Institutional Equities
Jamna Auto Industries 4 October 2018
Reuters: JMNA.NS; Bloomberg: JMNA IN Multiple Growth Drivers Ahead BUY We initiate coverage on Jamna Auto Industries (JAI) with a Buy rating and a 12-month target price of Rs99 (18x September 2020E earnings), up 33% from the current market price, as we expect it to report Sector: Automobile Ancillaries a strong 21% earnings CAGR over FY18-FY21E backed by: 1) Broad-based growth in domestic commercial vehicle (CV) industry over FY19-FY20E, which will directly impact demand for the CMP: Rs74 company’s products. 2) JAI’s first-mover advantage in introducing non-conventional (parabolic) springs which will improve its margin profile in the coming two years. 3) Rising proportion of revenues Target Price: Rs99 from the replacement market and new products such as lift axle and air suspension helping in diversifying its sales mix. JAI is among the largest leaf spring manufacturers globally with a Upside: 33% production capacity of 240,000tn/year. It enjoys ~70% OEM market share and will be a key beneficiary Gaurant Dadwal of the sustained strong performance of the commercial vehicle (CV) industry. Premium product mix and improved revenue mix in the high-margin after-market segment coupled with better operating Research Analyst
leverage will result in ~70bps margin expansion, driving a strong 21% earnings CAGR over FY18- [email protected] FY21E. With return ratios of >30% and strong free cash flow generation, JAI is a quality play on the +91 22 6273 8145 domestic CV industry. We have assigned Buy rating to JAI with a target price of Rs99 (18x Sept. 2020E EPS). We expect it to register FY18-FY21E revenue/EBITDA/PAT CAGR of 19%/21%/21%, respectively. Vivek Sarin Key beneficiary of CV industry growth: We see multiple demand drivers that will propel double-digit volume growth for domestic CV industry in the next two years, including pre-purchases on account of Research Associate migration to BS-VI emission norms, shift towards high-tonnage vehicles, and rising government [email protected] spending on infrastructure projects. We note that FY18 witnessed a strong uptick in industry-wide sales +91 22 6273 8176 following a subdued operating environment in FY17 with JAI being a key beneficiary of the same, registering 34% YoY sales growth. We foresee an uptrend in CV demand over FY19/FY20 and believe that JAI is structurally well placed to reap the benefits of the same. We also note that JAI has Key Data significantly outperformed the MHCV industry growth rate because of a changing product mix and Current Shares O/S (mn) 398.5 increased content per vehicle in the CV category. The medium and heavy commercial vehicle (MHCV) industry is witnessing a shift towards rising share of higher tonnage commercial vehicles (> 25tn) as it is Mkt Cap (Rsbn/US$mn) 29.2/396.1 more profitable for fleet owners. Increased demand for higher tonnage CVs will result in robust demand 52 Wk H / L (Rs) 103/52 for parabolic springs and lift axles in the near future. Daily Vol. (3M NSE Avg.) 1,394,465
Initiating Coverage Initiating Rising share of high-margin products to drive growth: JAI’s volume sales largely comprise spring leaves which accounted for ~90% of total sales in FY18, of which the share of the more profitable parabolic leaves was ~25% (~17% in FY15). Apart from these, it has also introduced lift axle and air suspension products which now contribute ~10% to revenues, up from low single digit contribution in Share holding (%) 3QFY18 4QFY18 1QFY19 FY15. Going forward, the management is targeting to increase its revenue contribution from new Promoter 47.9 47.9 47.9 products like parabolic leaves and lift axles. De-risking revenue mix to reduce OEM dependence: JAI has been focusing on the high-margin DII 11.7 12.8 14.5 replacement and export markets to reduce its exposure to the cyclical CV business. It has a large after- Others 40.4 39.3 37.6 market presence for leaf springs in India where margins are higher when compared to sales to OEMs. The after-market business, post Goods and Services Tax (GST) implementation, is projected to be a big demand driver for the company and we accordingly factor in a 29% CAGR in after-market revenue over One -Year Indexed Stock Performance
