycle recovery) with market-share gain in the conventional product segment, higher content addition from new products and increased penetration into the after-market segment. Improvement in capacity utilization, reduction in plant breakeven levels and increasing mix of high-margin products will help drive profitability going forward. The stock is currently trading at 19.7x/11.2x FY16E/FY17E earnings. We have a Buy rating on the stock with a target price of INR 282.
Investment Theme
Key beneficiary of the MHCV cycle recovery
Competitive dominance through customer proximity and cost efficiency
Content addition and end-market diversification to enhance sales visibility
Management outlines ‘33% Rule’ across 5 parameters
Target (INR) 282
Upside/downside (%) 23
Rating Buy
CMP 230
52 week high/low 275 / 129
Market cap (INR crore) 928
Avg. Daily Vol (‘000) 318
Bloomberg code JMNA IS Equity
Industry Auto-Component
Promoter Jauhar Family
Corporate Office Delhi
Auditors S R Batliboi & Co LLP
Credit rating “A” Rated
Sep-15 Jun-15 Mar-15
Promoter 43.81 43.81 43.81
FII 0 0.65 0.66
DII 0.37 0.29 0.31
Others 55.82 55.25 55.11
Source: Edel Invest Research.
3
0
50
100
150
200
250
300
350
400
450
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
Jamna Sensex
Financials (INR Cr) FY13 FY14 FY15 FY16E FY17E
Net revenue 980 834 1,095 1,280 1,528
EBITDA 86 44 94 118 177
Adjusted PAT 28 2 29 46 81
Diluted EPS (Rs) 6 0.4 7 12 21
Diluted P/E (x) 35.6 624.2 31.0 19.7 11.2
EV/EBITDA (x) 16.1 79.7 10.2 8.2 5.4
ROAE(%) 17% 1% 16% 22% 32%
ROCE(%) 23% 7% 25% 32% 45%
Investment Rational
4
Jamna Auto: A key beneficiary of Indian MHCV cycle recovery
Domestic MHCV industry is in a recovery mode post a 2-year downturn
● The MHCV industry in India has declined on an average by ~20% YoY every quarter between Q1FY13 and Q1FY15. Slowdown in overall demand, ban on mining activity and lack of infrastructure build-up had a detrimental effect on MHCV industry volumes during this period.
● However, since Q2FY15, recovery is visible in the MHCV industry, aided by a modest revival in the overall economic activity, government’s thrust on increased infrastructure spending and lifting of curbs on mining activity.
● Rising freight rates on the back of higher fleet utilization and benign diesel prices have improved the profitability for fleet owners; this, in turn has emerged as an added impetus to MHCV demand. Between Q2FY15 and Q2FY16, the MHCV industry has registered an average quarterly growth of 37% YoY.
5
MHCV Industry volume declined by ~20% YoY per quarter, between Q1FY13 & Q1FY15
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Q1
FY1
2
Q2
FY1
2
Q3
FY1
2
Q4
FY1
2
Q1
FY1
3
Q2
FY1
3
Q3
FY1
3
Q4
FY1
3
Q1
FY1
4
Q2
FY1
4
Q3
FY1
4
Q4
FY1
4
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
Yo
Y
Indian MHCV Industry is in the path of recovery
0.38
0.26
0.16
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6E
YTD
Un
it M
n
FY15 MHCV sales ~40% shy of peak sales in FY12
Source: Edel Invest Research, Industry, Bloomberg.
Jamna Auto: A key beneficiary of Indian MHCV cycle recovery
Improving fleet utilization to drive MHCV industry sales going forward
● The industrial growth recovery in India started to re-gain traction from H2FY14. The Mining Index in the IIP started showing positive YoY growth from Q3FY14 after posting a nine-quarter decline.
● On the back of improved economic activity, MHCV fleet utilization levels have also increased from 50-60% as of January 2015 to ~75-80% currently.
