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Jamna Auto Industries Ltd

No. of shares (m) 79.48

Mkt cap (Rs crs/$m) 1088/162.3

Current price (Rs/$) 137/2.0

Price target (Rs/$) 159/2.4

52 W H/L (Rs.) 156/88

Book Value (Rs/$) 30.3/0.5

Beta 1.3

Daily volume (avg. monthly) 341010

P/BV (FY16e/17e) 4.5/3.7

EV/EBITDA (FY16e/17e) 7.8/7.1

P/E (FY16e/17e) 17.3/15.6

EPS growth (F16e/17e) 105.4/11.0

OPM (FY15/16e/17e) 8.6/11.0/10.6

ROE (FY15/16e/17e) 16.3/28.7/26.1

ROCE(FY15/16e/17e) 14.9/25.5/24.8

D/E ratio (FY15/16e/17e) 0.3/0.3/0.1

BSE Code 520051

NSE Code JAMNAAUTO

Bloomberg JMNA IN

Reuters JMNA.BO

Shareholding pattern %

Promoters 46.5

MFs / Banks / FIs 2.9

Foreign 0.5

Govt. Holding 0.0

Non-Promoter Corp. 0.0

Total Public 50.1

Total 100.0

As on Dec 31, 2015

Recommendation

ACCUMULATE

Analyst

KISHAN GUPTA, CFA, FRM

Phone: + 91 (33) 4488 0043

E- mail: [email protected]

Consolidated (Rs crs)

FY13

FY14

FY15

FY16e

FY17e

Income from operations 980.15 833.30 1095.01 1265.26 1461.22

Other Income 2.34 22.27* 2.01 8.58 7.31

EBITDA (other income included) 87.84 66.68 96.50 147.76 162.20

Profit after MI & eo items 27.80 -2.06 30.72 63.00 69.94

EPS(Rs) 3.45 - 3.86 7.93 8.80

EPS growth (%) -38.8 - - 105.4 11.0

*includes Rs 20.25 crs profit on sale of investment in NHK Spring;

Company Brief Jamna Auto manufactures auto suspension products -parabolic/ tapered leaf

spring, lift axle and air suspension- mainly for OEMs in the CV segment. It has

plants at six locations in India.

Quarterly Highlights

� Plagued by poor off take from OEMs and reduction in realizations due to

lower steel prices, Jamna's revenue growth in Q3 decelerated to the lowest

in six quarters (7.5%). Dispatches of springs to OEMs hit the skids for it

grew by an awful 1.4% to 24928 mt, abysmally lower than the average

growth of 21.2% in the previous two quarters. Sales in replacement market,

however, saved blushes for it grew by 14.5% to 6379 mt compared to 5569

mt in the same period a year ago; total spring sales grew by a paltry 3.8%.

� Bolstered by 27.9% growth in production of M&HCVs, Jamna reported

16% growth in OEM sales of springs to 100509 mt compared to 87242mt in

the year ago period. Replacement sales gathered steam too: shipped 11.4%

more wares but with mixed results. Surprisingly, growth in dispatches of

this segment plummeted to as low as 3.9% in Q2. For penetrating newer

markets, Jamna continues to focus on strengthening existing resources and

dealerships.

� Appalling decline in commodity prices (read: raw material prices like

spring steel flats, bushes and others) helped push operating margins in Q3

to unsustainable12.7%, the highest reading in at least eleven quarters. Some

of that was reflected in 9MFY16 when raw material to sales ratio slid 3.3%.

OPMs as a result expanded 385bps to 11.2% from 7.4%.

� By expanding its Hosur plant capacity by 30000mt, Jamna plans to rev up

its product range and boost exports to global OEMs. The internally–

funded new capacity, which is expected to be operational in H2FY17,

would focus on high margin yielding new generation products.

� The stock currently trades at 17.3x FY16e EPS of Rs 7.93 and 15.6xFY17e

EPS of Rs 8.80. Hefty jump in margins goaded us to tweak earning

estimates (Rs 7.93 for FY16 vs Rs 6.30; Rs 8.80 for FY17 vs 8.01). Sole

reliance on the CV industry for business makes matters worse, not to count

regional concentration of Jamna’s plants. Yet low debt and internally

funded capex program preclude investors (somewhat though) from

vagaries of CV industry. We assign ‘accumulate’ rating on the stock with

target of Rs 159 (previous target: Rs 120) based on 18x FY17 earnings.

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CD Equisearch Pvt Ltd


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Outlook & Recommendation

CV industry – turned a corner

Helped mainly by increasing infrastructure investment, resurrection of mining activities and steady replacement demand,

the M&HCV segment reported a respectable 30.6% growth in domestic sales in eleven months of current fiscal. Incessant

fall in diesel prices and decline in interest rates have prompted fleet operators to replenish their ageing fleet, stoking

demand.

