Recommendation 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
RIDING THE CV GROWTH MOMENTUM
HERE IS WHY
Strong market share in spring manufacturing
Recovery in CV sales
Attractive valuation
Jamna Auto Industries (JAI) is engaged in providing automotive suspension solutions for commercial vehicles (CVs). The company has nine manufacturing units spread across seven states. The close proximity of JAI’s plant to OEMs puts it at an advantage over its competitors. JAI is the largest manufacturer of tapered leaf and parabolic springs for CVs and has about 73 per cent OEM market share in the domestic market. The company’s management is confident of maintaining its current OEM market share and expects it to grow ahead in line with the growth of the CV industry. The company is fast expanding its presence in newgeneration products, like air suspension and lift axle. The company has formed an alliance with Ridewell group for manufacturing of air suspension and lift axle.
After-market sales for the domestic market is about Rs2.5 billion, while the company is targeting to increase it to Rs7.5 billion going forward. To achieve this, various initiatives have been taken up at the ground level.
JAI is expected to benefit from recovery in CV sales. Free movement of freight across states bodes well for CVs. Also, class 8 sales in the US and Europe is picking pace. Further, the shift in preference towards high tonnage trucks will favour parabolic springs which have higher realisations and margins.
On the financial front, the net sales of the company increased drastically by 79.25 per cent to Rs440.68 crore in the third quarter of FY18, as against Rs245.85 crore in the same quarter of the previous year. The company’s PBDT increased 41.23 per cent to Rs54.5 crore in the third quarter of FY18 on a yearly basis. The company’s net profit increased 48.66 per cent in the December quarter to Rs32.17 crore as against Rs21.64 crore in the same period last year.
On an annual basis, the company’s net sales decreased marginally by 0.38 per cent to Rs1087.3 crore in FY17 on a year-on-year basis. The company’s PBDT increased 28.54 per cent to Rs176.58 crore in FY17 asagainst Rs137.37 crore in the previous fiscal. The net profit of the company increased significantly by 42.91 per cent to Rs103.37 crore in FY17, as against Rs72.33 crore in the previous fiscal.
On the valuation front, the company has a PE ratio of 26.96x as against its peer Minda Corporation (31.56x) and Suprajit Engg (45.98x). The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 36.42 per cent and 53.10 per cent, respectively. JAI has a good RoE track record with 3-year RoE of 30.08 per cent. The company has a debt-to-equity ratio of 0.22x. The company has been maintaining a healthy dividend payout of 28.43 per cent.
Considering the company’s strong product portfolio, attractive valuation, improved operating efficiency, strong financial performance in sync with industry growth over the medium term, we expect the company to deliver strong growth going forward. We recommend a BUY on the stock.