FY18-FY21E, resulting in its revenue share rising to 19% in FY21E from ~15% currently. 210 Valuation: JAI’s stock price has outperformed the broader indices over the past few months on the back 190 of strong volume and earnings growth and also healthy double-digit margins. The stock has been a 170 strong performer over the past one year because of improved demand. With its leadership position in 150 the OEM segment already established, JAI aspires to capture a larger share of replacement demand 130 and exports, which are high-margin, earnings-accretive avenues. We forecast revenue/EBITDA/PAT 110 90 CAGR of 19%/21%/21%, respectively, over FY18-FY21E and assign Buy rating to JAI with a target price 70 of Rs99. 50 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E JAMNA AUTO INDS Nifty 50 Revenues 12,924 17,381 22,144 27,163 29,528 YoY (%) 2.9 34.5 27.4 22.7 8.7 EBITDA 2,001 2,378 3,099 3,905 4,245 Price Performance (%) % of sales 15.5 13.7 14.0 14.4 14.4 1 M 6 M 1 Yr PAT 1,050 1,253 1,667 2,123 2,244 YoY (%) 46.8 19.4 33.0 27.4 5.7 Jamna Auto (7.3) (16.2) 35.2 EPS (Rs) 2.6 3.1 4.2 5.3 5.6 Nifty Index (8.1) 4.5 6.8 RoE (%) 36.5 33.1 35.6 36.1 30.8 RoCE (%) 34.0 30.6 34.2 35.0 30.2 Source: Bloomberg P/E (x) 28.1 23.6 17.7 13.9 13.2 EV/EBITDA (x) 15.0 12.6 9.6 7.6 7.0 P/BV (x) 8.9 7.0 5.8 4.5 3.7 Source: Company, Nirmal Bang Institutional Equities Research
Please refer to the disclaimer towards the end of the document.
Institutional Equities
Valuation/stock price performance JAI’s stock price has outperformed the broader indices over the past few months on the back of strong volume and earnings growth and also healthy double-digit margins. The stock has been a strong performer over the past one year because of improved demand. We believe the improving macro-sentiment surrounding the CV industry will place JAI in a sweet spot as it will reap the benefits from: 1) Large foothold in OEM space. 2) Heightened focus on domestic/export after-markets. The stock currently trades at 13.5x September 2020E EPS, compared to its five-year mean of 13.1x. Given its leadership position and superior return ratios, we believe it deserves a higher multiple. We believe the company will continue to outperform the commercial vehicle industry’s growth and report strong 21% EBITDA/PAT CAGR, each over FY18-FY21E, led by 19% sales CAGR and ~70bps margin expansion. We have assigned Buy rating to JAI with a target price of Rs99, up 33% from the current market price (20x September 2020 EPS).
Exhibit 1: P/E band (x) (Rs) 25 140
120 20 100
15 80
10 60 40 5 20
0 0
15 16 17 18 14
15 16 17 18 14
15 17 18 14 16
13 14 16 17 18 15
14 15 17 16 18
15 17 18 14 16
13 14 15 16 18 17
14 15 16 17 18 13
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Jul Jul Jul Jul Jul Jul
Jul Jul Jul Jul Jul
Oct Oct Apr Oct Apr Oct Apr Apr Oct Apr Oct
Jan Jan Jan Jan Jan
Oct Apr Oct Oct Apr Oct Apr Oct Oct Apr Apr
Jan Jan Jan Jan Jan PE Mean 1sd -1sd Price 14x 18x 22x 26x Source: Bloomberg, Nirmal Bang Institutional Equities Research Exhibit 2: Top 5 institutional shareholders of JAI Name Holding (%) L&T Mutual Fund 2.2 Aditya Birla Sun Life AMC 1.9 DSP Investment Managers 1.6 Alquity Investment Managers 1.5 Daiwa Securities Group Inc. 1.1 Source: Bloomberg
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Institutional Equities
Company background JAI is a manufacturer of multi-leaf and parabolic springs and holds ~70% share in domestic OEM industry. Globally, JAI is the second-largest leaf spring manufacturer with annual production capacity of 240,000mtpa spread across nine locations in India. It also has a strong distribution network comprising over 300 dealers that has helped it capture a large portion of sales in the domestic after-market for spring leaves. It has a tie-up with Ridewell Corporation with whom it collaborates in the design and manufacture of air suspensions and lift axles. The company has signed a technology transfer agreement with the UK-based Tinsley Bridge (TBL) for exclusive transfer of TBL's extralite spring and special steel technologies. Exhibit 3: JAI’s product mix FY18P Product Mix
Leaf Spring Lift Axle (10%) (90%)
Conventional Leaf Spring (75%)
