Buy JBM Auto; target of Rs 373: Dolat Capital

Dolat Capital's research report on JBM Auto

JBM Auto (JBMA) reported in line performance in 1QFY21. Net revenue declined 75% YoY to Rs 1.3bn (vs est. Rs 1.37bn) led by de-growth in component and tooling division (-86%/-37% YoY) respectively, partially compensated by flat growth in bus division. Due to lockdown and negative operating leverage operating profit turned negative to Rs 79mn (vs est loss of Rs 72mn). The management expects sharp recovery in earrings from 2QFY21 onwards led by recovery in PV volume and strong order book in bus division. Current utilization at plant is ~80-82% which is expected to reach 90% in festive season. Moreover, the company is taking various cost optimization initiative such as reduction in manpower cost (Shift management) and administrative overhead which will help to protect the margin. The bus division, which was a drag earlier (Rs 118mn & Rs 46mn losses at EBIT level in FY18 & FY19 respectively) turned profitable in FY20 to Rs 98.4mn at EBIT level. We expect the bus division to continue to deliver strong performance in coming year on the back of strong order book of 600 buses (including 350 electric buses). Moreover, company would be a key beneficiary of increasing demand of EV buses. JBM Auto’s growth story is premised on 1) recovery in PV volume; 2) encouraging revenue potential in the tooling business (high margin +30%), given rising localization and outsourcing of tooling requirements by large global OEMs (cost-benefit of 25% in India) and 3) increasing economies of scale in the bus division.

Outlook

The stock is currently available at 12/9x for FY22/23E. We value the stock Rs 373 (based on 15xFY23E EPS). Recommend BUY.

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