Initiating Coverage - Religare · PDF fileworking capital management, ... Ashok Leyland, Tata Motors, ... The management of Jamna Auto launched Project Lakshya in April 2012 with the

Jamna Auto Industries

Religare Investment Call

29 June 2016

Jamna Auto is a market leader in providing automotive suspension solutions to commercial vehicles in India. The company is world's third largest manufacturer of Multileaf springs with growing presence in Parabolic Springs, Lift axles and air suspensions. It has six plants located across the country with proximity to its domestic customers and export hubs.

Revival in the commercial vehicles industry has resulted in increased sales of leaf springs and lift axles in FY16. We expect the demand in commercial vehicles to grow in the coming 2-3 years as the same would benefit from economic revival and new investments. MHCV segment has shown good signs of revival whereas LCV will gradually pick up in coming quarters.

Jamna Auto commands 66% market share in the OEM conventional leaf springs market. It was the first company to introduce parabolic springs in India and has a market share of 95% in parabolic spring segment. We foresee the company to largely maintain its market share.

The company has reported substantial improvement in its profitability with better working capital management, reduction in debt, reduction in breakeven levels and lower fuel costs. We expect it to further reduce its breakeven levels and continue to operate debt free in the coming period.

The company started Project Lakshya in 2012 to achieve lower breakeven levels, higher dividend payout, better return ratios, reduction in borrowings, capex funding with internal accruals, focus on new markets and products. The company is on track to achieve its desired targets led by a confident and efficient management.

GST implementation will act as a catalyst for company's growth in aftermarket segment. Currently unorganised players cater to over 80% of the aftermarket segment as their products are 15-20% cheaper compared to organised players. With GST bill, the price difference will be reduced and customers would prefer quality and branded products from well established players. This will increase Jamna's market share and sales in the aftermarket segment.

We expect Jamna Auto to report revenue at CAGR of 15% over We believe, Jamna FY16-18.Auto is poised to benefit from the uptick in the commercial vehicle industry and a strong aftermarket segment. At CMP of Rs. 4, the company is trading at FY17E PE and FY18E PE 17of 15.3x and 12.7x. We believe Jamna Auto deserves premium valuation of 18x on FY18E EPS of Rs. 13 due to strong management, negligible debt, improving margins, higher cash flows, stable dividend and return ratios. We recommend a Buy on the stock with a target price of Rs. 234.

Auto Ancillary

CMP (Rs)

Target Price (Rs)

Potential Upside

Sensex: 26,649

Key Stock data

BSE Code

NSE Code

Bloomberg

Shares o/s, mn (FV 5)

Market Cap (Rs Cr)

3M Avg Volume

52 week H/L

Shareholding Pattern

(%)

Promoter

FII

DII

Others

1 Year price performance

174

234

34.5%

Nifty: 8,174

520051

JAMNAAUTO

JMNA IN

79.5

1375

300,000

89.5/177

15-Sep

43.8

0

0.3

55.8

15-Dec

46.4

0.5

2.9

50.1

16-Mar

48.0

1.8

3.5

46.7

Analyst

Ajay Pasari, [email protected]+91 - 22 - 67288188

Particulars, Rs cr FY14

FY15 FY16 FY17E FY18E

Source : Company & RSL Research

Net sales

EBITDA

OPM (%)

PAT

PATM (%)

eps, Rs

RoC (%)

RoE (%)

833

48

5.8

14

1.7

1.7

11.3%

7.8%

1,095

94

8.6

29

2.7

1.9

15.5%

15.5%

1,256

157

12.5

72

5.7

9.0

32.8%

32.6%

1,432

180

12.6

86

6.0

10.8

32.2%

32.0%

1,646

203

12.4

103

6.3

13.0

31.2%

31.8%

Investment rationale:

Outlook and valuation:

Initiating Coverage

80

Jun-1

5

May

-16

June-1

6

Apr-1

6

Mar

-16

Feb-1

6

Jan-1

6

Dec-

15

Nov-

15

Oct

-15

Sep-1

5

Aug-15

Jul-1

5

90

100

110

120

130

140

150

160

180

170

Jamna Auto Nifty

Investment rationale:

1. Revival in commercial vehicle industry:

After declining from FY13 to FY15, the commercial vehicles industry reported strong

volume growth in FY16 due to pick up in infrastructure development, mining activities,

replacement demand, lower fuel and freight costs.

