JBM Auto - Moving up the value chain

Stock Opportunities Untested - but worth a good look
1

Current Status
Biggest player in Sheet metal 40% market share (ROCE 16%) next is Omax (ROCE 3%)
Current 11.5x FY15 at cmp of 225 After dilution 14x FY15

Brief History
JBM AUTO, a public limited company, was incorporated in 1990 mainly to manufacture tools, dies and moulds for the automobile industry, from its Faridabad facility. Subsequently in 1993, the company entered the sheet metal components manufacturing business for OEMs (original equipment manufacturers) other than Maruti Suzuki India Limited to benefit from the growing demand from the automotive sector. Further in 2006, JBM Auto started its Special Purpose Vehicle division engaged in the fabrication and assembly of bodies of heavy vehicles. JBM Auto is part of the JBM Group of companies, and the other major auto component manufacturing companies of the group are Jay Bharat Maruti Limited and Neel Metals Products Limited.

JBM AUTO operates in three segments: Sheet Metal Division (for manufacturing sheet metal components, assemblies, sub-assemblies), Tool Room Division (for manufacturing tools, dies and moulds) and Special Purpose Vehicle (SPV) division (for development and assembly of SPV).
Thus far, Indian part makers were given the product designs by OEMs and manufactured the parts based on specifications given to them. Now JBM is building competencies in chassis and suspension, designing complete cabs for CVs, new exhaust systems and other customer solutions.

JBM has also kicked off partial production of complete cabs for the new trucks from VE Commercial Vehicles(Volvo-Eicher motor JV). JBM Autoā€™s in-house R&D, based in Delhi NCR, works in sync with its global R&D centres in Italy and Germany-owned by JBM subsidiaries. JBM is involved in the design of all vehicle types right from concept stage including packaging and engineering and is working on projects with Volvo, Fiat, Mahindra & Mahindra, Volkswagen AG, Ashok Leyland, Tata Motors and other OEMs. It also provides engineering services to Mercedes-Benz/Daimler, Lamborghini and McLaren.

Positive Triggers

  1. Growing at healthy ROE and ROIC and Bus business similar margins
  2. Slowly moved from pure PV to 1/3rd now CV, two wheelers, farm equipment last 4 years
  3. 25% CAGR minimum target for next 3 years Capacity at 75% 2 shift sometimes moves to 3 shifts and thus EBITDA increases and new plant required
  4. PAT Margins increased from 3% to 5% this year target 6% (Q3 6% due to better utilization)
  5. USP of business - one shop integrated solution across industry and geography 60% same 40% customized market share of 60-70% of current customers cater 7-8 states in next few years
  6. Buses revenue sharing based on performance/warranty and institutional premier sellers target like premier schools, Airport
  7. JBM Auto products are widely used in two-wheelers, cars, tractors and trucks, white goods industries and other sectors in India and overseas. The companyā€™s manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Greater Noida, Nashik, Chennai, Sanand and Pune for catering to diversified clients.
  8. JBM has also installed new facilities for manufacturing of passenger buses and other allied products at its manufacturing units situated at Ballabgarh (Faridabad) and Kosi Kalan (Mathura).
  9. Value based selling rather than cost based selling starting from designing to tool section to painting of products and now with R&D and testing higher value and reliability so better margins

Red Flags

  1. Out of 2000 crore revenue (1 crore bus * 2000) 40-50% this year only 200 order as of now
  2. Initially 500 cr debt for 4000 cr turnover was supposed to be from internal accrual and debt from JBM but now QIP possible for upto 250 cr
  3. lower numbers standalone as more holidays although compared to YOY it should be similar
    per working day higher
  4. New programs Offtake only at end revenue not a/c but profit a/c as per auditor
  5. Tool room division high margin earnings cyclical not sure why was it one off
  6. QIP in range of 250 cr for a 1000 cr turnover company

Pasted image486Ɨ703 77.1 KB

3 Likes
2

Rokrdude,

Very good write-up,my compliments.I have been following this company from sometime & it was one of my top holdings till a few months back.I would like to add a few points:

  1. The Tooling business is custom based but highly cyclical in nature.
  2. The company says it practices ā€˜frugal engineeringā€™ to improve operational efficiencies.Thus,they make the best PAT margins among their peers(even greater than the global giant MSumi)
  3. The company also appeared confident on the Sales growth going ahead,given that they have high customer bandwidth & export to International Customers in South America,North America,EU,Africa.
  4. The Buses will be priced in the range of Rs.90,000-1.2 lakh/unit.So,at peak utilisation,the revenues can be Rs. 1800-2000cr.This is pretty good,given that the capex required 500cr.

