Jamna Auto Industries


(nikhil) #1

Business Overview

Jamna Auto Industries Ltd. (JAI) is a market leader in the CV suspension leaf
spring segment (90% of sales), including products like the conventional leaf
spring and parabolic leaf spring.

JAI currently has a 64% market share in the conventional leaf springs segment
and a market leader in the parabolic leaf spring segment. Being the industry
leader makes JAI a key beneficiary of the ongoing domestic MHCV cycle
recovery.

The company is focused on capturing the rising content-per-vehicle trend and
hence it has forayed into the Air Suspension and Lift Axle segments (10% of
consolidated sales) where its main client is Ashok Leyland for the heavy
tonnage trucks.

Opportunity Size: -

Domestically, considering the 2.3 lakh MHCV run-rate in FY15 the overall leaf
spring OEM opportunity stands between INR 1500 cr to INR 1800 cr .
Post GST implementation, aftermarket will offer an opportunity that is 4x of the
OEM market opportunity.

Share Holding Pattern (%)

Promoter 43.81
FII 0
DII 0.37
Others 55.82
14

Post a 2-year downturn, the MHCV industry in India is registering a recovery. JAI is
the largest player in the domestic leaf spring industry with 64% market share whilst
several other small companies contribute to the remaining 36% share. JAI is
expected to be a significant beneficiary of the CV cycle recovery in India.

JAI’s multiple plant location strategy in proximity to CV OEM customers has helped
the company maintain its dominance in the leaf spring industry. At present, the
company has six facilities located close to major CV manufacturing hubs in India
and this has helped JAI gain a significant share of business (SOB) with leading CV
OEMs. Apart from scale, the strategic location of its plants has helped it to manage
cost efficiently by reducing freight expenses.

Additionally, the company has forayed into the air suspension and lift axle segment
via a technology tie-up with Ridewell, USA. Implementation of GST (Goods and
Services Tax), will open up a significant aftermarket opportunity (i.e. ~4x OEM
industry) for organized suspension leaf spring manufacturers such as JAI.

Source - Edelweiss

Market Cap - 1000 crs

Over the past 10 yrs-

Sales up from 181 crs to 979 crs
Operating profit up from 16 to 61 crs
Net profit up from 1.8 to 30 crs

Debt 63 crs . Debt/equity ratio 0.32

Tax payout for the fiscal is 10 crs on PBT of 39 crs which is 25% tax payout ratio

Cash flow from operations have been positive for the last 6 yrs.

EPS has been in single digits over the past 10 yrs except 2011. This is a negative

CWIP is negligible...

PE is 22 and P/BV is 4.8 both of which are on the higher side. No margin of safety.

Share prices are almost at their 52 week high.

Promoters holding at 43% is low.

Caters entirely to the CV business which is very cyclical.

Fluctuations in steel prices affect margins

your suggestions on this stock please


(Akaash Bansal) #2

@nikhiu7r ...very good company........hardworking promoters.Increasing sales,decreasing debtors,decreasing /stable inventory,decreasing working capital rather negative working capital as on March'15 with almost debt free position,market leader , good & improving ratios, regular dividend payer,improving margins, diversifying in different products, all top customers. ....& still a small cap available at 1000cr ...I am super Bullish on this Script,considering CV upcycle .

Clear water Capital (28% stake) has too exited the company fully...Various Mutual funds has taken the stake as per media reports.

Disc-: Invested


(nikhil) #3

some 4% of the shares are pledged.

Also the gross margins and the net margins are very low

can anyone share details on this.


(Akaash Bansal) #4

If you see last four Qtrs cons results....Gross margins are improving from around 8% to 12% & net margins from 2% to 5% ......it may be because falling steel prices , diversification in high margin products and markets to protect against the cyclical nature of business & reduction in debt from 125 cr to 64 cr......


(kapil1301) #5

Hi

I have recently added this to my portfolio (2.5% of portfolio)

Reasons for investement are

  1. Improving balance sheet (Their Debt is reducing and reserves are increasing)
  2. I am betting on economic recovery and thus more commercial vehicles.
  3. Their foray into Axles as per their AR (Which is a higher margin product compared to their current offerings)
  4. Location of their plants .(have plants near to their customer plants) Source AR
  5. Their clearly laid down dividend policy. (Source AR)

I have very recently made an investment in it and hence my views are biased.

I will increase my allocation in it as the storyline unfolding.