The overall Commercial Vehicles segment registered a growth of 11.5% in FY2016 as

compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs)

registered a growth at 29.9% and Light Commercial Vehicles grew marginally by 0.3%

during FY2016 over the same period last year.

We expect the MHCV segment to grow at 14-15% from FY16-FY18 and pickup in LCV

demand with government's focus on infrastructure development, recovery in economic

activities and new private investments. Also if the decision to remove vehicles older than

15 years from the roads gets implemented, the demand for both LCVs and HMCVs will get a

boost on back of new orders and replacement demand.


Initiating Coverage

FY11

684,905

74,043 92,258 80,027 77,050 86,939 101,689

809,499

Commercial vehicles sales volumes (nos.)

793,211

632,851 614,948685,704

FY12 FY13 FY14 FY15 FY16

Domestic sales Export sales

Jamna Auto IndustriesAuto Ancillary

Source: SIAM

2. Dominant market share in Conventional and Parabolic Leaf springs:

Jamna Auto is the leading player in the Indian leaf spring industry with market share of

66%. It was the first company to launch parabolic springs in India and commands a market

share of close to 95% in the Indian market. The use of Parabolic spring leafs is rising in new

commercial vehicles as companies are focusing on latest technology and upgradation. The

contribution of parabolic springs, lift axles and air suspensions has increased over the years

and we expect the same to increase further in the overall sales mix.

In 2010, Jamna Auto entered into manufacturing of air suspensions and lift axles with

technological tie up with Ridewell Corporation, USA. The contribution from new products

has been low and is expected to increase going ahead. Currently lift axles contribute to 4-

5% to the total topline. Jamna Auto has a strong clientele list which includes both domestic

and international auto companies. Ashok Leyland, Tata Motors, Bharat Benz, SML Isuzu,

Volvo, GM, etc. are among the major customers.


Initiating Coverage Jamna Auto IndustriesAuto Ancillary

66%

OEM market share - Jamna Auto

60% 60%

57%

64%

66%

FY11 FY12 FY13 FY14 FY15 FY16

95%

5%

Leaf springs and leaves Lift axles and components

Product - wise revenue

Source: Company, RSL Research.


3. Improving margins due to operational efficiency and better product mix:

The company has been able to improve its operating and net profit margins due to

operational efficiency, reduction in breakeven levels, lower fuel cost and finance cost. The

company has been consistently reducing debt which led to interest cost savings and is

expected to remain debt free going ahead.

All 6 plants and assembly facilities of the company are located within close proximity to its

customers and in different locations across India. This helps Jamna Auto in better

inventory management and which led to reduced working capital cycle. Also the company

has been focusing on generating revenue from new product launches. It expects the

contribution from new products (Parabolic springs, lift axles and air suspensions) to reach

33% of overall revenue by FY19.

We expect the company to turn debt free in FY17. The company is currently in the process

of capex expansion of 40,000 MT (30,000 MT at Hosur plant and 10,000 through brownfield

expansion in other plants) which is completely funded through internal funds. The new

capacity is expected to become operational in the second half of FY17.



Total debt (Rs in cr) DE Ratio (x)

0

20

40

60

80

100

120

140

160 0.91 0.91

0.70

0.49

0.13

0.04

0.0

0.2

0.4

0.6

0.8

1.0

Total debt and DE Ratio

FY11 FY12 FY13 FY14 FY15 FY16

OPM (%) PATM (%)

0

2

4

6

8

10

12

14

1.7

5.8

2.7

8.6

5.7

12.5

6.0

12.6

6.3

12.4

Profitability

FY14 FY15 FY16 FY17E FY18E



4. Project Lakshya on track:The management of Jamna Auto launched Project Lakshya in April 2012 with the following key targets:

(I) Product derisking- 33 % revenue from new products-The company launched new products namely; air suspensions and lift axles in FY13. The

contribution of new products in the overall revenue has been rising since the launch. With

more focus on parabolic springs which has higher margins compared to conventional

springs and better product mix, the company should be able to get higher realizations

going forward.