● Going forward, improving fleet utilization levels and increasing profitability will enable MHCV industry to register a ~20% YoY growth in both FY16 and FY17.
● By FY18E, we expect the MHCV industry to return to peak sales run-rate of 3,80,000 units (registered in FY12), implying a 14% CAGR growth between FY15 and FY18E.
6
Increase in Fleet owner’s profitability to drive MHCV Industry volume growth
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0.5
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6E
FY1
7E
FY1
8E
Un
its
Mn
MHCV yearly sales to return to historical peak by FY18E
400
600
800
1,000
1,200
1,400
1,600
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
Q1
FY1
1
Q2
FY1
1
Q3
FY1
1
Q4
FY1
1
Q1
FY1
2
Q2
FY1
2
Q3
FY1
2
Q4
FY1
2
Q1
FY1
3
Q2
FY1
3
Q3
FY1
3
Q4
FY1
3
Q1
FY1
4
Q2
FY1
4
Q3
FY1
4
Q4
FY1
4
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
Improving Fleet Owner Profitability to Drive MHCV Volume Growth
MHCV Industry Volume Run-rate
Freight Rate per 9-Tonne Payload to Diesel Price per Litre Ratio (RHS)
Source: Edel Invest Research, Industry, Bloomberg.
Jamna Auto: A key beneficiary of Indian MHCV cycle recovery
Jamna Auto (JAI) is the market leader in the domestic CV suspension spring industry
● JAI is the market leader in the conventional leaf spring and parabolic spring segments for the domestic commercial vehicle (CV) industry. Therefore, it is expected to be the biggest beneficiary of the domestic MHCV cycle recovery. It has a 64% market share in the OE leaf spring segment. The remaining market share is accounted by other multiple small competitors.
● With regard to parabolic leaf springs, JAI is the market leader with only one other notable competitor having indigenous manufacturing capability.
● Over the years, JAI’s considerable market share has enabled it to attain a significant scale in terms of supplies to MHCV players. However, this enhanced exposure to the highly cyclical MHCV industry impacted sales, especially during the MHCV downturn between Q1FY13 and Q1FY15. JAI’s sales witnessed an average 11% YoY decline versus an average 20% YoY fall in the overall MHCV industry.
● JAI’s EBITDA margin contracted to 1% in Q3FY14 - peak of the MHCV downturn. But, EBITDA margin currently stands at 10.5% for H1FY16 post the recovery in the overall CV industry.
● To offset the detrimental effect of the MHCV industry’s cyclicality on profitability, JAI is looking to lower the breakeven utilization from 50% currently to ~33%. This implies that at a capacity of 180,000 MT per annum, breakeven will be achieved at a saleable tonnage of 5,000 MT per month versus 7,500 MT per month currently.
7
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Q1
FY1
2
Q2
FY1
2
Q3
FY1
2
Q4
FY1
2
Q1
FY1
3
Q2
FY1
3
Q3
FY1
3
Q4
FY1
3
Q1
FY1
4
Q2
FY1
4
Q3
FY1
4
Q4
FY1
4
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
MHCV industry trend impacts JAI's sales and profitability
MHCV Industry Volume Growth (LHS) JAI Net Sales YoY % Change (LHS) JAI Core EBITDA Margins (RHS)
JAI’s sales growth has declined less than the Industry during the MHCV downturn
JAI’s sales growth has majorly surpassed Industry growth during the MHCV-recovery trend
Source: Company, Industry, Edel Invest Research
Jamna Auto: Maintains dominance through Customer Proximity and Cost efficiency
Customer proximity to aid market leadership
● The leaf spring industry in India is largely a commoditized business and prone to cyclicality from the CV segment. Hence, customer proximity through multiple-location manufacturing, and cost-efficiency to manage end-segment cyclicality are imperative for a strong competitive positioning. JAI presently has six facilities in close proximity to major CV manufacturing hubs in India. It is in the process of adding capacity at their facility at Hosur, in Karnataka.