Yet the LCV segment continues to struggle - would post negative sales growth for two years in a row; domestic sales slid -

1.5% so far this fiscal. Excess capacity and tight liquidity have plagued the sector and so have high default rates,

precipitating stricter lending norms. Lenders seem to be now focusing on recoveries rather than on business growth.

Recently announced GOI's schemes like Smart Cities Mission, Housing for All by 2022 and Atal Mission for Rejuvenation

and Urban Transformation (AMRUT) would also buoy dispatches of CV industry not least because of rising logistics

demand. Implementation of GST would also do wonders by streamlining India's transportation and distribution systems.

Auto-components

Auto component manufacturers stand to gain from rapid entry of foreign OEMs in the Indian automobile market. Lured by

India's low CV penetration global CV majors like Daimler, Man Trucks, Navistar, and Volvo have hit Indian shores. GOI's

'Make in India' scheme has prodded some like Daimler Motors and Scania to increase exports out of India. Entry barriers

will also increase with presence of these large OEMs for it would place more focus on technologically advanced and value

added products. Automotive Component Manufacturers Association of India (ACMA) reckons that the Indian auto-

components industry would grow to $115bn by 2020 from $66 bn now with exports projected to rise to $30 bn ($12bn now).

The sector's share of manufacturing GDP is estimated to double to 10% by 2026.

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Financials & Valuation

Buoyed by sturdy off take of M&HCVs in India, Jamna would unveil yet another year of strong spring volumes. After

having risen 28% last fiscal, spring volumes would annually rise by 13-14% in two years ending fiscal 2017. Hefty dispatches

of M&HCVs explain much of the plumpness in demand for springs. Domestic sales of M&HCV rose by 30.6% in Apr-Feb 16

period while the LCVs declined by 1.5%. Replacement market would gain momentum too not least due to growing demand

for branded wares - triggered by shoddy state of Indian roads; a double digit volume growth is envisaged for current fiscal

and next.

Jamna strategizes to rapidly expand in new technology suspension systems and boost exports. Partly galvanized by GOI's

much touted 'Make in India' initiative, auto-component exports would grow two-and a half times by 2020. German car

maker BMW recently announced plans to increase auto-parts outsourcing from India in wake of 'Make in India' initiative.

Michelin, a French tyre maker, plans to sharply boost production of truck and bus tyres at its Indian outfit.

By focusing on its top customers, Jamna aims to further strengthen its grip on the multi leaf springs OEM market (nearly

two-third market share). Operating margins gleamed this fiscal (11.2% vs 7.4%) not least due to the brutal fall in commodity

prices. Despite its focus on weeding out low margin product portfolio and enhanced aftermarket presence, the current

margins are unsustainable- margins estimated to thin out a bit next fiscal.

Asset turnover ratios would ascend with growing production of springs. Yet capacity utilization rate would fail to show a

perceptible rise from the current level of 79-80% as the new capacity (30000 mt) at Hosur would go on stream by the second

half of next fiscal. Rationalization of debt would not only push gross profit margins higher but swell interest coverage (8.3 in

FY17 from 3.6 in FY15). Still sharp increase in working capital cannot be ruled out, flattening (somewhat though) firm level

free cash flows.

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The stock currently trades at 17.3x FY16e EPS of Rs 7.93 and 15.6xFY17e EPS of Rs 8.80. Wind fall gain in margins stirred upward

revision in earnings - current year earning 25.9% higher than projected; next year's: 9.9%. Yet niggling recovery of LCV segment

could increase vulnerability of earnings. New generation suspension products and exports have yet to take off in a big way -

springs would continue to account for more than nine-tenths of sales by FY17. Comforting factors include low debt (DER: 0.3)

and high return on capital (ROE: 28.7%). The stock therefore merits an ‘accumulate’ rating with target of Rs 159 (previous target:

Rs 120) based on 18x FY17 earnings (peg ratio of 0.4 misleading because of puny FY15 earnings), over a period of 6-9 months.

(For more info, refer to our Sep 2015 report).

[

Cross Sectional Analysis

Company Equity* CMP Mcap*

Op.

inc. Profit* OPM NPM

Int

cov. ROE

Mcap

/ OI P/BV P/E EV/EBITDA

Auto. Axles 15.1 576 871 1030 29 8.4 2.8 8.1 9.4 0.8 2.7 30.2 10.4

Jamna Auto 39.7 137 1088 1231 60 11.3 4.9 6.8 29.2 0.9 4.5 18.1 7.8

WABCO 9.5 5560 10546 1655 175 16.2 10.6 1424.1 19.8 6.4 10.4 60.1 34.7

*figures in crores; calculations on ttm basis

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Financials

Quarterly Results -Consolidated Figures in Rs crs

Q3FY16 Q3FY15 % chg. 9MFY16 9MFY15 % chg.