(ii)Diversifying markets- 33% revenue from new markets-Currently export contributes to less than 2% in the total sales. The company is expanding

its capacity by 30,000 MT in its Hosur plant to cater to exports and aftermarket sales. Going

ahead, we believe that the revenue from exports will increase at a greater pace compared

to the domestic sales. The contribution of exports may reach 7-10% of the total revenue in

the next few years.

(iii)Maximum efficiency- reduction of Break-even point to 33%The company has been able to reduce its breakeven point in last 3 years which has led to

improvement in its operational margins. We expect the company to achieve its breakeven

level target of 33% in the next 3-4 years.

(iv)On its way to achieve target ROCE of 33%-Jamna Auto has been able to reward its investors with reduced working capital cycle with

better inventory and debtors' management. This has led to improvement in profitability

margins, reduction in debt and higher cash flows. The ROCE of the company has surged

from 11.2% in FY14 to 32.8% in FY16. We expect the company to report ROCE of 31.2% in

FY18.



RoC (%) RoE (%)

0%

5%

10%

15%

20%

25%

30%

35%Return ratios

FY14

11.3%

7.8%

15.5%

32.6% 32.0% 31.2%

15.5%

32.8% 32.2% 31.8%



(v) On track to Dividend payout- 33%Jamna Auto has been paying stable dividend every year and is in line to achieve its target of 33% payout by FY19.

(vi) Capex- funded by internal funds-The latest capex of Rs. 75 cr for its Hosur facility has been done through internal accruals.

Also the company has been reducing debt consistently and we expect it to become debt

free in FY17.



Dividend Payout (%)

28

29

30

31

32

33

34

Dividend Payout (%)

FY14

30.9

30.1

30.6

33.0 33.0



5. Implementation of GST will reduce price difference between organized and

unorganized players:

Currently the size of the aftermarket segment in India is close to Rs. 1,600-1,800 crores.

The unorganized players hold market share of around 85% as the price of their products

are cheaper by 15-20% compared to the organized players like Jamna Auto. Once GST gets

implemented, Jamna Auto will benefit from the same as the unorganised players will need

to pay tax and mobilize their operations. This will provide a wide market size for Jamna

Auto which in turn will benefit its topline and help gain market share in the aftermarket

segment. As the price difference is reduced, customers will prefer quality and well

established branded products compared to products of local unorganized players.

Leaf springs have a replacement cycle of 9-12 months which provides an immense

potential to the company in the aftermarket segment. Given the conditions of roads in

India (mainly underdeveloped and remote areas), commercial vehicles will continue to

replace their leaf springs to improve the life of the vehicle.

6. Rising promoter stake:

Notably the promoters have been increasing stake in the company from last 2 quarters.

The promoter stake has increased from 43.8% in Sep 2015 to 48.0% in March 2016.



41

42

43

44

45

46

47

48

49Promoter Stake (%)

Mar - 15

43.92 43.81 43.81

46.45

48.01

June - 15 Sep - 15 Dec - 15 Mar - 16


Company Background:

Jamna Auto is the world's third largest manufacturer of conventional and parabolic springs

for commercial automobiles. The company was the first to introduce parabolic springs in

India. The company commands a market share of 66% in the Indian OEM segment and

produces over 410 modes of springs for its customers.

Jamna Auto is the market leader in providing automotive suspension solutions to

commercial vehicles in India with growing presence in Parabolic Springs, Lift axles and air

suspensions. The company has six plants located across the country with proximity to its

domestic customers and export hubs.

The company is expanding is capacity from 180,000 MT to 220,000 MT with an investment

of close to Rs. 75 crores which will make it the second largest company in the world in terms

of capacity. It has a strong dealer network through its subsidiary Jai Suspension Systems

Ltd. and has presence over 390 towns across the country. It sells springs under JAI brand in

the aftermarket and commands premium across its products compared to other players.

