Jamna Auto

Auto Ancillaries Stock Info
Market Cap (Rs cr) Beta 52 WK H/L Ave. Daily Volume Face Value BSE Sensex Nifty Reuters code Bloomberg code 541 0.99 161.05/45.75 10117 10 18179.64 5462.35 JMNA.BO JMNA@IN

CMP Rs. 147.95 Target Rs. 173 25thd August 2010

Company Background
Incorporated as a partnership firm in 1965, Jamna Auto Industries is the largest manufacturer of tapered Leaf and Parabolio Springs for Commercial Vehicle in India, and 4th largest in the world. The company manufactures auto parts and specialize in the manufacture of laminated springs for automobiles ranging from 3 kilograms to 200 kilograms. Parabolic springs, tapered leaf springs, coil springs, and stabiliser bars are used in suspension systems of automobiles. The company is wholly owned subsidiary of Jai Suspension Sytems Ltd.

Product Mix

Shareholding Pattern
Promoters MF/Banks/Indian FIs RI/NRIs/OCBs General Public 44.75% 4.60% 34.28% 16.36%

Leaf Spring

Multileaf Springs Parabolic Springs

Jamna Auto

Suspension Products Design & Engg.

500 400 300 200 100 0 Aug-09

Relative Performance
Jamna SENSEX

Prominent Market Share
⇒ With 66% market share, Jamna Auto is India’s largest CV spring manufacturer ⇒ With capacity of 144,000 MT, the company fourth largest spring manufacturer ⇒ The Indian and Global OEM market is growing at 8% and 6% p.a. respectively ⇒ Overall CV market in India registered 35% growth in FY10

6% 3% Apr-10 May-10 Nov-09 Dec-09 Aug-10 Sep-09 Oct-09 Jan-10 Feb-10 Mar-10 Jun-10 Jul-10 11% 3%

11%

66%

Jamna Soni Auto Sumit K Singh
Tel: +91 965 499 6276 E-mail: singhsumitkumar@gmail.com Website: www.equityresearch.co.cc

Vikrant Others

Friends Toyo

Strong Joint Ventures
The company has tied up with its immediate global competitor NHK Spring, Japan for technical solutions. It has also entered into JV with Nissho Iwai Corp, Japan and Allevard Ressorts Auto, France for manufacturing

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which will result in higher contribution from this segment. the company is planning to expand capacities for parabolic springs. the Indian automotive industry is going to be benefited with global market growing at 6% annually. Japan has already issued Letter-of-Intent to the company for the supply of leaf springs to its Japanese plant. This new segment of air suspension system has been growing rapidly with the market size of 4000 units per annum and will diversity the company’s portfolio. Page 2 . Jamna has also engaged JIPM. The springs demand for commercial vehicles in India is expected to grow by 8% annually for next 3-5 years.000 MTPA and is likely to be fully operational in late 2010. Hence. Unorganized players have significant share in the replacement market.000 buses with air-suspension system. ⇒ With technical assistance agreement with the Ridewell Corp. The Central Government is planning to purchase 15. the company has started manufacturing air-suspension and components. With increased awareness about the advantages of these kinds of springs. With increased production and diversified product-mix. Large Customer Base Commercial Vehicles • Tata Motors • Ashok Leyland • Eicher • Volvo • Force Man • TACO Hendrickson • AMW • Diamler • Mahindra NAVISTAR Future Plans Light Commercial Vehicles • Force Motors • Nissan • Swaraj Mazda • ISUZU Motor Vehicles • Maruti Suzuki • Ford Motor • M&M • Toyota • General Motors • Mercedes ⇒ The company has set-up a green field project at Jamshedpur with a capacity of 30. all the players will be on the same level and there will be big market for the organized players. Japan for adopting best manufacturing practices. Industry Overview Post global financial crisis. the company will look at export market as well in future. UD Truck Corp.44. the company is sensing a major shift in OEM demand for parabolic springs. the company is now planning to increase its capacity by setting up plants at Pune and Lucknow. Its Chennai plant in place with the capacity of 1. Jamna Auto will be benefited.Coil Springs and Stabilizer Bars for supplies to the car market in India.000 MTPA. USA. ⇒ Parabolic springs comprise 8% of the product mix of Jamna Auto. with the introduction of Goods & Service Tax. The demand for commercial vehicles is increasing which is a healthy sign for the automotive and ancillary industry. and thus better margins. the industry has stabilized with original equipment manufacturers experiencing improvement in demand conditions. This plant will help to capitalize on the rising demand for leaf & parabolic springs. Being a dominant player in the market. However. Given the increasing participation of Indian companies in exporting activities. ⇒ The company’s exports activity is quite small.

