JAMNA AUTO
Jamna Auto Industries Limited is India’s largest, and amongst world’s third largest, manufacturer of tapered leaf springs and parabolic springs for automobiles. The Company was first to introduce parabolic springs in India.
Since the inception of the company in 1954 by our founder Sardar Bhupinder Singh Jauhar, we have grown from a single product manufacturer with a plant in Yamuna Nagar to an enterprise with 8 manufacturing plants across India. Our plants are strategically located close to our OEM manufacturing locations.
The product portfolio comprises a full range of suspension solutions that serve the Commercial Vehicle industry in India.
Only Indian company to have in-house R&D center with capabilities of Design, FEA, DAQ, and RLDA required to validate the products before launch.
Also has the in-house capability to validate from the smallest component to complete the Suspension system. We have also been able to establish a strong after-market network, backed by the supply of a complete range of spare parts.
The AMI operations, sales, and business transactions with channel partners are digitized with Ramco Systems and applications. The company has a strong balance sheet that is low leveraged because of its prudent financial policies.
The Company’s engineering & design strength and developmental capabilities make it a partner of choice with most of the customers. The Company’s R&D team works closely with customers in design modification and value engineering in Tapered Leaf and Parabolic Springs which enhances the vehicles’ load-bearing capacity and overall efficiency.
MANUFACTURING FACILITIES
Jamna Auto Industries has been consistently improving its manufacturing facilities to be the pioneer in the Spring industry. Jai is proud to have continuously worked to attain this milestone and is capable of manufacturing the widest range of quality springs on short notice. All our springs are made according to the vehicle standards and stringent norms laid down by various automobile bodies.
The development lead time is considerably reduced due to our fully automated processes of critical operations. This not only ensures better quality but also reduces the margin of error in the final assembly. Apart from the standard procedures required to be carried out in manufacturing a leaf spring, JAI has developed its expertise in the most important and & critical operations.
Research Laboratory: JAI has a full-fledged laboratory equipped with the latest equipment to carry out different tests including hardness testing, salt spray testing, etc. to determine the steel strength before taking it to shear.
Indian Economy & Industry Overview
The demand for commercial vehicles in FY 2020-21 fell sharply due to the movement of goods severely impacted by lockdown imposed across the country. Although with improvement in economic activities, post lockdown early shoots of demand revival was visible in July 2020, firmness in demand was seen towards the end of the second half of FY 2020-21. However, the demand was much lower than FY 2018-19 level.
The Union Budget of 2021 is primarily focused on economic recovery and infrastructure push it augurs well for the industry. The government’s decision to invest heavily in roads and other infrastructure will boost the demand for commercial vehicles. The budget has also announced a vehicle scrapping policy to keep a check on old polluting vehicles to curb environmental and air pollution.
Once the policy is implemented it should gradually and systematically phase out old unfit vehicles which would eventually generate demand for new vehicles. The outbreak of the Covid-19 pandemic had severely impacted supply chain causing the unavailability of parts and components causing long lead-times mainly for imported parts. We expect localization of auto component manufacturing. However, the threat of Covid-19 is not over yet. No country has fully recovered from the pandemic.
In many countries, even a second or third wave of the pandemic has hit. India also slid into the second wave of the pandemic from March till early June 2021. An immediate threat to the current growth prospectus would be the further spread of Covid-19. Much would depend as to how India minimizes the impact of its second wave and in future years if it does continue. A lot will depend upon vaccine rollout, as per experts. Vaccine coverage of the population has since increased appreciably.
Company performance and overview
During FY 2020-21 the Company maintained its market position. cost rationalization plan has worked well and the Company has been able to reduce breakeven point less than 25% of capacity. This has helped the Company to improve margins during the Covid-19 pandemic. The management continued its initiatives towards products diversification and markets expansion. The company further strengthened our IT systems in After Market and also started to implement this in the Chennai location. Going forward, digitization and IT integration with the existing widespread network for supplies in After-Markets will give a fillip to our targets of new markets. To provide ease of doing business to our partners and customers we are focusing on technological advancement.
DIGITAL TRANSFORMATION
The ever-evolving digital and technological landscape continues to shape how businesses and industries operate especially in the post covid era. At Jamna Auto, we started our digital journey way back in 2007 and today, we are proud of how far we have come. Our digital partner – Ramco solutions along with various satellite systems has enabled us to seamlessly integrate our processes across our operations. It provides us with real-time information for quick decision-making.
Company’s next 5-year execution Plan
50% revenue from New Markets JAI’s strategy is to serve diverse markets to achieve its growth objectives. In this direction, they have taken several steps to increase our market share in Domestic After-Market and Exports. With these initiatives, they have successfully created a structure of SCM and channel partners to supply varied products pan India. The company would leverage this structure to sell various new products.
The company has achieved limited success in increasing our after-market sales and there is still good potential to increase our sales further. As they have already created a distribution network, we will reap the benefits going forward.
The company is further complementing its actions by doing direct retailing and digitizing the entire After Market operations. It is likely that the consolidation in the marketplace will take place due to GST and demonetization, which will give a tailwind effect to our efforts and increase our sales further. In the after-market export also JAI has done a lot of groundwork which has not been reflected in topline numbers.
The company is hopeful that sales numbers would start improving in the next 3 years. They are evaluating more product lines that have good potential in the export market. In this 5 year plan, JAI will also be focusing on OE-Exports. JAI targets 50% revenue from new markets of which 10% will be from exports.
Client Portfolio
Our View
the stock price has outperformed the broader indices over the past few months on the back of expectations of strong volume and earnings growth as the CV cycle picks up. We believe that the improving sentiment surrounding the CV industry will place JAI in a sweet spot as it will reap the benefits from having a large foothold in the OEM space. The stock currently trades at ~18x FY23E EPS compared to its average PE of ~19x. We believe that the company deserves to trade at a premium given its leadership position, strong earnings outlook, steady diversification of revenue base (with an increasing share of non-cyclical segments), and superior return ratios.
We expect the company to continue to outperform the CV industry’s growth and report strong 49% PAT CAGR over FY21-FY24E, led by ~30% sales CAGR and ~290bps margin expansion.
Historically, CV upcycle has seen tonnage growth outperforming volume growth and we expect the same trend to continue going forward. Pick-up in economic activities, led by the government’s strong infrastructure investment push will likely drive demand for higher tonnage vehicles. JAI is one of the largest manufacturers of multi-leaf and parabolic springs and a market leader in the domestic CV OEM market. Higher tonnage vehicles contain more springs compared to low tonnage vehicles, which combined with rising demand for non-conventional products like parabolic springs and lift axles augur well for JAI’s growth in the future. We note that most CV OEMs focus on reducing the weight of a vehicle and parabolic spring is one solution.
Steady modernization in trucks has driven the shift from conventional springs to parabolic springs. Compared to conventional leaf springs, parabolic springs are more durable thus, providing the company into a primary position for growth.