The company has an in-house R&D centre capable to design Multi leaf springs, Parabolic

springs, Life axles and air suspensions with copyrights of over 70 designs.

Customers: The Company has very strong clientele list with some of the prominent names

mentioned below.


Initiating Coverage

Veneer Brands



Initiating Coverage

Veneer Brands

ProductsParabolic Spring

Lift Axle

Conventional Leaf Spring

Air Suspension

Risk & Concerns:

Slowdown in recovery of commercial vehicle industry may restrict sales from OEMs as

demand for new vehicles is reduced.

Competition from unorganised players in the aftermath market.

Stringent pollution control laws hurting commercial vehicle industry


Particulars, Rs cr



Total income

Expenditure

Raw material consumed

Employee cost

Power and fuel cost

Other expenses

Total expenditure

EBITDA

OPM (%)

Other income

Depreciation

PBIT

Interest expenses

PBT

Exceptional items

Tax

PAT

PATM (%)

EPS

833.3

563.2

59.8

67.9

94.2

785.1

48.2

5.8

2.0

25.9

24.3

24.1

0.3

16.4

2.9

13.8

1.7

1.7

1,095.0

735.1

68.9

80.5

116.1

1,000.5

94.5

8.6

2.0

31.1

65.4

18.0

47.4

0.0

18.0

29.4

2.7

1.9

1,255.8

793.6

94.3

62.4

148.9

1,099.2

156.6

12.5

8.4

45.2

119.7

14.7

105.0

0.0

33.5

71.5

5.7

9.0

1,431.6

901.5

107.0

72.4

170.6

1,251.5

180.1

12.6

9.4

55.4

134.1

6.0

128.1

0.0

42.3

85.8

6.0

10.8

1,646.4

1,036.9

124.1

84.7

197.2

1,442.9

203.4

12.4

10.8

59.9

154.2

0.0

154.2

0.0

50.9

103.3

6.3

13.0

P&L Account - Consolidated




Share Capital

Reserves & Surplus

Total Shareholder's Fund

Share application money pending

Non-Current Liabilities

Long term borrowings

Deffered tax liability

Other long term liabilities

Long term provision

Current Liabilities

Short term borrowings

Trade payables

Short term provisions

Other current liabilities

Total liabilities

Fixed Assets

Deffered Tax Assets

Long Term loans & advances

Other non-current assets

Current Assets

Inventories

Trade receivables

Cash & Cash equivalents

Short term loans and advances

Other current assets

Total assets

Particulars, Rs cr



41.3

140.4

181.6

0.0

84.7

65.7

14.8

0.8

3.4

272.7

22.8

191.3

6.4

52.3

539.0

261.6

0.0

32.2

0.4

244.9

100.7

108.4

13.7

13.9

8.2

539.0

39.6

156.8

196.4

0.0

46.6

25.4

15.9

0.9

4.4

251.6

1.0

182.7

11.5

56.4

494.6

249.7

0.1

39.4

0.5

204.9

109.1

56.4

10.7

20.4

8.2

494.6

39.7

202.5

242.2

0.4

17.4

5.5

5.7

0.7

5.6

224.4

4.4

156.4

43.9

19.7

484.3

276.1

0.3

40.2

0.6

167.1

107.5

37.6

8.0

14.0

0.0

484.3

39.7

254.3

294.0

0.4

12.6

0.0

5.7

0.7

6.2

245.7

0.0

176.7

48.2

20.7

552.7

295.7

0.0

44.2

0.6

212.3

124.6

43.6

28.6

15.4

0.0

552.7

39.7

316.7

356.4

0.4

13.3

0.0

5.7

0.7

6.9

273.6

0.0

199.7

52.1

21.8

643.6

285.8

0.0

48.6

0.7

308.8

144.6

50.6

97.3

16.2

0.0

643.6

Balance sheet - Consolidated




Particulars FY14



Profitability Ratios

EBITDA / Total income (%)

NPM / Total income (%)

ROCE (%)

ROE (%)