Parabolic Leaf Spring (25%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 4: JAI is the second -largest manufacturer of leaf springs in the world Leaf spring manufacturer Base country Capacity( mt) Rassini Mexico 250,000 Jamna Auto Industries India 240,000 Hendrickson Canada & Mexico 216,000 NHK Springs Co. Japan & Thailand 150,000 Dong Feng China 105,000 FAW China 100,000 MBHA Spain 60,000 Olgen Turkey 40,000 LPDN Europe 26,500 Source: Company
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Exhibit 5: Annual market share trend of JAI (%) 80 70 72 67 70 64 60 60 60 57 50 40 30 20 10 - FY12 FY13 FY14 FY15 FY16 FY17 FY18 Source: Company, Nirmal Bang Institutional Equities Research
Investment Rationale Key beneficiary of CV industry’s growth We believe JAI has multiple levers in its favour which will drive growth over FY19-FY21. On the macro front, the growth momentum experienced by domestic commercial vehicle industry in FY18 is poised to continue over FY19-FY20, buoyed by policy changes at the macro level and shifting demand preference at the buyer level (towards higher tonnage vehicles). Likely trigger points for industry-led demand are the truck overloading ban, pre-purchases on account of the shift to BS-VI emission norms, old vehicle scrappage policy implementation and the government’s infrastructure investment push. Further, two consecutive years of normal monsoon have revived rural demand and taking a cue from these visible tailwinds, CV industry’s growth is expected to be in the range 15% – 16% over FY19E/FY20E. Exhibit 6: Domestic MHCV industry volume growth (units) (%) 5,00,000 50 4,50,000 40 4,00,000 30 3,50,000 20 3,00,000 10 2,50,000 0 2,00,000 1,50,000 -10 1,00,000 -20 50,000 -30
- -40
FY07 FY08 FY09 FY10 FY11 FY12 FY14 FY16 FY17 FY18 FY13 FY15
FY20E FY21E MHCV-Domestic YoY (%) FY19E
Source: SIAM, Nirmal Bang Institutional Equities Research
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Exhibit 7: Share of OEM and after-market segments in total revenue mix
Replacement 15%
OEM 85%
Source: Company, Nirmal Bang Institutional Equities Research JAI outperforms CV industry’s growth, expects strong double-digit volume growth in FY19/FY20 We have factored in double-digit volume growth estimates for FY19/FY20, considering the strong correlation between industry vehicle demand and the entailing OEM order inflow for automotive components. JAI, as a dedicated supplier to CVs, has strengthened its presence in India over the years and is increasingly reaping the benefits of cyclical recovery that is underway in the automobile space. Further, its growing focus on the non-cyclical aftermarket space, both in local and overseas markets, will mitigate the impact of any future cyclical downturn. We also note that JAI has outperformed the CV industry because of rising content per vehicle as the share of higher tonnage vehicles has been on rise. JAI’s parabolic spring leafs are used by OEMs for higher tonnage vehicles which drives better ASP and margins for the company. Exhibit 8: Outperforming industry growth-annual comparison Exhibit 9: Share of after-market segment in total revenue mix (%) (%) 60 100 47.3 15 15 50 90 17 19 80 40 31.9 31.4 34.5 30.4 70 30 24.0 60 15.6 20 14.7 12.5 50 8.1 85 85 10 2.9 40 83 81 0.0 0 30 20 (10) (12.5) 10 (20) (15.0) 0 (23.1) (25.3) (30) FY18 FY19E FY20E FY21E FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 OEM Aftermarket MHCV industry growth JAL sales growth Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 10: Outperforms industry growth-Quarterly comparison Exhibit 11: Outperforms industry growth-quarter comparison (YoY) (%) (%)
80 120 107.2
60 57.5 100
42.0
41.9 74.8
37.7 80 30.5
40 30.1
26.9
22.1
26.1
55.9
25.3
54.9 22.1
21.5 60
18.0
40.8
11.0 38.4
20 9.5
8.9
36.7
8.0
31.7
3.2 2.4
1.2 40
24.2
23.4
23.0
19.8
17.5
17.2 14.9
0 14.3 7.8
20 7.5
7.1
5.2
4.5 2.1
(20) 0
(4.2)
(5.8)
(9.1)
(10.7)
(11.9) (11.4)
(40) (15.2) (20)
(17.9)
(23.0)
(23.5)
(9.9)
(29.1) (18.5) (40) (13.9)
(60) (28.8)
(48.2)
3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 1QFY16 2QFY16 4QFY17
3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 2QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY15 1QFY17 3QFY17 MHCV-QoQ JAL sales-QoQ MHCV-YoY JAL sales-YoY Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