172. crore) 4% 3% 2% 1% 0% -1% -2% -3% PAT NPM (%) -4% 80% 60% 40% 20% 0% -20% -40% -60% 10. current Return on Capital Employed of 27.94 crore during the previous quarter Q1FY2010. 4.33% 67.40% 29. 20 15 10 (in Rs. crore) 400 300 200 100 0 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% 70 60 50 40 30 20 10 0 14% 12% 10% 8% 6% 4% 2% 0% Net Sales Growth % Operating Profit OPM (%) The company witnessed a collapse in FY2009 due to global recession when sales growth rate plummet to -3.15% 5 0 -5 -10 -15 -20 15.Financial Analysis 600 500 (in Rs. Again.49% 31. The Operating Profit Margin was down to 5.81% for Remsons Ind.58% is much higher than that of its competitors: 16.22% is much higher than that of its competitors: 19.29% 33.19% during the previous quarter Q1FY2010.54 crore in FY2009.27 crore in the quarter Q1FY2011 as against Rs. things are improved now when sales growth registered was 23.31% in the previous year. The company’s current Return on Equity of 33.77% for Frontier Springs.55% ROCE (%) ROE (%) The company experienced 26% reduction in interest cost – Rs. Sales rose 85% to Rs.58% 7. 26. However. Page 3 . The company reported net profit of Rs. and 10.11% from previous year.17 crore in FY2010 compared to Rs.32 crore in the quarter Q1FY2011 as against to net loss of 2. crore) (in Rs.22% 27.66% of Frontier Springs. and 14.94% of Remsons Ind.48% as compared to 12. 35.44% 19.71% FY2006 FY2007 FY2008 FY2009 FY2010 -37. 92.57% and OPM was back to 10%+ range.

27 300.42 173.57 189.96 7. Balance Sheet (in Rs. total income in last five years.95 FY2008 37.4 in FY2006 to 1.76 38.98 0.04 12.068.08 12.64 11.54 192. which will further improve the margins.08 1. 950 crore and Rs.18 139.57% respectively.60 49.12 2.04 34.54 18. Given the strong order book and dominant share in ancillary sector.61 99.37 33.239.32 0.31 FY2010 40. 1240 crore and Rs.12 189.96 228.97 17. which is a good amount of debt component in the balance sheet.46 22.35 -4.07 46.76 8. The company’s debt-equity ratio has improved drastically from 5.28 0. I expect the company to continue its dream run on the back of strong fundamentals and good management.79 1.76%.34.50 189.01 12.70 7.50 7.57 23.87% and 5.91 141.51 61.30 159.50 103.83 60.28 4.94 8.97 0.55 35.78 FY2007 323.51 2.28 95.46 0.24 FY2007 17.91 48.39 FY2010 606. which is better than that of FY2010.46 552.15 1.65 12.54 127.43 11.22 10.22 22. which is better than Industry average of 0.19 32.24 51.62 14.37 68.06 176.71 -2.93 19. resulting in Net Profit Margin of 4.01 5.02 17.57 20.07 10.43 0.11 138. cr) Share Capital Reserves & Surplus Secured Loans Unsecured Loans Total Liabilities Net Block Capital WIP Investments Deferred Tax Current Assets Current Liabilities Misc. The operating expenses have come to 271 bps w. cr) Net Sales Other Income Operating Expenses Operating Profit Interest Depreciation Deferred Revenue Exp.41 111.83 0.87 153.08 5.41 483.32 9.48 9.33 27.95 52.19 827.94 The company has registered growth rate of 26% CAGR in topline and 95% CAGR in bottomline in last five years.12 76. The topline and bottomline is expected to be around Rs. The average Current Ratio for last five years is close to 1.44 31.r.16 71.t.72 2.27 11.60 3.05 21.54 9.71 114.51 36. Page 4 .74 1.46 6.00 -20.33 FY2008 541.96 25. 2.97 FY2009 513.70%.22 15.96 489.91 The loan component of the balance sheet has declined from 83% of the total assets in FY2006 to 60% in FY2010. I expect to see further 250 bps improvement in next two years.54 55.82 73.17 21.43 3.12 0.96 55.58 16.22 0.34 0.57 15.43 3.30 -16.27% puts the company’s synthetic debt rating in A+ category with the default spread of 0.78 7.03 27.90 124.41 8.64 2.Income Statement (in Rs.92 92.44 76.11 5.83 5. 69 crore in FY2012 respectively.36 246. PBT Taxation Deferred Tax Credit PAT FY2006 210.69 103.48 13.40 228.79.89 FY2011E 950.91 3.77 26.57 114.9 in FY2010.22 246. 46 crore in FY2011 and Rs.98 80.77 36.31 FY2012E 1. Expenditure Total Assets FY2006 8.87 0.91 21.19 3.91 0.32 96.32 25. Interest Coverage ratio of 8.59 2.28 FY2009 40.