Other ratios

Debt-to-equity

Current Ratio (x)

Dividend Payout (%)

5.8

1.7

11.3

7.8

0.5

0.9

30.9

8.6

2.7

15.5

15.5

0.1

0.8

30.1

12.5

5.7

32.8

32.6

0.04

0.7

30.6

12.6

6.0

32.2

32.0

-

0.9

33.0

12.4

6.3

31.2

31.8

-

1.1

33.0

Key Financial ratios

Profit Before Tax

Add: Depreciation

Add: Interest cost

Others

Op profit before working capital changes

Changes In working Capital

Direct taxes

Cash Flow From Operating Activities

Cash Flow from Investing Activities

Purchase of Fixed assets

Sale of Fixed assets

Sale of Investment

Others

Cash Flow from Investing Activities

Cash from Financing Activities

Proceeds from issuance of shares

Net proceeds from borrowings

Dividend (incl dividend tax)

Interest cost

Others

Cash Flow from Financing Activities

Net Cash Inflow / Outflow

Opening Cash & Cash Equivalents

Closing Cash & Cash Equivalent

Particulars, Rs cr



16.7

26.3

13.5

-16.0

40.5

10.2

-6.0

44.7

-6.7

0.8

25.5

4.6

24.2

0.0

-40.9

-9.6

-13.4

-2.5

-66.4

2.5

8.6

11.1

47.4

31.1

10.2

3.6

92.3

16.5

-10.7

98.1

-23.2

0.5

0.0

0.6

-22.1

0.7

-61.0

-4.7

-9.9

-3.5

-78.4

-2.4

11.1

8.7

105.0

45.2

14.7

0.0

164.9

-3.4

-33.5

128.1

-62.2

0.0

0.0

0.0

-62.2

0.0

-16.5

-26.2

-14.7

0.0

-57.5

8.4

0.0

8.4

128.1

55.4

6.0

0.0

189.5

-2.3

-42.3

145.0

-75.0

0.0

0.0

0.0

-75.0

0.0

-9.8

-34.0

-6.0

0.0

-49.8

20.2

8.4

28.6

154.2

59.9

0.0

0.0

214.2

-3.6

-50.9

159.7

-50.0

0.0

0.0

0.0

-50.0

0.0

0.0

-40.9

0.0

0.0

-40.9

68.7

28.6

97.3

Cash Flow Statement - Consolidated



Before you use this research report , please ensure to go through thedisclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulat ions , 2014 and Research Disc la imer at the fol lowing l ink : http://old.religareonline.com/research/Disclaimer/Disclaimer_RSL.htmlSpecific analyst(s) specific disclosure(s) inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 is/are as under:Statements on ownership and material conflicts of interest , compensation– Research Analyst (RA) [Please note that only in case of multiple RAs, if in the event answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) below , are given separately]

S. No. Statement Answer

Tick appropriate

I/we or any of my/our relative has any financial interest in the subject company? [If answer is yes, nature of Interestis given below this table]

I/we or any of my/our relatives, have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance?

I / we or any of my/our relative, has any other material conflict of interest at the time of publication of the research report or at the time of public appearance?

I/we have received any compensation from the subject company in the past twelve months?

I/we have managed or co-managed public offering of securities for the subject company in the past twelve months?

I/we have received any compensation for brokerage services from the subject company in the past twelve months?

I/we have received any compensation for products or services other than brokerage services from the subject company in the past twelve months?

I/we have received any compensation or other benefits from the subject company or third party in connection with the research report?

I/we have served as an officer, director or employee of the subject company?

I/we have been engaged in market making activity for the subject company?

YES NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

Nature of Interest ( if answer to F (a) aboveis Yes : …………………………………………………………………………………………………………………………………………………............................................Name(s)with Signature(s)of RA(s).[Please note that only in case of multiple RAs andif the answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) above , are given below]

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to make separate declaration / answer YES NO

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Initiating Coverage - Religare · PDF fileworking capital management, ... Ashok Leyland, Tata Motors, ... The management of Jamna Auto launched Project Lakshya in April 2012 with the