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Shift in MHCV towards higher tonnage augurs well for JAI JAI is one of the largest manufacturers of multi-leaf and parabolic springs and the market leader in domestic automobile OEM market. The MHCV industry has witnessed a strong shift towards higher tonnage vehicles because of higher profitability of fleet operators in higher tonnage vehicles. Higher tonnage vehicles contain more springs compared to low tonnage vehicles, which combined with rising demand for non-conventional products like parabolic and lift axles augur well for JAI’s growth in future. We note that most OEMs focus on reducing the weight of a vehicle and parabolic spring is one solution compared to a traditional spring as it is much lighter in weight compared to a traditional spring. Exhibit 12: MHCV segment’s mix shift towards higher tonnage
100%
80%
60%
40%
20%
0% FY14 FY15 FY16 FY17 FY18 YTDFY19 7.5-12T 12-16T 16-25T (Rigid) 25-40T (Rigid)
26.4-35.2T (Haulage) 35.2-40.2T (Haulage) 40.2-49T (Haulage) >49T (Haulage) Source: SIAM, Nirmal Bang Institutional Equities Research Rising share of new products to drive growth In India, OEMs in CV segment have begun to prefer using the more modern parabolic leaf spring, which JAI was among the first to introduce. This technology, wherein leaf springs that are tapered into a parabolic curve, allows for improved ride quality, while at the same time reducing the weight of the vehicle owing to fewer number of leaf layers. The company also has an alliance with Ridewell Corporation with whom it collaborates in the design and manufacture of air suspension and lift axle. These products, which are used more widely in western countries, are finding arising acceptance in India and JAI is witnessing an increase in its share of revenues. Going forward, the company aims to achieve revenue contribution of 33% from its new products in the medium term. Exhibit 13: FY18P product mix Exhibit 14: FY21E product mix
Lift Axle Lift Axle Parabolic Leaf 10% 14% Parabolic Leaf Spring Spring 25% 30%
Conventional Leaf Spring Conventional Leaf 65% Spring 56% Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research As the OEMs adopt new technologies, JAI is witnessing increased penetration in parabolic springs which are much profitable than traditional springs. The company is also witnessing increased offtake in lift axles and is in process of coming out with new products like stabiliser bars, U-bolts and trailer suspension. The company has signed a technology transfer agreement with the UK-based Tinsley Bridge (TBL) for exclusive transfer of TBL's extralite spring and special steel technologies. The company has lined up a capex of Rs6bn over the next three to four years to double its parabolic spring production capacity and enhance the capacity for lift axle and air suspension among others.
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Exhibit 15: Existing products Product – Multi-leaf springs Description
Multi-leaf springs are the conventional type spring steel leaves that are held together by a centre bolt, with the number of leaves in a stack directly affecting the spring capacity or load rate.
Product – Parabolic springs Description
Non-conventional or parabolic springs are leaf springs that are tapered into a parabolic curve, allowing for improved ride quality, while at the same time reducing the weight of the vehicle owing to fewer number of leaf layers.
Product – Lift axles Description
Lift axles deploy air bags to carry weight. They can be mounted on trucks and trailers and are commonly found in tanker-style as well as vehicles used to haul oversized loads. Description
Product
Product – Air suspension Description
Air suspension is used in place of conventional steel springs, mostly in heavy vehicles like trucks and buses.
Source: Company
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Institutional Equities
Exhibit 16: New products Product – Stabiliser bars Description
Stabiliser bars reduce body roll of vehicles during fast cornering and over road irregularities. These connect opposite wheels together by a torsion spring.
