Buy Jamna Auto Industries; target of Rs 112: KR Choksey

KR Choksey's research report on Jamna Auto Industries

Jamna Auto Industries Ltd. (JAI) is India's largest and world’s second largest manufacturer of leaf springs used in commercial vehicles (CV’s), possessing production capacity of 240,000 MTPA. The company manufactures (i) multi-leaf springs, (ii) parabolic springs, (iii) air suspensions, (iv) lift axle and (v) bogie suspensions from its nine strategically located manufacturing facilities in India. JAI caters its products to OEMs (~80% revenue share) and aftermarkets (~20% revenue share) in both Indian as well as overseas markets. The company posses a strong customer base (~73% domestic market share) which virtually includes all Indian OEMs namely Ashok Leyland, Tata Motors, Mahindra & Mahindra, VOLVO and so on. We believe that JAI should be one of the biggest beneficiaries of uptick in CV cycle (expected growth of 13.2% over FY17-FY20E) led by increase in infrastructure and agriculture activities, along with pickup in mining activities. Also rise in demand from e-commerce and logistics is likely to provide more boost to CV sales. Further, the company plans to increase its revenue share from margin lucrative non-conventional products and content per vehicle coupled with surge in after-market sales. Consequently, we expect revenues for the company to witness  20.6% CAGR over FY17-FY20E.

Outlook
We have valued the company at a P/E multiple of 20X on FY20E EPS of INR 5.62 to arrive at a target price of 112/share resulting into an upside of 28% from CMP of INR 88/share. We have assigned a “BUY” rating on the stock.

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