Jupiter Wagons Ltd (previously CEBBCO)

Stock Opportunities
1

CMP~90

MCap. Rs cr.: 489

P/E: 9.36

EPS: 9.49

BV: 46.98

Cebbco engages in manufacturing of vehicle bodies for commercial vehicles and wagons for railways. They also do refurbishment of railway wagons and engaged in power sector. The list of their products can be seen at http://www.cebbco.com/docs/products.htm
They are largest player in the fully built vehicle non-passenger sector with 40% share. Their clients include Tata Motors, Ashok Leyland, Minsitry of Defence, Eicher Motors, Man Force Motors. Apart from this there are clients who use them for private fleet like Reliance Industries.
The clients in power include L&T and BHEL.

Tata Capital holds around 11% shares and have a member on board.
New York life which held a substantial stake has exitted completely since the IPO.

They have 4 plants in Jabalpur, 1 in Indore and 1 in Jamshedpur.

Globally FBVs are sold but in India the trend has been that the chassis is sold. This trend is changing in India and the last budget changed tax of chassis to 14% whereas for FBV is 12%, this would be a major impetus for OEMs to convert to FBVs. Currently the demand is 20% for FBVs and remaining from unorganized. The CEBBCO investor presentation indicates that this would be 100% in next 5 years. Quiet a few plants are being set up by foreign plaers in India which is also a good sign.
The capacity is currently 22,000 FBVs which will be expanded to 32,500 in H2 FY13.

They have an order book of Rs. 1000 cr. which seems good.

The IPO proceeds were used to set up the plant for railway division, they got into this as the FBV business is cyclical. They have a trial order of 250 wagons from

Braiwhite, a subsidiary of Railways and have delivered 200 wagons in Q1 FY12. The remaining will be fulfilled this quarter. There is an expectation of gettting an order of 250-500 wagons in H2 FY13 and bigger orders in the next few years.

The group is headed by Kailash Gupta and his son in law Ajay Gupta moved in 2005 and seems to be calling shots here. They also hold Tata Motors CV dealership in MP.

CEBBCO stands to benefit from the TRIFAC policy of the state of Madhya Pradesh. The estimate is Rs. 230 cr for next 7 yrs and around 30 cr. for FY13. They also have stated a dividend pilcy of 20% payout from FY13.

The stock has run up quiet a bit. However it is expected to do a top line growth of 40% CAGR in next 2 yrs and profit of 60% CAGR and hence can be a good pick in falls. Currently trading at PE~10.

Key risks
Depends on commercial vehicles and Tata motors heavily. In Fy11 they had seen issues when Tata motors had suspended orders due to Euro pollution norms issues, this was a one-off event. The sales had fallen and the stock also had fallen to Rs. 30 levels. They have since then made efforts to reduce dependance on Tata Motors.
They earlier seem to have been part of JN group and seem to have moved out of the group (Don’t have much info here). And if I undertand correctly one of the companies

of JN group also is in the same business. Also there are related party transactions typical in small companies which might be an issue.
M&HCV slowdown expected in FY13. However the increasing preference towards FBVs is expected to take care of this.
Working capital requirement is typically high. Their long term loan is 30 cr. and short term loan 50 cr.

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Had few queries on their business prospects :

1) It seems that they have not grown in FBV sales in Q1FY13 over Q4 despite theaddressablemarketgrowing18% .This itself somewhat dispels the notion that FBV growth is delinked from the cyclicality of the CV industry.Though industry FBV sales may not be easily available, does it imply that FBV sales degrew q-o-q or CEBBCO suffered market share loss?

Units sold

Q1FY12

Q3FY12

Q4FY12

Q1FY13

L,M & HCV (addressable market)

64082

83878

44474

52623

CEBBCO FBV units

3759

5327

7290

7308

Penetration (%)

5.9%

6.4%

16.4%

13.9%

2)Theoretically if an OEM decides to get into their own body building, how will it impact their cost structure negatively?

3)Having a captive foundry has become a pre-requisite in making money in the wagon manufacturing business (esp. in Railway tenders). How do they intend to address that shortcoming?

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1.) The company has indicated that they do 40:60 sales in H1 and H2 respectively.It you compare Q1 FY12 and Q1 FY13 the sales of FBVs have gone up while sales of CVs have declined.

Currently the company is operating at 100% utilisation, sales should increase in H2 when the expansion for FBV comes in. I guess a difference of 18 units can be ignored as the production cannot be uniform here.