Product – U-bolts Description
U-bolts are used to clamp the spring leaves and related components firmly together.
Source: Company
De-risking revenue mix to reduce OEM dependence JAI currently derives close to 15% of its revenues from the after-market segment as it has a strong after- market network of 300 plus distributors who supply ~5,000 parts through 6,000 plus retailers in India. The company now plans to expand its base of products in the after-market segment through sales of spring allied products, lift axle and air suspension parts from its existing range. In order to promote the ease of doing business, the company has integrated a new supply chain system for the after-market segment. The company plans to take its overall share in the after-market segment from 15% to 30% in the next three to four years, aiding margins and profitability as the mix improves. Shift in after-market segment towards organised players to help JAI gain market share JAI already has a large after-market presence in leaf springs in India with ~15% market share in an estimated Rs30bn industry, which is among the largest in the organised market with the balance being held by unorganised players. In the aftermath of GST roll-out, the organised segment will see a demand pull as smaller vendors in the fragmented unorganised market and without a GST registration number will face hindrance in getting the buyers to purchase their products as the buyers will not be eligible to claim GST credit and will have to bear the full tax load. This will cause a dent in competitiveness of many small suppliers and result in the demand shifting towards established players in the organised sector. The periodicity of tax compliance is another impediment as many entities lack the necessary manpower to manage the monthly tax filing requirement.
Exhibit 17: JAI’s presence in after-market segment
11 300+ 10000+ 6000+ ~5000 Depots Distributors Mechanics Retailers Parts
Source: Company
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Strong pedigree of clients and a pan-India presence JAI has long-standing customer relations with prominent Indian OEMs like Tata Motors, Ashok Leyland, Mahindra & Mahindra etc. JAI derives bulk of its domestic revenues from Tata Motors and Ashok Leyland. While it is also servicing other major CV players, it is doing so in a limited manner and thus has scope to diversify its client base. We note that the company’s design and engineering capabilities have positioned it as a reliable automobile component supplier to OEMs. Its R&D centre in Pune, the only one of its kind in India, is equipped with design capability for conventional and parabolic springs as well as air suspensions and lift axles and we believe this gives it an edge over competitors, most of who lack the wherewithal to dedicate funds to a full-time research centre. JAI enjoys ~70% OEM market share.
Exhibit 18: JAI’s customer profile
Source: Company presentation
In FY18, JAI completed its brownfield expansion at Hosur, taking its total production capacity to 240,000mtpa. It now only trails behind Mexico-based Rassini Sab’s installed capacity of 250,000mpta which is the largest globally. Its nine manufacturing plants across India are co-located alongside those of its customers, resulting in quick turnaround time and operating efficiency. The company is in the process of setting up additional two plants in Indore and Jamshedpur.
9 Jamna Auto Industries
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Exhibit19: JAI’s manufacturing facilities
Source: Company presentation