● Over the years, JAI has gradually gained market share in the domestic leaf spring industry. The company’s share currently stands at 64% compared to a 40% market share in FY10-FY11.
● The establishment of multi-location manufacturing facilities to achieve scale entails significant capital expenditure and is thus a major deterrent for new players. We understand that, historically, several companies have tried to set up similar facilities but have been largely unsuccessful.
JAI’s manufacturing facilities located near major domestic OEM hubs Proximity to customer has aided JAI’s market share gain
8
Source: Company, Industry, Edel Invest Research
Jamna Auto 64%
Other Competitors
36%
Jamna Auto: Maintains dominance through Customer Proximity and Cost Efficiency
Strategically located facilities help achieve scale and prune costs
● Besides customer proximity, cost efficiency is the second biggest parameter required to remain competitive in the commoditized leaf spring industry. JAI’s facilities are located close to its raw material suppliers.
● Steel supplier depots are present outside most of JAI’s facilities, allowing the company to be more efficient with regard to its inventory management.
● The strategic location of the company’s six production facilities has helped it minimize freight expenses. According to management, the multi-location presence results in freight expense savings of 3% of sales, which otherwise would have stood at 7% of sales.
● Apart from freight cost benefit, presence at multiple locations allows companies like JAI to maintain share of business with OEMs despite production shifts between various customer plant locations, without significant incremental capex. Additionally, there is better quality control for suppliers whose plants are located close to their OEM customer facilities. This helps to lower internal and customer level rejections.
9
-31
-28
-7
-3 -4
-14 -14
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Despite progressive reduction in creditor days since FY09, JAI has maintained working capital efficiency
10
19
42
49
24
14 13 18 16
10 7 8 10 10
FY09 FY10 FY11 FY12 FY13 FY14 FY15
JAI's strategic plant locations enables prudent inventory management
RM Inventory Days Finished Goods Inventory Days
Source: Company, Edel Invest Research.
Jamna Auto: Content addition and end-market diversification to enhance sales visibility
Transition to parabolic leaf springs likely to boost realization and expand gross margins
● Notwithstanding the CV cycle recovery, JAI is also focusing on: (i) increasing value-added content, and (ii) greater after-market penetration to provide further impetus to its sales going forward.
● Globally, apart from Japan (whose CVs are largely fitted with conventional leaf springs), parabolic leaf spring has a significant presence in Europe and the USA at 100% and 80%, respectively. In India, Tata’s highest selling LCV “Ace” is fitted with parabolic leaf springs while the Tata LPT 2518 and the Tata LPS 4018 have their front suspensions fitted with parabolic leaf springs. Further, of the overall new-product-development underway in the CV industry, 55% are to be fitted with parabolic leaf springs. As per the JAI management, foreign OEMs such as Daimler and VECV are in favor of parabolic leaf springs instead of convention leaf springs.
● JAI expects a growing shift towards parabolic leaf springs from the conventional leaf springs in the CV space. Parabolic leaf springs have 25% higher realization versus conventional leaf springs. We expect the higher realizations and the lower material usage per unit to result in fatter gross margins compared to the conventional leaf springs segment. However, during the scale-up (i.e. lower material utilization) in parabolic leaf spring production, machinery costs for an additional rolling process is largely expected to result in marginally lower-to-steady-state EBITDA margins and ROCE versus that for the conventional leaf spring division.
10
Parabolic leaf spring is beneficial to both user and producer
Jamna Auto: Content addition and end-market diversification to enhance sales visibility
Air Suspensions and Lift Axle segments to add to higher content per vehicle
● Apart from the leaf spring division, JAI has established its presence in the Air Suspension and Lift Axle segments through a technology tie-up with Ridewell of the USA. Air Suspensions and Lift Axles are currently fitted in trucks and multi-axle tractor trailers of >26 tonnes (gross vehicle weight).
