Optically, the results look exceptional, but Edelweiss says the topline growth was below their estimates.
Higher parabolic segment mix & lower lift axle segment growth pulls down topline growth
Jamna Auto Industries (JAI) reported a lower than expected topline growth of 7% YoY. Implied volume growth was lower than expected at ~9% YoY in Q4FY16 vis a vis 32% MHCV production growth. Significantly higher growth from lighter parabolic leaf spring business and slowdown in growth levels of lift axle business led to lower volume growth. Additionally, JAI reported a overall net realization decrease of 2% YoY majorly due to partial steel price pass-on offset by higher realization of parabolic leaf springs. For FY16, JAI’s revenue growth was around 14% YoY as strong MHCV Industry growth negated significant amount of steel price pass-on to the OEM customers. Within the MHCV industry, the growth in the >26 tonne segment continues to gain traction which has augured well for the lift axle segment in FY16. In the event of change in the product mix that would curtail volume growth in leaf spring business and slowdown expected in growth levels of lift axle business, we have cut our topline estimates for FY17/FY18 by 562/322 bps. However, keeping in mind significant improvement expected in realisation, we are revising our bottomline estimates upward.
Profitability propelled by gross margin expansion
EBITDA for the quarter was bolstered by a significant increase in gross profit. The company reported a stellar gross margin expansion of 540 bps YoY as a result of raw material price decline benefit as well as improvement in parabolic sales mix. Significant 270 bps improvement was also observed on QoQ basis. Employee costs & Other expenses combined as a percentage of sales rose by ~ 133 bps on a YoY basis. For FY16 , Gross margins & EBITDA margins have improved by 513 bps YoY & 340 bps YoY respectively. Going forward, we expect scope of ~100 bps improvement in EBITDA margins increasing mix of parabolic leaf springs and lift axle segment as well as operating leverage benefit for the leaf spring segment.
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