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Strong 1QFY19 performance During the quarter, JAI benefitted from the improvement in product mix and strong YoY growth in CV sales (low base). The company reported a strong 107% YoY growth in new sales to Rs5.6 bn. Strong growth in CV industry and higher sales of parabolic springs drove such a strong growth, outperforming the industry growth rate. Following strong sales, margins expanded by 214bps YoY despite a sharp increase in raw material costs. Absolute EBITDA at Rs753mn grew by a strong 146% YoY, while PAT at Rs400mn grew by a strong 129% YoY. Going forward, higher contribution from the after-market segment and parabolic springs is expected to help EBITDA margin. Exhibit 20: JAI’s quarterly financials Y/E March (Rsmn) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 QoQ (%) YoY (%) FY17 FY18 YoY (%) Net revenues 2,714 3,850 4,703 5,967 5,622 (5.8) 107.2 12,924 17,381 34.5 Raw material costs 1,649 2,408 3,004 3,850 3,574 (7.2) 116.8 7,712 10,911 41.5 Staff costs 266 307 301 401 402 0.3 51.1 1,076 1,275 18.5 Other expenses 494 632 783 822 893 8.7 80.9 2,135 2,817 31.9 Total expenditure 2,409 3,347 4,088 5,072 4,869 (4.0) 102.2 10,923 15,003 37.4 EBITDA 305 503 614 894 753 (15.8) 146.6 2,001 2,378 18.8 EBITDAM (%) 11.2 13.1 13.1 15.0 13.4 (160bps) 214bps 15.5 13.7 (180bps) Depreciation 84 85 101 145 116 (19.9) 38.0 477 414 (13.3) Interest costs 25 43 60 67 57 (19.3) 129.2 122 182 49.0 Other income 59 61 17 14 34 81.2 (43.6) 51 79 54.4 PBT 256 437 471 697 613 (12.0) 139.8 1,453 1,861 28.1 Tax 82 142 154 230 213 (7.4) 161.0 403 608 50.8 Reported net profit 174 294 317 467 400 (14.3) 129.8 1,050 1,253 19.4 NPM (%) 6.4 7.6 6.7 7.8 7.1 (71bps) 70bps 8.1 7.2 (91bps) EPS (Rs) 0.4 0.7 0.8 1.2 1.0 (17) 129.8 2.6 3.1 19.4
Metrics
RM as % sales 60.8 62.5 63.9 60.8 (95bps) 282bps 59.7 62.8 310bps EC as % sales 9.8 8.0 6.4 9.8 44bps (265bps) 8.3 7.3 (99bps) OE as % sales 18.2 16.4 16.6 18.2 211bps (231bps) 16.5 16.2 (31bps) Depreciation as % sales 3.1 2.2 2.1 3.1 (36bps) (103bps) 3.7 2.4 (131bps) Gross margin 39.2 37.5 36.1 39.2 95bps (282bps) 40.3 37.2 (310bps) EBITDA margin 11.2 13.1 13.1 11.2 (160bps) 214bps 15.5 13.7 (180bps) Net margin 6.4 7.6 6.7 6.4 (71bps) 70bps 8.1 7.2 (91bps) Tax rate (% of EBT) 31.9 32.6 32.7 31.9 175bps 283bps 27.8 32.7 491bps Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 21: Net sales and sales growth Exhibit 22: Gross margin
(Rsmn) (%) (%) 107.2 7,000 120 46 45.1 5,967 6,000 100 5,622 44 4,703 80 5,000 42 3,850 60 3,828 55.9 40.7 39.2 4,000 3,332 40 39.3 3,036 40 2,734 2,714 54.9 3,000 38 40.8 20 36.1 36.4 14.9 37.4 2,000 36 37.5 7.8 0 4.5 (18.5) 1,000 (13.9) -20 34 35.5 - -40 32
30
1QFY17 2QFY17 3QFY17 2QFY18 3QFY18 4QFY18 4QFY17 1QFY18 1QFY19
Sales YoY growth (RHS)
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 4QFY18 1QFY19 3QFY18 Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
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Exhibit 23: EBITDA margin Exhibit 24: EBITDA & EBITDA growth
(%) (Rsmn) (%) 18 1,000 20 17.3 894 17.3 900 18 17 15.6 800 14.5 753 16 15.6 13.7 16 13.1 13.1 700 13.4 14 14.5 15.0 576 598 11.2 15.0 15 600 614 12 13.7 503 500 397 417 10 14 13.1 13.4 13.1 400 305 8 13 300 6 200 4 12 100 2 11 11.2 - 0
10
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19
EBITDA YoY growth (RHS)
1QFY17 2QFY17 3QFY18 4QFY18 1QFY19 4QFY17 1QFY18 2QFY18 3QFY17 Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 25: PAT margin Exhibit 26: PAT & PAT growth (Rsmn) (%) (%) 129.8 10 9.1 500 467 140 111.9 450 120 9 400 400 350 100 9 350 317 80 7.9 294 8.2 7.6 7.8 300 272 41.4 60 8 36.5 33.5 250 25.5 40 8 7.0 7.1 216 50.1 6.7 200 211 174 36.1 20 7 150 0 7 100 (20) 6.4 50 (40) 6 (35.9) - (60) 6
5
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 4QFY18 1QFY19 2QFY18 3QFY18
PAT YoY growth (RHS)
1QFY17 3QFY17 4QFY17 1QFY18 2QFY18 4QFY18 1QFY19 3QFY18 2QFY17 Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 27: Quarterly market share trend Exhibit 28: Annual market share trend (%) (%) 100 80 70 72 90 67 70 64 80 72 73 73 73 72 60 60 70 70 69 57 70 60 60 50 50 40 40 30 30 20 20 10 10 0 -
FY12 FY13 FY14 FY15 FY16 FY17 FY18
2QFY17 3QFY17 4QFY17 1QFY18 3QFY18 4QFY18 1QFY19 2QFY18 Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
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Earnings expected to post double-digit growth We expect JAI to post strong earnings CAGR of 21% over FY18-FY21E on the back of strong sales growth driven by volume and product mix, with domestic MHCV sales playing a dominant role in its product portfolio. Domestic growth will be driven by higher truck sales and improvement in mix from recent new product launches and after-market sales. We forecast sales to grow 27%/23%/9% in FY19E/FY20E/FY21E respectively.
