JAMNA AUTO INDUSTRIES LTD. (JAI)
December 13, 2017 CMP: `64 Time Horizon – 12 Months Target: `95
Key Data (In ` mn) FY2015 FY2016 FY2017 FY2018E FY2019E Bloomberg Code JAMNA IN Net Sales 10,951 12,558 12,995 14,359 16,728 V NSE Code JAMNAAUTO EBITDA 945 1,622 1,830 2,091 2,519 EBITDA Margin (%) 8.6% 12.9% 14.1% 14.6% 15.1% Sector AUTOMOBILE & ANCILLARY PAT 294 715 1,047 1,061 1,417 Industry AUTOMOBILE COMPONENT - SPRING A Ev/Sales (x) 2.4 2.1 2.1 2.0 1.7 Face Value (`) 1 Ev/EBITDA (x) 28.2 16.4 14.7 13.5 11.0 BV per share (` ) L 9.04 P/E (x) 86.8 35.7 24.3 24.0 18.0 Dividend yield (%) 1.09% Price Performance CY13 CY14 CY15 CY16 YTD U 52 Week H/L (`) 68.7/30.15 Absolute -33% 98% 100% 22% 89% E Market Cap (` mn. ) 25661 Relative (NIFTY 500) -37% 60% 101% 18% 58% Shareholding Pattern (as on Sept’17) Relative stock performance (Dec 2016=100) Dec-16 Mar-17 Jun-17 Sep-17 200 P 180 Promoters 48% 48% 48% 48% 160 I Non-Institutional 44% 44% 43% 42% 140 120 C Institutional 8% 8% 9% 10% 100 Total 100% 100% 100% 100% 80 k JAMNAAUTO NIFTY 500
Source: Company Reports, Anand Rathi Research, Ace Equity
Analyst: Ridhi Mehta Anand Rathi Research [email protected] JAMNA AUTO INDUSTRIES LTD. (JAI)
One of the World’s Leading Player in Leaf Springs
Jamna Auto Industries (JAI) is the largest leaf spring manufacturer in India and the third largest globally (in terms of installed capacity). The company is the market leader with 73% market share in the Indian OEM segment and produces over 500 modes of springs for OEMs and ~2000 parts for After Market.
In FY10 JAI tied up with Ridewell Corporation in the US to bring the latest technology in air suspension system and provide world-class rides in buses. Its suspension products include air suspension and bogie suspension systems and lift axles. It has built a strong dealer network through its subsidiary — Jai Suspension Systems LLP — throughout the country to support the growing domestic aftermarket demand. The company sells springs under the JAI brand in the aftermarket and its products command a premium to other players.
It has a well established client base supplying to major domestic customers such as Tata Motors, Ashok Leyland, Volvo Eicher Commercial Vehicles and foreign players such as Daimler India.
JAI’s Q2 revenue and EBITDA grew by 27% at Rs.3861mn and Rs.503mn y-o-y, led by traction in higher tonnage vehicles. EBITDAM however, decline by marginally at 13%, hit by subdued volumes in the replacement market owing to GST uncertainty, and discounts given to OEMs on higher volumes. Mix of conventional vs. parabolic springs stands at 75:25, with new MHCVs being introduced with a higher share of parabolic springs.
We expect JAI’s revenues to grow at 13% CAGR over the next three years owing to steep uptrend in the MHCV OEM segment. The company is likely to draw benefits of operating leverage due to double digit top-line growth. It’s margins are expected to improve from 8.6% in FY2015 to 15.1% in FY2019E on account of change in product mix towards higher margins products.
Jamna Auto (JAI) is an ideal play on the ongoing upturn in CV demand given its 73% share in domestic OEMs markets. With GST implementation, we believe organised players such as JAI have tremendous potential to gain market share in the aftermarket segment. We recommend Buy with a price target of Rs.95—18x FY19E EPS. Source: Company Reports, Anand Rathi Research
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JAMNA AUTO INDUSTRIES LTD. (JAI)
Diversified Portfolio: Products & Markets
Four Products
Conventional Parabolic Leaf Lift Axle Air Suspension Leaf Spring Spring
Four Markets
OE India OE Exports AM India AM Exports
Source: Company Reports, Anand Rathi Research
3 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI) Product leadership in Suspension solution Along With New Product Launch to Boost top line
Market Share-OEM India Product Wise - Revenue Lift axle Lift axle 4% components 0% Others 27% Loose leaves 19% Jamna Leaf springs Auto 77% 73%
Spring Leaves are an integral part of suspension geometry of commercial vehicles. JAI is the largest domestic Spring Leaves manufacturing company. The company enjoys a market share of 73% in the domestic OEMs market in Q2 FY18 from 60% in FY12, on account of the increasing share of business and improving mix of parabolic springs. Conventional springs contribute 77% of the revenues while the parabolic springs account for 19%. The recently introduced lift axles constitute 4% of the top-line.