● Air Suspension systems provide significant support to the rear axle when the payload is being transported. Further, as the load is cut, the air suspension lifts the axle, reducing wear and tear on the tyres and improving fuel efficiency on account of lower friction with the road surface.
● During FY11-FY15, the share of >26 tonne trucks and multi-axle tractor trailers has increased by 4% i.e. from 10.6% in FY11 to 14.4% in FY15.
● Currently, 100% of JAI’s Air Suspension and Lift Axle division sales are going to Ashok Leyland while its competitor Hendrickson supplies similar products to Tata Motors. The sales mix of >26 tonnes CVs for Ashok Leyland has increased to 35% in FY15 from 32% in FY11 while for Tata Motors, the same has decreased to 61% in FY15 from 64% in FY11.
● We believe that the shift towards higher tonnage and multi-axle vehicles is a structural trend for the Indian CV industry. The key benefit of using multi-axle vehicles as opposed to a dual-axle vehicle is that the former provide 80% higher load haulage capacity at 20% higher capital and operational expenses.
11
10.6%
9.5% 8.9%
8.5%
14.4%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
FY11 FY12 FY13 FY14 FY15
Major sales mix shift to higher tonnage & multi- axle CVs in FY15
32%
24% 26% 31%
35%
64% 71% 69%
65% 61%
FY11 FY12 FY13 FY14 FY15
Ashok Leyland major market share gainer in high tonnage & multi-axle CV segment
Ashok Leyland (> 26 tonne vehicles) Tata Motors (> 26 tonne Vehicles)
Source: Company, Edel Invest Research.
Introduction of GST to usher in significant domestic aftermarket opportunity
● Apart from the CV cycle recovery, the domestic after-market provides a considerably large opportunity for JAI. Leaf springs on average have a short life span owing to overloading and poor road conditions. The replacement market is distribution focused, price sensitive and high margin. The leaf spring after-market segment is highly fragmented with a majority of the supply being catered to by unorganized players while organized players cater to only ~10% of the overall sales in this market. Leaf spring replacement sales currently contribute ~18% to JAI’s overall revenues.
● JAI is aggressively pursuing expansion in the after-market segment. JAI has tied-up with more than 1,310 primary dealers with an objective to enhance its reach through 3,500 dealers. The company has established a strong distribution network in the northern and western parts of India and is currently in the process of strengthening its presence in the eastern and southern regions.
● At present, unorganized players are able to supply products in the after-market segment at a 30% discount to the organized players. According to JAI’s management, the unorganized players can maintain this lower price differential on account of their lower tax expense outgo. Implementation of the Goods & Services Tax (GST) will bring these unorganized players into the tax purview, resulting in reducing the viability of their lower pricing versus the organized players.
● Assuming a 7-year replacement cycle by fleet operators, the total MHCV population in India is ~8x higher than the annual OEM volumes sold. Considering that the after-market realization is ~35% lower than the OEM segment’s realization, the overall after-market opportunity for MHCV leaf springs could be ~4 times the MHCV OEM industry value.
12
0
1000
2000
3000
4000
5000
6000
7000
8000
FY12 FY13 FY14 FY15
No
of
tou
ch p
oin
ts
JAI’s focus on aftermarket through increasing reach
Primary Distributors /Dealers Secondary Dealers
Source: Company, Edel Invest Research.
Management targeting 33% Rule for 5 parameters
● Going forward, JAI’s management has outlined a ‘33%-Rule’ to be applied on five key parameters. These parameters include 33% contribution from new segments & new products, lowering of plant break-even level to 33%,a continued dividend payout of 33% and an ROCE of 33%.
● Adherence to these targets would result in lower cyclicality in sales and improved profitability for the company.
● Management is currently targeting doubling of its revenue over the next three years. Presently (as of FY15), JAI is operating at a utilization level of 70%; we expect improved recovery in the MHCV cycle and the greater after-market penetration to drive sales growth going forward.
