Jamna Auto Industries (JAI) is a manufacturer of suspension products (leaf & parabolic) for commercial vehicles (largely M&HCV space) and was established in 1965. It has eight manufacturing plants in India, each in close proximity to CV OEMs’, with installed capacity of ~3,00,000 metric tonne. FY22 sales market mix is pegged as OEM:77%; New Market (aftermarket + exports): 23%
Commercial Vehicle (CV) is a cyclical industry with the industry witnessing a down cycle of two years i.e. FY20, FY21 and now geared up for a two to three year upcycle starting present financial year i.e. FY22. Recent volume prints (consistent MoM growth) by leading OEM’s affirm our thesis on this. The key drivers for growth are: (i) revival of capex cycle domestically by both private as well as public sector enterprises. Union budget’s capex outlay for FY23 was at ₹7.5 lakh crore, up 35% YoY basis; (ii) High age of existing fleet thereby indicating healthy replacement demand in the offering and (iii) Scrappage policy- which makes automated testing compulsory for aged vehicles from April 2023 thereby generating demand for new fuel efficient vehicles. With cyclical recovery underway, we expect domestic CV industry volumes to grow at a 15.2% CAGR over FY22-24E, with volumes in M&HCV space seen growing at a CAGR of 25% in the same timeframe. JAI with a market share of ~70% in the OEM space is a direct proxy to M&HCV cyclical recovery with spare capacity to capitalize upon the impending growth
Majority of JAI’s topline is contributed by OEMs (~77%) & with prominent players like Tata Motors & Ashok Leyland contributing ~60% of its top line. With the view to reduce client concentration risk, JAI has been focusing on increasing the share of aftermarket revenue to diversify its customer base. To strengthen its aftermarket, it is actively adding new parts as well as expanded its reach with touchpoints now placed at 16,000+ levels from ~13,000+ levels as of FY19. Revenue from new markets increased from ~16% in FY19 to 23% in FY22.
High return ratios have been the key differentiator at JAI – the key barometer of its highly capital efficient business model. However, they were in low double digits in the recent past (FY20-21) amidst subdued demand in the CV space & industrial downturn due to Covid-19 led disruption. With worst of the decline behind us and cyclical recovery underway in the CV space and consequent CFO generation as well as decline in debt on its books, return ratios are expected to improve substantially with ~30%+ levels seen by FY24E. This is amidst its broader vision to attain 50% RoCE by FY26E
With macro tailwinds in place and JAI’s intent to diversify its product as well as client mix, we expect 29.6% net sales CAGR for JAI over FY22-24E. This coupled with its ability to maintain ~14% margin trajectory amid increasing share of new markets (aftermarket + exports), PAT is seen growing at a CAGR of 40.6% over FY22-24E to ₹278 crore by FY24E. At the CMP, it trades at inexpensive valuations of ~16x P/E and ~11x EV/EBITDA on FY24E