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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.
Religare Investment Call
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.
Religare Investment Call
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.
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.
Religare Investment Call
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
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
Source: Company, RSL Research.
Source: Company, RSL Research.
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.
Religare Investment Call
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
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%
FY15 FY16 FY17E FY18E
Source: Company, RSL Research.
(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.
Religare Investment Call
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
Dividend Payout (%)
28
29
30
31
32
33
34
Dividend Payout (%)
FY14
30.9
30.1
30.6
33.0 33.0
FY15 FY16 FY17E FY18E
Source: Company, RSL Research.
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.
Religare Investment Call
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
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
Source: Company, RSL Research.
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.
Religare Investment Call
Initiating Coverage
Veneer Brands
Jamna Auto IndustriesAuto Ancillary
Religare Investment Call
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
Jamna Auto IndustriesAuto Ancillary
Particulars, Rs cr
FY14 FY15 FY16 FY17E FY18E
Source : Company & RSL Research
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
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
Religare Investment Call
Religare Investment Call
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
FY14 FY15 FY16 FY17E FY18E
Source : Company & RSL Research
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
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
Religare Investment Call
Religare Investment Call
Particulars FY14
FY15 FY16 FY17E FY18E
Source : Company & RSL Research
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
FY14 FY15 FY16 FY17E FY18E
Source : Company & RSL Research
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
Initiating Coverage Jamna Auto IndustriesAuto Ancillary
Religare Investment Call
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Initiating Coverage Jamna Auto IndustriesAuto Ancillary