Income from operations 281.64 262.07 7.5 889.44 752.97 18.1

Other Income 2.73 0.49 455.9 6.58 1.10 500.1

Total Income 284.36 262.56 8.3 896.02 754.07 18.8

Total Expenditure 245.83 240.23 2.3 789.58 697.40 13.2

PBIDT (other income included) 38.54 22.33 72.6 106.44 56.67 87.8

Interest 3.77 4.49 -16.0 10.66 13.60 -21.6

Depreciation 12.70 7.18 76.9 32.79 20.56 59.5

PBT 22.07 10.66 107.0 62.99 22.51 179.9

Tax 6.58 5.23 26.0 19.38 8.42 130.0

PAT after MI 15.49 5.44 184.9 43.61 14.08 209.6

Extraordinary Item 0.00 0.00 0.0 0.00 0.00 -

Adjusted Net Profit 15.49 5.44 184.9 43.61 14.08 209.6 EPS (F.V. 5) 1.95 0.69 183.9 5.49 1.78 208.6

Income Statement-Consolidated Figures in Rs crs

FY13 FY14 FY15 FY16e FY17e

Income from operations 980.15 833.30 1095.01 1265.26 1461.22

Growth (%) -12.5 -15.0 31.4 15.5 15.5

Other Income 2.34 22.27* 2.01 8.58 7.31

Total Income 982.49 855.57 1097.01 1273.84 1468.52

Total Expenditure 894.65 788.89 1000.52 1126.08 1306.33

EBITDA (other income included) 87.84 66.68 96.50 147.76 162.20

Interest 26.74 24.07 18.02 14.66 13.95

EBDT 61.10 42.61 78.48 133.10 148.24

Depreciation 28.95 25.91 31.10 41.80 46.88

Tax 4.43 2.86 18.00 28.30 31.42

Net profit 27.72 13.84 29.38 63.00 69.94

MI & Extraordinary item -0.08 15.91 -1.34 0.00 0.00

Adjusted Net Profit 27.80 -2.06 30.72 63.00 69.94

EPS (Rs.) 3.45 -0.31 3.86 7.93 8.80

*includes Rs 20.25 crs profit on sale of investment in NHK Spring; Figures may differ from published figures due to reclassifications

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Consolidated Balance Sheet Figures in Rs crs


SOURCES OF FUNDS

Share Capital 43.00 41.25 39.62 39.72 39.72

Reserves 131.50 140.35 156.80 203.07 253.88

Total Shareholders Funds 174.50 181.60 196.43 242.79 293.60

Long term debt 41.88 65.67 25.35 15.00 5.00

Minority interest 0.00 0.00 0.00 0.00 0.00

Total Liabilities 216.38 247.27 221.78 257.79 298.61

APPLICATION OF FUNDS

Gross Block 463.25 467.06 478.60 536.60 591.60

Less: Accumulated Depreciation 197.86 207.71 236.65 278.45 325.33

Net Block 265.39 259.35 241.95 258.15 266.27

Capital Work in Progress 17.15 2.23 7.77 20.00 15.00

Investments 5.25 - - - -

Current Assets, Loans & Advances

Inventory 131.65 100.74 109.12 120.03 132.04

Sundry Debtors 106.86 108.36 56.37 67.65 77.80

Cash and Bank 14.81 13.71 10.73 13.31 13.30

Other Assets 20.23 22.06 30.19 27.40 29.84

Total CA & LA 273.55 244.87 206.41 228.39 252.97

Current liabilities 350.92 266.36 241.57 252.93 237.75

Provisions 14.85 6.35 11.53 17.64 20.03

Total Current Liabilities 365.77 272.71 253.10 270.57 257.78

Net Current Assets -92.22 -27.84 -46.70 -42.18 -4.80

Net Deferred Tax (net of liability) -15.84 -14.80 -15.84 -14.36 -15.92

Other Assets (Net of liabilities) 36.65 28.35 34.60 36.18 38.06

Total Assets 216.38 247.27 221.78 257.79 298.61 Figures may differ from published figures due to reclassifications

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Cash Flow Statement Figures in Rs crs


Net Income (a) 27.72 13.84 29.38 63.00 69.94 Non cash exp. & others (b) 36.35 7.23 32.39 40.00 48.12

