We recommend ?BUY? on JAMNA AUTO INDUSTRIES LTD for a target of INR 83 – valuing the company at P/E 25x of FY20E Earning.
CMP: INR 68
Target Price: INR 83
Investment Rationale:
- Jamna Auto Industries Ltd (JAI) is India?s market leader in automotive suspension solutions.
- Second largest player in the world in Multi-Leaf Springs and have in place a full range of suspension solutions for Commercial Vehicles (CVs) that we supply to major OEMs.
- Only company with in-house R&D center in India offering customized suspension solutions to the customers.
- India?s first in Multi-leaf & Parabolic Springs for OEMs.
- JAI serves its esteemed customers from its nine plants across India, Strategically located in close proximity to OEMs.
- Best of low cost optimization and productivity optimization.
- State-of-the-art equipment with adherence to global standards.
- Engineering & design strength and developmental capabilities makes it a partner of choice with most of customers.
Valuations And View:
Jamna Auto Industries Limited is India’s largest, and amongst world’s third largest, manufacturer of tapered leaf springs and parabolic springs for automobiles. The Company is the market leader with 64% market share in the India OEM segment and produces over 410 modes of springs for OEMs. We value the business at 25x FY20E EPS and recommend a BUY rating on the stock with a target price of INR 83 per share.
Risk & Concerns
- Market risk: Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as commodity risk.
- Legal, taxation and accounting risk: The Company is exposed to few legal and administrative proceedings arising during the course of business. The management makes an assessment of these pending cases and in case where it believes that loss arising from proceeding is probable and can reasonably be estimated, the amount is recorded in the books of account.
- Credit risk: Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.
- Liquidity risk: Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company monitors its risk of a shortage of funds by doing liquidity planning.
- Commodity risk: The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchases of steel which is a volatile product and is major component of end product.
Company Background
Jamna Auto Industries Limited is India’s largest, and amongst world’s third largest, manufacturer of tapered leaf springs and parabolic springs for automobiles. The Company was first to introduce parabolic springs in India. The Company was promoted by Mr Bhupinder Singh Jauhar. He started the Tapered Leaf Spring business in 1954 in a small shop in Yamuna Nagar which was converted in the company form in the year 1965. Mr Jauhar is currently the non executive Chairman of the board of directors of the company and is Chief Mentor of the Group. The Company’s vision is to become a global leader in Automobile Suspension Solutions. The Company has diversified its range by adding Lift Axle and Air Suspension products under technical collaboration with Ridewell Corporation, USA. The Company is the market leader with 64% market share in the India OEM segment and produces over 410 modes of springs for OEMs. The Company’s reflection on Quality Standards is the coveted recognition to highest Quality Management System Standards for the Automotive Sector- ISO/TS16949:2009 – ISO 9001:2008.
Products:
- Suspension Products
- Multileaf Springs
- Parabolic Springs
Industry Overview
Propelled by pick up in infrastructure projects and industrial activity, Indian commercial vehicle industry would grow in 9-11% range in the current fiscal, contends ICRA, a credit rating agency. It also reckons that growth would also get a boost from robust demand from consumption-led sectors and rural market – the recent CV demand pick up largely due to uptick in construction activity and overall healthy cargo demand. Industry players reckon that high replacement and stricter enforcement of overloading norms which has resulted in fleet operators preferring rated loads is pushing demand for higher tonnage trucks. Truck productivity and haulage efficiency has also got a leg up from the introduction of GST – removal of check posts, state tariff barriers. Growth would be little stymied by impending implementation of BSVI norms and government?s push for higher fuel efficiency. Stunned by vigorous off take of CVs in April-August period – when CV dispatches rose by 41.7%, SIAM would look to upwardly revise its earlier growth forecast of 10-12%. Yet incessant rise in diesel prices coupled with relaxation in overloading norms would somewhat stifle demand. However, ICRA in its latest report stated that the Indian CV industry is yet to feel the impact of change in axle load norms not least due to delay in its implementation and healthy construction demand.