which makes it highly undervalued given the calculated Fair Value of Rs. the scrip has recovered substantially but still there is lot of steam left. Investment Arguments ⇒ On the back of strong demand in the commercial vehicle segments.57 22.34 36. During the economic meltdown last fiscal year.00% 219 223 226 191 194 197 173 168 171 149 151 154 133 135 137 5.77 252. Marketable securities Value of Firm Market Value of Debt Market Value of Equity No.Cng.97 30% 148. expanding capacities & product portfolio. 16. ⇒ After taking the beating in the FY2009. the company is back on track and its fundamentals are look strong.17 78.18 12.69 633.22.03 62. in Noncash WC -58.49 38.50% 1. adding more location & markets and improving efficiencies.50% 229 200 176 156 139 6.71 54.50% 11.26 105.01 148.48 30% 99.134.85 38.00% 232 203 178 158 141 WACC 9.79 Tax rate 30% 30% EBIT (1-t) 40.81 30% 30% 168.00% 30. I believe Free Cash Flow to Cash Model will give a more comprehensive picture. With the 2-year estimate of PAT growth as 109% CAGR.15 30% 117.85 218.52 31. 2010.36 31.84 837. the Fair Value would still be equal to the Current Market Price of the scrip.97 75.Two-Stage FCFF Discount Model Valuation I believe that Jamna Auto will continue to register high growth rate for next 5 years on the back of huge order book and future expansion plans.77 48. At estimated Forward EPS of Rs. 173 per share.32 29. The company is currently trading at 31.20 WACC 13. i.00% 10.32 13.65 173. ⇒ The company expects its order book to jump significantly in favor of parabolic springs.28.13x TTM P/E. FY2010 FY2011 EBIT 57. PV of FCFF in High growth phase PV of FCFF of Terminal Value of Firm Value of Operating Assets Value of Cash.00% 11. at current P/E. which indicates a highly undervalued scrip. which makes the scrip a safe bet.50% 13.29 FY2013 168. 144 per share on 25th August.05 .50% 26. With FY2010.38 70.08 74.74 38.03 62.50% 5.83 .Capital Expenditure 26.e. of shares outstanding (cr) Fair Value FY2012 142.08 15. The Sensitivity Analysis suggests that even if we take a pessimistic view of the key parameters.00% 4.16 3. Thereafter the growth rate will become in-line with nation’s economy growth rate of 5%. thereby giving a significant fillip to its profitability.54 176.00% 10.50% 10.50% Jamna Auto Industries is trading at Rs.18 14.00% 30. signaling the market that the company is on its way to continue high growth in coming years. Page 5 .87x forward P/E.67 851. the PEG ratio stands at 0. cost of capital continue to be at the current level even after five years and terminal growth of the company be on the lower side. the scrip took a hard beating when the bottomline plummet sharply. the company is trading at 8. which again states that the scrip is highly undervalued and has an upside potential.04 25. To value the company.25% FCFF @ Terminal PV of FCFF 24.02 FCFF 71.84 36. The financials have recovered dramatically.34 688.81 Sensitivity Analysis Terminal Value 4.80 27.69 FY2015 Terminal 240. Jamna Auto is likely to show significantly better bottomline performance in next six quarters.02 Cumu.42 11.29 12.81 FY2014 211.

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