● For FY16, JAI plans to spend INR 100 crore on capex, of which INR 75 crore will be spent to set up the 36,000 MT leaf spring capacity at Hosur in Karnataka, dedicated largely toward exports. Additionally, higher utilization as well as management’s efforts to cut fixed costs will likely result in better EBITDA margin which currently stands at 10.4% (as of H1FY16).
13
Source: Company, Edel Invest Research.
Financial Analysis
14
Through FY15-17E,Revenue to grow at 18% CAGR; operating leverage to drive profitability
• Backed by MHCV recovery, JAI has reported 31% YoY revenue growth in FY15. In the first half of FY16, the company has already reported 29%YoY topline growth.
• Going forward, we expect the revenue of the company to grow at 18% CAGR over FY15 – 17E to reach INR 1528 cr. Market share gain in the leaf spring segment , higher content addition from new products and increased penetration into the after-market segment is expected to drive the revenue growth.
• Improvement in capacity utilization and reduction in plant breakeven levels will lead to operating leverage, eventually resulting in higher profitability. We believe, EBITDA margin of the company will move back to its historical peak of approximately 12% in FY17E (historical peak margin achieved in FY11).
• Considering the improving profitability, sustainable incremental asset turn and working capital cycle; we believe the company will achieve a ROCE of 45% in FY17E as against 25% in FY15.
15
JAI’s revenue to grow at 18% CAGR FY15-17E Operating Leverage to be a primary driver of profitability
Source: Company, Edel Invest Research.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
36.0%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
EBITDA Margins (RHS) Gross Margins (LHS)
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY12 FY13 FY14 FY15 FY16E FY17E
INR
cr
ROCE to reach 45%, Cash flow generation to improve
Improving ROCE trajectory
Operating cash-flow generation to fund JAI’s Capex requirement Reducing Net Debt ; Incremental capex from internal accruals
16
Operating Leverage to be a primary driver of profitability
Source: Company, Edel Invest Research.
35% 31%
17%
1%
16%
22%
32%
47%
34%
23%
7%
25%
32%
45%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
ROE (%) ROCE (%)
-
20
40
60
80
100
120
140
160
180
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(IN
R C
r)
0
20
40
60
80
100
120
140
160
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(IN
R c
r)
Operating Cashflow capex
-
25
50
75
100
125
150
175
200
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(IN
R C
r)
EBITDA PAT
Valuation & Recommendation
17
Initiating coverage with ‘BUY’ Rating for a Target Price of 282
Valuations
● We expect a Sales/PAT growth CAGR of 18%/66% between FY15-FY17E on account of significant topline growth owing to MHCV cycle recovery, market share gain, higher content addition and increased penetration into the after-market segment. Improvement in capacity utilization and reduction in plant breakeven levels will lead to operating leverage, eventually resulting in higher profitability. At the CMP of INR 230, we value the stock at 19.7x/11.2x FY16E/FY17E earnings. We initiate coverage with ‘BUY’ rating on the stock with a target price of INR 282 (i.e upside potential of 23% plus dividend pay-out of 33%).
18
0
100
200
300
400
500
600
700
Dec
-10
Fe
b-1
1
Ap
r-1
1
Jun
-11
A
ug-
11
O
ct-1
1
Dec
-11
Fe
b-1
2
Ap
r-1
2
Jun
-12
A
ug-
12
O
ct-1
2
Dec
-12
Fe
b-1
3
Ap
r-1
3
Jun
-13
A
ug-
13
O
ct-1
3
Dec
-13
Fe
b-1
4
Ap
r-1
4
Jun
-14
A
ug-
14
O
ct-1
4
Dec
-14
Fe
b-1
5
Ap
r-1
5
Jun
-15
A
ug-
15
O
ct-1
5
(IN
R)
Price-Earnings
8x 16x 24x 32x Stock price
0
500
1000
1500
2000
2500
Dec
-10
Fe
b-1
1
Ap
r-1
1
Jun
-11
A
ug-
11
O
ct-1
1
Dec
-11
Fe
b-1
2
Ap
r-1
2
Jun
-12
A
ug-
12
O
ct-1
2
Dec
-12
Fe
b-1
3
Ap
r-1
3
Jun
-13
A
ug-
13
O
ct-1
3
Dec
-13
Fe
b-1
4
Ap
r-1
4
Jun
-14
A
ug-
14
O
ct-1
4
Dec
-14
Fe
b-1
5
Ap
r-1
5
Jun
-15
A
ug-
15
O
ct-1
5
(IN
R C
rs)
EV/EBITDA
3x 6x 9x 12x EV
Source: Edel Invest Research, Bloomberg.