The company has introduced new products in the Suspension segment like Parabolic Spring Leaves, Lift Axle and Air Suspension and expects the new products to account for 33% of the business. Parabolic Spring Leaves has about 10% higher profitability. Rising contribution of new products will also lead to higher overall EBITDA margin.
Management expects the market share to remain at this level, and the mix of parabolic springs to increase in the overall pie.
Source: Company Reports, Anand Rathi Research
4 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Augmenting capacity and capability
Production Spring Capacity MT (in Lakhs) Global Leaf Market Scale Leaf Spring Manufacturer Base Country Capacity Rassini Mexico 2,50,000 2.1 2.1 Hendrickson Canada & Mexico 2,16,000 1.8 1.8 1.8 Jamna Auto Industries Ltd. India 2,10,000 1.5 NHK Springs Co. Ltd. Japan & Thailand 1,50,000 Dong Feng China 1,05,000 FAW China 1,00,000 MBHA Spain 60,000 Olgen Turkey Turkey 40,000 FY13 FY14 FY15 FY16 FY17 Q2 FY18 LPDN Europe Europe 26,500
CV OEMs in India and international markets use a combination of conventional/parabolic springs based on the truck application. With its existing installed capacity, JAI is the third largest spring manufacturer globally and the largest in India.
In FY17, JAI operationalized an integrated R&D Centre in Pune. Also a manufacturing unit for leaf & parabolic springs was set up in Lucknow by the subsidiary entity Jai Suspension Systems, LLP. With the new capacity at Hosur of 30,000 TPA, JAI has increased its leaf spring capacity from 180k MT to ~210k MT.
With this, the Company and its subsidiary entity now have 9 strategically located manufacturing units.
Source: Company Reports, Anand Rathi Research, NASSCOM
5 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI) 9 state-of-art strategically located plants, manufacturing high-tech suspension system
6 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Medium Term Strategy with focuse on Value Creation
Source: Company Reports, Anand Rathi Research, Mckinsey
7 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI) Recovery in OEM segment coupled with Aftermarket focus to Drive Growth
Particulars FY12 FY13 FY14 FY15 FY16 FY17 Auto Component Industry: Turnover 204670 216094 211765 234869 255635 292184 4000 20.0% Growth% 8.7% 5.6% -2.0% 11.1% 8.8% 14.3% 14.3% 15.0% Exports 42729 52690 61487 68522 70916 73128 11.1% 3000 2556 Growth 40.7% 23.3% 16.7% 11.4% 3.5% 3.1% 8.7% 10.0% 5.6% 2349 2922 2047 2118 Imports 66736 74463 77160 82931 90662 90571 8.8% 5.0% Growth 34.3% 11.6% 3.6% 7.5% 9.3% -0.1% 2000 2161
Turnover in Crs in Turnover 0.0% Aftermarket 29585 31788 35603 39875 44660 56096 -2.0% Growth 20.1% 7.4% 12.0% 12.0% 12.0% 25.6% 1000 -5.0% FY12 FY13 FY14 FY15 FY16 FY17
From a mere supplier to OEMs, JAI has gradually become a partner of OEMs at the product development stage. Further, the company has been prompt in terms of requirements of the OEMs and launched Parabolic Spring Leaves in India to aid smoother ride, particularly for the Passenger Vehicles. JAI has strong focus on After Market segment, where the company typically enjoys 15-20% higher profitability. Indian Spring After Market size is ~Rs.15bn and JAI has a market share of ~15%. Further, revenues from the overseas’ After Market stand at Rs 250- 300mn. Leaf springs have a replacement cycle of ~9-12 months. Hence, the aftermarket is quite large. At present, a large portion of the leaf spring aftermarket is catered to by small scale/unorganised players. After market, which is estimated to be greater than the OEM market (aftermarket size is pegged at Rs.1200cr-1500cr), presents a huge opportunity for company.