Regards,
Kapil Gupta


(Pod85) #7

Pls see the excel sheets for some dope on Jamna Auto. The work is done by a analyst friend & we discuss ideas. Hope it helps.Jamna Auto Notes.xlsx (628.2 KB)
Jamna Auto Multiples.xlsx (263.9 KB)


(atishay1) #8

Stock has run up ~20-30% after the exit of Institutional investors and increase in floating public shares. I was evaluating Jamna few months back but then settled for Rico Auto.

Reasons being cheaper valuations, 5X FY 17 EV/EBITDA versus 9X for Jamna

Operating leverage at play would boost up EPS in coming quarters for Rico. I find no big difference or fat moats between Jamna aur Rico businesses,both are classic B2B businesses with plants set-up close to OEMs and would grow with them. Also auto cycle is up and commodities soft would definitely help both.

Discl: Not invested in Jamna


(Akaash Bansal) #9

Promoters increase stake in co... from 43.81% to 46.45% in last Qtr.....:ok_hand:


(kapil1301) #10

Hi @akaashbansal
Thanks for the Info
Just a correction it has increased from 43.81 to 46.45%

Also Akash since ur are following Jamna Auto are you also looking at Minda Industries

Regards,
Kapil Gupta


(Akaash Bansal) #11

oh yes its typo.....thanks


(Akaash Bansal) #12

they surely had bought it at 110-118 rs range from clear water capital.....Now this price range will act as a very strong support. Company will declare Qtr 3 results tomorrow. lets see:v:


(Akaash Bansal) #13

Fantabulous results by jamna auto....


(Akaash Bansal) #14

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/727289BA_37CB_440A_A05B_178F8F45D1BF_170406.pdf


(smehta) #15

Hello,
I have written a short story:

Jamna auto
CMP: 135/- MarketCap: 1072.95 cr

Business:
 Jamna Auto Industries Ltd is India’s largest and globally 3rd largest automobile suspension solution provider for commercial vehicals.
 The company started its operation in 1954 with Multi-Leaf spring plant and now it has 4 products which they supply
o Conventional leaf springs
 Arc shaped steel strips which form a part of the suspension system of most domestic commercial vehicles in India.
 They have nearly 70 designs which have copy rights sharing 64% of the market share.
o Parabolic leaf springs:
 Performs the same functions of Conventional leaf springs but with lower number of leaf layers with low weight and better comfort.
 Lower weight transfers to higher carrying capacity with higher fuel efficiency and increase life of CV suspension system.
 They consist 95% market share.
o Lift axle:
 It lifts the tire when you don’t need the extra axle.
 Using this will save the extra tire ware.
 It allows more weight to be carried by providing larger contact surface with the road for distribution of weight.
o Air suspension:
 It is a system which has applications in low-floor buses which are increasingly being used for intra city transportation. (Development of Infra could be a huge boosting)
 Provide greater comfort and better handling and they have filed patent too.

Bullish Viewpoints:
A. Company specific:
 The company has launched LAKSHYA 33 aiming for:
a. Innovation – 33% Revenue from New products and New Markets
b. Efficiency – 33% Break even point
c. Returns – 33% ROCE
d. Shareholders – 33% Dividend Pay-out
 R & D:
o They have mainly focused on Better innovation, productivity, efficiency and reduced development time
o They designed and developed Springs for General Motors, Navistar International and Ford.
o They were the first to introduce Parabolic springs on Indian roads.
 Customer Base:
o They are the single source supplier to Daimler India commercial pvt ltd., Man truck India pvt ltd., Volvo India, Renault Nissan and major source for TATA motors and Ashok Leyland and Leyland Nissan
o They also have international customers General Motors, Isuzu and UD trucks.
o They aim to decrease their dependence on top client by increasing overall business with other clients
 They now focusing on After-market and Export:
o After-market: they have increased 2500 distributors and 6800 dealers.
o They have 4 major regional Hubs so that products are available on time. Mainly places are Jamshedpur, Nagpur, Pant nagar and Chennai.
o They also have a subsidiary Jai Suspension LLP, for replacement market which has catered 350 town till now.
 The Company has also lowered its debt from 183 cr. To 64 cr. and will be repaid by the end of fy17.
 The company plans to set 36000 MT Leaf spring capacity at Housar, Karnataka dedicated largely towards export, The company’s future growth will be funded from the internal cash generations.
 Manufacturing efficiencies, productivity improvements and reduced leverage enabled them to lower break-even points.
 They have healthy liquidity and Management has commented that this cash will be used for better cash flow management during down trend.
B. Industry:
 The Commercial Vehicle (CV) segment in India that started its down cycle in FY2013, started emerging towards recovery in fy15 with improving economic outlook and consumer sentiments under the new government.
 Promising outlook with higher economic growth projections
o The Domestic CV has estimated to grow by 10-13% by SIAM with M&HCV segment on sustainable upcycle to grow at 12- 14% (ICRA report)
 Make in India and Smart City projects may push to make Indian 3rd largest market for automobile:
o The Government increased the effective tariff rate on imported commercial vehicles 10 to 20%, making them more expensive.
o Other initiatives like reduced corporate tax rate and infrastructure likely to boost indirectly to this sector.