The company’s EBITDA margin has recovered over FY16/FY17 because of economies of scale and a more favourable product mix. We forecast rising cost pressure to restrict significant operating margin improvement. However, following the improvement in product mix from OEM to after-market and a rising share of new product launches, we expect a 70bps improvement in margins over FY18-FY21E. We expect margins to improve marginally to 14.4% in FY20E/FY21E from 13.7% in FY18. As regards PAT, we expect it to post a strong 21% CAGR over FY18-FY21E. Exhibit 29: Annual revenue and revenue growth Exhibit 30: Annual EBITDA and EBITDA growth (Rsmn) (%) (Rsmn) (%) 35,000 40 4,500 4,245 120 29,528 100.6 3,905 34.5 35 4,000 30,000 31.4 27,163 100 22,144 3,500 30 3,099 25,000 27.4 3,000 72.7 80 25 2,378 20,000 17,381 22.7 2,500 20 2,001 60 15,000 12,558 12,924 2,000 1,632 10,951 15 14.7 1,500 30.3 40 10,000 945 18.8 10 22.6 8.7 1,000 26.0 20 5,000 5 500 8.7 2.9 - 0 - 0 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY15 FY16 FY17 FY18 FY19E FY20E FY21E Sales YoY growth (RHS) EBITDA YoY growth (RHS) Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 31: Annual PAT and PAT growth Exhibit 32: EBITDA and PAT margin (Rsmn) (%) (%) 2,500 160 18 143.4 2,244 15.5 2,123 16 14.4 14.4 140 13.7 14.0 13.0 2,000 112.3 14 1,667 120 12 100 1,500 10 8.6 1,253 8.1 7.8 7.2 7.5 7.6 1,050 80 8 5.7 1,000 715 46.8 60 6 33.0 19.4 40 4 2.7 500 294 27.4 2 20 5.7 0 - 0 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY15 FY16 FY17 FY18 FY19E FY20E FY21E PAT margin EBITDA margin PAT YoY growth (RHS) Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
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Institutional Equities
Financials
Exhibit 33: Income statement Exhibit 34: Cash flow Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Net sales 12,924 17,381 22,144 27,163 29,528 PBT 1,453 1,861 2,488 3,169 3,349 % growth 2.9 34.5 27.4 22.7 8.7 (Inc.)/dec. in working capital (632) (494) (142) (300) (93) Raw material costs 7,712 10,911 13,876 16,972 18,449 Staff costs 1,076 1,275 1,602 1,938 2,107 Cash flow from operations 820 1,367 2,345 2,869 3,256 Other expenses 2,135 2,817 3,567 4,348 4,727 Other income (10) (8) - - - Total expenditure 10,923 15,003 19,045 23,258 25,283 Other expenses 96 105 190 196 199 EBITDA 2,001 2,378 3,099 3,905 4,245 Depreciation 477 414 474 597 759 % growth 22.6 18.8 30.3 26.0 8.7 EBITDA margin (%) 15.5 13.7 14.0 14.4 14.4 Tax/interest paid (577) (616) (1,011) (1,242) (1,304) Other income 51 79 52 57 62 Net cash from operations 808 1,262 1,998 2,420 2,910 Interest costs 122 182 190 196 199 Capital expenditure (882) (762) (1,200) (1,700) (1,800) Gross profit 5,212 6,470 8,268 10,191 11,079 % growth 12.5 24.1 27.8 23.3 8.7 Net cash after capex (74) 500 798 720 1,110 Depreciation 477 414 474 597 759 Other investment activities 55 47 5 - - Profit before tax 1,453 1,861 2,488 3,169 3,349 Cash from financial