Risks
19
Jamna Auto : Risks
20
Key Risks
End-segment concentration risk: JAI is a CV suspension component supplier with ~95% of revenue driven by the highly cyclical domestic MHCV Industry. A slowdown in the MHCV industry volume will affect the company’s sales.
Delay in GST implementation: Currently ~90%+ of the leaf spring after-market is catered to by unorganized manufacturers. Delayed implementation of GST would limit JAI’s sales growth from the after-market segment.
Steel price pass-through: Majority of JAI’s raw material expense is incurred on steel. JAI has a pass-through arrangement with its customers with regard to steel prices. Steel price pass-through will lower JAI’s realization and put pressure on its gross margins.
Business Overview
21
Jamna Auto: Business Overview
OEM opportunity headroom -JAI sales are currently 0.4x global leader Rassini
Despite significant difference in scale, JAI has achieved margins similar to global leader Rassini
● Jamna Auto Industries Ltd. (JAI) is the market leader in the suspension leaf spring industry in India.
● JAI has a 64% market share in the OE conventional leaf spring segment, while the overall leaf spring segment accounts for 87% of its consolidated sales. The company is also the market leader in the parabolic leaf spring segment, which contributes 3% to consolidated sales.
● In terms of leaf spring capacity, JAI is the third largest player globally with a capacity of 180,000 MT, trailing Rassini of Mexico (225,000 MT) and Hendrickson of Canada (190,000 MT). The company has forayed into Air Suspension and Lift Axle segments through its technological tie-up with Ridewell, USA. This segment currently constitutes the remainder of the consolidated sales with the major customer for this segment being Ashok Leyland.
22
435
200 174
-
50
100
150
200
250
300
350
400
450
500
Rassini (Leaf Springs Division NAFTA + Brazil)
Hendrickson (Leaf Springs Division)
Jamna Auto
USD
Mn
8%
13%
9%
11%
0%
2%
4%
6%
8%
10%
12%
14%
CY14 Peak Margin FY15 Peak Margin
Rassini Leaf Spring Jamna Auto
Global Comparison
Source: Edel Invest Research, Industry, Bloomberg.
Jamna Auto : Product Segments
23
Conventional leaf springs constitute multiple layers of arc-shaped steel strips which form a part of the suspension system of most domestic commercial vehicles in India and are used to hold the axle in position. The presence of multiple layers (or leaves) increases the weight and friction between the leaf layers and reduces riding comfort. Parabolic leaf springs perform the same function as that of conventional leaf springs but with a lower number of leaf layers, resulting in lower weight and better riding comfort. The reduced weight allows for greater tonnage carrying capacity without compromising fuel efficiency, and better riding comforts and increases the life of CV suspension systems.
