DSIJ Mindshare

Zooming Ahead - JBM Auto

It is quite difficult to recommend a low-priced scrip when the market is trading at a 33-month high. But even in such a scenario there are certain relatively unknown counters which can be picked for good investment. JBM Auto is one such counter. The first and foremost factor is the expected rise in demand in the automobile sector. JBM Auto is an auto ancillary providing sheet metal components, bumpers, tools, and sub-assemblies for cars. Secondly, the financial performance of the company for June 2010 has been very impressive. In addition to this, its export revenues from the European markets are also expected to improve. The scrip is well-placed on the valuation front wherein its CMP of Rs 77 discounts its trailing four-quarter earnings by 8.50x. Even its EV/EBITDA of 6x seems to be placed well as compared to its peers.

JBM Auto is a part of the JBM Group which is one of most diversified groups in the auto ancillary segment. The group, through its subsidiaries, has a presence in exhaust systems, steel fasteners, etc. As regards JBM Auto, it has manufacturing facilities at Faridabad, Greater Noida, and Nashik. Its Faridabad facility manufactures sheet metal parts like BIW parts, sub-assemblies of cars, skin panels, axles for tractors, bumpers, and suspension components for trucks. An additional new facility for similar components has been set up at Greater Noida. In Nashik, JBM Auto has special purpose vehicle (SPV) products like tippers, trailers, tip-trailers, reefer vans, and garbage compactors.  As regards the company’s clientele, it has domestic customers such as Maruti Suzuki, Tata Motors, Ashok Leyland, Escorts, L&T, Ford General Motors, Swaraj Mazda, TVS, and Honda.

The company’s major revenues as well as earnings come from its sheet metal business while a bit of contribution comes from tools and SPV. Regarding growth, with this year’s normal monsoon and the government’s focus on rural areas, the disposable income has increased leading to better demand for automobile products. This in turn is expected to result in better growth prospects for JBM Auto. Further, the demand from the exports markets, which was subdued last year, is also expected to improve. India is expected to be a hub for small car MNC manufacturers and with JBM Auto’s presence in the export market, this will reap rich dividends. As of now even though the SPV segment is not contributing to the bottomline, yet, as the segment matures the bottomline contribution will increase.

The financial performance of the company has been very good and the same can be seen from the fact that its topline has increased in the last six quarters on a YoY basis. In Q1FY11 it posted a topline of Rs 77.61 crore and bottomline of Rs 3.26 crore as compared to Rs 45.86 crore and Rs 2.58 crore respectively in Q1FY10. The company has paid dividend in FY10 (Rs 1.50 per share, ex-dividend) resulting in a dividend yield of 2 per cent. Considering all such growth prospects, our recommendation to investors is to buy the scrip at its current levels with a target price of Rs 95 in the next one year.

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