Q2 FY13 results would probably go down as the railways revenues will not be as much as in Q1. But from Q3 onwards when expansion is in place, the numbers should go up.

2.)CEBBCO has been passing price hike of raw materials specifically iron and steel to customers. But this is a risk as earlier they have gone wrong once when they accumulated steel and the prices dropped later. OEMs might not enirely want to do FBVs themselves as there are multiple applications here. Earlier chassis models sold actually result in poor bodies and an impact to CV brands.That was one driver why folks like CEBBCO started getting engaged.

3.)No idea here, will check this. But my 2 cents.
They have approvals from relevant departments now and I guess if they have orders and need is there they can setup a foundry. The expansion for this also is coming up in H2 FY13 as far as I know. They are only executing trial orders as of now.

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  1. Of course y-o-y they have done well & 18 units do not matter much. What we need to make sure is how much has been the growth in non-passenger FBV sales for the domestic industry in Q1FY13 over Q4. This data would not be easily available…I would be more worried if this reveals some market share loss for them to peers like Hyva,Utkal,JCB Marrel & at a time when CEBBCO is operating at full capacity. If the economics of FBV conversion is so strong, it may be fair to assume that peers will also be looking to expand. And going by your thoughts, Q2 numbers could be even lower for CEBBCO.

  2. I should haverephrasedit as how would it impact profitability rather than coststructure? CEBBCO for instance does only load bodies for Man Force, themountingand other stuff is being done by Man themselves.

  3. Trial orders are being done for whom? This years’ Railway wagon tender is not yet out. Also why is Braithwaite (a wagon manufacturer himself) giving out orders to them? Are they not able to complete them on time?

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Their next qtr will be lower due to the railway sales. They had a 38 cr order of which 30 cr. was done in Q1 so around 8 cr. should come in this qtr. As I indicated if due to this the price falls it can be good to accumulate.

They have 1000 cr order book and have a share of around 40% of 1100 cr FBV market. The FBVs are estimated to double to 11000 units by FY14 from 5500 units in FY12.

In the qtr concall there was a question whether given the demand they would like to expand at a faster to which the reply was that they want to do this conservatively. Don’t think even if their market share comes down due to capacity constraints this would limit their growth. I would be more concerned if there are issues in FBV growth due to reduction in outsourcing. This can happen probably if M&HCV manufacturers decide to do it themselves instead of outsourcing this as FBVs can take a couple of months more to deliver. AMW/Black diamond for example does FBVs inhouse which saves time but their capacity and applications are less.

This is from Tata Securities report - “OEMs usually outsource body-building fabrications on CVs due to its low value-add, and as typically outsourcing helps in reducing costs
as vendors have a lower cost structure.” This is for the 2nd point

Braitawhite has earlier given fabrication and assembly orders to Marg as well. As far as I understand such orders are given to avoid delays which might creep in or if you manage more orders which then can be outsourced.

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I was looking at CEBBCO over the last few days. I feel the growth opportunity in the next 2-3 years is fairly high. The reduction of their dependance on Tata Motors augurs well. CV sales can only go up over a 2-3 yr period.

I think the thread has raised some key risks. One more from my side.

Father-son duo together earn 2.1 cr on a PAT of 40.8 cr implying 5.25%. This seems to be on the higher side, especially considering that they own 43% of the stock between the two of them.

A lied their Annual Report though. Does not give an impression that they are trying to only highlight the good points and gloss over the unpleasant issues. I would be surprised if the company does not manage 30% + growth over the next 3 years.

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The chart of CEBBCO seems attractive to me. Thanks Rudra for initiating me to have a look at it.

Rudra and Abhishek have blog posts on CEBBCO,

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An interesting point to note for CEBBCO is that their H1:H2 revenue split is 40:60. That means they are expecting the revenues/profits/EPS to be 1.5 times H1. H1 EPS is 6.29 Rs. Then H2 EPS maybe closer to 9 to 9.5. And full year EPS can be closer to 15~16.

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40:60 is what the IR agency guy reported on the concall. But that is notsupported byfacts. Even last year, the ration was not 40:60. Last year H2 sales was only 37% higher than that in H1. Yes, PAT was higher by 55% in H2.

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Revenue growth was around 36% between H1 & H2 last year.

H1’11 - EPS 2.99, H2’11 - EPS 4.44, Growth % - 48.49%

This year their growth momentum is very good and they can make a 50% EPS growth.