Jamna Auto Inds Ltd: Financial Overview
24
Financial Statements
Year to March (INR Cr) FY13 FY14 FY15 FY16E FY17E
Net revenue 980 834 1,095 1,280 1,528
Materials costs 645 563 735 849 996
Gross profit 336 271 360 431 532
Employee costs 60 60 69 86 95
Manufacturing exp 127 107 137 159 183
SG&A 63 59 59 69 76
EBITDA 86 44 94 118 177
Depreciation & Amortization 29 26 31 37 44
EBIT 57 18 63 81 133
Other income 2 10 2 1 1
EBIT incl. other income 59 28 65 82 134
Interest expenses 27 24 18 13 13
Profit before tax 32 4 47 69 121
Provision for tax 4 3 18 23 40
Adjusted Profit 28 2 29 46 81
Minority interest - - - - -
Adjusted Profit after minority 28 2 29 46 81
Extraordinary income/ (loss) 0 (12) 0 - -
Net profit after minority 28 14 29 46 81
Basic shares outstanding (crs) 4.3 4.1 4.0 4.0 4.0
EPS (Rs.) 6.5 0.4 7.4 11.7 20.5
Dividend per share (Rs.) 1.8 1.0 2.2 3.5 6.2
Dividend payout (%) 28% 260% 30% 30% 30%
Common size metrics ‐ as % of net revenues
Year to March FY13 FY14 FY15 FY16E FY17E
Materials costs 65.8% 67.5% 67.1% 66.3% 65.2%
Employee expenses 6.1% 7.2% 6.3% 6.7% 6.2%
Manufacturing exp 12.9% 12.9% 12.5% 12.4% 12.0%
SG&A 6.4% 7.1% 5.4% 5.4% 5.0%
Depreciation 3.0% 3.1% 2.8% 2.9% 2.9%
EBITDA margins 8.7% 5.3% 8.6% 9.2% 11.6%
EBIT margins 5.8% 2.2% 5.8% 6.3% 8.7%
Adj profit margins 2.8% 0.2% 2.7% 3.6% 5.3%
Net profit margins 2.8% 1.7% 2.7% 3.6% 5.3%
Growth ratios (%)
Year to March FY13 FY14 FY15 FY16E FY17E
Revenues -12.5% -14.9% 31.3% 16.9% 19.4%
EBITDA -14.7% -48.1% 112.8% 24.6% 50.5%
PBT -40.0% -86.4% 982.6% 45.4% 76.1%
Adj profit -37.8% -94.5% 1835.5% 57.0% 76.1%
Net profit -34.3% -50.1% 112.3% 57.2% 76.1%
Balance sheet
As on 31st March FY13 FY14 FY15 FY16E FY17E
Equity capital 43 41 40 40 40
Reserves & surplus 132 140 157 186 238
Minority Interest - - - - -
Borrowings 166 125 64 64 64
Deffered tax 16 15 16 16 16
Sources of funds 357 322 277 306 358
Gross Block 463 467 479 579 679
Accumulated Depreciation 198 208 237 274 318
CWIP 17 2 8 8 8
Net Fixed Assets 283 262 250 313 369
Investments - - - - -
Inventories 132 101 109 193 230
Sundry debtors 107 108 56 105 126
Cash and equivalents 20 14 11 23 29
Loans and advances 60 55 70 75 82
Total current assets 319 278 246 396 466
Sundry creditors and others 227 207 203 386 461
Provisions 18 11 17 17 17
Total current l iabilities & provisions 245 217 220 403 477
Net current assets 74 60 27 (7) (11)
Uses of funds 357 322 277 306 358
Book value per share (INR) 40.6 44.0 49.6 57.0 70.1
Free cash flow
Year to March FY13 FY14 FY15 FY16E FY17E
Net profit 28 14 29 46 81
Add : Depreciation 29 26 31 37 44
Others 7 -4 -2 -1 0
Gross cash flow 64 36 58 83 125
Add: Changes in WC 0 10 17 45 10
Operating cash flow 87 45 98 140 147
Less: Capex 33 6 23 100 100
Free cash flow 54 39 75 40 47
Cash flow metrics
Year to March FY13 FY14 FY15 FY16E FY17E
Cash flow from operations 87 45 92 140 147
Cash Flow from investing activities -32 24 -22 -99 -99
Casf Flow from financing activities -55 -66 -78 -30 -42
Capex -33 -6 -23 -100 -100
Dividends -12 -10 -5 -17 -30
Profitability & efficiency ratios
Year to March FY13 FY14 FY15 FY16E FY17E
ROAE (%) 17% 1% 16% 22% 32%
ROACE (%) 23% 7% 25% 32% 45%
ROIC (%) 26% 6% 16% 26% 34%
Inventory day 58 50 42 64 66
Debtors days 40 47 19 30 30
Payable days 99 103 79 129 132
Cash conversion cycle (days) -2 -6 -17 -34 -36
Current ratio 1.30 1.28 1.12 0.98 0.98
Debt/Equity 0.95 0.69 0.33 0.28 0.23
Operating ratios
Year to March FY13 FY14 FY15 FY16E FY17E
Total asset turnover 2.77 2.46 3.66 4.40 4.60
Fixed asset turnover 4.35 3.18 4.37 4.68 4.59
Equity turnover 5.93 4.68 5.79 6.06 6.07
Du pont analysis
Year to March FY13 FY14 FY15 FY16E FY17E
NP margin (%) 2.8% 0.2% 2.7% 3.6% 5.3%
Total assets turnover 2.77 2.46 3.66 4.40 4.60
Leverage multiplier 2.1 1.9 1.6 1.4 1.3
ROAE (%) 17% 1% 16% 22% 32%
Valuation parameters