Depreciation 28.95 26.30 31.10 41.80 46.88

Profit on sale of inv 0.00 -20.25 0.00 0.00 0.00

Deferred tax 4.33 -1.04 1.04 -1.48 1.56

Others 3.07 2.22 0.25 -0.32 -0.32

(Inc.) / dec. in WC & others (c) -4.05 9.63 24.54 -25.80 -16.67

Inventory 4.69 30.91 -8.38 -10.91 -12.00

Debtors 20.14 -3.22 48.95 -11.27 -10.15

Other assets (net of liabilities) -28.89 -18.06 -16.03 -3.61 5.48

Operating cash flow (a+b+c) 60.02 30.70 86.31 77.20 101.39

Capex -34.18 -6.65 -23.15 -70.23 -50.00

Investments 0.00 25.50 0.00 0.00 0.00

Others 1.80 5.21 1.16 0.43 0.32

Investing cash flow (d) -32.38 24.06 -22.00 -69.81 -49.68

Net borrowings -16.54 -40.91 -61.00 5.72 -35.00

Dividends & cdt -12.06 -9.59 -4.66 -10.62 -16.73

Redemption of preference shares 0.00 -1.75 -1.75 0.00 0.00

Proceeds from share issuance 0.45 0.02 0.66 0.10 0.00

Financing cash flow (e) -28.16 -52.23 -66.76 -4.79 -51.73

Net change (a+b+c+d+e) -0.52 2.53 -2.45 2.60 -0.02

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Key Financial Ratios


Growth Ratios

Revenue (%) -12.5 -15.0 31.4 15.5 15.5

EBIDTA (%) -17.2 -42.3 90.2 53.0 9.8

Net Profit (%) -38.9 * * 105.1 11.0

EPS (%) -38.8 * * 105.4 11.0

Margins

Operating Profit Margin (%) 8.7 5.9 8.6 11.0 10.6

Gross Profit Margin (%) 6.2 3.2 7.2 10.5 10.1

Net Profit Margin (%) 2.8 -0.2 2.8 5.0 4.8

Return

ROCE (%) 15.0 6.1 14.9 25.5 24.8

RONW (%) 16.9 -1.4 16.3 28.7 26.1

Valuations

Market Cap / OI 0.3 0.3 0.9 0.9 0.7

EV/EBIDTA 5.3 7.8 10.6 7.8 7.1

P/E 11.4 - 31.4 17.3 15.6

P/BV 1.8 1.6 4.9 4.5 3.7

Other Ratios

Interest Coverage 2.2 1.0 3.6 7.2 8.3

Debt-Equity Ratio 1.0 0.7 0.3 0.3 0.1

Current Ratio 0.7 0.9 0.8 0.8 1.0

Turnover Ratios

Fixed Asset Turnover 4.5 3.2 4.4 5.1 5.6

Total Asset Turnover 4.4 3.6 4.7 5.3 5.3

Debtors Turnover 8.3 7.7 13.3 20.4 20.1

Inventory Turnover 6.7 6.8 9.5 9.8 10.4

Creditors Turnover 3.9 3.8 5.3 6.2 7.2

WC Ratios

Debtor Days 43.9 47.1 27.5 17.9 18.2

Inventory Days 54.7 54.1 38.3 37.1 35.2

Creditor Days 93.1 95.2 68.5 58.5 50.4

Cash Conversion Cycle 5.4 6.0 -2.8 -3.5 3.0

Cash Flows (Rs crs)

Operating Cash Flow 60.0 30.7 86.3 77.2 101.4

FCFF 49.0 46.8 77.0 17.1 60.9

FCFE 11.1 -13.4 1.6 13.1 16.7

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Financial Summary – US dollar denominated

million $ FY13 FY14 FY15 FY16e FY17e

Equity capital 7.3 6.6 6.3 5.9 5.9

Shareholders funds 31.4 29.9 31.4 36.2 43.8

Total debt 30.6 20.8 10.3 10.4 5.2

Net fixed assets (incl CWIP) 51.9 43.5 39.9 41.5 41.9

Investments 1.0 0.0 0.0 0.0 0.0

Net current assets -17.0 -4.6 -7.5 -6.3 -0.7

Total assets 39.8 41.1 35.4 38.4 44.5

Revenues 180.0 137.7 179.1 188.7 217.9

EBITDA 16.1 11.0 15.8 22.0 24.2

EBDT 11.2 7.0 12.8 19.9 22.1

PBT 5.9 2.8 7.7 13.6 15.1

Profit after MI & associate profit 5.1 -0.3 5.0 9.4 10.4

EPS($) 0.06 -0.01 0.06 0.12 0.13

Book value ($) 0.40 0.38 0.40 0.46 0.55

Operating cash flow 11.0 5.1 13.8 11.5 15.1

Investing cash flow -6.0 4.0 -3.5 -10.4 -7.4

Financing cash flow -5.2 -8.7 -10.7 -0.7 -7.7

income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates All dollar denominated figures are adjusted for extraordinary items.

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