activities 61 (566) (818) (716) (747) % growth 38.4 28.1 33.7 27.4 5.7 Opening cash balance 50 92 72 56 61 Tax 403 608 821 1,046 1,105 Effective tax rate (%) 27.8 32.7 33.0 33.0 33.0 Closing cash balance* 92 72 56 61 424 Net profit 1,050 1,253 1,667 2,123 2,244 Change in cash balance 42 (20) (16) 5 363 % growth 46.8 19.4 33.0 27.4 5.7 *Note: Excluding other bank balances EPS (Rs) 2.6 3.1 4.2 5.3 5.6 Source: Company, Nirmal Bang Institutional Equities Research % growth 46.8 19.4 33.0 27.4 5.7
DPS (Rs) 0.8 0.9 1.1 1.5 1.5 Payout (%) 32.2 27.0 27.0 27.2 27.3
Source: Company, Nirmal Bang Institutional Equities Research Exhibit 36: Key ratios Exhibit 35: Balance sheet Y/E March FY17 FY18 FY19E FY20E FY21E Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E Profitability & return ratios Equity 398 398 398 398 398 EBITDA margin (%) 15.5 13.7 14.0 14.4 14.4 Reserves 2,929 3,840 4,714 6,142 7,647 EBIT margin (%) 11.8 11.3 11.9 12.2 11.8 Net worth 3,327 4,239 5,113 6,540 8,045 Net profit margin (%) 8.1 7.2 7.5 7.8 7.6 Net deferred tax liab. (52) (74) (74) (74) (74) RoE (%) 36.5 33.1 35.6 36.4 30.8 LT liabilities/provisions 234 264 264 264 264 RoCE (%) 34.0 30.6 34.2 35.3 30.2 Total loans 622 472 462 442 433 Working capital & liquidity ratios Liabilities 4,130 4,901 5,764 7,172 8,668 Gross block 3,209 3,735 4,935 6,635 8,435 Receivables (days) 10 24 25 25 25 Depreciation 396 720 1,194 1,791 2,550 Inventory (days) 31 28 30 30 30 Net block 2,813 3,014 3,740 4,843 5,884 Payables (days) 35 34 34 35 36 Capital work-in-progress 199 309 309 309 309 Cash conversion cycle (WC days) 6 18 21 20 19 LT investments 5 5 - - - Net WC-ex cash (days) (11) 8 16 16 17 Other long-term assets 586 334 349 349 349 Current ratio (x) 1.4 1.4 1.5 1.6 1.6 Inventories 1,128 1,585 1,849 2,268 2,466 Quick ratio (x) 0.6 0.9 0.8 0.8 0.9 Debtors 342 1,912 1,497 1,836 1,996 Cash 145 123 108 112 475 Valuation ratios Cash equivalents 92 72 56 61 424 EV/Sales (x) 2.3 1.7 1.4 1.1 1.0 Other bank balance 54 51 51 51 51 EV/EBITDA (x) 15.0 12.6 9.6 7.7 7.0 ST investments - - - - - P/E (x) 28.1 23.6 17.7 13.9 13.2 Other current assets 340 539 579 579 579 P/BV (x) 8.9 7.0 5.8 4.5 3.7 Total current assets 1,954 4,159 4,033 4,796 5,515 Source: Company, Nirmal Bang Institutional Equities Research Trade payables 773 2,037 1,783 2,242 2,506 Other current 654 882 882 882 882 liabilities/provisions Total current liabilities 1,427 2,920 2,666 3,124 3,389 Miscellaneous expenses 0 - - - - Net current assets 527 1,240 1,367 1,672 2,127 Total assets 4,130 4,901 5,764 7,172 8,668 Source: Company, Nirmal Bang Institutional Equities Research
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Institutional Equities
DISCLOSURES
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Institutional Equities
Disclaimer Stock Ratings Absolute Returns
BUY > 15% ACCUMULATE -5% to15% SELL < -5%
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16 Jamna Auto Industries