Recommendations From Auto Parts & Equipment Sectors
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.Jamna Auto Industries (JAI)
CHALK OUT PLAN TO RULE AUTO INDUSTRY
HERE IS WHY
Leader in leaf and parabolic springs
Aims to be a complete suspension system provider
Attractive valuations
JAI is an auto ancillary company. It is the market leader with 70 per cent share in OEM leaf and parabolic springs. It has client base including big players like Tata, Toyota, Mahindra, GM, SML ISUZU, Ashok Leyland and Volvo. With its market leadership position in the leaf and parabolic springs, it plans to go beyond these products and is trying to be a complete suspension system provider and also focusses on aftermarkets. The company has added capacity through modernisation of existing plants and expansion. It has planned new units at Pithampur (Madhya Pradesh) and Adityapur (Jharkhand) in continuation of the company's strategy of staying close to customer base.
The CV industry had an overall good run in the last three years ending April 2019 witnessing a sustained growth. However, currently, the industry is facing slowdown mainly due to, deceleration in the economy, liquidity crunch and revised axle norms. The cost of change to BS-VI emission norms could adversely impact the demand of the CVs due to rise in the cost of production. Therefore, the recent quarterly result and couple of more quarterly results are not indicative of the company's future potential. The impact of axle load regulations could be short term as implementation thereof would settle in the coming months.
After reaching the leadership position in leaf and parabolic spring products, the Company's focus is to expand in new products and markets. The Company considers aftermarket to have a huge potential to grow. Therefore, they are taking efforts to expand its network in aftermarkets. The Company has increased the product portfolio and introduced spring allied products and a range of lift axle components in the aftermarkets. The Company has the widest range of products in the aftermarket, supplying more than 5,000 part numbers of all type of springs of commercial vehicles. The Company has entered into Technology Transfer and Technical Assistance Agreement with Tinsley Bridge Limited, UK for extralite spring technology and special steel technology. These springs are under development and expected to be ready by next financial year.
On a year-on-year consolidated basis, net sales decreased by 55.80 per cent to Rs 242.35 crore in Q2FY20. EBITDA (excluding other income) decreased 72.23 percent to Rs 18.89 crore and EBITDA margin was 7.79 per cent as against 12.41 percent inQ2FY19. Net profit in Q2FY20 declined 82.07 per cent to Rs 6.37 crore. The reduced numbers should be seen keeping in mind the factors that went against the company in the last one year.
Jamna has a good client base.With its market leadership position in the leaf and parabolic springs, plans to go beyond these products, its efforts to be a complete suspension system provider as well as its focus on aftermarkets, we believe the company has enough scope for expansion. The current slowdown in CV would end with economic and rural revival. The NBFC crisis and BSVI transition are also one-time event that will eventually stop hurting numbers. Jamna auto trades at TTM PE of 18x versus industry average of 32x. This gives it enough room to expand once the NBFC crisis and BSVI transition is over. Owing to these reasons we recommend our readers BUY.