Positives:

a) Performance in adversity: JBMAā€™s performance in the recent Auto slowdown has been exemplary.Even more so,since the company is mostly a domestic player.Good performance in adversity,especially in a cyclical sector,speaks volumes about a company.Revenues have grown 3x since FY10-14,while PAT has seen a 6x jump over the same period.The CFO has also grown from 12cr. to 202cr.This is very healthy,since the business needs to generate cash by itself to sustain growth.The return ratios are also healthy.

b) Lower cyclicality: Reduced dependence on PVs(mostly Cars) to 66% from 100% of revenues,earlier.Thus,the cyclical nature is lower now & should hold them in good stead going ahead.

c) Customer focussed company: In Auto Ancillaries,the trick is to provide the maximum value to your client in the shortest possible time.The co.'s most recent expansion in Chennai,will help reduce logistics costs considerably,since Chennai happens to be an Auto cluster/hub.Moreover,integrated players command a premium for their services.In his most recent interview,Nishant Arya said that the company is focussing on becoming an end-to-end provider.
http://www.business-standard.com/article/companies/jbm-auto-to-invest-rs-100-crore-for-capacity-expansion-in-tn-115022000202_1.html
http://www.moneycontrol.com/news/business/jbm-auto-to-focusbecoming-end-to-end-solution-provider_1183605.html

d) Product quality: The technical tie-up for the Citylife line indicates a product focus.The bus market is not easy to crack,since established players already exist.Thus,it is even more important for the company to differentiate itself,by way of product quality.The engines will be supplied by Cummins.Also,there is some visibility,since they have already bagged an order for 200 buses.

Negatives:

-> High fund requirement(cash hole?): Inspite of healthy cash flows,the expansions have taken away most of this.Thus,inspite of generating an OCF of almost 500cr.,cumulatively in the last 5 years there is still more requirement for funds.

-> Subsidiaries: There is lack of clarity on subsidiaries & JVs.The entitiesā€™ numbers are not reported every quarter.Moreover,there is risk of related party transactions,given that the JBM group is pretty big.

-> Buses: The initial orders will be from JNNURM,etc.Thus,the margins may not be very high.Though they should still be double-digits.Morever,there is a risk of delayed payments.There is also a PAT sharing clause with the technical partner.

-> Accounting: The ā€˜New programs Offtake only at end revenue not a/c but profit a/c as per auditorā€™ sounds fishy and needs more clarity.

Valuations:

The stock trades at 14x FY15 earnings,which is fair.The re-rating will depend on the higher share of buses to the total revenue, and margin expansion.Additional clarity on subsidiaries will help.Moreover,the much awaited Auto turnaround will aid earnings upgrades.

Also watch: https://m.youtube.com/watch?v=IL6VdUvSGls

Disc.: Invested.

2 Likes
3

JBM to roll out high end buses in July
JBM Auto is rolling out the buses from its Koshi and Faridabad plants. Together the two plants have a capacity of 2,000 buses a year. ā€œWe received orders of 200 buses in March this year, and we expect to reach an order pipeline of 500 buses this year,ā€ says Arya.The orders have come from State Transport Undertakings, schools and airports.

It will be competiting with the likes of Volvo and Scania which are priced around Rs 1 crore. Buses manufactured by local companies are available upwards of Rs 10-12 lakh.

Managementā€™s silence in terms of demand/acceptance of product(did their maiden concall after Q3 but didnā€™t do after Q4) along with how much and when they will require the funding (QIP status) still remain a major risk

2 Likes
4

Does anybody know about the quality of buses and their prices as compared to volvo? I live in Bangalore and I have seen buses from Leyland and some Corona ones. Volvo was far ahead in terms of quality then these buses. Would love to get the idea from boarders

5

Company has been assuring sales of buses for almost a year now with no revenue recognized in quarterly results. Does anyone know why?

Also, the consolidated results are getting very weak every quarter. I am unable to point out the cause of this - does anyone have any clarity?

6

JBM Auto informed the results for Q1FY18 will be issued on 14 September. The reason for delaying the results is to facilitate the smooth transition to new accounting standards -Indian accounting standardsā€¦should this be considered a lpase in corporate governance? Management seem to be lax to issue the results consdiering new accounting practice?

