JAMNA AUTO

MARCAP: 17.23B
216

Share price: Rs.

PRODUCT LINE:
1. Leaf spring caters to Medium and Heavy commercial vehicles
2. Parabolic Springs caters mainly to passenger Cars and Light commercial
vehicles
3. Lift Axle higher tonnage vehicles
4. Air Suspension system MHCVs, buses

Worlds third largest leaf spring manufacturer. Domestic OEM market share of 66%
for leaf springs. The second player Toyo springs has 10% market share. The leaf
spring market is a low technology, high volume and low margin business, thus JAI is
sitting at a comfortable position in the market given the high barriers of entry. It has
over 90% market share in parabolic springs, again reflecting its dominant position.
The leaf spring market mainly caters to the MHCV segment, thus heavily dependent
on their performance. MHCV sales, which contracted between 2011-12 and 2014-15
and are cyclic in nature, are projected to rebound over 2015-16 to 2020-21,
reporting a healthy 9-11% CAGR, as industrial activity improves, agricultural output
steadies and infrastructure project execution receives strong focus.
Parabolic springs cater to the LCV segment also. Light commercial vehicle (LCV)
sales will increase 8-10% with improving private final consumption expenditure
(PFCE) and high redistribution freight. Private spending is expected to be boosted by
falling fuel prices, interest rates, inflation, Seventh Pay Commission.
The revenues from Aftermarket sales are just 24% of the total revenue amounting to
Rs.300 crores. The size of the aftermarket is around Rs 6000 crores and thus there
is an opportunity of around Rs3000 crores there. The replacement cycle for
conventional spring is 9-12 months and also if one market (MHCV) picks up the
other automatically picks up with slight lag. The market share of unorganized sector
in the aftermarket is 85%. With the coming of GST, the prices between the branded
JAI springs and local springs will narrow down and the customers will prefer quality,
thus creating a market for JAI. Moreover, the realized margins are higher in the
aftermarket. The aftermarket is relatively stable and thus will reduce the exposure
of JAI to cyclical nature of MHCVs. For the aftermarket, the firm has achieved
significant network tie-ups with primary distributors to supply their products to
dealers.
The revenues from exports are less than 10% of the total revenue. The plant at
Hosur is developed to primarily cater to international clients in India and abroad.
The plant will be used to manufacture new technology products like lift axles etc.
The market for springs is expected to grow at 4.5% CAGR till during 2016-2021 to
around $12.8 billion which is entirely dependent on the global MHCV market, that
will be boosted by improved economic activity and greater fleet size.
All the 8 plants of JAI are strategically located near the OEM clients or export
centers. This help in reducing the transportation cost for the manufacturer and
bagging of orders from the OEMs. The firm has order book from almost all OEMs in

the CV segment. Thus, it has a diversified customer base and not a significant
exposure to a single customer.
The company reduced its debt from Rs.120 crores in FY 13 to 61 crores in FY14 to
24 crores in FY15 to a nearly debt free company in Fy16. The company focused on
reducing its debt instead of capex during the time when the MHCV segment
incurring degrowth in the FY13 and FY14. Now the company is investing around
Rs100 crores in Hosur plant, completely from the cash generated internally,
installing all the latest technology to produce new age products of air suspension
and lift axle to cater to international OEMs and export market and thus leverage the
uptick in the demand. This plant will increase the capacity of the company from
1,80,000 tones to 2,20,000 tones.
The global market for springs is very concentrated with few players sharing a huge
market share. The competitive edge can be gained by development of new
products. For this JAI has tied up with Ridwell Corporation in US, a global leader in
suspension solutions and developed a in-house R&D center in Pune. The
competitive edge can also be gained by capacity expansion which the firm is
already undergoing without undergoing any dilution.
The challenge for the company will be to win orders from major global MHCV
players like Navistar, GM, Ford, Peterbilt etc to increase its share of exports.
Maximum growth is estimated to come from the Asia Pacific region , especially from
China and India. The company again holds a strategic advantage to cater to OEM
clients in China and Asia Pacific.
The promoters have held a constant shareholding from 2008 to 2015 at around
44%. This has increased to 47.5% In 2016. This shows the faith that the promoters
have in the sustainable growth of the firm and to become global leader in the
springs market. The directors have also announced a healthy dividend payout of
33% this fiscal.
FINANCIALS
The bottom line has increased even after the accelerated depreciation, rising
from 2.4% of total sales in FY15 to 3.8% in FY16. The accelerated depreciation is
due to the company upgrading its manufacturing facilities for new products and
thus reporting reduced life for existing equipment.
The PBT of the firm has improved from 1.65% of total sales in FY14 to 3.62% in
FY15 to 7.58% in FY16. Similarly, PAT has risen from 1.77% of total sales in FY14
to 2.67% in FY15 to 5.86% in FY16. This increase is reflected because of increase
in operational efficiency, reducing the cost due to higher utilization levels (from
70% to 81%) and more high value products in the companys portfolio and
reduced finance cost.
The assets under the capital work in progress has increased from Rs.6 crores in
FY15 to Rs.60 crores in FY16 reflecting the high capex in manufacturing
expansion and more allocation towards R&D.
The MHCV segment is expected to grow at a CAGR of 12.2% in the period 20162018, and the revenue of the firms is expected to grow at a faster rate due to
support from aftermarket sales.
The company is operating under negative working capital from FY13. The
negative working capital can be attributed firstly because of the large cash

outlay in terms of capex and debt reduction. This has become a concern because
continuously operating in negative working capital has increased Short Term
Borrowings by 350% from Rs1 crore in FY15 to Rs.4.3 crores in FY16.
The good thing is the reduction in debtor days from 21 in FY14 to 16 in FY15 to
14 in FY16, reflecting improved collection system. The inventory turnover ratio
has increased from 10.3 in FY14 to 11.52 in FY15 to 14.21 in FY16 reflecting
better inventory management.
The asset turnover ratio has improved from 3.23 in FY14 to 4.07 in FY15 to 5.76
in FY16 reflecting better operational efficiency and asset utilization.
The company is trading at a multiple of 20x , less than its peers such as ZF
Steering Gear (33 times), Automotive Axles (28 times) and Wabco India (56
times) and Industry (34 times) thus showing growth potential towards the
industry average as the earnings are expected to rise in the coming quarters