Bearish Viewpoints:
 The company has been highly dependent on the industry growth.
 The company’s share has higher market share in the industry ( But they do have high number of tie-ups with their customers)
 The company’s product is being sold at higher price than the peer company. ( This could highly affect their profitability in After-market and replacement sector This is main problem)
Threat of New entrant
 The company has low Break Even point.
 The company also has good tie ups with companies in India.
 They also have healthy liquidity so that they can use this cash for future growth which could help them during down turn.

Share-Holding Pattern:

Promoters 43.81%
Corporate 1.65%
Public 18.79%
FII 0.67%
DII 0.26%
Others 34.82%
Market cap Free float 236.40 Cr.
P/E 18.28

Major share-holders: (excluding Promoter group)
1. Anuj AnantRaj Seth -> 3.63%
2. Citigroup Global Markets Mauritius ->1.3%
3. NHK Spring -> 5.81%
4. Vanaja Sunder Iyer -> 2.52%
Valuations:
IN CRORES
Mar-15 Mar-14 Mar-13 9m fy16
SALES 1095.01 833.30 980.15 889.43
SALES% 31.41% -15% -12.46% -
EBITDA 94.5 47.11 85.5 73.64
EBITDA% 8.63% 5.65% 8.72% 8.28%
NET PROFIT 29.38 13.84 27.73 43.61
NETPROFIT MARGIN 2.68% 1.66% 2.83% 4.90%\
NET PROGIT GROWTH 112.28 -50.09% -34.27% -
EPS 7.4 3.41 6.89 5.49*
DIVIDEND 2.2 1 2 -
*the company has sub-divided equity shares of Rs10 each into two Equity share of Rs5 each.

Another Point to be noted:
Negative Cash Conversion cycle:
Receivable days 25.37
Inventory Days 32.21
Payables 66.69
Cash conversion cycle -9.01


(DAGARWAL) #16

Great piece of work Smetha..Company seems good and it's risks seems to manageable from company side .. The icing on cake I found was negative working capital cycle .. Need to seen whether it is sustainable and reason for high payable days ..
Overall a positive to look in stock ..

Disc - invested in small qty. to confirm story and buy more ..


(smehta) #17

Thank you Deepak bhai. I am doing some scuttlebutt regarding the replacement market which the management is focused on, meeting the dealer of auto parts and the dealer happens to be my friend's dad. I think they use the product of competitors so their point would be too helpful.

would be updating it by tomorrow

And regarding the sustainability of negative cycle check the historical data:
They have sustained it for last 5 years

Disc: Still not invested.


(c.t.sreenath) #18

I am trying to identity the reason, behing JAI's negative working capital .
1. Product nature - needs replacement every year.
2. High asset turnover.
3. Bill discounting. 1% every month


(smehta) #19

I got a negative view regarding industry from uncle.

->He told me that there are two company Akal and Vikranth who also produces the same products and nearly same quality.

-> He also told me that in Ludhiana each houses produces the Springs and the rates are too less compared to Jamna Auto.

-> Due to proper road in Gujarat, the trucks doesn't need more replacements

-> They were having dealership 2 years ago now they don't have.

->This could be a big problem for the replacement industry the company is focusing

If someone can do more on it?


(kapil1301) #20

Hi @smehta,

Jamna Auto industries is now not only in leaf springs and Parabolic springs but is going into Axles and suspensions also which have higher margin as compared to the springs and for this they have gone into a joint venture with Ridewell USA.
As per their latest Annual report and presentation they dont want a single product or client to have more than 33% percent market share.

Disclosure: I am invested 4%


(smehta) #21

It was regarding their main product. I just have problem regarding spring divisions!..