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Jamna Auto Industries (JAI) is engaged in the manufacturing of suspension products for commercial vehicles viz leaf springs and lift axles. It is the market leader in the MHCV OEM springs commanding market share of about 60%, while it has a 15% share in the aftermarket springs segment. Recovery in OEM segment coupled with aftermarket focus to drive growth The MHCV industry is clearly in an upcycle and is poised to grow at 16% CAGR over the FY2015-2018 period. This would be on account of economic pick-up leading to uptick in freight, huge pent up demand due to low base (industry had halved over FY2013-2014 period), and improving profitability of the fleet operators on account of firm freight rates and decline in diesel prices. The industry is likely to reach pre-slowdown levels by FY2018. Apart from growth in the springs segment, JAI is witnessing robust demand for lift axles used in multi axle vehicles (JAI commenced supplies to market leader Ashok Leyland). JAI is also in negotiation with high-end bus manufacturers for supplies of air suspension systems. We expect the share of new products to inch up from 4% of revenues in FY2015 to 7% by FY2018. We expect JAI to clock 14% revenue CAGR over the next three years. Operating leverage, raw material localization and new products to augment margins JAI would reap benefits of operating leverage on account of healthy double-digit top-line growth. Steep reduction in crude prices due to slowdown would lower the power and fuel costs which account for 7% of the top-line. Further, increasing share of high margin products such as parabolic leaf springs and lift axles (new products’ share would go up from 22% currently to about 30% by FY2018) would also augment margins for the company. We estimate JAI’s operating margins to improve by 130bp over the next three years. Outlook and valuation: JAI’s top-line is estimated to grow at 14% CAGR on account of uptick in the MHCV OEM segment and ramp up of new products, ie parabolic leaf springs and lift axles. Further, operating leverage coupled with a better product mix and savings on energy costs would enhance margins. We expect JAI’s earnings to grow at a CAGR of 35% over FY2015-2018. JAI’s return ratios are also estimated to improve on account of margin expansion, better working capital management and lower gearing. We initiate coverage on JAI with an Accumulate rating and target price of Rs258 (based on 15x FY2018E earnings).Download Full Report
|Investment Period||12 Months|
|MCAP BSE (Rs in Cr)||1,364.57|
|MCAP NSE (Rs in Cr)||1,366.56|
|Div Yield (%)||1.60|
Shareholding Pattern (%)
|Public & Others||33.0|