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There would be other factors also that would come into play in the EPS growth:

They are buying the remaining stake in Mithila Motors at Rs. 18 cr.

Expansion of FBV from ~20k to ~30k (additional 10k from the fungible railway wagon plant is available that is currently being used)

~23 cr. tax benefits from MP Govt which should come in the 4th qtr.

They are trying more of replica which is higher margins, in the conf call it was indicated that they are currently getting the orders from dealerships within family. And they had focussed more here than OEMs so further growth in this can drive the EPS higher.

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Centrum finance has come up with a detailed report on CEBBCO as a part for its Midcap ideas for 2013.It has other interesting names like Bilcare( possible turn around story?), Graphite India, Sanofi India,Sepciality Restaurants etc. Am unable to attach it as the file size is aro9und 5MB. Any ideas how can i share it with you all?

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http://www.cebbco.com/docs/demo.php# Click on research and reports you will get reports HDFC and spa .

Here is centrum

http://www.cebbco.com/docs/download2.php?f=CEBBCO%20-%20Initiating%20Coverage%20-%20Centrum%20[%204th%20December%202012%20].pdf

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[

Thanks Sashi :slight_smile:

http://www.cebbco.com/docs/demo.php# Link: http://www.cebbco.com/docs/download2.php?f=CEBBCO%20-%20Initiating%20Coverage%20-%20Centrum%20[%204th%20December%202012%20].pdf

](http://www.cebbco.com/docs/demo.php#)

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This stock is near 200d ema and near aug2012 bottom. Any idea if this is a good buy at current? Why is stock down 35% from peak in a rising market despite bullish reports mentioned above.

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The steep price decline is interesting & surprising. But I am waiting for the quarterly results. If the results are reasonable, then there should be no problem in holding or buying more on dips.

I am assuming that there is no insider knowledge of governance issues in the company that the market players are aware of.

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That is right Abhishek - this quarter results and also information on the planned expansion are key watchables.

Probably the primary reason would be that Tata Motors and other auto M&HCV numbers have gone down drastically in Nov/Dec qtrs. For Tata motors this was around 16000 levels last year and this year it is around 9000 levels.

The M&HCV sector is dependant on interest rates and hence an interest rate cut that is expected in the month end would be beneficial here. Good IIP numbers can also help here.

This is also accompanied by negative sentiments in the auto ancilliaries.

There is no corp governance issues that I have heard of. But in the past the company has faced major issues when they got locked in steel at higher price and when Tata stopped mfg heavy vehicles for few months due to enviromental issues. Probably that also influences the market.

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Steel prices have been on an uptrend and have almost doubled since low of jun2009. Avg steel price and quarter end steel price for Dec quarter was higher than that in sep quarter. Therefore, inventory loss also can not be there.

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Q3/Fy-13 Results out…

Total Income up 3.5% to 137.44 Cr from 132.78 Cr.
EBIDTA up 37.4% to 25.82 Cr from 18.79 Cr.
Net Profit up 21.7% to 13.68 Cr from 11.25 Cr.

EBIDTA margin is 18.8% v/s 20.3% (SQ-12) and 14.2% (DQ-11)
NET Profit margin is 10% v/s 10.6% (SQ-12) and 8.5% (DQ-11)

Total Raw material costs as a %ge to Income is 73.8% v/s 72% (SQ-12) and 76.7% (DQ-11)
Other expenses (Including Manufacturing & Employee) to Income is 7.4% v/s 7.7% (SQ-12) and 9.2% (DQ-11)

Financial costs to EBIT is 9.6% v/s 13.9% (SQ-12) and 11.5% (DQ-11)
Tax Rate 32.3% v/s 32.1% (SQ-12) and 28.2% (DQ-11)

Reduction in material costs, manufacturing & Employee expenses as well as other expenses helped EBIDTA.

9M/Fy-13 v/s 9M/Fy-12:
Total Income up 38.5% to 460.22 Cr from 332.23 Cr (Fy/11-12: 468.64 Cr)
EBIDTA up 89.2% to 89.44 Cr from 47.27 Cr (Fy/11-12: 70.2 Cr)
Net Profit up 74.3% to 48.22 Cr from 27.66 Cr (Fy/11-12: 40.8 Cr)

Reported 9-month EPS 8.77 v/s 5.04 (Fy/11-12: 7.43)

On 31/01/2013, stock on BSE closed at Rs. 73.60/- Down 1.2%
(Results declared after market hours)

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Stock is down 14 %