Year to March FY13 FY14 FY15 FY16E FY17E
Diluted EPS (Rs.) 6.5 0.4 7.4 11.7 20.5
Y‐o‐Y growth (%) -38% -94% 1915% 57% 76%
Diluted PE (x) 35.6 624.2 31.0 19.7 11.2
Price/BV (x) 5.7 5.2 4.6 4.0 3.3
EV/Sales (x) 1.1 1.4 0.9 0.9 0.7
EV/EBITDA (x) 16.1 79.7 10.2 8.2 5.4
Dividend yield (%) 0.8% 0.4% 0.96% 1.52% 2.68%
Disclaimer
Edelweiss Broking Limited (“EBL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of EBL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.
Broking services offered by Edelweiss Broking Limited under SEBI Registration No.: INZ000005231; Name of the Compliance Officer: Mr. Dhirendra Rautela, Email ID: complianceofficer.ebl@edelweissfin.com Corporate Office: Edelweiss House, Off CST Road, Kalina, Mumbai - 400098; Tel. (022) 4009 4400/ 4088 5757/4088 6278
This Report has been prepared by Edelweiss Broking Limited in the capacity of a Research Analyst having SEBI Registration No.INH000000172 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors.
This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject EBL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. EBL reserves the right to make modifications and alterations to this statement as may be required from time to time. EBL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. EBL is committed to providing independent and transparent recommendation to its clients. Neither EBL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of EBL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of EBL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.
EBL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the EBL to present the data. In no event shall EBL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the EBL through this report.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report. EBL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies), mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. EBL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with EBL. EBL or its associates may have received compensation from the subject company in the past 12 months. EBL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. EBL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or EBL’s associates may have financial interest in the subject company. EBL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.
Research analyst has served as an officer, director or employee of subject Company: No
EBL has financial interest in the subject companies: No
EBL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report.
Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No
EBL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No
Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years.
A graph of daily closing prices of the securities is also available at www.nseindia.com
Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Additional Disclaimer for U.S. Persons. Edelweiss is not a registered broker – dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Edelweiss is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Edelweiss, including the products and services described herein are not available to or intended for U.S. persons.
This report does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.
Additional Disclaimer for U.K. Persons. The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.
Additional Disclaimer for Canadian Persons
Edelweiss is not a registered adviser or dealer under applicable Canadian securities laws nor has it obtained an exemption from the adviser and/or dealer registration requirements under such law. Accordingly, any brokerage and investment services provided by Edelweiss, including the products and services described herein, are not available to or intended for Canadian persons.
This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services.
25