With small product life cycle of Spring Leaves and pick-up in industrial activities in India, we expect Indian After Market for Spring Leaves to outpace the OEMs growth. We expect JAI’s after-market revenue to double in next two-three years given its strong dealers network and rising numbers of organized fleet operators, share of organized players is expected to significantly pick-up. This will be further aided by implementation of GST. This will lead to significant improvement in the overall profitability as well as de-risking of the revenue stream going
forward. Source: Company Reports, Anand Rathi Research, ACMA
8 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Uptick in MHCV Cycle
Domestic Market share FoFY16
In Lakhs FY12 FY13 FY14 FY15 FY16 FY17 Passenger Passenger Vehicles 31.46 32.31 30.88 32.21 34.65 37.92 Vehicles Commercial 14% Vehicles Commercial Vehicles 9.29 8.32 6.99 6.98 7.87 8.10 3% Three Three Wheelers 8.79 8.40 8.30 9.49 9.34 7.83 Wheelers Two Wheelers 154.27 157.44 168.83 184.89 188.30 199.29 3% Two Grand Total 203.82 206.48 215.00 233.58 240.16 253.14 Wheelers 80%
After two consecutive years of double-digit dip, the MHCV industry resurged strongly in FY2015, reporting a healthy growth. Policy actions by the government led to economic recovery. Further, government actions in terms of clearing stalled projects, increased infrastructure activity, and resumption of mining have further boosted MHCV sales. Also, improvement in fleet operators’ profitability due to firm freight rates and reduction in diesel prices have also boosted demand.
Huge pent up demand due to severe slowdown in FY2013/14 coupled with economic revival has stoked demand. The MHCV industry is clearly in an upcycle and we expect the industry to maintain double-digit growth momentum. JAI derives about 70% of its revenues from the MHCV OEM segment and would be a beneficiary of the strong demand.
Source: Company Reports, Anand Rathi Research, IBEF, SIAM
9 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Global Automotive Leaf Spring Suspension Market
The automotive leaf spring The US has a 70% of penetration In terms of number of units, The Us accounted for 16.47mn suspension market in APAC rate of leaf spring suspensions EMEA will reach up to units, which will increase up to accounted for 19.54mn in system in M&HCV business 1.26mn units by 2021 20.32mn units by 2021 2016 segment
The global automotive leaf spring suspension market is projected to grow to 46.43 million units by 2021, at a CAGR of ~5%. The rising adoption of air suspension systems will offset the growth in the market segment, which will be balanced by the average selling price of leaf spring systems. Also, the growing preference for freight transport services in China and India will significantly boost the market segment.
Source: Company Reports, Anand Rathi Research, Technavio, Businesswire
10 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
AUTOMOTIVE MISSION PLAN : 2016-26 (A Curtain Raiser)
In Crs
India has attracted significant quantum of investments from global and local OEMs as well as component manufacturers, exceeding the target of Rs.1,57,500 crore. By 2026, the Indian automotive industry will be among the top three of the world in engineering, manufacture and export of vehicles and auto components, and will encompass safe, efficient and environment friendly conditions for affordable mobility of people and transportation of goods in India comparable with global standards, growing in value to over 12% of India’s GDP, and generating an additional 65 million jobs.
AMP 2026 envisages that the Indian Automotive Industry will grow 3.5 – 4 times in value from its current output of around Rs.4,64,000 crore in 2015 to ~Rs.16,16,000 - 18,88,500 crore by 2026, based on a base case with average GDP growth of 5.8% and an optimistic case with an average GDP growth of 7.5% during the period.