Boarder inputs are appreciated.

http://www.bseindia.com/xml-data/corpfiling/AttachHis/b1d550ef-923f-45e8-b463-c62c2cf3f4df.pdf

7

http://www.timesnownews.com/india/video/income-tax-department-jay-bharat-maruti-group-delhi-it-raids-cash-seized/102597

1 Like
8

Even good governance companies do such unethical practices lead us to suspect whether their results are actual or window dressed?

9
10

JBM auto has a JV with Solaria Bus & Coach SA (polish company)ā€¦ Polish partner has prior experience in buses and electric vehicles also. They have working models in India as of now. Valuations look ok at 17 time trailing earnings. The company has a stable operating margins.

ROCE at 18% and ROE @ 20% is also good, if not greatā€¦ Promoter holding is 62% and debt to equity is at 1.37 which is on a higher side. Also, not much free cash generation which is understandable as the company is developing new products (electric buses).

These buses have zero emissionsā€¦ work on li-ion battiesā€¦ have fast charging facility. and run about 250 KMs on a single charge.

Delhi government has recently started a trial run for these busses, considering high levels of pollution there. They are expected to float a tender of about Rs 500-700 cr buses this monthā€¦

With increasing trend towards EV due to zero emission + cost effectivenes, such tenders may come by other states also.

The company is valued at Rs 1250 Cr as of now with a huge oppurtunity in sight. They have been manufacturing for OEMs before (diesel run).

image
image525Ɨ547 63.9 KB

image
image554Ɨ721 229 KB

image

Remuneration paid to directions / KMP is very reasonable.

ā€œAt present, the company is working on 9 meter and 12 meter electric bus platforms and holds the capacity to manufacture 2000 units annually from its plants in Faridabad and Kosi.ā€

ā€œBarring battery, all the high level electronics and electrical components are either being sourced or developed locally by the company.ā€

Overall, its is a hope story based on success of Electric busesā€¦ but looks investible.

Disc: Planning to investā€¦ .no positions as of now.

4 Likes
11

This might be a major development for the company - https://www.ndtv.com/delhi-news/delhi-approves-1-000-electric-buses-in-bid-to-fight-air-pollution-2001617

Most probably all the 3 players - Olectra, JBM, Foton or Photon should get decent nos in this order.

4 Likes
12
5 Likes
13

Not so good result from JBM.

14

JBM Auto get fresh Order for 180 Buses from Ahemadabad.
Looking interesting in EV Buses segment

1 Like
15

image
image750Ɨ1016 301 KB

2 Likes
16

You are right Sir , Chinese get the big pie yet the progress by JBM auto is good ā€¦better deals in future may be waiting for JBM ā€¦

i have query
1 . They have cash in reserve why they are not discharging debt ?
2 . Debtor days are increasing .
3 . How the merger will play out source : JBM Auto System & JBM MA Automotive merge with JBM Auto effective Jan 1, 2020
4 They are having 1,00,00,000 Preference Shares of Rs10 each vs 25,20,00,000 Equity Share Capital of Rs. 5/ . Isnā€™t the play is not fair for equity holders ?

Regards

disc: not invested this is not any invested advice to buy sell or hold

17
18
19

This tender was for 5450 electric buses and 135 double decker electric buses. JBM lost this one.

1 Like
20

Interesting times for the sister company of JBM Auto - Jay Bharat Maruti.

In case PV sales continue to do well during the festive period, the company could be looking at the dual engine of sales growth + margin expansion.

  • With 90% of sales coming from Maruti (they supply sheet metal assemblies, welded assemblies and rear axles) growth here is dependant on if Maruti sells well in the next few months (the behemoth also has a 29%stake in the company)

  • In the last year, Greenfield Capex done in Gujarat to serve which could mean good operating leverage + scope for growth cycle if demand picks up. Also indicates long term partnership with Suzuki plant in Gujarat.

  • Margins are at cycle lows of 7% with pass on to OEMs happening with lag. This could increase to median margin of 8, even 9% as commodity prices cool off and lag works the other way round

  • Valuations still seem very reasonable. Price to sales at 0.3x is at median PS versus 0.7-0.8x given to the company in good times/periods where growth is anticipated

Disclosure : Invested in Jay Bharat Maruti and biased. Posted here as this is the sister company of the group and there is no separate thread on Jay Bharat Maruti.

1 Like