Source: Company Reports, Anand Rathi Research, ACMA, SIAM
11 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Low Leverage with Strong Liquidity Position
Revenue Trend Operational Efficiency 15.1% 20000 40.0% 3000 31.4% 16657 15.0% 30.0% 2500 14359 14.6% 13.0% 15000 14.1% 12995 12558 2000 12.9% 2509 16.0% 11.0% 10951 20.0% 2091 10.5% 10000 1500 1830 9.0% 8.6% 1622 14.7% 3.5% 10.0% 1000 7.0% 5000 0.0% 945 FY2015 FY2016 FY2017 FY2018E FY2019E 500 5.0% FY2015 FY2016 FY2017 FY2018E FY2019E Net Sales Growth EBITDA Margins JAI’s revenues are likely to grow at 13% CAGR over the next three years owing to steep uptrend in the MHCV OEM segment. The company is likely to draw benefits of operating leverage due to double digit top-line Cash Accruals growth. 2000 1525 JAI’s margins are expected to improve from 8.6% in FY2015 to 15.1% in 1500 1167 FY2019E on account of change in product mix towards higher margins 1000 products like parabolic spring. 500 258 328 The company has consciously increased its short-term debt to Rs.2.11bn 0 vs. Rs 55mn in FY17 end, owing to a reduction in cash discounts offered FY16 FY17 Q1 FY18 Q2 FY18 to customers, and improved negotiations with vendors , thereby
increasing receivables Source: Company Reports, Anand Rathi Research, Ace Equity
12 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Valuation and Recommendation:
Jamna Auto (JAI) is an ideal play on the ongoing upturn in CV Relative stock performance (May’15=100)
demand given its 73% share in domestic OEMs markets. With GST 200
implementation, we believe organised players such as JAI have 180 tremendous potential to gain market share in the aftermarket 160 segment. 140 120 The company is scaling up its capacities and building capability to 100 expand its exports presence and diversify its product portfolio. 80 These non-cyclical revenue streams will not only de-risk the
business, but also bring about structural improvement in margins. JAMNAAUTO NIFTY 500
JMNA has consistently improved its OEM volumes and market Source: Anand Rathi Research, Ace Equity share up from 60% in FY12 to 70% in FY17, 73% in 2QFY18. Besides operating leverage gains, we expect JAI’s margin profile to (In ` mn) FY2015 FY2016 FY2017 FY2018E FY2019E EPS (`) improve on the back of increase in the mix of value-added 0.7 1.8 2.6 2.7 3.6 P/E (x) 86.8 35.7 24.3 24.0 18.0 products (parabolic springs, lift axles) and efforts to lower break- P/B (x) 13.0 10.5 7.7 5.8 4.4 even utilisation levels. ROE 15% 29% 31% 24% 24% ROCE 27% 48% 44% 38% 37% We recommend Buy with a price target of Rs.95—18x FY19E EPS. Ev/EBITDA (x) 28.2 16.4 14.7 13.5 11.0
Source: Company Reports, Anand Rathi Research, Ace Equity
13 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Consolidated Financials:
(In mn) FY2015 FY2016 FY2017 FY2018E FY2019E (In ` mn) FY2015 FY2016 FY2017 FY2018E FY2019E Net Sales 10,951 12,558 12,995 14,359 16,728 LIABILITIES Total Expenditure 10,006 10,936 11,164 12,268 14,209 Shareholders’ Funds 1,964 2,422 3,331 4,392 5,809 EBITDA (Excl OI) 945 1,622 1,830 2,091 2,519 Equity Share Capital 396 397 398 398 398 Other Income 20 83 239 286 344 Reserves and Surplus 1,568 2,025 2,932 3,994 5,411 EBITDA 965 1,706 2,069 2,377 2,863 Non Current Liabilities 465 173 292 442 342 Depreciation 311 452 478 528 610 Long-term borrowings 254 55 100 250 150 EBIT 654 1,253 1,591 1,849 2,253 Deferred Tax Liabilities 158 54 (32) (36) (36) Interest 180 203 148 333 229 Other Long Term Liabilities 53 64 224 228 228 PBT 474 1,050 1,444 1,516 2,024 Current Liabilities 2,516 2,238 1,931 3,619 3,277 Tax 180 335 396 455 607 Total Liabilities 4,945 4,833 5,553 8,453 9,427 PAT 294 715 1,047 1,061 1,417 ASSETS Non Current Assets 2,896 3,165 3,616 3,772 4,067 Margins FY2015 FY2016 FY2017 FY2018E FY2019E Fixed Assets 2,420 2,107 2,840 2,907 3,320 Long Term Loans and Advances 394 401 428 - - Sales Growth % 31.4% 14.7% 3.5% 10.5% 16.5% Other Non-Current Assets 82 658 348 865 748 Operating Margin % 8.6% 12.9% 14.1% 14.6% 15.1% Current Assets 2,049 1,667 1,937 4,681 5,360 Net Margin % 2.7% 5.7% 8.1% 7.4% 8.5% TOTAL-ASSETS 4,945 4,833 5,553 8,453 9,427
Source: Company Reports, Anand Rathi Research, Ace Equity
14 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Key Risks:
Cyclicality of the CV business
High client concentration
Source: Company Reports, Anand Rathi Research
15 Anand Rathi Research JAMNA AUTO INDUSTRIES LTD. (JAI)
Rating and Target Price history:
JAMNAAUTO rating history & price chart JAMNA AUTO rating details
200 Date Rating Target Price Share Price 180 13-Dec-2017 BUY 95 64 160
140
120
100
80
JAMNAAUTO NIFTY 500
Source: Ace Equity, Anand Rathi Research Source: Ace Equity, Anand Rathi Research
NOTE: Prices are as on 13th Dec, 2017 close. NOTE: Prices are as on 13th Dec. 2017 close.
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